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Chapter-1

Introduction
.
Cement is a global commodity.It is second only to water. It is the most
consumed substance on earth. It is a finely ground, non-metallic and inorganic
powder. When mixed with water, it forms a paste that sets and hardens. It locks
together the sand and gravel proportionaltely for the formation of concrete.
Cement industry is one of the largest industries of the world. It
occupies predominant place in an economy. It is an essential ingredient for
economic development. It also generates employment opportunity. Cement
ranks next to steel in construction material and so is the basis of all modern
construction. It moves through a very interesting phase backed by strong
demand and high prices. It has come a long way in terms of technology up -
gradation, quality improvement and production capacity. It has evolved
significantly in the last two decades and gone through all the phases of a typical
cyclical industry.
HISTORY OF CEMENT
Throughout the history, cementing materials have played a vital role.
They were used widely in the ancient world. During the Paleolithic Age, men
enjoyed adequate shelters provided by nature. In the Bronze Age, men used the
building materials from a clay based mixture and air hardening lime to construct
the shelters. The Egyptians discovered the lime and gypsum mortar as a binding
agent for the construction of the Pyramids. The Greeks made further
improvements and finally the Romans developed cement. The word cement
traces to the Romans, who used the term opus caementiciumto describe
masonry, which resembled concrete and was made from crushed rock with
burnt lime as binder.

In Europe, the use of cement and concrete in large civic works can ,be
traced back to antiquity. John Smeaton, who is known as father of civil
engineering and credited for design of many bridges, canals and harbors etc,
was the first proclaimed civil engineer and pioneered the use of hydraulic
lime,which led to discovery of modern industry. The common cement or
Portland cement was prepared and patented by Joseph Aspdin in 1824. In the
later part of 19
th
century, cement production was taken up by many countries
many decades after the first patent was taken by Aspdin in Englind. Output
from the cement industry is directly related to the state of the construction
business in general and therefore tracks the overall economic situation closely.
World cement production has grown steadily since the early 1950s, with
increased production in developing countries, particularly in Asia, accounting
for the lions share of growth in world cement production in the 1990s.
Producers in the European Union have increased cement output per man/year
from 1700 tonnes in 1970 to 3500 in 1991. In 1995, world production of cement
stood at 1420 million tonnes. This increase in productivity is a result of the
introduction of larger scale production units. These use advanced operation
automation and therefore require fewer, but higher qualified staff. The number
of people employed in the cement industry in the European Union is now less
than 60000. In 1995 cement, production in the European Union totalled 172
million tonnes and consumption168 million tonnes. 23 million tonnes of cement
were imported and 27 million tonnes exported.
There is generally little import and export of cement, mainly because of
the high cost of road transport. World foreign trade in cement still accounts for
only about 6-7% of production, most of which is transported by sea. Road
deliveries of cement generally do not exceed distances of 150 km.
Consequently, the rate of consumption equals the rate of production for many
EU member states, with the exception of Greece and Denmark, which exports

approximately 50% of their cement production.The worlds five largest cement
producers are the four West European groups; Holderbank,Lafarge,
Heidelberger and Italcementi, together with Cemex from Mexico. Apart from
producing cement, these companies have also diversified into several other
building materials sub-sectors such as aggregates, concrete products,
plasterboard, etc.
The History of Indian Cement Industry
The story of the evolution of the Indian cement industry is rather long,
where it has seen many vicissitudes, but finally has arrived in its maturity stage.
The Indian cement industry is the second largest producer of cement in the
world just behind China, but ahead of the United States and Japan. It is
consented to be a core sector accounting foapproximately 1.3% of GDP and
employing over 0.14 million people.
In India, a Calcutta firm produced cement from Argillaceous in 1889.
In 1904, South India Industries Limited in Madras started to manufacture
Portland cement on large scale. However, the factory could not succeed hence it
failed. Modern cement industry was established in 1914, at Porebandar. The
growth of cement industries in India from 1914 to 2012 has been explained
under different headings
1. Era of Dominant Imports 1914-1924
During this period of 10 years, the total cement consumption was
around 2 million tonnes: of which nearly 50 per cent consisted of imports.
Modern cement industry was established in 1914, at Porebandar. Beginning
with a production of 1000 tonnes in the year 1914, the indigenous production
touched nearly a quarter million tonnes in the first decade. Further, two more
factories established at Katni (Madhya Pradesh) and Lakheri (Rajasthan)

commenced their production operations in January 1915 and December 1916
respectively.
The low capacity utilisation and persistent problem of marketing
affected the financial viability of the cement plants largely. Moreover, there was
widespread prejudice against the use of indigenous cement. Severe competition
among producers resulted in continuous cutting down of prices. Some of the
companies went into liquidation. The cement industry was fighting for its very
existence.
The First World War gave boost to this industry. The entire output of
cement industry was taken under Government Control. The total production of
the three cement plants increased from 18,119 metric tonnes in 1917 to 92,718
metric tonnes in 1920. The Government lifted its control immediately after the
war period and the boom period started. On the contrary, the conditions changed
with the arrival of foreign cement at the post markets. Hence, they found it
difficult to step into these main marketing centers.
The profitable cement industry established further six more plants with a
total licensed capacity of 3,92,180 metric tones. Three factories were closed due
to problems of inability to dispose of the product and sudden resumption of
imports. This resulted in fierce competition among the domestic firms and
reduction of the prices to such an extent. Besides, the industry was in distress
due to wagon shortage, inadequate supply of coal and high costs of international
transport. All these developments led to an insensate scramble for business at
any price.
At this stage, the cement companies sent a number of applications for
protection of the sickening industries to the Government of India. Moreover, the
Government had to refer the working of the industry to the Tariff Board. The
Tariff Board recommended protection of the indigenous industry against the

dumping of imported cement at uneconomic prices. In order to help the
industry, the board took several measures like raising the customs duty from 15
percent to 41 percent so that foreign cement might be reduced in the Indian
market, resulting in substantial rise in domestic output, an attractive profit
margin and in the maintenance of the quality. It results in temporary protection.
It could also ensure adequate demand and fuller utilization of installed capacity,
which ultimately helped them minimize the production cost
Since the Government did not accept all these proposals made by the
Board, the industry would like to play its own role. Ultimately, a Cartel was
formed in 1923, called "Cement Manufacturers Association", which was
entrusted with the job of regulating prices and saving the industry from collapse
due to internal and external competition. According to B.P.Adarkar, "there is no
doubt that the refusal of the Government to grant protection, forces the
manufacturers to accept trust. Low profitability due to the adverse effects of
foreign competition combined with unhealthy internal competition would have
caused the industry's collapse.
A complete ban on imports would have amounted to protect an
inefficient industry. Once such protection is given, the industry would have no
incentives - to improve its efficiency. It would have rather resulted market-
sharing agreement based on installed capacity, gain the excess capacity. In
1924, the total installed capacity of the cement industry in India was 559.80
thousand tonnes as against the actual production of 267.965 metric tonnes only.
Thus, the consumer both in the interior and port markets would have suffered.
Hence, the Government stand can not be considered irresponsible.
2. Era of Struggle and Survival - 1924-1941
During these 18 years, there was a gradual increase in indigenous production
and decrease in cement imports. But severe competition amongst producers

very nearly threat ened the cement industry. Nevertheless, the demand for
cement increased rapidly as the per capita consumption of cement increased
from 0.48 kgs in the year 1924 to 1.12 kgs in 1941. Indigenous production went
up from 3.661akh tonnes in 1925 to 18.30 lakh tonnes in 1941. Imports
dwindled from 69.000 tonnes in 1925 to 21,000 tonnes in the pre-war year 1938
and were only a few thousand tonnes in 1941. Imports contributed to less than 7
per cent of total cement consumption during 1924-1942
In 1925, first association of the cement manufactures was formed
asCement Manufactures Associatuion.In 1927, the Concrete Association of
India was formed to render free technical advice and to educate the public in the
multiple uses of cement to increase the consumption in the country. In order to
supervise the distribution and sale of the output, the cement marketing company
of India was established in 1931. In 1936, war clouds began gathering over
Europe and recession had set in. Industries in India were under considerable
strain. The very survival of Indian cement industry was in doubt The most
significant event in the history of the Indian Cement industry was that all the
existing companies except the Sonevally Portland Cement Company, agreed to
amalgamate to form the Associated Cement Companies Limited in 1936. After
this development, the cement industry took a very promising turn on the road of
property.After all these initiatives, the sales increased. In 1936, eleven
companies, except Sone Valley Portland Cement Company Limited, merged to
form Associated Cement Company Limited (ACC). In 1937, Dalmiya Jain
Group set up five factories with installed capacity of 575000 tonnes. In addition,
ACC added four more plants.
Though the Cement Marketing Co. and Concrete Association of India
had played their role for the betterment of cement industry. It was still far below
the expectations of the cement industry. Problems of marketing and pricing still
continued to plague the industry. One industrialist F. C. Dinshaw - a man of

great vision and foresight saw considerable potential for a united cement
industry. It was now that F.C. Dinshaw brought together the cement companies
belonging to his own group, Tatas, Khataus and Killick Nixon under one banner
of Associated Cement Companies Ltd. (ACC).
3. Era of Price Controls Pre-plan 1942-1951
During 1942-1946, cement production came under the purview of Defence of
India Rules for production, price and distribution control. Major portion of
cement produced then was earmarked for Defence purposes and only around 10
per cent was released for private consumption.During this period, production
was stepped up from 1.8 million tonnes in 1942 to 3.2 million tonnes in 1951.
Imports practically dwindled to less than 2.5 per cent of the total consumption.
4. Era of Planning and Controls 1951-1982
The Five Year Plans were launched from 1951-52. Cement was
brought under the purview of Cement Control Order of 1956 both for price and
for distribution. In the next ten years up to 1956, Government of India
exercised informal control by fixing prices from time to time.The price and
distribution control system on cement were implemented in 1956, to ensure fair
prices to producers and consumers all over the country. Hence, reduction of
regional imbalances and increase of self-sufficiency within a short time period.
Moreover, the government had to increase the fixed price several times due to
slow growth in capacity expansion and increase of production cost in the
industry.
The Indian cement sector was under government control for the
whole of the period. Government intervention took place both directly and
indirectly. The government not only controlled over production, capacity and
distribution of cement through direct intervention but also price by indirect

intervention. During this period, many companies and their plants started
production. However, their growth was not found at the expected level. In 1977,
new plants or major expansions of existing plants were given permission to fix
higher prices for cement produced by them. Due to slow development, the
government imposed uniform price that was substituted by a three-tier price
system in 1979. In addition, the government assigned different prices to cement
produced in low, medium and high cost plants.
However, further increases in input costs could not be neutralized
adequately. Thus, controlled price did not reflect the true economic cost, reduce
profit margins increasingly and prevent essential investments in capacity and
production expansion. In this period, to ensure fair supplies to priority sectors,
14 states and union territories introduced a permit system comprising direct
control over public distribution of cement. However, the system resulted in
artificial shortages, extensive black marketing and corruption in the civil supply
departments of the government.
The price control, which was accompanied by a policy of freight pooling,
fixed a uniform price according to estimated production costs at which cement
was required to be sold all over the country. This price contained a freight
component that was averaged over the country as a whole. This freight pooling
system promoted equal industrial development all over the country. It supported
regional dispersion. Yet, it also implied that producers had no incentive in
locating production such that transportation costs of cement would be
minimized. Market distance became a less important issue. Because of non-
optimal location of industries, average costs of production as well as demand
for scarce railway capacity for transportation increased
5. Era of Partial Decontrol 1982-1987
In 1977, Government announced 0.12 per cent post tax return on net

worth to boost cement capacity: this was followed by Partial Decontrol in
1982.The control on carnet continued till 1982 when partial decontrol policy
was announced (cement was decontrolled for a brief period during the two years
1966 and 1967). Because of the above-mentioned difficulties in the cement
industry, the government of India introduced a system of partial decontrol in
1982. A levy quota of 66.60 % for sales to government and small house builders
was imposed on existing units and the balance of 33.40% could be sold in the
free open market to general consumers. For new and sick units, a lower quota of
50% was established. To protect consumers from unreasonable high price
cement, a ceiling price was fixed for sales in the open market. Freight pooling
no longer covered non-levy cement under the system of partial decontrol.
Furthermore, specific mini units were completely freed from price and
distribution controls. Although overall profitability was increased after the
introduction of partial decontrol, profits obtained through non-levy sales
decreased with availability of cement in the market and continuous increase of
input costs.
The government subsequently introduced changes in levy obligations
and retention prices regularly so as to sustain an accelerating course, As a
result, in 1988 , the levy quota was as low as 30% for established units before
1982 and the retention price had increased substantially. In 1987, the Cement
Manufacturers Association and the government decided that there was no
further necessity for a maximum price ceiling. Meantime there was "Growth" in
cement capacity but not at the requisite pace; this resulted in perpetual
"Shortage" till 1986.
6. Era of Total Decontrol March 1989
Cement was totally decontrolled with effect from 1 March 1989. The Industry
recorded an exponential growth with the introduction of partial decontrol in

1982 culminating in total decontrol in 1989
Finally, in 1989, the cement industry was considered free market
competition, Besides, all price and distribution controls on sale of cement were
withdrawn. The freight pooling system was abandoned. A subsidy scheme to
ensure availability of cement at reasonable prices in remote and hilly regions of
the country was worked out. The industry was then de-licensed on 25 July 1991
under the policy of economic liberalization. By removing all controls on the
cement sector, the government hoped to accelerate growth and to induce further
modernization and expansion investments. It was after this decontrol that the
Indian cement industry moved towards globalization, with increasing emphasis
on the exports. The expansion of the industry was evident after the decontrol
where capacity as well as production increased many fold. Growth was seen
from 91 plants and 43 million tonnes of production in 1989-90 boosting to 132
plants and 161.66 million tonnes production in 2006-07. Total capacity
utilization for the industry has increased from 78% to 91% during the same
period.
Cement Factories in India before and after partition.
Table 1 presents the position of cement industry in India before and
after partition.
Number of Cement Factories in India
(Before and After Partition with Pakistan)

Number
of Factories
Installed
Capacity
Company
Before
Partition
After
Partition
Before
Partition
After
Partition
ACC 13 11 1.81 1.55
DALMIA 5 3 0.56 0.29

OTHERS 6 5 0.35 0.28
TOTAL 24 19 2.72 2.12
Source: Economic Consequences of divided India, C.N.Vakil (Ed.)

Table-1 discloses that before partition, India had 24 factories. Out of
24 factories, India retained 19 factories. Annual production of 19 factories was
only 2.1 million tones. Pakistan faced a problem at the supply side as it had
problem of disposal of the cement produced and India faced a problem on the
demand side as production fell to 2.1 million tones from 2.7 million tones. After
independence, the partition of the country had a bad impact on the cement
industry sector.The government hoped to accelerate growth and to induce
further modernization and expansion investments. It was after this decontrol
that the Indian cement industry moved towards globalization, with increasing
emphasis on the exports. The expansion of the industry was evident after the
decontrol where capacity as well as production increased many fold. Growth
was seen from 91 plants and 43 million tonnes of production in 1989-90
boosting to 132 plants and 161.66 million tonnes production in 2006-07.
12
Total
capacity utilization for the industry has increased from 78% to 91% during the
same period.
CURRENT INDUSTRY OVERVIEW
India ranks second in world cement producing countries. While it took 8
decades to reach the 1st 1000 Lakh tonne capacity, the 2nd 1000 Lakh tonne
was added in just 10 years.The capacity, which was 29 Million tonne in 1981-
82, rose to 2190 Lakh tonne at the end of FY09
Year Cement
production
Indias GDR %
change
Capacity
utilization

March 06 11.16 9.52 88.5
March 07 9.77 9.58 92.58
March 08 8.13 9.34 84.88
March 09 7.78 6.76 85.65
March 10 10.64 8.52 85.09
March 11 4.50 8.03 91.82

Figure 1: All India Cement Production (Percentage change) vs. All India
Cement Capacity Utilization vs. India GDP (Percentage change) (2004-05 base)
The demand of cement is seasonal in nature. It declines during the monsoon
(July-Sept) quarter and increases during Jan-March quarter..
Table 1 shows yearly cement production percentage change. As seen in Table 1,
lesser increases in all India cement production numbers (Mar-08, Mar-09, and
Mar-10) indicate lower demand for cement. While from late 2007 to early 2009,
the decrease in percentage increase of cement production numbers can be
attributed to the global crisis, due to which commercial and housing real-estate
industry saw a decrease in demand (refer to Section 2.2.1 to see impact of real
estate on Indian cement industry), the capacity utilization levels also declined to
85% level signalling supply constraints exercised by cement manufacturers. In
2011, the capacity utilization has gone up to 92% which could be on the back of
very less increase cement capacities on the back of declining increases in
cement demand.
By the end of March 2001 the production was 93.42 million tonnes with an
installed capacity of 116 million tonnes. The industrys capacity has grown by

eight million tonnes during the year 2001, of which a capacity of 2.80 million
tonnes was added in the South.
Growth of Indian Cement Industry
Table-2 shows the evolution of the industry during various Five Year Plans
(at the end of plan) as follows.
Table 2
Growth of Indian Cement Industry
(At the End of the Five Year Plan Including Mini and White Plants)

End Year of
the Plan
Capacity
(M.T.)
Production
(M. T)
Capacity
Utilization (%)
Pre-Plan Period (1950-
51)
3.28 2.20 67.00
1
st
Plan (1955-56) 5.02 4.60 92.00
2
nd
Plan (1960-61) 9.30 7.97 86.00
3
rd
Plan (1965-66) 12.00 10.97 91.00
4
th
Plan (1973-74) 19.76 14.66 74.00
5
th
Plan (1978-79) 22.58 19.42 86.00
6
th
Plan (1984-85) 42.00 30.13 72.00
7
th
Plan (1989-90) 61.37 45.42 74.00
8
th
Plan (1996-97) 105.26 76.22 72.00
9
th
Plan (2001-02) 145.99 106.90 73.00
10
th
Plan (2006-07) 177.83 161.66 91.00
Source: CMA
11
th
Plan(2011-2012) 298 269 90
The Table-2 shows that the capacity of cement plant in India
continuously increased from 3.28 M.T during the pre-plan period (1950-1951)

to 177.83 M.T in the 10
th
Plan (2006-07). Production of the cement by Indian
cement industry started increasing slowly from 2.20 M.T in the pre-plan period
(1950-51) to 177.83 M.T. during the 10
th
Plan. The capacity utilization of the
Indian cement industry during the first, a third and tenth plan period was 92%,
91% and 91% respectively. Expect the pre-post plan period, capacity utilization
of Indian cement industry in other remaining plan periods was above 72% and
below 86%.
Hence, in the history of the Indian cement industry, government
interventions have been a mix of fiscal instruments and direct control on
production, pricing and distribution on the one hand and technological
intervention through government promoted research institutions on the other
hand
Annual compound growth rate of primary indicators
Table-4 shows annual compound growth rate of primary indicators
below
Table 4
ACGR of Primary Indicators (%)

I ndicators Total
Period
(1970-71
to 2006-07)
Control
Period
(1970-71
to 1987-88)
Decontrol
Period
(1988-89
to 2006-07)


Installed Capacity 7.28 7.47 7.09
Production 7.39 6.69 8.09
Capacity Utilization 0.1 -0.73 0.93
Exports 13.1 -5.52 35.38
Per capita
Consumption
5.15 1.11 9.35
The annual compound growth rates of the industry has been good in the overall
period, showing better performance in the decontrol period than in the control

period, which is evident from under the table. The only exception to this being
installed capacity growth rate, which was slightly higher in the control period
leading to oversupply in the industry
Annual Compound Growth Rates (ACGR) is computed as per the semi-log
method for 37 years from 1970-71 to 2006-07. The kinked exponential growth
model is also used to estimate the growth rates for the two sub-periods i.e.
1970-71 to 1988-89, which reflect the control period, and 1989-90 to 2006-07
representing decontrol period.
Total period
In the period between 1970-71 and 1988-89, the installed capacity of the
cement industry grew from 17.61 m.t. to 58.97 m.t. at the ACGR of 7.47% This
remarkable growth in the capacities was due to producers' expectation of
growing markets. But due to various controls and lack of adequate demand, the
growth of the industry was not noticed on the desired rates. This resulted in
oversupply and low capacity utilizations. Following this, the period after total
decontrol till 2006-07, the capacity addition although increased at rates
approximately equal to previous period at 7.09% annually, it could hardly
match the pace. This was although good for capacity utilizations as production
increased at greater rates. The ACGR in the total period of 1970-71 to 2006-07
is calculated to be a decent 7.28%.
Production
The period from 1970-71 to just before decontrol and delicensing of the
industry i.e. till 1988-89, the production saw ACGR of 6.69%, just below the
growth rate in installed capacity. This indicated oversupply, because of which
whole of the industry suffered. The next period of decontrol compensated for
this excess. Here the ACGR is seen to be 8.09%, well above the previous rates,
which is also more than the growth in installed capacities of 7.09%. The annual

growth rate for the total period during 1970-71 to 2006-07 is good 7.39%.
The period of controlled market, as mentioned before was characterized
by oversupply in the industry which got reflected in negative ACGR of -0.73%.
Whole of the period of 1970-71 to 1988-89 saw fluctuations, moving utilization
levels to as low as around 65% in some years. But after total decontrol, there
was some sort of upturn in this trend due to increased production levels and the
ACGR went up to positive 0.93 k. It may be mentioned here that the capacity
utilizations have been at their highest only after 1999-2000 when it reached 85
/o and moreover after 2004-05. In January 2007, it even went up to 100%,
highest ever, guiding it to the average of 94 k for the financial year. This
became possible only because the installed capacities did not increase as much
as production did, finally leading to closure of gap between supply and demand.
The overall period ACGR is just above the positive mark at 0.10%.
Hence the firms in the industry are capitalizing on the opportunities,
provided by the government accompanied by favorable economic conditions.
This is evident by the data which shows negative ACGR of -5.52% in the
control period because of highly protected markets. The average export volume
in the period was around only 1.7 lakh tonne (L.t.) of cement. As the industry
was decontrolled and economy opened up, cement exports started making rapid
strides. The period has seen annual compound exponential growth rate of
35.35%. In volume terms, the exports from Indian cement industry increased
from 1.43 L.t. in 1989-90 to 58.70 L.t. in 2006-07. The overall ACGR for the
period of 37 years however equalized a bit at 13.10%.
The period of 1970-71 to 2006-07 has shown ACGR of 5.15%. When
seen under two sub periods of control and decontrol, it displays much higher
growth rates of 9.35% in the decontrol period, as compared to 1.11% in the
period from 1970-71 to 1988-89. The cement consumption projections by

National Council of Applied Economic Research, on a conservative basis, have
placed the cement demand of 225 million tonnes by the year 2010-11. And if
the government goes ahead with infrastructure projects in a big way as planned,
the consumption is pegged to be at much higher levels of 291 million tonnes.
This will surely increase the current per capita consumption of cement in India.
The annual compound growth rates (ACGR) of the industry has been
good in the overall period, showing better performance in the decontrol period
than in the control period, which is evident from Table 4. The only exception to
this being installed capacity growth rate, which was slightly higher in the
control period leading to oversupply in the industry

STRUCTURE OF THE INDUSTRY:
The Indian cement industry is weakly oligopolistic in nature on a national
level with top 11 to12 firms among more than 100 firms capturing 70% of the
cement market. This nature has been consistent through the years as figure 3
(next page) and figure 4 (on page 11) show number and names of firms with
concentration of 70% in terms of the production of cement in March 2006 and
March 2011 respectively.
The major players areACC Ltd., Ambuja Cements Ltd., Ultratech Cement
Ltd., India Cements Ltd., Century Textiles & Inds. Ltd., Jaiprakash Associates
Ltd., Birla Corporation Ltd., Lafarge India Pvt. Ltd., Madras Cements Ltd.,
Shree Cement Ltd., Binani Cement Ltd., and Kesoram Industries Ltd. The
shares, in terms of all India cement production, of these top companies have
fluctuated by small amounts in the last six years (since ACC Ltd. and Ambuja
Cements Ltd. were taken over by Holcim Group). Ultratech Cement Ltd.s
production share has increased as it parent company, Birla Aditya Group, has

stopped cement business in one of its companies, Grasim Industries Ltd., and
has used the cement manufacturing plants of Grasim Industries Ltd. under
Ultratech Cement Ltd from FY2010 onwards. Notable movers in production
percentage in terms of overall Indian market are Shree Cement Ltd., and
Kesoram Industries Ltd.


The characteristics of the Indian cement industry are to be discussed to
understand its structure better. Firstly, it is a combination of mini (more than
300 units) and large capacity cement plants. The majority of the production of
cement (94%) in the country is by large plants. The conventional method used
in manufacturing the cements by large plants (Rotary Kiln) requires high
capacity, huge deposits of limestone in its vicinity, high capital investment and
long gestation period.
Hence, mini cement plants use Vertical Shaft Kiln technology. They
require the small deposits of limestone and create less environmental pollution.
Hence, they are becoming popular. The capital requirement to large plants is
around Rs. 3500 per tonne whereas, capital costs for mini-cement plants come
to about Rs. 1,400 to Rs. 1,600 per tonne.
18

The viable location, the availability of limestone reserves and the
proximity of coal deposits in select States have constituted another important
factor in establishment of cement manufacturing industry. Cement is a high bulk
and low value commodity. Hence, competition is local and also the cost of
transportation of cement to distant markets often results in the product that is
uncompetitive in those markets. At present, there are seven clusters which are
sistuated at Satna (Madhya Pradesh), Chandrapur (North Andhra Pradesh and

Maharashtra), Gulbarga (North Karnataka and East AP), Chanderia (South
Rajasthan, Jawad and Neemuch in MP), Bilaspur (Chattisgarh), Yerraguntla
(South AP), and Nalgonda (Central AP).
Traditionally, the central and the state governments levy the taxes on
cement, which amount to around 30% of the selling price of cement or around
70% of the ex-factory price (excluding local transport and dealer margins). The
major taxes comprise central excise duty, sales tax levied by the respective
state governments, royalty and cess on limestone and coal, and duties on power
tariff. The excise duty on cement are on specific basis that is against ad
valorem rates on most products.
The cement industry is energy intensive. Thus, power costs form the most
important cost in cement manufacturing, which is about 35% to total cost of
production. Modern technology adopted (dry versus wet process), fuel
efficiency (efficient use of coal/lignite/any other material used for burning) and
power efficiency (power availability, use of alternative fuels, unit power
consumption, cost and availability of captive power) are used to reduce cost for
better performance of companies. One important character of the cement
industry is capital intensive. A new cement project needs high capital that has
become a significant entry barrier. The cost of a new cement plant can be
equivalent to about three years of revenue.
Another distinguishing characteristic of cement industry is cyclical in
nature as the market and consumption of the cement is closely linked to the
economic and climatic cycles. In India, cement production normally peaks in
the month of March while it is at its lowest in the month of August and
September. The cement industry produces 5% of carbon dioxide that
contributes to climate change. In short, nitrogen, sulphur dioxide,and carbon
dioxide, use of resources, especially primary raw materials and fossil fuel and

generation of waste are the main environmental challenges facing the cement
manufacturing industry.
Though several large plants have been established in the public sector
during the last two decades, the major part of the industry is in the private
sector. Inspite of the wide expansion of the industry, its product has always
been in short supply since independence, which has given rise to various
problems like its pricing and regional and sectoral distribution, With the
progress of planned economic development of the country, there has been a
tremendous increase in the demand for cement in all sectors with which its
supply has not been able to keep pace. Therefore, to meet this increasing
demand, cement industry has been assigned an important role and has been
accorded a place of pride in the scheme of priorities for the development of
industries.

PERFORMANCE OF THE INDUSTRY
Price and distribution controls lifted on 1, March 1989 and licensing
abolished on 25th July 1991 gave fresh impetus to the key infrastructure
industry. However, the performance of the industry improved even more after
late 1990s guiding it to newer heights. The process of improvement in key
performance indicators of the industry are grouped into primary and other
indicators to reflect the status of the industry in control and decontrol periods.
Table-3 explains the trends in primary performance indicators of the
Indian cement industry.
Table 3
Trends in Primary Performance Indicators of the Indian
Cement Industry


Year
Installed
Capacity
(million
tonne)
Production
(million
tonne)
Capacity
Utilization
(%)
Export
(lakh
tonne)
Per
Capita
Consum-
ption (kg.)
1970-71 17.61 14.4 81.17 1.78 26
1971-72 19.56 15.1 77.2 2.66 28
1972-73 19.7C 15.6 78.95 2.08 28
1973-74 19.76 14.7 74.39 2.05 26
1974-75 20.06 14.8 73.78 1.32 24
1975-76 21.16 17.3 81.76 3.36 26
1976-77 21.46 18.8 87.6 7.25 29
1977-78 21.91 19.4 88.54 8.27 29
1978-79 22.56 19.42 86.08 0.66 32
1979-80 24.29 17.6 72.46 0.50 30
1980-81 27.92 18.66 66.83 0.74 30
1981-82 29.26 21.1 72.11 0.26 32
1982-83 34.39 23.3 67.75 0.05 32
1983-84 37.04 27 72.89 0.06 36
1984-85
42.00
30.13 71.74 0.29 44
1985-86 44.39 33.13 74.63 0.47 39
1986-87
54.40
36.4 66.91 0.48 44
1987-88 57.47 39.37 68.51 0 47
1988-89 58.97 44.08 74.75 0.31 51
1989-90 61.55 45.41 73.78 1.43 54
1990-91 63.96 48.76 76.24 2.54 57
1991-92 66.56 53.61 80.54 2.88 63
1992-93 70.09 53.72 76.64 6.65 61
1993-94 76.88 57.96 75.39 19.87 62
1994-95 82.69 62.35
75.40
16.95 65
1995-96 97.25 69.57 71.54 15.70 72
1996-97 105.25 76.22 72.42 19.70 78
1997-98
109.30
83.16 76.08 26.80 82
1998-99 118.97 87.91 73.89 20.60 85
1999-00
119.10
100.45 84.34 19.50 97
2000-01




130.40 97.61 74.85 31.50 99
2001-02 146.13
108.40
74.18 33.80 97
2002-03 151.17 116.35 76.97 34.70

106
2003-04


3-04
157.48
123.50
78.42 33.63 110
2004-05 164.69 133.57
81.10
40.71 115
2005-06 160.24 141.81
88.50
60.07 125
2006-07 165.22 155.31
94.00

58.70
136
2007-08 179.10 168.31 94 65.20 142

2008-09 205.96 181.61 88 69.38
150
2009-10 240.85 201.33 84 75.41
156
It can be seen from the above analysis that the performance of primary
indicators in the Indian cement industry has been very impressive during the
years 1970-71 to 2006-07.
Primary Indicators
It can be seen from the above analysis that the performance of primary
indicators in the Indian cement industry has been very impressive during the
years In order to study the growth in main indicators, installed capacity,
production, capacity utilization, export and per capita consummation are
calculated and the same explained below.
1. Installed capacity
The installed capacity of the Indian cement industry has continuously
shown an increase over the period. The industry started with 0.0010 million
tonnes (m.t.) of installed capacity in 1914 and reached 3.28 m.t. in 1950 and
9.30 m.t. in 1960. The growth in the installed capacity has been traced from
1970 onwards when the industry fell in the hands of government control. In the
period between 1970-71 and 2006-07, the installed capacity of the cement
industry grew from 17.61 m.t. to 165.22 m.t.
2.Production
When the industry started in 1914, production was mere 0.0001
m.t. of cement. This slowly increased to 1.5 m.t. in 1940 and 2.2 m.t. in 1950.
The following two decades witnessed enough production making it 14.40 m.t. in
1970-71. In the period between 1970-71 and 2006-07, the cement production in

Indian cement industry grew from 14.40 m.t. to 155.31 m.t.
3.Capacity Utilization
From the above table, it would be seen that the capacity utilization has
come down from 94% during 2006-07 and 2007-08 to 88% during 2008-09 and
84% during 2009-10. Similarly, the production growth rate has constantly
fallen from 11.16% during 2005-06 to 7.90% during 2008-09. The Tariff
Commission, however, felt that cement industry is the only major industry
which is growing at a record rate despite the economic downturn.
The trend in capacity utilization of the industry has many fluctuations all
through the period. Starting with 10% in the beginning of the industry, the
Capacity utilization peaked to around 99% in 1937-38 But this could not be
sustained and the capacity utilization fell sharply to 67% in 1950, improving
marginally in the following two decades In the period of 1970-71 to 2006-07
saw fluctuations in the capcity utilization levels of the Indian cement industry.
4.Export
The export of Indian cement has increased over the years mostly after
decontrol, giving the much-required boost to the industry The demand for
cement is a derived demand, tor it depends on industrial activity, real estate, and
construction activity. Since growth is taking place all over the world in these
sectors, Indian export of cement is also increasing. India has an immense
potential to tap cement markets of countries in the Middle East and South East
Asia due to its strengths of locational advantage, large-scale limestone and coal
deposits, adequate cement capacity and production of excellent quality of
cement with the latest technology.
Hence the firms in the industry are capitalizing on the opportunities,
provided by the government accompanied by favorable economic conditions.

This is evident by the data that shows the volume of the exports from Indian
cement industry increased from 1.78 L.t. in 1970-71 to 58.70 L.t. in 2006-07.
5.Per Capita Consumption
The per capita consumption of 136 kgs in the year 2006-07, compares
poorly with the world average of over 350 kgs and more than 660 kgs in China.
Similarly in Japan it is 631 kg/ capita while in France it is 447 kg/capita. The
process of catching up with international averages emphasizes the tremendous
scope for growth in the Indian cement industry in the long term. Also, one of
the reasons for strong interest shown by the foreign players in India is due to its
lower per capita consumption of cement. Per capita consumption of cement in
India increased from 26 kgs in 1970-71 to 136 kgs in 2006-07.
Process-wise capacity in Indian cement Industry
Table-5 discloses the other performance indicators of the cement
industry as follows.
Table 5
Process-Wise Capacity in Indian Cement Industry (%)














Year Wet Day Semi-Wet Total
Process Process Process
1950-51 97 0 3 100
1960-61 94 1 5 100
1970-71 69 22 9 100
1980-81 61 33 6 100
1990-91 17 81 2 100
1991-92 16 82 2 100
1992-93 16 82 2 100
1993-94 12 86 2 100
1994-95 12 86 2 100
1995-96 11 87 2 100
1996-97 9 89 2 100

1997-98 7 91 2 100
1998-99 7 91 2 100
1999-00 5 93 2 100
2000-01 4 94 2 100
2001-02 4 94 2 100
2002-03 4 94 2 100
2003-04 3 95 2 100
2004-05 3 96 1 100
2005-06 3 96 1 100
2006-07 2 97 1 100
Source: CMA-Cement Manufacturers Association.

The Indian cement industry has undergone vital changes through
technological up-gradation and assimilation of latest technology to reduce the
cost and to increase the production. Modernizations of the plants and the
improvement of the processes have helped reduce manpower requirements.
Cement production is an energy-intensive process. Cement is a combination of
raw materials that is altered through intense heat to form a compound with
binding properties. These can be ground as a dry mixture or combined with
water to form slurry. The addition of water at this stage has important
implications for the production process and for the energy demands during
production.
There are three different cement-manufacturing processes in the country
namely (a) wet process, (b) semi-wet process, and (c) dry process. The
proportion of cement capacity by the wet and semi-wet processes has been
decreasing over the past decades. In 1950-51, the major share of cement
capacity was from the wet process (97%) and the semi-wet process contributed
only 3% with no plants using dry process for production. Since then, there is no
looking back for the technological up-gradations. As on today only, 2% of
capacity uses wet process.


Wet Process:
In wet process slurry is formed by adding water to the properly proportioned
raw materials. The grinding and blending operation are then completed with the
materials in slurry from. For an annual output of one million tonne of this
process require 2500-4000 persons to be employed. This process consumes
more energy so this process is less economical and out dated now a day because
of higher energy and man-power requirements.
Dry Process:
In dry process dry raw materials are ground dry and fed as a dry powder into the
kilns. Wet process is replaced by this process all over the world because it is
more economical than wet process for an annual out-put of one million tonne of
cement this process requires only 650-800 employees.
Semi Dry Process:
This process involves dry grinding of raw materials a then moistening these to
form nodules before being brunt in the kiln.
DEMAND AND SUPPLY POSITION
2.2.1 DEMAND DRIVERS FOR CEMENT IN IND
According to the report of the Technical Group on estimation of housing
shortage constituted in the context of formulation of the Eleventh Five-Year
Plan, housing shortage is estimated to be around 247.1 lakh units.During the
Eleventh Plan period, total housing requirement, including the backlog, is
estimated at 265.3 lakh units



During the economic
slowdown, demand for commercial real estate dropped sharply leading to sharp
correction in lease rentals since the second half of 2008. Lease rentals have
corrected in the range of 25-50 per cent during the first half of 2008. With
demand slowing substantially, most of the urban cities are faced with a
humungous oversupply of office space. Subdued. demand and rentals has
impacted the execution adversely in addition to cancellation of many projects.
The organised retail real estate industry in India has witnessed a slowdown in
the past year after increasing at a CAGR of 28 per cent in 2005-08.The industry
is expected to increase at a CAGR of 14 per cent in the short term and 19 per
cent over the next 5 years
Going forward, between 2009-10 and 2013-14, hotel industry (part of
commercial real estate industry) demand is anticipated to outstrip supply
growth. Demand is expected to increase at a CAGR of 15 per cent while room
availability is expected to record a CAGR of 9 per cent across premium
segment
Investment in infrastructure is projected to grow to Rs. 2056150 crores in
the Eleventh Five Year Plan (2007-2012) from an anticipated investment of Rs.
871445 crores in the Tenth Five Year Plan (2002-2007)This represents a
compounded annual growth rate of 18.71%. As on January 2011, 373 SEZs had
been notified and the Board of Approvals had granted formal approvals to 581
SEZs and in-principle approvals to 154.The industrial sector contributed
towards 4% of the total domestic demand for cement in the country.
Overall the Indian cement industry is expected to grow comfortably above the
GDP growth level and may even register double digit annual growth numbers in
the coming years.

Demand for cement is linked to the economic activity in any country. Broadly,
it can be categorized into demand for housing construction (homes, offices etc.)
and infrastructure creation (ports, roads, power plants etc). The real driver of
cement demand is creation of infrastructure. Hence, cement demand in
emerging economies is much higher than developed countries, where the
demand has reached a plateau. In India too, the demand for cement will be
affected by spending on infrastructure (including housing).
With the boost given by the government to various infrastructure projects,
road network and housing facilities, growth in the cement consumption is
anticipated in the coming years. The favorable housing finance environment is
expected to fulfill the vast housing requirements, both in rural and urban areas.
The increase in infrastructure projects by the government coupled with the
constructions of the Golden Quadrilateral and the north, south and east-west
corridor projects have led to an increase in consumption of cement. This
increase is expected to continue in the future. The reduction in import duties is
not likely to affect the industry as the cement produced is at par with the
international standards and the prices are lower than those prevailing in
international markets.
23

According to Fitch Ratings, a global rating agency, the demand for cement in
India is expected to grow at 10% annually driven by corporate capital
expenditure, infrastructure and housing demand. Cement consumption has a
strong correlation with the GDP growth and with 7-8% GDP growth forecast
and thrust on infrastructure development-cement demand is expected to be
robust. The cement consumption projections by National Council of Applied
Economic Research (NCAER), on a conservative basis, have placed the cement
demand of 225 million tonnes by the year 2010- 11. With current production
capacity at just 156 million tonnes, the cement industry, undoubtedly, is in for
good times.
24


COST STRUCTURE
Table 9 presents the cost structure of Indian cement industry blow.
Table 9
The cement industry is one of the most energy-intensive sectors in the
Indian economy. Clinker production is the most energy intensive step that
accounts for nearly 75% of the energy used in cement production. In India, an
estimated 90-94% of the thermal energy requirement in cement manufacturing
is met by coal. The remaining is met by fuel oil and high-speed diesel oil. For
each kg of clinker, the cement industry on an average requires 800 K. Cal of
coal for dry process and 1350 K. Cal. of coal for wet process.
Over the years, there has been deterioration in the quality of coal. In
particular, the ash content has increased implying lower calorific values for
coal, and improper and inefficient burning, etc. Thus, Coal consumption
increased, resulting in higher fuel and transportation costs.
In order to reduce these problems, the cement industry started
implementing coal washeries which reduce the ash content of the coal at the
mine itself.
26
It can be
observed from the Table 9 that the major cost components of cement industry as
percentage of cost of sales are power and fuel (29.4), raw material (21.2)
followed by outward freight (17.4).
Opportunities, Threats, Risks and Concerns
The cement industry is going through its boom period with full capacity
utilisation. Powered by the GDP growth of 8-9%, the annual demand for cement
in the country continues to grow at 8-10%. As per NCAER study, under high
growth scenario, the demand for cement (including exports) is expected to

increase to 244.82 million tonnes by 2010-11.
As per the study, the demand is expected to be much higher at 311.37
million tonnes, if the optimistic projections of the road and the housing sectors
are met. The industry has responded to this with substantial new capacity
announcements. The materialisation of these capacities, however, is likely to be
delayed due to a number of factors including timely delivery of equipment and
construction of the plant due to the heavy order book position of the suppliers. It
is expected that demand growth will outstrip supply until the materialisation of
such new capacities. The company has also taken on hand projects to upgrade
the existing cement plants. Furthermore, it enhance the overall capacity to 14
million tonnes by the end of this fiscal with marginal upgrades in Chilamkur
and enhancement of line I production capacity in Vishnupuram, an addition of
1.2 million tonnes capacity at Malkapur together with split grinding units at
Chennai in Tamilnadu and at Parli in Maharashtra. The company has also
announced plans to enter into North through setting up of green field capacity of
about 4 million tonnes in Rajasthan. Preliminary works are under way in respect
of these projects. The company has also located limestone deposits in Madhya
Pradesh and has applied for mining leases. Thus, the company is taking all
efforts to retain its market share through the upgrades and expansions to share
the expected growth of the industry. The company will exercise care and
caution in proceeding with the expansion, which is purely dependent on
commercial and economic viability of these projects. The capacity of
Company's cement plants is estimated to increase to an overall 18 million
tonnes in the next 24 months. The company has also taken further steps to
augment the supply of fly ash for production of blended cement through
entering into long term agreements for higher quantum of fly ash by setting up
fly ash collection systems in thermal plants in Tamilnadu.
However, the current high level of international crude prices of above

130 US Dollars and its impact on the domestic prices of petroleum products is
likely to make a dent in the profitability. However, its impact will have to be
seen depending upon the ability of the company to pass on such cost increase to
the consumer. While the freight cost could be optimized on the imported coal
through usage of company's own ships for part of the quantity, the international
prices of imported coal and its volatility together with the strengthening of the
dollar against rupee could derail this. This could impact the delivery prices of
imported coal and also the cost of production. The company has taken steps to
increase the availability of indigenous coal for its expanded capacity in AP
plants, which can mitigate the impact of such high cost of imported coal for the
plants located near the coalfields in India. The recent notification regarding
changing of Excise duty structure on ad-valorem basis to apply on MRP above
Rs.250 per bag, increasing the ED beyond Rs.600/- per tonne, could also have
an impact on the margins of the company. The Government's continuing efforts
to rein in cement prices by freeing imports and banning exports could
artificially disable the normal market price mechanisms for determining the
price.
The Mini-Cement Industry
To reduce transportation and capital costs, to increase regional
development and to make use of smaller limestone deposits, many mini-cement
plants have been set up in dispersed locations across India. Construction of such
plants began in the early 1980s.The capacity small plants (including capacities
of white cement plants) aggregates about 11.1 metric tonnes per annum. The
main attraction of the mini-cement plant concept is the lower capital costs per
tonne of capacity as compared to large plants.
Against the requirement of Rs. 3500 plus per tonne of capacity of large
plants, capital costs for mini-cement plants come to about Rs, 1,400-1,600 per
tonne. This reduces the fixed cost per tonne of cement produced. In addition, as

the main market is nearby a mini-cement plant, savings are large on
transportation costs. However, all these benefits are negated by other factors
like diseconomies associated with small-scale operation, significant competition
from large-scale units and rising cost of production.
Primarily, the mini cement plant was conceived to utilize isolated lime
stone deposits too small to support a large cement plant. Strategically, the policy
makers may have viewed them as a counter weight against concentration, both
in terms of output and as a means of reducing the threshold entry barrier.
However, most of these plants are yet to make an up- gradation from mini to
large cement plant. Even with the excise concession, these plants have not made
any significant inroads into the Indian cement market.
One reason is that the quantity produced by these plants is extremely
insignificant to give any real price competition to large cement companies. The
realizations achieved by mini-cement plants are lower compared to large cement
plants due to the quality perceptions of the established brands of large
companies. Further, most of the mini cement plants are too dependent on clinker
from the large cement plants. Their flexibility to be price setters is limited by
their poor financial health.
21


Market Share of leading Cement Producers of India
Table-7 describes that the market share of leading players in the cement
industry has changed significantly over the years
Table 7
Market Share of Leading Cement Producers of India (in %)





Source: The Indian Cement Industry, ICRA Sector Analysis Report, July
2006.

It is understood from Table-7 that the market share of leading players in
the cement industry has changed significantly over the years. Ultra Tech,
Grasim, India Cement and Gujarat Ambuja have emerged as the leading players
apart from Market share of leading cement producers of India. At present, the
Associated Cement Companies, Ultratech Cement Co., and Gujarat Ambuja
Cements are the dominant market leaders in Indian cement industry.
Market Concentration and Increased Competition
The foreign players entered the market in the late 1990s. The top 5
players controlled around 60.28% of market share, which was 55% in 1989-90,
whereas the other 39.72% of market share is distributed among 50 minor
players. The extent of concentration in the Indian cement industry has increased
over the years. This concentration is mainly on the focus of the larger and the
more efficient units to consolidate their operations by restructuring their
business and taking over weaker units. In addition, the smaller and weaker units
are finding it difficult to resist the cyclical pressure of the cement industry.
Some of the key benefits accruing to the acquiring companies from the
acquisition deals include
1. Economies of scale resulting from the larger size of operations
2. Savings in the time and cost required for setting up a new unit
3. Access to newer markets
4. Access to special facilities/features of the acquired company
5. Benefits of tax shelter

In the Indian cement market, a number of multinational companies are
entering. By means of mergers and acquisitions in domestic market, smaller
players are coming under the umbrella of larger companies, and larger
companies coming under the umbrella of global players. The booming demand
for cement in India and abroad has attracted global majors to India. In 2005-06,
four of the top five cement companies in the world entered India through
merger, acquisitions, joint ventures or Greenfield projects.
STATEMENT OF THE PROBLEM
In India, today, the cement companies are of diverse age groups, sizes
and use of a variety of raw materials. They adopt different technologies. They
have got the 'core' sector status. But these industries are in deep operational and
financial crisis. These companies are unable to tide over the current crisis due
to the thin profitability coupled with weak financial base. Many of the cement
companies have been continuously incurring losses from their inception.
Unfortunately, the entire net worth of some cement companies have been
completely wiped out due to continued operating losses. Majority of the
companies are in perpetual financial crisis as result of which getting additional
funds are becoming almost impossible for them.
Cement companies , that operate in India, are affected by financial
problems severely namely acute shortage of working capital, uncertainties in
raw material availability, shortage of coal and power, obsolete technology,
under utilization of capacity, inability to meet interest commitments, non-
repayment of loans, non- provision for depreciation, demand recession, absence
of effective chemical recovery system, lack of sound infrastructural support,
lack of skilled manpower, low prices, lack of research and development, high
cost of production, poor profitability and managerial incompetence. Most of the
cement factories cannot get adequate and quality coal as all good quality coal is

available only in Bihar and Bengal. Proximity to markets is also an important
consideration in the cement industry. Most of the Indian cement factories
distance from the ports. However, the principal market for cement is to be found
nearby ports. These factors ultimately have an adverse impact on the
profitability of the cement companies.
In the South India, majority of the cement companies are in red. Poor
financial performance is one of the main reasons in all cement companies
operating in South India. Hence, the need of the hour is to analyse the causes for
ineffective financial management of the cement companies in South India.
Hence, the present study.
IMPORTANCE OF THE STUDY
The importance of the current study is to find a deep insight into the financial
performance of select cement companies in South India. A few research studies
have been undertaken on financial performance of cement industry in general.
However, research studies exclusively on financial performance of private
sector cement companies in South India are scanty. Therefore, an attempt has
been made in this research work to study the financial performance of private
sector cement companies in South India. This study will be useful to analyse the
financial health of private sector cement companies in South India. It will also
evolve a package of measures for effective and efficient financial performance.
The conclusions drawn and findings arrived at would provide effective
guidelines to the management, shareholders, prospective investors, creditors,
employees and consumers so as to enable them to make effective decisions with
regard to their own spheres of interest in the industry.
Scope of the study
The cement industry is selected for research due to several important

reasons. Cement is basic core product. It is essential for building our nation. Its
growth is intrinsically linked to the overall growth of the economy and more
importantly to the growth of the infrastructure sector. For India to sustain its
GDP growth rate, the infrastructure sector has to keep its growth momentum.
The lack of adequate roads, ports, power and other infrastructure could prove to
be a big hindrance to the rapid growth of the country. As cement is key
ingredient for supporting any modern infrastructure, this research will have
significant relevance for the growth of infrastructure sector.
The st udy deal s i n bri ef t o eval uat e and anal yze vari ous aspect s
of companys financial position, liquidity position, and long term solve
ncyposition, so as to present a clear picture of performance. This study is
onlybased on Annual reports of company, by comparing the ratios of last 10
years.A study like this will help the organization to make decisions based
on the current performance.
OBJECTIVES OF THE STUDY
The main objectives of the present study are:
1.To study the changing trends in capital structure in select cement companies.
2.To examine the structure and financing pattern of fixed assets in select cement
companies.
3.To study the structure and condition of working capital in select cement
companies.
4.To examine the profitability performance of select cement companies.
5.To offer suggestions for ensuring good financial management in the select
cement companies.
6.To assess the short-term and long-term solvency of the company.

7.To know the efficiency of financial operations.
8.To predict the financial health and viability of the company with special
reference
to the debt capacity.
4. To provide suggestions for improving the financial position
HYPOTHESIS
Keeping the above objectives in mind, the following hypotheses have
been formulated and tested during the study period
1. Financial performance of private sector cement companies in South India is
not associated with financial aspects for the overall growth of cement industry.
2. Financial performance of private sector cement companies in South India is
not associated with imprudent management of finances.
3. There is no significant difference between the ten years average of current
ratio to the standard.
4. Correlation between working capital and total assets of this company is not
significant.
5. Correlation between sales and total assets of this company is not significant
RESEARCH METHODOLOGY
1.Sources of Data
The present study is mainly based upon secondary data.The data sources used in
this study are as follows:
The objective of the thesis is to evaluate the Financial Performance of
private sector cement companies in South India in terms of financial aspects in
the light of the changing macro-economic scenario of financial market in India.
Secondary data has been collected for the study. Secondary data relating to the

financial aspects collected from the annual reports, articles published in reputed
journals and newspapers besides certain first hand-hand information from
officials of the companies through personal interview.
1) Cement statistics (various issues) cembureau of Cement Manufactures
Association (CMA), New Delhi.
2) CRISIL sector Review, Executive summary of CRISIL Bombay
3) Hand book on Cement and Concrete Roads, The BuildersIndia, Bombay.
4) Data on Cement Industry, The Associated Cement Companies Limited
(ACC), Bombay
5) Kotharis Industrial Directory of India, Kothari Enterprises, Madras
6) ICRA Industry Watch Series ( various issues) ICRA, Bombay
7) Summary Results for Factory Sector, Annual Survey of Industries (ASI),
New Delhi
8) Central Statistical Organisation (various issues) Government
of India, New Delhi.
In this study, the details regarding production, sales, materials consumed,
total inputs, value added, gross output, capital, fixed assets and all other
financial
variables are obtained from the annual reports of the respective companies. The
actual number of persons employed is gathered from the respective corporate
offices of the companies. The whole sale price index of cement has been
collected
from the Weekly WPI figures from the web-site - http.//www.ceindustry.nic.in.
After extracting the secondary data from the original sources, classification
tables were prepared and were taken directly for analysis and interpretation.
.Sources of Data Collection

The data for the study have been obtained from the annual reports and the
accounts of the select cement companies. The information so gathered has been
supplemented with the facts obtained through correspondence with the
individual cement units. Besides, the secondary data, published literature on
cement industry have been collected form the Cement Statistics and Basic Data
Published by Cement Manufacturers' Association, Mumbai, Various issues of
Stock Exchange Official Directory, Mumbai, Reserve Bank of India Bulletins
(Monthly), Mumbai, Periodicals and Journals on finance and industry, and
DIRECTORY of large and medium industries in Tamil Nadu, Chennai.


2.Selection of Cement Companies for the Present Study
In Tamil Nadu, there are seven cement companies namely,
1. Madras Cements Limited (MCL)
2. India Cements Limited (ICL)
3. Chettinad Cement Corporation Limited (CCL)
4. Tamil Nadu Cements Corporation Limited (TANCEM)
5. Dharani Cements Limited (DhCL)
6. Dalmia Cements (Bharath) Limited
7. Associated Cement Company Limited (ACC)
Of the seven companies listed above only, the first five companies have
their registered and corporate offices in Tamil Nadu. The remaining two
companies whose registered and corporate offices are located in other states are
excluded from the present study. Further, of the five companies whose
registered

and corporate offices are located in Tamil Nadu, the Dharani Cements Limited
is
excluded because it has commenced its operation only in 2000. Thus, only four
companies namely, Madras Cements Limited, India Cements Limited,
Chettinad
Cement Corporation Limited and Tamil Nadu Cements Corporation Limited are
selected for analysing the financial performance.
PRELIMINARY DETAILS OF SAMPLE UNITS
The present study focuses on the Financial Performance of eight private
sector cement companies in Tamil Nadu viz.., Andhra Cements Limited, India
Cements Limited, The KCP Limited, Rain Commodities Limited, Sri Vishnu
Cements Limited Zuari Cements Limited, Panyam Cements Limited and
Kakatiya Cements Limited. The preliminary details of select sample units are
furnished in Table 1.
Table 1
Preliminary Details

Source: Compiled by the Researcher.
Note: Refer Table No: 1 in chapter 1 for Installed Capacity, Location of the
Plants

3.Sample Design
In India both the public and private sector companies are engaged in
cement manufacturing. The selection of undertakings is confined to cement
manufacturing enterprises established as public limited companies in private
sector carrying their manufacturing operations in Tamil Nady. For selection of

sample units a company must have manufacturing unit(s) in Tamil Nadu,
commencement of operations should be prior to 1990-91, main business shall be
production of cement and with an installed capacity of above 10,000 tonnes per
year.
A sen 31" March, 2006, 23 large cement companies and 14 mini cement
companies were operating in the state of Tamil Nadu . Among these, ten large
companies and eight mini companies satisfied the above criteria. Of these,
responses received from seven large and one mini unit. Thus, the present study
made on eight companies representing seven large and one mini unit.
The preliminary details of select unit are embodied in Table 1. An
examination of the incorporation of the year reveals that among the large
cements, Andhra Cements is the oldest Sri Vishnu Cement is the youngest.
Within the large category, India Cements has highest installed capacity with
four plants followed by Andhra Cements with three plants, Rain Commodities
with two plants and the rest of the sample units owned one plant each.
5.Tools of Analysis
The data collected from various sources have been analysed with the help
of various financial tools and techniques such as ratio analysis, common size
analysis and comparative financial statement analysis. Statistical Techniques
like range, percentages, averages, standard deviation, correlation, index
Numbers and time series have been used to analyze the data. Statistical tests of
significance have been applied in appropriate contexts. Tables, graphs and
diagrams are presented to illustrate the facts and figures wherever necessary.
Theresearchmethodologyincluded:

i. Financial data for five years (2004-05 to 2008-09) have been obtained from

published annual reports of HAFED.

ii. Select financial ratios analysis of HAFED for the period of ten years. It has
been used to review profitability and risk, current and future financial position.

iii. Finally, we used Z-score Altman insolvency prediction model to determine
the financial viability (developed by Prof. Edward Altman of New York
University in 1968) of HAFED. Other bankruptcy prediction models also exist,
but we have used Altman's model because other models are complex and most
are proprietary. The Z-score for predicting bankruptcy is a multivariate formula
for the measurement of the financial health of a company and a powerful
diagnostic tool that forecast the probability of a company entering bankruptcy
within two year period. Studies measuring the effectiveness of the Z-score have
shown that the model has 70 percent--80 percent reliability. Altman's equation
did a good job at distinguishing bankrupt and non-bankrupt firms. Further, this
model may be used for credit evaluation, merger and acquisition analysis,
turnaround management, insurance underwriting, and corporate governance etc.
Model is based on multiple discriminatory analyses indicates towards company
failure or insolvency and it is not complicated. Model combines five different
financial ratios: [(net working capital)/ (total assets), (retained earnings)/ (total
assets), (earnings before interest and taxes)/ (total assets), (market value of
equity)/ (book value of liabilities), (sales)/ (total assets) to determine the
likelihood of bankruptcy amongst companies (Auchterlonie, 1997).

Zones of Discrimination and Formula Equation of Z-score Altman Model:

* Z-Score more than 3 (Z>3)--Healthy zone

* Z-Scores in between 1.8 and 3 (1.8< Z<3)--Grey zone


* Z-score below 1.81 (<1.81) - Bankruptcy zone or high probability of
bankruptcy The Altman Z-score was calculated using the following equation:

Z = 1.2 [X.sub.1] + 1.4 [X.sub.2] + 3.3 [X.sub.3] + 0.6 [X.sub.4] + 1.0
[X.sub.5]

Where:

Z = Overall index of corporate health

[X.sub.1] = Net working capital/{----------}Total Assets

[X.sub.2] = Retained earnings{{----------}/Total Assets

[X.sub.3] = Earnings before interest and tax{----------}/Total Assets

[X.sub.4] = Market value of Equity{----------}/Book value of Liabilities

[X.sub.5] = Sales{----------}/Total Assets

It should be noted here that weighting of various ratios is different for this
model. Eidleman (1995) defines each of the above ratios as follows:

[X.sub.1]: is a liquidity ratio. The purpose is to gauge the liquidity of the assets
"in relation to the firm's size".

[X.sub.2]: is an indicator of the "cumulative profitability" of the firm
eventually.


[X.sub.3]: is a measure of the firm's productivity, which is essential for the
long-term continued existence of a company.

[X.sub.4]: defines how the market views the company. The assumption is that
with information being transmitted to the market on a regular basis, the market
is able to determine the worth of the company. This is then compared to the
firm's debts.

[X.sub.5]: describes this as a "measure of management's ability to compete".
However, Eidleman cautions that the ratio varies crossways the industry.
End Notes
Z-Score AnalysisAltman used five ratios to calculate the Z-Score.
Thesedifferent ratios were combined into a single measureZ-Score Analysis
with the help of MDA. The formulaused to evaluate the Z-Score analysis as
establishedby Altman is as follows:
Z = 0.012X1
+ 0.014X2
+ 0.033X3
+ 0.006X4
+ 0.999X5
"Z" is the overall index and the variables X1 to X4 arecomputed as absolute
percentage values while X5 iscomputed in number of times.
Ratios Used in Z-Score Analysis

The following accounting ratios are used as variablesto combine them into a
single measure (index), whichis efficient in predicting bankruptcy.
X1 -The ratio of working capital to total assets (WC/TA*100). It is the measure
of the net liquid assets of aconcern to the total capitalization.
X2-The ratio of net operating profit to net sales (NOP/S*100). It indicates the
efficiency of the managementin manufacturing, sales, administration and
otheractivities.
X3-The ratio of earnings before interest and taxes tototal assets (EBIT/
TA*100). It is a measure of productivity of assets employed in an enterprise.
Theultimate existence of an enterprise is based on theearning power
(profitability).
X4 -The ratio of market value of equity to book valueof debt (MVE/ BVD
*100). It is reciprocal of thefamiliar debt-equity ratio. Equity is measured by
thecombined market value of all shares, while debt includesboth current and
long term liabilities. This measureshows how much assets of an enterprise can
declinein value before the liabilities exceed the assets and theconcern becomes
insolvent
X5 -The ratio of sales tototal assets (S/TA). The capital turnover ratio is
astandard financial measure for illustrating the salesgenerating capacity of the
assets.
Measurement of Financial Health
Altman established the following guidelines to be usedto classify firms as either
financially sound or bankrupt.Altman guidelines for healthy zone.
Altman Guidelines for healthy zone

Sistuation Z-score Zones
I Below Below 1.8 Bankruptcy Zone-
Failure is certain
II 1.8 to 3 Healthy Zone - May or
may not fail
III Above 3 Too healthy-Will not fail

1. Below Z-Score of 1.8, the unit is considered to bein bankruptcy zone. Its
failure is certain and could occur probably within a period of two years.
2. If a unit has a Z-Score between 1.8, and 3, itsfinancial viability is
considered to be healthy. Thefailure in this situation is uncertain to predict.
3. Above Z-Score of 3, the unit is in too healthy zone Its financial health is
very viable and the companywill not fail
REFERENCE PERIOD
The present study requires a reasonably lengthy period so as to arrive at
meaningful and purposeful inferences. Hence, a nine-year period commencing
from 2002 and ending with 2012 has been adopted.
LIMITATIONS OF THE STUDY
The study confines to the financial appraisal of select cement companies
in Tamil Nadu in private sector. It excludes the other functional areas like
production, marketing and personnel. Since the study is limited to only private
sector cement companies in Tamil Nadu, the conclusions drawn in this study
may not applicable at macro level. Further the period of the study is restricted

to ten years only.
1The study is limited to the cement company in India.
2.Only ten years data is used for comparing the performance of the company
3.The financial ratios used for analysis of performance of each company are
limited 4.Limitations are difficulty faced or can be face while doing study.
Thesecan be normal limitation like- budget constraints, time constraint
whichare common for every project . Because time and money are al
waylimited and we cannot spend in huge amount. So this is first constraint
tofinish study in time and within
budget.Apart from these limitations other are-
5.Technical Limitation. Theselimitations are related with constraint of tool
or method used for
analysis.As t hi s i s proj ect i s t ot al l y based on secondar y dat a. So t
he mai nlimitation which can be faced are:
Study is only based on annual report of company, which is notsuffici
ent to compare financial performance of company.

Information available in annual report is also altered, which is not soaccurate

6.The Z score Altmanis based on the bankruptcy studies done by Altman. Those
studies were performed during the years 1946-1965. It is not clear that past
experience will always be transferable to future situations given the dynamic
environment in which business operates. Probably no, so that this model may need
to be adjusted specially the weights assigned to each ratio. Then model may able to
truly reflect today's financial conditions. Further, we have calculated only 16 ratios
but numerous types of ratios are available in practice.

CHAPTERISATION
The present study Financial Performance of the Cement Industry - A Study
with Special Reference to South India has been organised in five chapters.
The first chapter deals with the Introductionand Design of the Study comprising
introduction, statement of the problem, scope of the study, objectives of the study, period of
the study, methodology followed, limitations of the study and the chapter scheme.
The second chapter covers the review of literature of financial performance of cement
industry in the world, cement industry in India and cement industry in South India.
The third chapter The Profile of the five
SelectedCementCompanies,highlights the historical background, plants and
facilities, production capacity, trends in production, market share, sales, average
price realisation, operating efficiency in terms of capacity utilisation and the
like.
The fourth chapter analyse the capital structure in select cement
companies,examines the investment in Fixed Assets,evaluates the structure and
performance of working capital and deals with profitability performance.
The fifth chapter analyses the summation of the findingsand it offers
suggestions to improve the productivity performance of the cement industry.
REFERENCES
1.World Business Council for Sustainable Development (2002), The Cement
Sustainability Initiative: Our Agenda for Action, WBCSD, Geneva,
Switzerland, July, p.9.
2.World Business Council for Sustainable Development (2002), TJie Cement
Sustainability Initiative: Our Agenda for Action, WBCSD, Geneva,
Switzerland, July, p. 9.

3.Burange, L.G. and Shruti Yamini (2008), Performance of Indian Cement
Industry: The Competitive Landscape, Department of Economics, April, p.3.
4.S Vaidya Nathan (2003), Cement: Set on Price Recovery, Business Line,
April 27.
5.lanardhan Rao. N and Sarath Chandra P.S. (2007), "Cementing the Future",
Chartered Financial Analyst, ICFAI Press, December, p.93.
6.Cement Manufacturers' Association (2008), Highlights of Indian Cement
Industry-Cement Neios, March 31, New Delhi.
7.Janardhan Rao. N and Sarath Chandra P.S. (2007), "Cementing the Future",
Chartered Financial Analyst, ICFAI Press, December, p.93.
8.Divina M. Edralin (2004), Are the Cement Industry and Its Workers Victims
of Globalization, Business Focus, Manila Bulletin, September 27.
9.Burange, L.G. and Shruti Yamini (2008), Performance of Indian Cement
Industry: The Competitive Landscape, Department of Economics, April, p.5.
10.Cement Manufacturers' Association (1964), 50.years-The Cement Industry
in India: 1914-1964, New Delhi.
11.Schumacher, Katja and Jayant Sathaye (1999), India's Cement Industry:
Productivity, Energy Efficiency and Carbon Emissions, Ernest Orlando
Lawrence Berkeley National Laboratory, Berkeley, July.
12.Cement Manufacturers' Association (2007), Indian Cement Industry-At a
glance, New Delhi.
13.India Brand Equation Foundation (2006), Cement, A Report by Crisil for
IBEF, Gurgoan.

14.Burange, L. G. (2003), Industry: Changing Structure, Composition and
Slackening Growth, Dr. Ambedkar Institute of Social and Economic Change,
Mumbai.
15.Credit Analysis & Research Limited, CARE (2007), Cement Industry: Better
Fortunes Ahead..., Cement Industry CARE Ratings, Mumbai.
16.Porter, M.E. (1980), Competitive Strategy: Techniques for Analyzing
Industries and Competitors, Free Press, New York.
17.India Cement Limited (2007), Report on Cement Industry:
Opportunities. Threats, Risks & Concerns, Chennai.
18.ICRA (2006), The Indian Cement Industry, Industry Comment, Sector Analysis,
Credit Rating Agency of India Limited, July, New Delhi.
19.Cement Manufacturers' Association (2007), Indian Cement
Industry-At a Glance, New Delhi.
20.Burange, L.G. and Shruti Yamini (2008), Performance of Indian
Cement Industry: The Competitive Landscape, Department of
Economics, April, pp.3-5.
21.ICRA (2006), The Indian Cement Industry, Industry Comment,
Sector Analysis, Credit Rating Agency of India Limited, July, New Delhi,
pp.5-7.
22.ICRA (2006), The Indian Cement Industn/, Industry Comment, Sector
Analysis, Credit Rating Agency of India Limited, July, New Delhi, p.8.
23.India Infoline Ltd. (2004), India Infoline Sector Reports, Sector
Research, Mumbai, Jan.
24News Europe (2008), Rating Agency Predicts Indian Oversupply, Global

Cement Magazine, February.
25.ICRA (2006), The Indian Cement Industn/, Industry Comment, Sector
Analysis, Credit Rating Agency of India Limited, July, New Delhi, p.20.
26.ICRA (2006), The Indian Cement Industry, Industry Comment, Sector
Analysis, Credit Rating Agency of India Limited, July, New Delhi,p.26.
27.LEHEIGH (2007), Cement Manufacturing Process, Heidelberg Cement Group,
Canada, p.6.
28.Maps of India (2007), India Business Directory: Cement Industry, New
Delhi.
29.India Brand Equation Foundation (2006), Cement, A Report by Crisilfor
IBEF, Gurgoan, p.ll.
30.ICRA (2006), The Indian Cement Industry, Industry Comment, Sector
Analysis, Credit Rating Agency of India Limited, Julv, New Delhi, p.22.
31.Credit Analysis & Research Limited, CARE (2007), Cement Industry:
Better Fortunes Ahead..., Cement Industry CARE Ratings, Mumbai, p.2-3.
32.Industry News (2007), Cement, Report on Indian Cement Sector, My Iris,
The Way to Financial Freedom, New Delhi, p.3.

















CHAPTER - 2
REVIEW OF LITERATURE
AN OVERVIEW OF LITERATURE
Many of the research works have been conducted, over the period to evaluate the
financial position of the company with the help of the various ratios or by applying the
Multiple Discriminant Analysis to predict the corporate failure.
As the present study is concerned with the Financial Performance of Private
Sector Cement Companies in Tamil nadu with Zero based analysis, an attempt
has been made here to discuss in brief the earlier studies on financial
performance and on cement industry so as to gain a greater insight into the
subject. To provide the necessary background for the present study the
following conceptual and research studies on the subject are reviewed.
Gokarn and Vaidya (1993)
1
made an attempt to evaluate the performance
of the cement industry after decontrol and found that the structure of the
industry had undergone a qualitative change, The industry after decontrol was
characterized by a competitive outcome in terms of price and profit

performance. The nature of inter-firm heterogeneities suggests that major
differences arose out of technical factors. The performance of firms across
strategic groups is different, with firms operating relatively new and large plants
appearing to have an advantage. They also did an empirical analysis of the
cement industry between the period 1980-81 and 1991-92. It was done much in
the framework of the theory of industrial organizations. The industry-level
analysis revealed that there will be a substantial expansion in capacity in the
coming years and had predicted that unless there is accelerated growth in GDP,
a situation of excess capacity may arise. The study also did firm level analysis
in the structure-conduct-performance format of the modern theory of industrial
organization.
Apart from this pioneering study, there has been a set of studies on the
Indian cement industry throwing light on different aspects of the industry. In
another important study, Jha, R. (1991)
2
commented that cement is a major
industry for a developing economy like India. Their analysis was conducted at
the aggregate level and covered the period from 1960-61 to 1982-83. They
discovered that this industry is characterized, by and large, by efficiency. This
study reviews the impact of the policy changes over the years on the
performance of the cement industry which like many other industries, has faced
direct regulation over a long period of time' before getting decontrolled. This
study gives an insight on how the process of deregulation and liberalization has
impacted the growth and structure of the industry, which has for large periods of
time faced regulation (structural changes are primarily being captured by
concentration). As the partial decontrol of this industry began in 1982, the study
has along times pan over which the effects of decontrol can be studied.
S.Ghosh (1962)
3
examined the relationship between employment,
earnings and productivity of labor in cement Industry. The Indian Association
of Trade and Industry (1966)
4
published a book in the year 1964, which

analysed the financial trends and productivity in the cement industry during
1937 to 1964.
P.K.Sowhney
3
measured the productivity trends in the cement industry
the years 1950 to 1961. tie devised the methodological frame work, to show
productivity gains were shared by the different factors of production.
In 1977, the Institute of Applied Manpower Research
6
(1977) published a
book on 'Manpower in Cement Industry'. The study suggests the guidelines for
the estimation of demand for different types of technical and non-technical,
personnel at micro and macro levels of the cement industry. The study team
intended to evolve manning matrices for the industry as a whole or for the
department/stages of production. The study also examined as to how far the
educational qualifications of manpower match with the job requirements for
their Positions. As regards the locational pattern of the cement industry in India,
the first attempt was made by Mehta
7
, in 1955. He has measured the, location
quotient and coefficient of localization. He reported that the industry has a
tendency to be attracted to the point of minimum transport cost in relation to
raw materials power and market.
During 1965, A.Gosh
3
(1965) made a sophisticated analysis on cement
studied the growth of the industry and felt that inter-regional change becomes
more prominent and raises many problems for which long term and short term
analysis becomes very useful to avoid wastes and bottlenecks.
Reddy and Chakravarthy
9
(1973) studied the financial performance of
cement industry. Their study dealt with an inter-firm comparison.
The study of Rao and Chandra
10
(1964), attempts to make an attempt of
the financial efficiency of cement companies. They concluded that the
profitability of the selected companies has declined consistently due to the

mounting. Inflationary pressures and continuous fall in capacity utilization,
which is on account of drastic power cuts and shortage of raw materials.
National Council of Applied Economic Researchl
11
conducted a study
published on working capital management in Indian industry under the title
"Structure of Working Capital", in the year 1966. In this study an attempt was
made to analyze the composition of working capital with special reference to
three types of industries namely Cement, Fertilizer and Sugar. The main
objectives of this study were to examine as to what extent these three industries
have utilized working capital components. The study revealed that there had
been excessive working capital funds locked up in most of their industries. This
study finally concluded that the need of the hour was to establish good
accounting and costing systems, including new techniques of inventory
management in each company of the above industries.
Panda's
12
study was related to study the working capital problems with
particular reference to small scale manufacturing units. The study is confined to
Orissa State and covered the problems of adequacy, the choice, sources and
problems of rising working capital. He examined that large current investment
in long-term funds the small firms depend mainly on short-term credit, the
expanding sales of firms and the need for financing current assets have close
and direct relationship and higher funds generating ability determines current
position of firm.
Chadda
13
made an attempt to study the Inventory Management Practices
of Indian Companies. He suggested that applications of modern inventory
control techniques like operations research are most advantageous to the
companies.
Agarwal
14
made an attempt to study the working capital management
practices in the private sector industries in India. He observed that the majority

of industries have failed to plan their working capital requirements properly. As
a result, they often experienced excess of working capital and sometimes the
companies have to face the problems of shortage of working capital. It was
further observed that a wide variation was found in the size of working capital
in relation to sales of different industries. He concluded that the industries have
to use optimum working funds through the efficient management of working
capital available at their disposal.
"The managerial aspects of inventories, cash and receivables and
advances of some central public enterprises India" was a study conducted by
Rajeswara Rao
15
. This study brought into light the facts that inventories formed
a major proportion of total current assets investment, which increased from 63
percent in the year 1971-72 to 66 percent in the year 1976-77 in the public
sector. Among the inventories, proportion of finished goods has been increasing
year after year. He pointed out that the policies of public enterprises for
achieving the working capital objectives were not clearly defined. He concluded
that prudent management of working capital should be recognized as an
important area of financial management.
Singh Sinha and Singh
16
in their study have analyzed how best the
fertilizer industry has utilized working funds. The study reveals that a major
portion of working capital was tied-up in inventories and receivables. In
addition to this, they also pointed out those modern techniques of management
of inventory, cash and receivables were not used to exploit fully the working
capital available in these Fertilizer Public Sector Undertakings. They pointed
that though the industry was facing the problem of deficit of working funds in
general, idle funds were laying at different areas, like cash-in-transit, dues with
the government departments and undertakings.
Many of the research works have been conducted, over the period to evaluate

the financial position of the company with the help of the various ratios or by
applying the Multiple Discriminate Analysis to predict the corporate failure.
(. Gupta, 1999) Attempted a refinement of Beavers method with objective of
predicting the business failure. Whereas Mansur(Mulla, 2002) made a study in
Textile mill with the help of Z score model for evaluating the financial health
with five weighted financial ratios and followed by Selvam M, and others
(Selvam, 2004) had revealed about Cement industrys financial health with
special reference to India Cements Limited.
(K, 2004) Analyzed about practical implication of accounting ratios in risk
evaluation and concluded that accounting ratios are still dominant factors in the
matter of credit risk evaluation.
(V, 2005)Used Z model to measure the financial distress of IDBI and concluded
that IDBI is likely to become insolvent in the years to come.
From the above reviews, the researcher identified the research gap which could
be dealt in this study.
(Joshi, 1994)Have attempted to estimate the real rates of return to investment in
the public and private sectors.
(Bhaya, 1990)Based his findings on the time series data from 1981-82to 1985-
86 published annually for the public and private sector by the survey of
industries. He used three indicators of efficiency (managerial efficiency
things that can be controlled by managers). They are money, workforce and
material. On the basis of the evidence available over the period 1981-82 and
1985-86, Bhaya concluded that barring the burden of the fixed capital over
which the public sector management has no control and despite higher wages
and administered prices over which the management has no control, efficiency

in public sector is in no way inferior to the private sector.
(Jha, 1992)Use Annual Survey of Industries data for the years 1960-61 to 1982-
83 for our industries: cement, cotton textiles, electricity, and iron and steel in
another study. The latter two industries, they claim are primarily in the public
sector while the first two are owned predominantly by private interests. The
authors have no evidence of allocate inefficiencies in general and each of them
is relatively as efficient as one another.
(Sharma, 1995)Have used Cobb- Douglas production function to study
productive efficiency (or Economic efficiency), which combines both technical
and allocate efficiencies for the cement industry in India.
(Majumdar, 1995)Evaluated relative performance difference between the
government owned, joint sector and private sectors of Indian industry.
(Kaur, 1998)Compared TFPI of 15 public and 15 private enterprises from
diverse sectors, viz., aluminum, steel, fertilizers, engineering, drugs and
chemicals and consumer goods.
(Naib, 2003)Compared efficiency of 26 enterprises (13 public and 13 private)
for a 12 year period from 1988-89 to 1999- 2000. The results indicated that both
public and private firms experienced modest positive average annual growth
rate during this period. Thus this study also revealed that at the enterprise level
there is little empirical justification for general presumption in favour of either
type of ownership and a case by case examination may be more revealing. Thus
for the present study case study method has been taken. The present study is a
case of Bharat Heavy Electricals Limited (BHEL), which is a multi-product,
multi division, Public Sector Company operating in highly competitive
environment.

1.A study by Dr. Sanjay, J., Bhayani. (2004). Working Capital and Profitability
Relationship (A Case Study of Gujarat Ambuja Cements Ltd), in this paper an
effort has been made to make an empirical study of Gujarat Ambuja Cements
Ltd. A cement producing enterprise in Gujarat for assessing the impact of
working capital on its profitability during the period 1993-94 to 2002-03.
2.A study by Dr. Dharmendra, S., Mistry . The Indian cement industry is one of
the oldest industries. the purpose of this study is to analyse the financial data of
28 out of 36 listed public companies of Indian cement industry for the financial
period 2004-05 to 2008-09 with a view to examining impact of determinants
such as Total Assets, Liquidity, Inventory Turnover Ratio, DebtEquity Ratio
and Operating Expenses Ratio on the Ratio of Return on Capital Employed
thereof with the help of techniques of correlation and regression analysis. The
study found that Liquidity is closely related with the profitability of the Indian
Cement Industry as compared to the Total Assets, Inventory Turnover Ratio,
Debt-Equity Ratio and Operating Expenses Ratio.
3.A study by Marc Deloof, (2003) . Under the title. Does Working Capital
Management Affect Profitability of Belgian Firms? The aim of this paper is to
suggest that managers can increase corporate profitability by reducing the
number of days accounts receivable and inventories. Less profitable firms wait
longer to pay their bills.
4.A study by Chandra, kumar., mangalam. S., and Govindasamy, P. (2010) .
Under the title Leverage An Analysis and its Impact on Profitability with
Reference to Selected Cement Companies in India, This paper investigates the
relationship between the leverage (financial leverage, operating leverage and
combined leverage) and the earning per share, and this study also explains the
relationship between the Debt equity ratio and Earning per Share and how
effectively the firm be able debt financing, the results suggest that the leverage
and profitability and growth are related and the leverage is having impact on the
profitability of the firm.
5.Astudy by Ikram ul Haq, Muhammad Sohail, Khalid Zaman and Zaheer Alam
(2011), under the title "The Relationship between Working Capital Management
and Profitability: A Case Study of Cement Industry in Pakistan", The result
concludes that there is a moderate relationship between working capital
management and profitability in the specific context of cement industry in
Pakistan.

6.A study by Amarjit Gill 1, Nahum Biger 2, Neil Mathur 3 (2010), under the
title "The Relationship Between Working Capital Management And
Profitability: Evidence From The United States", the aim of this paper is to find
the relationship between working capital management and profitability. A
sample of 88 American firms listed on New York Stock Exchange for a period
of 3 years from 2005 to 2007 was selected. We found statistically significant
relationship between the cash conversion cycle and profitability, measured
through gross operating profit.
1.L.C Gupta (1999)attempted a refinement of Beavers method with objective of
predicting the business failure. Whereas Mansur. A.Mulla (2002) made a study in
Textile mill with the help of Z score model for evaluating the financial health with five
weighted financial ratios and followed by Selvam M, and others (2004)had revealed
about Cement industrys financial health with special reference to India Cements
Limited.
2.Bagchi S.K (2004)analysed about practical implication of accounting ratios in risk
evaluation and concluded that accounting ratios are still dominant factors in the matter
of credit risk evaluation.
3.Krishna Chaitanya (2005) used Z model to measure the financial distress of IDBI
and concluded that IDBI is likely to become insolvent in the years to come.
From the above reviews, the researcher identified the research gap which could be
dealt in this study.
LITERATURE REVIEW
Financial analysis is the process of identifying the financial strength and weaknesses of
the firm by properly establishing relationship between the items of the balance sheet
and the profit and loss account (Pandey, 1979).

Analysis of financial statements is of interest to lenders, security analysts, managers
and others (Prasanna, 1995).
Trade creditors are interested in the firms ability to meet their claims. Their analysis
will therefore, confine to the evaluation of the firms liquidity position. The suppliers
are concerned with the firms solvency and survival. They analyze the firms
profitability over time. Long term creditors place more emphasis on the firms
solvency and profitability. The investors are more concernedabout the firms earnings.
So they concentrate on the analysis of the firms present and future profitability as well
all earning ability and risk (Abu Sinha, 1998). Financial ratios are the simplest tools for
evaluating the financial performance of the firm (Wen-Cheng LIN, 2005).
One can employ financial ratios to determine a firms liquidity, profitability, solvency,
and capital structure and assets turnover.
Hannan and Shaheed (1979) used financial ratios to show the financial position and
performance analysis of Bangladesh Shilpa Bank. They showed that techniques of
financial analysis can be used in the evaluation of financial position and performance
of financial institution as well as non financial institutions even Development Financial
Institutions (DFI). Saleh Jahur and Mohi
Uddin (1995) used financial ratios to measure operational performance of limited
company. They used profitability, liquidity, activity and capital structure to measure
operational performance.
Altman (1968) used financial ratios to predict corporate bankruptcy. He found that the
bankruptcy model has an accuracy rate of 93% and is very successful in predicting
failed and non-failed firms.
Beavers univariate analysis led the way to a multivariate analysis by Edward Altman,
who used multiple discriminate analysis (MDA) in his effort to find a bankruptcy
model. He selected 33 publicly traded manufacturing bankrupt companies between

1946 to 1965 and matched them to 33 firms on a random basis for a stratified sample
(assets and industry). The results of the MDA exercise yielded an equation; he called
the Z-Score that correctly classified 94% of the bankrupt companies and 97% of the
non-bankrupt companies one year prior to bankruptcy. These percentages dropped
when trying to predict bankruptcy two or more years before it occurred
(Chuvakhin& Gertmenian, 2003). Krishan Chaitanya (2005) used Z model to measure
the financial distress of IDBI and conclude that IDBI is likely to become insolvent in
the years to come. Sina and Arshed Ali (1998) used financial ratios to test the financial
strengths and weaknesses of Khulna Newsprint Mills Ltd. they found that due to lack
of planning and control of working capital, operational inefficiency, obsolete store,
ineffective credit policy, increased cost of raw materials, labour and overhead, the
position of the company was not good.
Saleh Jahur and Parveen(1996) used Altmans MDA model to conclude the
bankruptcy position of Chittagong Steel Mills Ltd. They found that absences of
realistic goals, strict govt. regulations are the main reasons for the lowest level of
bankruptcy.
Ohlson (1980) employed financial ratios to predict a firms crisis. He found that there
are four factors affecting a firms vulnerability. These factors are the firms scale,
financial structure, performance and liquidity. In the article The Assessment of
Financial and Operating Performance of the Cement Industry: A Case Studyof
Confidence Cement Limited,
Dutta and Bhattacharjee (2001) found that the investment in cement was fairly
profitable. Salauddin (2001) examined the profitability of the Pharmaceutical
Companies of Bangladesh. By using ratio analysis, mean, standard deviation and co-
efficient of variation he found that the profitability of the Pharmaceuticals sector was
very satisfactory in terms of the standard norms of return on investment.

Hye & Rahman (1997) conducted a research to assess the performance of the selected
private sector general insurance companiesin Bangladesh. The study revealed that the
private sector insurance companies had made substantial progress. The study found
that the insurance companies were keepingtheir surplus funds in the form of fixed
deposits with different commercial banks due to absence of suitableavenues for
investment.
Salim and Kabir (1996) examined the financial performance of Bangladesh Shipping
Corporation. They found that conversion of long term debt to equity may improve the
financial performance of Bangladesh Shipping Corporation to a greater extent. From
the above review, the researcher identifies the research gap which could be dealt in this
study. It also found that the ratio analysis and MDA are the good method to evaluating
and diagnosing overall financial performance, as well as the variability of turnaround
or restructuring efforts. In summery, ratio analysis and Z score is timelymodels that can
be applied for analyzing the financial performance and financial distress of selected
four ceramic companies (Fu Wang, Monno, Shinepukur and Standard).
1.L.C Gupta (1999)attempted a refinement of Beavers method with objective of
predicting the business failure. Whereas Mansur. A.Mulla (2002) made a study in
Textile mill with the help of Z score model for evaluating the financial health with five
weighted financial ratios and followed by Selvam M, and others (2004)had revealed
about Cement industrys financial health with special reference to India Cements
Limited.
2.Bagchi S.K (2004)analysed about practical implication of accounting ratios in risk
evaluation and concluded that accounting ratios are still dominant factors in the matter
of credit risk evaluation.
3.Krishna Chaitanya (2005) used Z model to measure the financial distress of IDBI
and concluded that IDBI is likely to become insolvent in the years to come.

LITERATURE REVIEW
Financial analysis is the process of identifying the financial strength and weaknesses of
the firm by properly establishing relationship between the items of the balance sheet
and the profit and loss account (Pandey, 1979).
Analysis of financial statements is of interest to lenders, security analysts, managers
and others (Prasanna, 1995).
Trade creditors are interested in the firms ability to meet their claims. Their analysis
will therefore, confine to the evaluation of the firms liquidity position. The suppliers
are concerned with the firms solvency and survival. They analyze the firms
profitability over time. Long term creditors place more emphasis on the firms
solvency and profitability. The investors are more concernedabout the firms earnings.
So they concentrate on the analysis of the firms present and future profitability as well
all earning ability and risk (Abu Sinha, 1998). Financial ratios are the simplest tools for
evaluating the financial performance of the firm (Wen-Cheng LIN, 2005).
One can employ financial ratios to determine a firms liquidity, profitability, solvency,
and capital structure and assets turnover.
Hannan and Shaheed (1979) used financial ratios to show the financial position and
performance analysis of Bangladesh Shilpa Bank. They showed that techniques of
financial analysis can be used in the evaluation of financial position and performance
of financial institution as well as non financial institutions even Development Financial
Institutions (DFI). Saleh Jahur and Mohi
Uddin (1995) used financial ratios to measure operational performance of limited
company. They used profitability, liquidity, activity and capital structure to measure
operational performance.
Altman (1968) used financial ratios to predict corporate bankruptcy. He found that the

bankruptcy model has an accuracy rate of 93% and is very successful in predicting
failed and non-failed firms.
Beavers univariate analysis led the way to a multivariate analysis by Edward Altman,
who used multiple discriminate analysis (MDA) in his effort to find a bankruptcy
model. He selected 33 publicly traded manufacturing bankrupt companies between
1946 to 1965 and matched them to 33 firms on a random basis for a stratified sample
(assets and industry). The results of the MDA exercise yielded an equation; he called
the Z-Score that correctly classified 94% of the bankrupt companies and 97% of the
non-bankrupt companies one year prior to bankruptcy. These percentages dropped
when trying to predict bankruptcy two or more years before it occurred
(Chuvakhin& Gertmenian, 2003). Krishan Chaitanya (2005) used Z model to measure
the financial distress of IDBI and conclude that IDBI is likely to become insolvent in
the years to come. Sina and Arshed Ali (1998) used financial ratios to test the financial
strengths and weaknesses of Khulna Newsprint Mills Ltd. they found that due to lack
of planning and control of working capital, operational inefficiency, obsolete store,
ineffective credit policy, increased cost of raw materials, labour and overhead, the
position of the company was not good.
Saleh Jahur and Parveen(1996) used Altmans MDA model to conclude the
bankruptcy position of Chittagong Steel Mills Ltd. They found that absences of
realistic goals, strict govt. regulations are the main reasons for the lowest level of
bankruptcy.
Ohlson (1980) employed financial ratios to predict a firms crisis. He found that there
are four factors affecting a firms vulnerability. These factors are the firms scale,
financial structure, performance and liquidity. In the article The Assessment of
Financial and Operating Performance of the Cement Industry: A Case Studyof
Confidence Cement Limited,

Dutta and Bhattacharjee (2001) found that the investment in cement was fairly
profitable. Salauddin (2001) examined the profitability of the Pharmaceutical
Companies of Bangladesh. By using ratio analysis, mean, standard deviation and co-
efficient of variation he found that the profitability of the Pharmaceuticals sector was
very satisfactory in terms of the standard norms of return on investment.
Hye & Rahman (1997) conducted a research to assess the performance of the selected
private sector general insurance companiesin Bangladesh. The study revealed that the
private sector insurance companies had made substantial progress. The study found
that the insurance companies were keepingtheir surplus funds in the form of fixed
deposits with different commercial banks due to absence of suitableavenues for
investment.
Salim and Kabir (1996) examined the financial performance of Bangladesh Shipping
Corporation. They found that conversion of long term debt to equity may improve the
financial performance of Bangladesh Shipping Corporation to a greater extent. From
the above review, the researcher identifies the research gap which could be dealt in this
study. It also found that the ratio analysis and MDA are the good method to evaluating
and diagnosing overall financial performance, as well as the variability of turnaround
or restructuring efforts. In summery, ratio analysis and Z score is timelymodels that can
be applied for analyzing the financial performance and financial distress of selected
four ceramic companies (Fu Wang, Monno, Shinepukur and Standard).
Literature Review

Many of the research studies have been conducted, over the period to evaluate
the financial position of the different organizations with the help of the various
ratios and predicted failure in advance by applying Z-score Altman and other
bankruptcy prediction models.

Gerantonis, et. al. (2009) checked whether Z-score Altman model, can predict
correctly company failures. They found that Altman model performs well in
predicting failure.
Similarly Alrawi, et. al. (2008) used Altman Z-score and ratio analysis
approaches to conclude their views why the firms under study went bankrupt?
They concluded that Altman's model may be used as an indicator and perhaps
evidence to determine the firm's bankruptcy in the future. But, criticizing
Altman's model Aziz and Dar (2006) illustrate that the multiple discriminate
analysis (MDA) and the Logit models are highly accurate with error rates of 15
percent each. While the MDA model uses a bankruptcy score calculated by a
linear equation to determine the probability of bankruptcy, the Logit model
predicts the probability "as a dichotomous dependent variable that is a function
of a vector of explanatory variables".
Other than, Krishna (2005) used Z-score Altman model to measure the financial
distress of IDBI and concluded that IDBI is likely to become insolvent in the
years to come.
For verifying the worth of ratios Bagchi (2004) analyzed about practical
implication of accounting ratios in risk evaluation and concluded that
accounting ratios are still dominant factors in the matter of credit risk evaluation
and followed by Selvam, et. al. (2004) had revealed about Cement industry's
financial health with special reference to India Cements Limited.
Similarly, Mulla (2002) made a study in textile mill with the help of Z score
model for evaluating the financial health with five weighted ratios .
Ritu (2002) made a comprehensive attempt to assess the financial health of
public sector units in India by applying Altman's Z-score model. Data was
collected for the period of 10 years for the sample of 24 public limited

companies. She found that the some industries are in very healthy zone, some in
healthy zone and some in bankruptcy zone and keeping in view the PSU's,
which would be designated as bankrupt and 'certain' to fail, thus need to be
privatized.
On the same track, Gilker (1999) had found public enterprises (in the central as
well as state sector) have failed to overcome the expectations of the society but
most of them now proved white elephants. He examined the overall financial
performance of a central public sector unit operating in the JandK state for last
several years in different phases of its operations; identifies the various areas
contributing towards the unsatisfactory operational performance of the unit,
attempts to predict the financial health and viability of the unit in the year to
come by testing the technique of 'Altman's Z-score analysis and finally prevails
for the privatization of the unit and such other enterprises in the state sector with
an objective to improve their operational efficiency, effectiveness, productivity
and profitability.
But, Martikainen (1991) advocated that the marginal utility of evaluating a large
number of different financial ratios might be quite low. Instead, decision makers
might be better off by concentrating on a relatively low number of key financial
ratios of companies. Directly or indirectly Martikainen have supported the
Altman model because he also has selected some important ratios for the
application of this model.
Later, Gupta (1983) made a comprehensive attempt by testing 56 ratios in two
independent test samples of textiles and non-textiles firms. He found that the
predictive power of traditional liquidity ratio showed an average classification
error almost three times greater than profitability ratios, in case of textiles
companies. This ratio could be attributed to window dressing and disclosures of
some liability items. Operating cash flow to sales ratios turned out to be more

important in this study.

The brief review of previous studies on the use of financial ratios, Z-score
Altman model and other bankruptcy models will provide an ample testimony
and gave a hint for the evaluation of the financial performance of HAFED.
Further, review also highlighted that financial viability prediction is very
important issue especially for public enterprises
Review of Literature
A lot of research has gone into studying and analysingthe financial health of companies
by accountants and researches all over the world. Accounting ratios havebeen widely
used in development of models for theprediction of financial health and financial
distress ofcompanies. Researchers have been trying to find aratio that would serve as
the sole predictor of corporatehealth and bankruptcy for a long time. They have
alsotried to build up models that would help in predictingthe financial health of
companies.
In 1966 William Beaver conducted a comprehensivestudy using a variety of financial
ratios. His study wasbased on univariate analysis of the data under study.He made use
of 30 financial ratios of 79 failed and nonfailed companies and came to the conclusion
that thecash flow to debt ratio was the single best predictor
(Chuvakhin & Gertmenian, 2003) that gave statisticallysignificant signals well before
actual business failure.
In 1968, Edward Altman used multiple discriminantanalysis (MDA) to built a
bankruptcy prediction model.Altman made use of five ratios to develop a Z Score
which helped in the prediction of the financial health ofa company. Altman found that
his five ratiosoutperformed Beaver's (1966) cash flow to total debtratio. His study was
based on 60 firms in general.

In 1978 Gordon L.V. Springate developed the Springatemodel selecting four out of
nineteen ratios that bestdistinguished between sound business and unhealthybusiness.
These four ratios are working capital/totalassets, net profit before interest and
taxes/total assets,net profit before taxes/current liabilities and sales /totalassets.Not
satisfied by the MDA model, particularly regardingthe restrictive statistical
requirements imposed by the model,
Olhson (1980) used logistic regression to predictcompany failure. He used the logit
model using nineratios to develop an estimate of the probability of failurefor each firm.
Fulmer (1984) developed a model using multidiscriminate analysis to evaluate forty
financial ratios applied to a sample of sixty companies of which thirtywere successful
while thirty failed.
Keasy and Meguinness (1990) used logistic analysisand entropy analysis using sixteen
financial ratios onthirty seven firms in The UK. Platt and Platt (1990)used logistic
analysis on fifty seven failed and non failedcompanies.
Again in 1991, Skogsvik performed Probitfunction analysis using twenty cost
accounting ratioson Swedish firms. He concluded that interest expensesratio and
financial leverage ratios were highl significant.
L.C Gupta (1999) attempted to refine Beaver's methodwith objective of predicting the
business failure.

In 2002,Mansur. A.Mulla made a study in textile mills with thehelp of Z score model
for evaluating the financial healthwith five weighted financial ratios. This was
followedby a study by Selvam M, and others (2004) whichrevealed the Cement
industry's financial health withspecial reference to India Cements Limited
Bagchi S.K (2004) analysed the practical implications ofaccounting ratios in risk

evaluation and came to theconclusion that accounting ratios are still dominantfactors in
the matter of credit risk evaluation.
KrishnaChaitanya (2005) used Z model to measure the financialdistress of IDBI and
concluded that IDBI is likely tobecome insolvent in the years to come
Using data on South African companies listed on theJohannesburg Stock Exchange,
Muller, Steyn-Bruwerand Hamman (2009) tested the effectiveness of fourdifferent
techniques used to predict financial distress.They found that multiple discriminant
analysis andrecursive partitioning have the highest predictionaccuracy for predicting
"failed" companies.
Beneda (2006) investigated returns, bankruptcies andfirm distress for new US public
companies that issuedIPOs from 1995 through 2002. Beneda found that theaverage
first year returns for IPO companies underperformed the market and that Ohlson's
model waseffective in identifying companies that had a higherprobability of
bankruptcy and financial distress andearned lower than average returns.

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Karam Pal

Associate Professor, Haryana School of Business, Guru Jambheshwar
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593














CHAPTER - 3
PROFILE OF THE STUDY AREA

Regional Position
Table-8 shows region-wise capacity, production and consumption of
cement.
Table 8
From the Table-8 it is understood that South India leads in both cement
production and consumption. While demand in the eastern region is primarily
driven by the housing sector; infrastructure, investments in industrial projects
and the housing sector (in varying proportions) have propelled demand in the
western, northern and southern regions.
25

Regional Concentration
Table-6 shows the regional concentration of cement industry below.
Table 6
Region wise Capacity of Cement in India




Source: CMA
Cement is a bulk commodity and freight intensive. Transportation of
cement over long distances is uneconomical. This has resulted in division of
four regions namely northern region, eastern region, the central region and
southern region until 1910-2000. In terms of capacity, the southern region has
always dominated the industry and is excess in capacity owing to the
availability of limestone. But, the western and northern regions are the most
lucrative markets. East region consumes more cements for development of
infrastructure. When we look at the evolution of the industry, it can be seen that
distribution of capacities of cement in India has now been more balanced thus
reducing the concentration in the southern region of the country.
In 1950-51, the maximum capacity was in Southern region i.e. 34.91%
while North had the least of 17.59%. This scenario remained the same in the
following decade and in 1970-71, when south installed 35.24% of capacities
whereas North deteriorated with 15.60% of capacities. Situation was the same
till 1980s. It was only in 1990s when West grew up to first position in terms of
capacity. But as the fifth geographical division came up, with MP moving to
center with a major chunk of capacity, the concentration has reduced. Also
earlier capacities were concentrated around limestone deposits only but market
access has become very important determinant of location of cement plants. In
2006-07, South again dominated the capacities with 32.22%, which are actually
excess, East, West and Centre has more or less equal capacities of 14%, 18%
and 15% respectively whereas North is second highest at 21%.




The cement industry is one of the key industries in south India. The production
andconsumption of cement to a large extent indicate countrys progress. It is a
capital-intensive industry, which means that competition is confined mainly to a
smallgroup of large industrial houses. The economic progress can be achieved
byincreasing the production coupled with improvement in the ways and means
of productivity. This industry has recorded continuous growth since planning
began.The government has a complete control over the Production, distribution
and priceof cement and this has dampened the Growth of the cement industry
2.3.5 SOUTH ZONE
South Zone has the largest capacity of limestone in India and is the largest
producer of cement in India. It has considerably larger number of companies
operating than in other zones across India. The top 7 companies in terms of
cement production in south zone produced 74% of the total cement produced in
south zone 2011, out of a total of 25 companies, which represents an
oligopolistic market. Major players are India Cements Ltd., Ultratech Cement
Ltd., Madras Cements Ltd., ACC Ltd., Ambuja Cement Ltd., Kesoram
Industries Ltd., Dalmia Bharat Sugar & Inds. Ltd., Chettinad Cement Corpn.
Ltd., and Penna Cement Inds. Ltd. Over the last 6 years, the top 8 companies
have captured around 75%-80% production of cement, with virtually the same
names appearing in the top 8; refer to figures 25, 26 and 27. Zonal production
data for ACC Ltd. and Ambuja Cements Ltd. is not available 2010 onwards,
thus there is shuffling of companies and their cement production percentage.
Grasim Industries Ltd. exit from the cement market in 2010 and with its
production capacities under Ultratech Cement Ltd. (Grasim Industries Ltd. and
Ultratech
Figure 28 shows the cement production numbers as indexed from a base of 100
with the base 100 representing Mar-2005 numbers. Similarly it shows the price
of 50 Kg bag of cement as indexed from a base of 100 with the base 100
representing Mar-2005 numbers.Figure 28 shows capacity utilization in south
zone sharply dipping to 76% in Mar-10 after reaching the highs of 94% in Mar-

08. With such a low capacity utilization rate in the south, and price level well
above 2005, 2006, 2007 level when capacity utilization was up and above 90%
for these years, and increasing or slightly decreasing prices in period of large
dip in capacity utilization calls for concern and deeper observation of the
capacity utilization numbers of individual firms.The above analysis in section
2.3.1 to section 2.3.5 leads us to question the workings of the regional cement
markets in India. The competition issues like agreeing to an anti-competitive
agreement or presence of a cement cartel cannot be ignored under such
workings of regional cement markets in India. In Section 3, the report observes
competition issues and looks at detailed analysis of each company in the
questionable regional cement markets in India.Cement Ltd. are under the Birla
Aditya Group) also contributed to this shuffling, but the market remains
oligopolistic nonetheless
Moving on to the south zone:
The retail price for a 50 Kg cement bag was 1.6 times more in Chennai in
Mar-09 and Mar-11 than in Mar-05. The retail price increased rapidly in 2006,
2007 and 2008, decreased considerably in 2009-10 due to real estate crisis
resulting in lower demand. The production of cement has seen a healthy
increase by all the major companies in the south zone.
Price increase is driven by high demand growth and high capacity utilization,
but in contrast to this, during the period (2008-2011), the capacity utilization
has decreased considerably for India Cements Ltd., Madras Cement Ltd.,
Kesoram Industries Ltd., Dalmia Bharat Sugar & Inds. Ltd., Ultratech Cement
Ltd., Chettinad Cement Corpn. Ltd. and Penna Cement Inds. Ltd. Only ACC
Ltd. and Grasim Industries Ltd. seem to have appropriate capacity utilization
levels along with their financial numbers.
India Cements Ltd.s capacity utilization levels have declined to 77% and 72%

in Mar-10 and Mar-11 respectively, from being at 103% in Mar-08. This on the
top of their highest production levels in the period of 2007-2010. Such a decline
has heavily impacted their operating profit margin which is below Mar-05
levels and the companys PAT, though they still have a PAT index of 1487 in
Mar-11.
Ultratech Cement Ltd.s capacity utilization has hardly been above 90% with
the March-10 figure at 66% and Mar-11 figure at 74%, even after almost
doubling their cement production in 2010-11 from 2009-10. This indicates a
huge capacity build up by Ultratech Cement Ltd., and their increasing PAT
index does not correspond to decreasing operating profit margin and capacity
utilization levels.
The case for Madras Cements Ltd. is even worse with the capacity utilization
falling continuously from 2008 onwards to 59% in Mar-11. The cement
production also fell from an index of 213 in Mar-10 to 195 in Mar-11, though it
is still at a very healthy level indicating capacity build up by Madras Cements
Ltd.
Capacity utilization for Kesoram Industries Ltd. has dipped sharply in Mar-11
to 75% from over 90% in Mar-10. Consistent cement production levels in the
last three years indicate that falling capacity utilization is due to capacity build
up in order to maintain prices. Kesoram Industries Ltd. have faced the damaged
caused by their low utilization levels as seen in their PAT index, which was at -
627 for Mar-11 against Mar-05 PAT index of 100.
Capacity utilization for Dalmia Bharat Sugar & Inds. Ltd. has seen a dramatic
decrease to 50% in the last two years after being above 90% for most of the
concerned period. This has been on the back of increasing production index to
361 in Mar-11 from being 262 in Mar-09. Another instance of excess capacity
through capacity build up by a company. The PAT index has taken the hit in

Mar-11 with it being at 10.
Capacity utilization for Chettinad Cement Corpn. Ltd. has dipped sharply in
Mar-10 and Mar-11 to 71% and 55% respectively. Capacity utilization was well
above 100% in the rest of the previous years. Consistently increasing cement
production levels in the last three years indicate that falling capacity utilization
is due to capacity build up in order to maintain prices. The fall in capacity
utilization may also have been triggered by a negative PAT index in Mar-09.
Penna Cement Inds. Ltd. capacity utilization levels seem to follow in line with
their production trend and prices of cement but utilization levels of 77% in Mar-
09 and 62% in Mar-11 are too low for the liking in the period of production
growth and steady state.

CEMENT INDUSTRY IN Tamil Nadu
The first cement plant in Andhra Pradesh was established at Vijayawada
in the year 1934. Andhra Pradesh crowned with second rank all over India for
production of cement. The details of cement production in million tonnes as on
31.03.2006 were presented in Table 10.
Andhra Pradesh does not lag behind in the development of cement
industry with its rich limestone deposits, ranking first in India in the matter of
production of limestone. Andhra Pradesh provides a good base for the
development of cement industry. The limestone deposits of Andhra Pradesh are
estimated at 19,832 Metric Tonnes which constitute 33.2 per cent of the total
limestone deposits in India.
The per capita consumption of cement in Andhra Pradesh was estimated
at 36.20 tonnes in the year 1978 and it has gone up to a high level of 52.90

tonnes in the year 1978. The estimates of demand cement in Andhra Pradesh by
the end of 1989-90 indicate that it was at a high level of 40.03 lakh tones. By
the end of 1944-45, it is estimated that this demand for cement will go up to a
still higher level of 64.84 lakh tones. The statistics furnished above will indicate
beyond an bit of doubt that there was a tremendous growth of cement industry
in Andhra Pradesh and in fact Andhra Pradesh is one of the leading states in
India in the matters of production of cement.



Table 10
Cement Production in Andhra Pradesh As On 31.03.2006
(All India Ranking-2)
(Million Tonnes)
Year Capacity Production Consumption Exports
2005-06 24.89 (15.53) 19.94 (14.06) 11.46 0.83
2004-05 23.33 (15.12) 16.30 (12.78) 8.55 1.10
2003-04 21.13 (14.41) 14.04 (11.95) 8.01 0.45
2002-03 20.73 (14.80) 13.25 (11.90) 7.75 0.02
2001-02 20.93 (15.52) 13.41 (13.10)























NA

Note: figures in brackets are percentages to Ail India total.. Source:
Compiled from cement statistics 2006, CMA, 2006.

Some of the problems reported to have been experienced by the cement
industry in Andhra Pradesh are raising output costs, shortage and also poor
quality of coal disruptive power supply, large scale obsolescence, acute power
shortage and frequent power cuts. The other problems such as shortage of
wagons for transport or raw materials and finished products, inadequate scales
economy, too frequent variations in price controls problems of distribution, such
as loss and wastages in storage and transport of cement restrictions on
packaging causing a lot of irritation to the management of cement companies.
Unless and until all these problems are overcome and earnest efforts are
made to place the cement industry on an economically viable footing, the
cement industry in Andhra Pradesh cannot dream of any right future. As a
matter of fact several problems that are experienced by the cement industry in
India have also been experienced in Andhra Pradesh.

As on 31.03.2006 there are 24 large cement manufacturing plants related
to 16 companies in Andhra Pradesh. Out of which 2 plants of Cement
Corporation Limited are in public sector and the rest in private sector. The
details of cement plants and grinding units in Andhra Pradesh were shown in
Table 11.
Table 11

Outlook
With the continued buoyancy in the housing construction, continued
emphasis on infrastructure along with the new industrial projects expected to
materialize, the industry is braced with better times ahead. Indian cement
industry is also witnessing a steady rise in exports. Cement and clinker exports
account, for about 6-8 per cent of the total cement demand.
While demand for cement has picked up steadily, additions to capacity
have risen at a lower pace, leading to an improvement in the demand supply
dynamics. From an oversupply situation not so long ago, the Indian cement
industry is moving towards a scenario where demand growth expected to
outstrip the supply. In 2004-05, the region had a capacity of 46 million tonnes
while the demand was merely over 30 million tonnes, and the players in the
region depended on selling their production into other regions, mainly the West.
However, fiscal 2005-06 brought a sudden transformation and the region saw
25% rise in demand in the first eleven months of FY'06.
31

Within the next three to five years the industry is expected to be
dominated by five to six big players and less than ten companies in all, both
Indian and foreign. The sector is currently in a transient state, but with the
abundance of natural resources in the country and the huge potential demand,

the overall sentiment towards this sector remains positive.
32



Appendix 1.1
Cement Companies in India (Location Wise)
As On 32-03-2008
Financial condition of India cement

India Cements, the largest cement producer in South India,reported fall of
29.59% in net profit for the quarter ended September
2012 on lower margins.
During the quarter, the net profit of the company fell to
Rs 490.8 million as compared with Rs 697.1 million in
the same period last year. This was lower compared to
analysts' expectation of Rs 730 million.
Net sales during the quarter rose 3.12% to Rs 11.25
billion compared with the same period last year.
During the quarter, the operating profit margin decreased 530 bps to 12.28%
from 17.57% for the same period last year.
Shares of the company declined Rs 1.85, or 1.89%, to trade at Rs 95.90. The
total volume of shares traded was 191,723 at the BSE (12.48 p.m., Monday).
THE INDIA CEMENTS LIMITED
Financial Highlights
Revenues up by 3%
Chennai, November 5, 2012 : The India Cements Limited, one of the leading
cement producers in the country, announced its audited financial results for
the second quarter ended 30th September 2012 at its Board meeting held
today.
The highlights of the performance for the Q2 FY 2013 are as under:

Crores as compared to Rs.255 Crores


Operational Performance
Tonnes
up by 2% as compared to
24.27 Lakh Tonnes

plants during the quarter caused by hefty power holiday of 12 days per month.
The increase in power tariff in AP and Taminadu by the State Electricity Boards
also impacted the cost of production.
our dependence on high cost power and SEB power will come down
substantially
power plant in Andhra Pradesh, the requirement of imported coal will go up
substantially and the company has acquired a dry bulker 52489 DWT to
augment its capacity to meet the needs of transport of coal
Crores).

vs Rs.90 Crores
s.23 Crores as compared to
Rs.33 Crores in the same quarter of the previous year and the net profit after tax
was Rs.49 Crores vs Rs.70 Crores.Commenting on the companys financial
performance, Mr. N. Srinivasan, Vice Chairman and Managing Director, India
Cements Ltd. said that Despite challenging operating environment for the
cement companies in south coupled with higher power tariff in AP & Tamil
Nadu and hefty power holiday of 12 days per month in AP we were able to
deliver a reasonable top line and bottom line numbers. The cement demand has
been on a submissive note. The dispatches of some of the majors during this

quarter have come down as compared to the first quarter. We are expecting a
higher industrial growth along with growth in demand for cement which
predicts the industry to grow in the short term.Going forward, we are confident
to deliver healthy performance with commencement of our mining operations at
the coal mines in Indonesia and the coal getting accumulated at the jetty. We
are expecting the first shipment shall take place during the next quarter which
will bring down our fuel costs significantly and give boost to operating
performance.
OUTLOOK- The recent indicators of RBI and other reporting agencies
projected a GDP growth of around 5% only for the current fiscal as compared to
7.5 to 8% projected earlier. The cement demand has been on a subdued note
during the period under review and as per the reports of leading cement
manufacturers, the despatches have come down during the second quarter of the
year. Indications of higher industrial growth give rise to hopes of better growth
in demand for Cement. However, given the capacity overhang in the South,
capacity utilisation may not increase sharply in the near term from current
levels.

India cement Ltd Annual
report 2012

TEN YEARS IN BRIEF - FINANCIAL
INFORMATIONYEAR ENDED 31ST MARCH
2003 2004 2005
2006 2007 2008 2009 2010 2011 2012
Sales & Earnings
1. Sales and other Income Rs.Lakhs 103300, 123688, 140230,
183669, 262088, 360561, 395454, 422169, 401134, 474181
2. Profit/(Loss) before tax Rs.Lakhs (30723), (11273), 458 ,
4998, 49196, 84464, 64830, 53132, 8987, 38098
3. Cash Generated (internally) Rs.Lakhs (22582) (3122) 8335
12652 59459 96243 93097 72087 33158 63592

Assets@
4. Fixed Assets (Net) Rs.Lakhs 134458, 233387, 220485,
211497 , 293858, 403937, 471229, 462151, 487431 , 427802
5. Capital Investments Rs.Lakhs 405, 1971, 2212,
4896, 14870, 91990, 95426, 29625, 56896, 85040
6. Current Assets Rs.Lakhs 28415 30796 38791
49803 73889 108735 83010 100726 80523 119664
7. Loans and Advances Rs.Lakhs 103167, 100022, 98054,
101439, 97862, 106206 , 131343, 186919, 209863, 191627
Capital & Reserves
8. Share Capital Rs.Lakhs 16359, 16359 , 16359, 21577,
26037, 28187, 28243, 30717, 30718, 30718
9. Reserves and Surplus * Rs.Lakhs 23795, 12105, 12132, 57567,
108319, 224427, 262559 318019, 319457, 322934
10. Shareholders Fund Rs.Lakhs 40154 , 28464, 28491,
79144, 134356, 252614, 290802, 348736, 350175, 353652
Net worth, EPS & Dividend
11. Net worth per equity share (Rs.) 27.38, 18.88, 18.90,
40.18, 51.60, 89.62, 102.96 113.53, 114.00, 115.13
12. Earnings per equity share (Rs.) (14.74), (7.13) , 0.12, 2.61
19.65 23.97 15.32 12.49 2.22 9.54
13. Equity Dividend Per Share (Rs.) - - - -
1.00 2.00 2.00 2.00 1.50 2.00
* Figures exclude revaluation reserve and deferred income and after adjustment
of deferred revenue expenditure.
@ The figures shown in the year 2012 are as per the revised Schedule VI format
and hence are not comparable to previous years figures.
Performance Indicators

Key Performance Statistics
THE INDIA CEMENTS LIMITED



1994 1995 1996 1997 1998 1999
Cement
Production
(Million tonnes)
2.3 2.4 2.6 2.5 3.0 5.5
Sales and Other
Income(Rs.Million)
5499.7 6290.8
8064.4

8325.0

9273.1

13918.4
Net Profit/(Loss)
Before Tax
(Rs.Million)
184.8 472.8 809.0 825.8 627.6 870.4
Cash Generated
(Rs.Million)
422.3 721.1 1173.7 1266.1 1128.7 1566.9


2000 2001 2002 2003 2004 2005
Cement
Production
(Million
tonnes)
6.0 6.0 4.85 4.95 5.41 5.49
Sales and
Other
Income
(Rs.Million)
14196.6 14513.7 13132.5 10330 12368.8 14023.0
Net
Profit/(Loss)
Before Tax
(Rs.Million)
473.1 511.5 (75.7) (3072.3) (1127.3) 45.8
Cash
Generated
(Rs.Million)
1212.0 1341.6 799.4 (2258.2) (312.2) 833.5



2006 2007

2008
2009 2010

Cement Production
(Million tonnes)
7.26 8.42 9.23 9.11 10.5
Sales and Other
Income
(Rs.Million)
18366.9 26208.8 36056.1 39545.3 42216.9
Net
Profit/(Loss)Before
Tax (Rs.Million)
499.8 4919.6 8446.4 6483.0 5313.2
Cash Generated
(Rs.Million)
1241.8 5814.6 9624.3 9309.7 7208.7


As on 31.12.2005
Region/State No. of Plants
Installed
Capacity
Southern Region
Tamil Nadu 13 14.56
Andhra Pradesh 22 22.79
Karnataka 8 10.09
Kerala 2 0.62
Total South 45 48.06

MADRAS CEMENTS LTD.
Bonus shares were issued in the ratio of 1:1 in 1992-93, 1994-95 and 2008-09.
DESCRIPTION 2002-03 2003-04 2004-05 2005-06
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Cement
Capacity (lac tonnes) 59.9, 59.9, 59.9, 59.9,
59.9, 79.9, 99.9, 104.9, 104.9, 104.9
Production (lac tonnes) 35.2, 37.0, 38.0, 47.1
56.7, 58.5, 65.3, 80.3 73.05, 75.22
Windfarm

Capacity (MW) 33.21, 33.21, 34.44, 45.84,
63.79, 136.00, 181.59, 185.59, 159.19, 159.19
Generation (lac units) 455, 485, 445, 378,
657, 1426, 2611, 4115, 3572, 2855
Sales & Other Income (Rs. in Crores) 630.37, 699.82, 745.11,
1013.35, 1581.69, 2021.35, 2471.23, 2821.25, 2644.69, 3287.78
Operating Profit (Rs. in Crores) 154.95, 167.12, 160.43,
215.52, 563.50, 761.76, 793.49, 877.29, 657.31, 969.77
Cash Generation (Rs. in Crores) 85.49, 113.25, 115.36,
147.71, 409.92, 639.16, 628.52, 644.97, 435.65, 699.19
Profit After Tax (Rs. in Crores) 12.96, 33.40, 55.92,
79.02, 308.02, 408.29, 363.52, 353.68, 210.98, 385.11
Number of employees 1743, 1669, 1642,
1686, 1955, 2260, 2447, 2583, 2593, 2626
Contribution to Exchequer (Rs. in Crores) 233, 228, 275,
321, 561, 610, 711, 809 839, 1186
Face value per share (Rs.) 100, 10 10 10
10 10 1 1 1 1
Earnings per share (Rs.) 107, 28, 46,
65, 255, 343, 15, 15, 9 16
Dividend per share (Rs.) 60 7.50 10 15
25 40 2 2 1.25 2.50
Dividend payout (Rs. in Crores) 7.26 9.07 12.10
18.14 30.24 48.03 47.66 47.66 29.79 59.58
Dividend payout % 56 27 22
23 10 12 13 13 14 15
Operating profit ratio % 24.58 23.88 21.53
21.27 35.63 37.69 32.11 31.10 24.85 29.50
Market price of share (Rs.)

(a) High 4435 980 1170
2245 3750 5072 198 140 134 169
(b) Low 3245 330 595
932 1745 2500 55 70 85 76
(c) As on 31
st
March 3365 762 980
2164 2730 3349 71 122 102 154
Market capitalisation (Rs. in Crores) 406 920 1184
2614 3297 3986 1700 2897 2427 3659
Net worth per share (Rs.) 2193 237 274
323 550 799 52 65 73 86
TEN YEAR HIGHLIGHTCHENNAI, NOV. 7: ,2012
Madras Cements' net profit during the second quarter of the current year has
more than tripled to Rs 110.88 crore on net sales of Rs 818.99 crore as
compared with that of the corresponding quarter last year.
During the corresponding quarter last year, ending September 30, 2010, the net
profit was Rs 31.12 crore on net sales of Rs 642.06 crore.
LOW BASE
The growth in net profit in the current year for the quarter ended September 30,
2011, seems steep when seen against the comparable quarter previously because
of the unprecedented poor market conditions in terms of demand and pricing
prevailing then, says Mr A.V. Dharmakrishnan, Executive Director Finance,
Madras Cements Ltd.
The company has partially made up for lost ground, and its performance should
be seen in the light of earlier performances when in second quarter of 2008-09,
it had reported a net profit of Rs 172 crore or in the second quarter of 2009-10
when the company reported a net profit of Rs 256 crore.
SALES STABLE
As of now cement demand and pricing are stable, he said.
Cement sales during the second quarter was 19 lakh tonnes against 20 lakh
tonnes in the second quarter of 2009-10 and 16.73 lakh tonnes during that of
2008-09.
Annual production capacity has grown to 14 million tonnes with the addition of
2 million tonnes with a second line in the Ariyalur unit during the quarter.
CAPTIVE POWER

The company, which has five factories across Tamil Nadu, Andhra Pradesh and
Karnataka, is taking steps to secure the power situation with captive thermal
generation.
At the Ariyalur plant the company has commissioned 40 MW of power
generation, and an additional 20 MW will go on stream in January-February
2012. A 25 MW facility is in the pipeline in RR Nagar.
It has also secured power in Jayanthipuram and Alathiyur where each unit has
36 MW of captive thermal power.
For now it utilises 51 MW of wind power generation capacity, out of the total of
153 MW available with it, for captive use at RR Nagar cement plant. The
balance 101 MW caters to the grid, he said.
Keywords: quarterly results, q2 results, net profit, Madras
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About Madras Cements


Madras Cements, a company that belongs to the Ramco Group is one of the
prominent names in cement industry in South India. Established in 1987, at
Vijaywada in Andhra Pradesh it is a fully computerized cement producing
company through the five units located in various parts of South India.
It is the fifth largest cement producing company in India having the capacity to
manufacture 10 million tons per annum. The company continuously strives to
improve its efficiency through the use of technology, quality, renewal and
customer centric operations. The company uses the most advanced technology
to manufacture cement of the highest quality for its clients spread across various
parts of India and the world.

Madras Cements ranks among the leading manufacturers of cement in India and
is one of the few companies which manufacture cement at a very economical
rate. The company has its own captive power plant that runs on gas and a 20
mega watt power generator. It looks to update the organization practices on a
regular basis to uphold the culture of professional management in the company.

The major exporters of Madras Cements are Iran and Sri Lanka.
Madras Cements Factories


Madras Cements Limited or MCL began its operations in 1962 with 200 TPD.
The first 1200 TPD dry plant was commissioned by the company in 1976. The
five plants of the company that operates with a total capacity of 8 MTPA are:
Mathod, Karnataka (0.2 MTPA)
Ariyalur, Tamil Nadu (2.0 MTPA)
Alathiyur, Tamil Nadu (3.0 MTPA)
R R Nagar, Tamil Nadu (1.2 MTPA)
Jayanthipuram, Andhra Pradesh (3.6 MTPA)


The company's plant at Jayanthipuram began operations in 1988 with a capacity
of 2500 TPD; it was upgraded to a capacity of 3200 TPD in 1992. This plant is
equipped with a modern computer based quality control system.


Madras Cements Technology


Madras Cements Limited makes use of the latest technology and equipment for
all the production purposes. The company has been a trend setter of sorts in
adopting state-of-the-art methods for the manufacture of cement, ready mix
concrete and dry mortar products. Some of the technologies used by MCL are
listed below:
Pre-calciner technology
Surface Mining Technology
Vertical Mills for Cement Grinding
Latest Financial Figures (Figures in Rs. Crores)
ET 500 Rank(2011) 247
Industry Cement
Turnover 2644.71
Profit after Tax(PAT) 210.98
MCAP (Market Capitalization) 2360.02
Assets 4525.68

Advanced X-Ray technology for Quality Control
Latest and highly effective ESPs and Bag filters
Most Modern Programmable Logic Controllers (PLC)
The FUZZY Logic Software System for process Controls
The Ramco Research and Development Centre was started in 2002 with an aim
to conduct research in the fields of cement technology and modern construction
practices. Situated near Chennai, the centre is equipped with a state-of-the-art
laboratory and other associated services. Experienced scientists and technicians
conduct research to improve the quality of cement and give better results to
customers.


Madras Cements Awards


Madras Cements has won several wards and recognitions over the years. Some
of them are The 4 Leaves Award given by Centre for Science and Environment,
the Best Energy Efficient Unit from National Council for Cement and Building
Materials, Corporate Performance Award by Economic Times, National Award
for Energy Conservation from Confederation of Indian Industries, the Best
Improvement in Energy Performance from International Congress on Chemistry
of Cement and The Analyst Award given by The Institute of Chartered
Financial Analysts of India.


Madras Cements Products


Madras Cements is mainly involved in the manufacture of Portland cement.
Other than this, the company also produces dry mortar products and ready mix
concrete. Madras Cements uses the modern dry process technology for all its
expansion projects while the dust extraction and suppression system is used to
control the fugitive emissions. Updated: Mon, May 24 2010. 09 52 PM IST
Madras Cements Ltds performance for the March quarter reflected oversupply
in south Indias cement market, resulting in weak pricing power.
Revenue rose marginally year-on-year (y-o-y) to Rs582.1 crore but fell by 4.7%
on a sequential basis. Despite higher sales volumes, sales realizations fell in the
March quarter by 18% sequentially and 26% y-o-y to around Rs2,780 per tonne.
The cement maker has been hit by higher costs. Total expenses rose 13% over
the year-ago period, despite flat sales growth, but fell on a sequential basis. A
major contributor has been the increase in fuel costs, which soared to 29% of

sales from 22% in the preceding quarter and 26% a year ago. This increase is
despite higher captive power generation.
Meanwhile, freight costs at 19.6%, too, were higher both y-o-y and sequentially.
Madras Cement saved on raw material costs, down to 6.2% from around 19% in
the preceding quarter. Analysts attribute this reduction to stock adjustments
done typically in the last quarter.
Higher expenses led to a 25% fall in operating profit y-o-y to Rs128.5 crore and
operating profit margin (OPM) plummeted to 22.3% from 30.3%. OPM,
however, was was higher by around 4 percentage points sequentially. Net profit
fell by 59.9% y-o-y to Rs29.4 crore.
The road ahead is expected to be bumpy for Madras Cements, given that nearly
two-thirds of the new capacity in the cement industry is coming up in locations
in southern India in the next one year. The firm is operating at around 83% of
its capacity of 10 million tonnes per annum (mtpa). Its capacity is expected to
increase to 14 mtpa by fiscal 2012. Unless demand matches supply, cement
prices will come under pressure. For example, dealers say that in May, prices in
Tamil Nadu have already dropped to around Rs255 a tonne from Rs270 a tonne
in March and April. Also, transporting cement to farther regions, which may
yield better realizations, may not be feasible due to rising freight costs.
For fiscal 2010, the companys net revenue rose by 14% rise to Rs2,813.8 crore.
However, net profit fell by 2.8% to Rs353.7 crore. Shares closed lower at
Rs99.5, discounting the estimated fiscal 2011 earnings about six times. While
the scrip is not expensive, two dull quarters ahead and a weak outlook for
cement prices may keep the price sticky at these levels.



In the year 1956, the Industries Minister of Government of India, Shri.
Manubhai Shah, invited Shri. P.A.C.Ramasamy Raja, founder of Ramco
Group of Companies, to establish a
cement plant that was being allotted to the State of Tamil Nadu.Shri.
P.S.Kumarasamy Raja, Ex-Chief Minister of Composite State of Madras and
FormerGovernor of Orissa, was mainly responsible for
setting up this project by his timely advice and encouragement to his cousin
brotherShri. P.A.C.Ramasamy Raja, our Founder.Further Shri.
P.A.C.Ramasamy Raja wasencouraged by the Honourable Chief Minister of
Tamil Nadu, Shri. K.Kamaraj and IndustriesMinister, Shri. R.Venkataraman, in
the formation of heavy industry like cement industry nearVirudhunagar, home
town of Shri. K.Kamaraj, in the most backward district of Ramnad,
wherefounder's native place, viz. Rajapalayam is also situated. For
establishing the cement plant, Madras 3
rd
Cements Ltd. was formed on 3 July
1957 with
the following as its First Directors.

Shri. P.A.C.Ramasamy Raja
Shri. L.Alagusundaram Chettiar
Shri. K.Venkataswami Naidu
Shri. A.S.K.Rathnasamy Nadar
The Company was initially granted an Industrial Licence by Government of
India for setting up a cement factory for manufacturing 1,90,000 M.T of
Portland Cement per annum. this path breaking investment came about.The
balance Rs.40 lakhs was invested by the Shareholders of Rajapalayam Mills
Limited and Ramaraju Surgical Cotton Mills Limited, spread over in
Tirunelveli, Ramnad and Madurai Districts and other new investors and
friends from Singapore and Malaysia who hadimmense faith and confidence in
the founder, Shri. P.A.C.Ramasamy Raja. Industrial Finance Corporation of
India (IFCI) participated in the project by sanctioning a term loan of Rs.40
lakhs. The entire share capital was collected without going to the share
market. Orders were placed for a 200 Tonnes Per Day (TPD) Wet Process
Kiln with Skoda ofCzhekoslovakia. The plant was formally inaugurated
during Founder's time in 1961 by the Honourable Chief Minister, Shri.
K.Kamaraj under the Presidentship of Minister for Industries and Labour,Shri.
R.Venkataraman.Subsequently, it was proposed to increase the plant capacity
to 600 TPD by putting up a second kiln of 400 TPD capacity. Accordingly,
order for ]400 TPD capacity Wet Process Kiln was placed on Skoda of
Czhekoslovakia, during thefounder's time. The establishment of the cement
factory, enabled our founder to realise his dream of providing economic
upliftment to the most backward district of Ramnad.The initial capital of
the Company was Rs.50 lakhs. Out of this, a sum of Rs.10 lakhs was
invested by the Government of Tamil Nadu as a measure of encouragement to
set up this major industry in the most backward district of Ramnad. This is the
only time, the State Government has ever directly invested by way of share
capital in a Company, after getting approval of the Central Planning
Commission. Due to the pragmatic approach of the then Deputy Chairman
of the Planning Commission, Mr. V.T. Krishnamachari, This expansion was
funded by a combination of share capital and term loan. Out of Rs.70 lakhs
that was raised by way of share capital, the Government of Tamil Nadu again
extendedtheir helping hand by subscribing Rs.35 lakhs, through Tamil Nadu
Industrial Investment Corporation (TIIC). Shri. A.M.M.Murugappa Chettiar,
Chairman, T.I.Cycles, Sir. James Doakof A & F Harvey Limited, Madurai
andShri. S.Rajarathnam, the then Secretary of TIIC, greatly assisted the
Company in this regard. Substantial shares were collected from Indians in
Malaysia with the help of Shri. A.Varadhachari, a reputed Chartered
Accountant. The good friends of the founder Shri. K.Thiruvengada Mudaliar,
Shri. V.G.Sundaram, Shri. K.Venkatasami Naidu, key role in mobilising the
share capital from the Public in India and Abroad and also liaisoning with the
Government Departments in getting various licences and with the

FinancialInstitutions in obtaining various loans.Special mention should be
made of His Holiness Sri Mahasannidhanam of Sringeri Sankaracharya
Mutt - Sri AbhinavaVidhyatheertha Mahaswamigal and ShriDharmapuram
Adheenam - Sri ShanmukaDesika Gnanasambanda ParamachariaSwamigal,
who blessed the venture by their kind and generous participation in the
share capital of the company
A t t h e r e q u e s t o f o u r f o u n d e r,Shri. P.A.C.Ramasamy Raja, Shri.
J.Dalmiaji, Chairman, Dalmia Cement (Bharat) Limited, helped in training
Company's employees in his
factory at Dalmiapuram and also activelyassociated himself with the progress
of the factory by giving necessary technicians and materials at every stage,
which greatly helped in completing the project in time.Our Founder's strong
belief in Ethical values, leadership qualities and, motivation to form a
committed team, laid strong foundation for steady growth of the Company.
Hiswideexperience in the industrial field and vast business contacts were
valuable to the Company A t t h e r e q u e s t o f o u r f o u n d e r,Shri.
P.A.C.Ramasamy Raja, Shri. J.Dalmiaji, Chairman, Dalmia Cement
(Bharat) Limited, helped in training Company's employees in his factory at
Dalmiapuram and also activelyassociated himself with the progress of the
factory by giving necessary technicians and
materials at every stage, which greatly helped in completing the project in
time.Our Founder's strong belief in Ethical values, leadership qualities and,
motivation to form a committed team, laid strong foundation for steady
growth of the Company. His wide experience in the industrial field and
vast business contacts were valuable to the Company actively helped in
collection of shares.
From the earliest stages of founding theCompany, Late. Shri. S.Arjuna
Raja,Executive Director, had assisted our founderand subsequently the
present Chairman,Shri. P.R.Ramasubrahmaneya Rajha. He was a source of
strength and inspiration and played a from its inception. The keen interest he
had for the welfare of the employees and the shareholders was unique and
unparalleled. On the demise of
our Founder, Shri. P.A.C.Ramasamy Raja in the year 1962, the reins of the
Company were taken over by his son Shri. P.R.Ramasubrahmaneya Rajha,
our present Chairman.The new second kiln of 400 TPD which wasunder
erection during our founder's lifetime, was inaugurated on 31.07.1963 byShri.
R.Venkataraman, Minister for Industries, after our present Chairman took
over.The company earned profit from the very second year of its operation
and declared its maiden dividend of 10% for the year 1965 (i.e) within 4 years
from commencement of production, in
spite of the selling and distribution price was controlled by Government of
India.In the year 1973, our Chairman was advised by Shri. Pherwani, then
working in New India Assurance, who later on became the Chairman of UTI,

to go in for new technology and also to increase the capacity of our R
R Nagar Plant, adopting the new Dry Process Technology to save fuel. His
advise was very timely and our Chairman took his advise seriously and decided
to put up a 1200 TPD kiln by adopting the latest Dry Process Technology. That
was single largest capacity Kiln with ESP and Cooling Towers also to control
pollution for the first time in the country. This FLS plant supplied by Larsen &
Toubro was established in the factory by scraping the old Wet Process Kilns of
600 TPD. By this bold and timely step taken by our Chairman, the production
was doubled with the new Dry Process Technology changing the entire fortunes
of the Company as the cost of production was reduced drastically due to
saving in fuel cost.For this expansion project, Holtec Engineers Private
Limited, Patna, were retained as technical consultants, who advised the
Company on selection of equipments, keeping in view the latest
developments in the cement industry. In this connection, we have to thank
Founder of M/s. Larsen & Toubro Limited, Mr. Holck Larsen, for his personal
involvement in setting up this unique Process Kilns of 600 TPD. By this bold
and timely step taken by our Chairman, the production was doubled with the
new Dry Process Technology changing the entire fortunes of the Company as
the cost of production was reduced drastically due to saving in fuel cost.For
this expansion project, Holtec Engineers Private Limited, Patna, were
retained as technical consultants, who advised the Company on selection of
equipments, keeping in view the latest developments in the cement
industry. In this connection, we have to thank Founder of M/s. Larsen &
Toubro Limited, Mr. Holck Larsen, for his personal involvement in setting
up this unique project. project. IDBI, IFCI, ICICI, UTI, LIC, SIPCOT,
Oriental Fire and General Insurance Company Limited, New India Assurance
Company Limited and United India Group of Insurers underwrote the issue. In
addition, the above financial institutions together with SIPCOT and Indian
Banksanctioned financial assistance of Rs.700 lakhs for the expansion-cum-
modernisationprogramme. Besides, Indian Bank alsosanctioned a bridge loan
of Rs.150 lakhs, for speedy completion of the expansion-cummodernisation
programme.The capacity of R R Nagar plant at present is 1.2 Million Tonnes
Per Annum. The capacity addition Shri. S.S.Ramachandra Raja played a key
role in successfully planning and executing theCompany's expansion-cum-
modernisationwhich was commissioned on 05.03.1977.In the year 1973-74, to
fund the expansion cum modernisation programmes, the Company went for a
rights issue and public issue of share capital. Even at that time, when the

investors were shy of investing in cement scrips, owing to the rigid control
imposed by the Government over the price and distribution of cement, the
public issue of Rs.107.50 lakhs was over subscribed to an extent of Rs.170
lakhs demonstrating the faith and reputation enjoyed by the Company among
the investing public.IDBI, IFCI, ICICI, UTI, LIC, SIPCOT, Oriental Fire and
General Insurance Company Limited, New India Assurance Company Limited
and United India Group of Insurers underwrote the issue. In addition, the
above financial institutions together with SIPCOT and Indian Banksanctioned
financial assistance of Rs.700 lakhs for the expansion-cum-
modernisationprogramme. Besides, Indian Bank alsosanctioned a bridge loan
of Rs.150 lakhs, for speedy completion of the expansion-cummodernisation
programme.The capacity of R R Nagar plant at present is 1.2 Million Tonnes
Per Annum. The capacity addition was made by way of putting up a new kiln of
1000 TPD capacity in the year 1992 and by optimising utilisation of
support equipments and auxiliaries and increasing theirproductivity.
We are now in the process of scraping the 1200 TPD kiln as it has served more
than 30 years and in its place we are putting up a new Dry Process Kiln
of 1600 TPD, thereby taking the annual cement manufacturing capacity to
1.5 Million Tonnes Per Annum.
During the initial two decades of the Company, the cement industry was under
total control with cement being considered as essentialcommodity. The
Government exercised total control over price and distribution of cement,
which resulted in the sluggish growth for the entire industry.The price of
cement was fixed by the Government of India in consultation with Tariff
Commission. The distribution of cement was regulated by Cement
Allocation and Co-ordinatingOrganisation.In February 1982, partial de-control
wasannounced. During 1982 to 1988 partial decontrol was in vogue. Under
this scheme, levy cement quota was fixed for the companies and the balance
could be sold in the open market. During this period, the Company
undertook extensive modernisations.In the year 1989, Government of
Indiaannounced total de-control of cement. The investments already made
and the capacities created by the Company were taken advantage of, for
accelerating rapid growth.
The Company believed in expansion of its cement manufacturing capacities
by going in for green field projects. In the year 1986, it established a new
cement plant in Jayanthipuram near Vijayawada in Andhra Pradesh, with a

capacity of 0.75 MTPA. The plant capacity was increased to 1.6 MTPA in 2000
and further expanded to the present capacity of 3.6 MTPA, by installing a
new kiln to produce 2 Million Tonnes in the Company's
Golden Jubilee year.
The plant could proudly claim many firsts, which EXPANSION OF CEMENT
DIVISIONwould include the Continuous Flow Silo for
Blending, Scanners for Refractory Monitoring and FL Smidth's exclusive
Fuzzy Logic for computer control for Kiln operation.Shri. P.R.Venketrama
Raja, a B.Techi n C h e m i c a l E n g i n e e r i n g , s o n o fShri.
P.R.Ramasubrahmaneya Rajha and Director of Madras Cements Ltd,
contributed to the speedy implementation of the Jayanthipuram Project. In
the year 1997, it established a new cement plant in Alathiyur in Tamil Nadu
with a capacity of During the initial two decades of the Company, the cement
industry was under total control with cement being considered as
essentialcommodity.
The Government exercised total control over price and distribution of
cement, which resulted in the sluggish growth for the entire industry.The
price of cement was fixed by the Government of India in consultation with
Tariff Commission. The distribution of cement was regulated by Cement
Allocation and Co-ordinatingOrganisation.
In February 1982, partial de-control was announced. During 1982 to 1988
partial decontrol was in vogue. Under this scheme, levy cement quota was
fixed for the companies and the balance could be sold in the open market.
During this period, the Company undertook extensive modernisations.In the
year 1989, Government of Indiaannounced total de-control of cement. The
investments already made and the capacities created by the Company were
taken advantage of, for accelerating rapid growth.Jayanthipuram Plant - initial
and present stage0.9 MTPA - Line 1. The unit was expanded by putting up a
second line. The Line 2 was commissioned ahead of schedule in a record
time of just nine months. The great feat was made possible because of the
co-operation extended by the contractors and suppliers, viz., Petron, Fuller,
Loesche, Aumund, etc.
The Alathiyur unit was set up with the state of the art technology in cement
industry, such as latest revolutionary SF Cross Bar Coolers, which was

installed for the first time outside USA. Also for the first time in India,
Vertical Roller Mills - OK Mill of FL Smidth and Loesche Mills of Loesche
were installed for cement grinding.
With further upgradation, the capa Honourable Chief Minister of West
Bengal, Shri.Buddhadeb Bhattacharjee, for havingallotted suitable land inside
the Kolaghat Thermal Power Station, it is being designed in such a way that
flyash from the power station would be directly pumped to the grinding
unit.Also we are setting up grinding units at Salem and Chenglepet in Tamil
Nadu, which would enable the Company to serve the customers in time.
With this, the seed sown by the Founder with the plant capacity of less than
1 lakh tonnes per annum is poised to reach 11 Million Tonnes per annum in
the year of Golden Jubilee,u n d e r t h e v i s i o n a n d s t e w a r d s h i pcity
of the Alathiyur plant increased to 3 MTPA and the Company became the
largest producer of cement in Tamil Nadu and second largest in South
India. The unit has been consistently rated as the best energy and fuel efficient
and environmental friendly unit in the country. We have won the ''Four
Leaves'' Award for our Alathiyur Plant.This is the first time ever "Four Leaves"
was awarded to Honourable Chief Minister of West Bengal, Shri.Buddhadeb
Bhattacharjee, for havingallotted suitable land inside the Kolaghat Thermal
Power Station, it is being designed in such a waythat flyash from the power
station would be directly pumped to the grinding unit.Also we are setting up
grinding units at Salem and Chenglepet in Tamil Nadu, which would enable the
Company to serve the customers in time.
With this, the seed sown by the Founder with the plant capacity of less than
1 lakh tonnes per annum is poised to reach 11 Million Tonnes per annum in
the year of Golden Jubilee,u n d e r t h e v i s i o n a n d s t e w a r d s h i p any
industry in India - more so to a cement industry. The "Four Leaves" was
awarded to us by Centre for Science and Environment, New Delhi.The
Company is establishing a 2 MTPA capacity cement plant in a green field site,
in Ariyalur in Tamil Nadu, coinciding with the Golden Jubilee year of the
Company.Customers' continued satisfaction and sensitivity to their needs are
the Company's source of strength and security. With this focus in view, the
company is establishing a grinding unit atAriyalur project in progress - Pre
Heater Kolaghat at West Bengal. Thanks to theHonourable Chief Minister of
West Bengal, Shri.Buddhadeb Bhattacharjee, for havingallotted suitable land
inside the Kolaghat Thermal Power Station, it is being designed in such a way

that flyash from the power station would be directly pumped to the grinding
unit.Also we are setting up grinding units at Salem and Chenglepet in Tamil
Nadu, which would enable the Company to serve the customers in time.
With this, the seed sown by the Founder with the plant capacity of less than
1 lakh tonnes per annum is poised to reach 11 Million Tonnes per annum in
the year of Golden Jubilee,u n d e r t h e v i s i o n a n d s t e w a r d s h i pof the
Chairman & Managing Director,Shri. P.R.Ramasubrahmaneya Rajha. At the
time of Shri. P.R.Ramasubrahmaneya Rajha assuming charge, the
company'snetworth was Rs.1.15 crores and the turnover was Rs.0.60 crores,
with only plant for the Company with a capacity of 0.66 lakh tonnes per
annum. Under his leadership, theCompany has now grown having cement
plants in 5 different locations in 3 states with an aggregate capacity of 11
Million Tonnes Per stAnnum. Its networth as on 31 March 2008 has increased
to Rs.951crores with the turnoverexceeding Rs.2,000 crore mark. All these
have been achieved with an actual investment of Rs.3 crores only by way of
Share Capital from the shareholders and an investment of more than
Rs.3,000 crores, mainly by plough-back of profits and short term borrowings,
without seeking additional investment from the shareholders. Under his
leadership, the Company has become a trend setter in technology, in fuel
efficiency, quality and cost control.
The Company remained in the forefront in absorption of scientific and
technological development in cement production. We are the first to go in for
large capacity Dry Process Kilns.to adopt dry process technology in South, thus
saving of fuel.to introduce the concept of blended cements with flyash,
producing 100% blended cement and successfully marketing it.Vertical Roller
Mill at AlathiyurBesides the quality of its product, one of the main reasons for
the Company's ability to retain its strong hold and also consistently expand its
market share in new areas is due to a vast network of dealers developed over a
period of time. The Company can be proud of having the largest number of
stockists, besides having largest number of exclusive stockists spread over in
rural and semi urban areas. The dealers are treated as part of RAMCO FAMILY
and the Company has many welfare schemes including extension of Medical
Insurance for dealers and their families.On the support extended by the
RAMCO dealers, it is worthwhile to mention that the company has dealers
who are continuing their business relationship with the Company for more
than 2 generations.

TECHNICAL FORE-RUNNER
to set up Vertical Grinding Mill for cement production, to save power.to
use magnetic separators for enriching limestone quality.to go in for surface
miner for mining limestone, thereby avoiding the conventional method of
drilling and blasting, which is detrimental to the environment. to introduce ESP
with Cooling Towers in the cement industry for pollution control.to use X-
Ray analyser for clinker and raw materials to control quality.to go in for
PLC based system for process controlWith the completion of all the
above expansions, the Company is poised to become the largest cement
producer in South India and its market share in the four southern states of the
country will reach 20%.
The Company is a pioneer in Blended Cement and 90% of its production is
Blended Cement, specificallyPozzolana Cement, by adding flyash from
thermal power stations. TheCompany's product of blended cement is marketed
under the brand name "RAMCO SUPER GRADE" (RSG). It is the largest
selling brand in Tamil Nadu and Kerala. RSG stands for quality and consistency
in making a very good concrete for building.
The Company remained in the forefront in absorption of scientific and
technological development in cement production. We are the first to go in for
large capacity Dry Process Kilns.to adopt dry process technology in South, thus
saving of fuel.to introduce the concept of blended cementswith flyash,
producing 100% blended cement and successfully marketing it Besides the
quality of its product, one of the main reasons for the Company's ability to
retain its strong hold and also consistently expand its market share in new areas
is due to a vast network of dealers developed over a period of time. The
Company can be proud of having the largest number of stockists, besides
having largest number of exclusive stockists spread over in rural and semi
urban areas. The dealers are treated as part of RAMCO FAMILY and the
Company has many welfare schemes including extension of Medical
Insurance for dealers and their families.On the support extended by the
RAMCO dealers, it is worthwhile to mention that the company has dealers
who are continuing their business relationship with the Company for more
than 2 generations.
to set up Vertical Grinding Mill for cement production, to save power.
to use magnetic separators for enriching limestone quality.

to go in for surface miner for mining limestone, thereby avoiding the
conventional method of drilling and blasting, which is detrimental to the
environment.
to introduce ESP with Cooling Towers in the cement industry for pollution
control.
to use X-Ray analyser for clinker and raw materials to control quality.
to go in for PLC based system for process control.
To optimise the cost of electrical energy, the company had installed coal
based captive thermal power plants at Alathiyur andJayanthipuram units. Both
the thermal power plants, are of 36 MW capacity (2 x 18 MW) each. The
electrical energy requirements of both Alathiyur and Jayanthipuram units are
being fully met from the respective thermal power plants.In the year 1993, as
part of self-reliance in power and diversification, the Company went for setting
up of wind farms to meet the electrical energy requirements of its cement
plants. The first wind farm was set up with a capacity of 4 MW,
In the year 1998, the Companyestablished its Ready Mix Concrete unit to cater
to the needs of the Infrastructure and Housing industry. From the beginning, the
Company has believed in continuous upgradation of In the year 2003, the
Company established its Dry Mortar Plant, the first of its kind in India,
manufacturing plastering materials and tile fixing compounds, required for
theHousing industry comprising of 16 nos. of Wind Electric Generators. Over a
period of time, there has been significant improvement in the capacity
addition and the present capacity of our wind farm is 139 MW,
comprising of 217 nos of Wind Electric Generators. The total investment in
the wind farm division is Rs.717 crores. The diversification to go in for
renewable energy sources, demonstrates the Company's commitment for
protecting theenvironment and reduce the power cost. The investment in
wind farm has helped the Company to isolate its power cost from ever
increasing oil and coal prices, which inturn increases the cost of Electricity
Board Power. The entire powerrequirement of our first plant at RR Nagar,
grinding plants and new Ariyalur plant will be met by energy generated from
our wind farms.From the beginning, the Company has believed in continuous
upgradation of In the year 2003, the Company established its Dry Mortar
Plant, the first of its kind in India, manufacturing plastering materials and tile

fixing compounds, required for theHousing industry.technology to improve the
quality of its production and productivity.
With this aim in mind, the Company has always been in the forefront in
absorbing the latest research and scientifidevelopments relating to
cement,cement production and its application.In the year 2001- 2002, the
Company established a dedicated R & D C e n t r e i n C h e n n a i . I t w a
sinaugurated by Prof. P.K.Mehta,University of California, USA, in the
presence of Dr. V.M.Malhotra, Emeritus Scientist, Canada.The Centre consists
of 3 laboratories, viz.Strength of Materials LaboratoryChemical
LaboratoryInstrumental Laboratory
The R & D centre is actively pursuing efforts in using alternative fuelmaterial,
improving the strength of cement and cost reduction inmanufacturing of
cement, leading to increase in quality and costcompetitiveness of the
Company's products. The Company has an excellent Management
Information System - Enterprises Resources Planning - designed, developed
andimplemented by its group company, Ramco Systems Limited.Starting
with the mining through manufacturing till marketing, the entire operations are
supported
'The Four Leaves Award'Over the period of 50 years, there has not been a single
award, which the Company has not won. To list a few among the awards that
have been given to usFour Leaves Award from Centre for Science and
Environment, the first in the country to get the Four Leaves rank, for most dust
free and environmental friendly factory.Excellence in Energy Efficiency
Awards instituted by Confederation of Indian Industry
Because of this, excellent Management Information System is facilitated
across all levels. The MIS makes it possible to take right decisions in time.
This has enabled the Company to improve its performance in all its areas
and to develop strategic initiatives, in tunewith the changes happening in the
business horizon.
The Company has an excellent Management Information System -
Enterprises Resources Planning - designed, developed andimplemented by its
group company, Ramco Systems Limited.Starting with the mining through
manufacturing till marketing, the entire operations are supported The Four
Leaves Award'Over the period of 50 years, there has not been a single award,
which the Company has not won. To list a few among the awards that have been

given to usFour Leaves Award from Centre for Science and Environment, the
first in the country to get the Four Leaves rank, for most dust free and
environmental friendly factory.Excellence in Energy Efficiency
Awardsinstituted by Confederation of Indian Industry
The Company has always been rewarding the shareholders handsomely, by
way of dividend and issue of bonus shares. The Company is having a
record of paying maximum percentage of dividend to the shareholder, in the
cement industry.A shareholder investing Rs.100/- in the share capital of the
Company at the time ofincorporation, would have received Rs.1,786/- as
dividend, yielding an average annual return of 35.72%.
The objective of the Company is to protect and enhance the value of the
shareholders'investment. Even during the initial stages of the Company, when
the plant was being set-up,
RETURNS TO SHAREHOLDERSbefore commencement of
commercialproduction and earning of profits, the Company considered it
necessary to reward itsshareholders by paying interest on the amount invested
by them.
The said investment of Rs.100/- would have risen to a value of Rs.1,33,960/-
as on 31.03.2008, yielding an annual average capital appreciation of 26.77%.
The Company has issued Bonus shares in the ratio of 1 : 1 in 1992 and 1994.
Its Board of Directors have also recommended a Bonus issue in the ratio of 1 : 1
for consideration in ththe Annual General Meeting to be held on 11August
2008.


Madras cement financial details (Rs.
In Crores)
AGMNo. YEAR CAPITAL RESERVES & FIXED ASSETS-
Cement Net Net Dividend
Ended Surplus Gross Block
Produced Revenu

(lack in tones)
1 30.09.1958 0.26 - 0.01 -
- - -
2 30.09.1959 0.45 - 0.47 -
- - -
3 30.09.1960 0.49 - 0.85 -
- - -
4 30.09.1961 1.05 - 1.00
0.22 0.19 -0.10 -
5 30.09.1962 1.19 - 1.84
0.64 0.60 0.06 - -
6 30.091963 1.19 0.01 2.09
0.62 0.56 0.05 -
7 30.09.1964 1.19 0.04 2.18
1.41 1.24 0.10 -
8 30.09.1965 1.19 0.17 2.42
1.82 1.79 0.25 10
9 30.09.1966 1.19 0.45 1.54
1.64 1.90 0.11 10
10 30.09.1967 1.19 0.61 2.61
1.69 2.00 0.11 10
11 30.09.1968 1.19 0.63 2.73
1.81 2.10 0.04 10
12 30.09.1969 1.19 0.67 2.83
1.78 2.24 0.08 10
13 30.09.1970 1.19 0.74 3.03
2.10 2.69 0.17 12
14 30.09.1971 1.16 0.74 3.25
1.83 2.48 0.09 12

15 30.09.1972 1.12 0.67 3.35
1.49 2.09 0.01 6
16 30.09.1973 1.43 0.51 3.50
1.21 1.82 -0.21 -
17 30.09.1974 2.62 0.55 3.66
1.72 2.89 -0.15 -
18 30.09.1975 2.72 0.56 4.06
1.42 3.35 0.26 -
19 30.09.1976 2.74 0.56 4.87
2.00 4.15 0.01 -
20 31.12.1977 2.74 0.25 17.14
3.35 6.68 -0.84 -
21 31.12.1978 3.02 0.32 17.36
3.21 7.48 -0.40 -
22 31.12.1979 3.02 0.32 18.07
3.55 9.81 0.37 -
23 31.12.1980 3.03 0.77 19.26
4.29 13.09 1.34 -
24 31.12.1981 2.93 2.69 21.78
4.93 17.38 2.66 15
25 31.12.1982 2.96 9.09 24.74
4.60 24.71 6.95 20
26 31.12.1983 3.41 10.91 27.73
3.85 22.84 2.30 15
27 31.12.1984 3.42 12.11 32.07
4.67 27.97 1.66 15
28 31.12.1985 3.42 15.76 65.66
4.24 33.36 5.83 25
29 31.12.1986 3.42 23.26 110.43
4.59 34.88 4.29 25

30 31.12.1987 4.02 17.91 121.00
5.49 46.00 -4.63 -
31 31.03.1989 3.72 11.31 133.79
11.29 101.06 -7.03 -
32 31.03.1990 3.72 12.55 136.32
10.27 102.11 1.25 -
33 31.03.1991 3.72 30.45 141.00
11.16 139.97 19.31 30
34 31.03.1992 3.72 52.64 161.86
12.62 184.73 23.21 30
35 31.03.1993 6.64 66.33 208.68
12.59 202.18 20.17 30
36 31.03.1994 6.64 83.79 233.98
14.41 240.72 19.59 36
37 31.03.1995 11.97 125.85 333.24
15.12 298.91 52.85 40
38 31.03.1996 11.98 207.34 478.30
18.29 392.09 90.56 55
39 31.03.1997 11.98 277.06 784.07
18.10 419.69 77.20 55
40 31.03.1998 11.98 301.70 865.69
23.00 489.72 31.97 55
41 31.03.1999 12.07 325.07 902.86
25.80 523.71 31.85 55
42 31.03.2000 12.07 355.86 1050.79
27.20 519.07 37.83 55
43 31.03.2001 12.07 392.34 1215.09
26.50 620.83 44.33 55
44 31.03.2002 12.07 250.03 1403.22
31.80 709.37 25.66 60

45 31.03.2003 12.08 252.75 1445.54
35.20 630.37 12.96 60
46 31.03.2004 12.08 273.97 1449.76
37.00 699.82 33.40 75
47 31.03.2005 12.08 318.40 1570.47
38.00 745.11 55.92 100
48 31.03.2006 12.08 377.92 1640.53
47.10 1031.35 79.02 150
49 31.03.2007 12.08 652.75 1798.98
56.69 1581.69 308.02 250
50 31.03.2008 11.90 938.96 2714.45
58.45 2021.35 408.29 400

South Zone
Particulars Cement
production change
Price change Capacity
utilization %
March-06 88.07
March-07 93.22
March-08 94.40
March-09 89.14
March-10 76.03

India cement Ltd-South Zone
Production Price
change
Capacity
Utilization
Change
production
Operation
profit
margine
Change in
PAX
March-05 100 74 100 12 100

March-06 95 96 130 17 989
March-07 126 99 135 33 10455
March-08 150 103 142 36 13920
March-09 160 88 140 28 9436
March-10 139 77 154 21 7737
March-11 163 72 144 10 1487
Source: Financial data: Moneycontrol.com,other:CMIE data
Madras cement South Zone

Particulars Price
change
Capacity
utilisation
Change in
production
Operating
profit
margin
Change in
PAX
March-05 100 67 100 21 100
March-06 95 83 124 21 141
March-07 126 99 148 35 557
March-08 150 93 153 37 730
March-09 160 88 171 31 650
March-10 139 80 212 31 632
March-11 163 59 189 24 377

Source: Financial data: Moneycontrol.com,other:CMIE data
Dalmia Bharat Sugar & Industry Ltd
Particulars Price
change
Capacity
utilisation
Change
production
Operating
profit
margin
Change in
PAT
March-05 100 105 100 14 100
March-06 95 126 120 15 275
March-07 126 78 212 26 742
March-08 150 94 255 32 1125
March-09 160 92 262 29 514
March-10 139 47 315 22 444
March-11 163 52 361 10 10
Source: Financial data: Moneycontrol.com,other:CMIE data
Dalmia Cement

MO R E than the working results of Dalmi a Cement, the novel method of distributing
portion Of the dividend w i ll arouse considerable interest. Of the dividend propose to
the various classes of shareholders, a portion w i ll be paid in the shape of shares in
Orissa Cement, a subsidiary of the company. Part of the managing agents' commission
w i ll also be paid in a similar manner. It is explained by the directors that the shares
held by Dalmia Cement in its subsidiary, Orissa Cement, w i l l , thus, b? gradually
distributed to its shareholders. It is argued that tins arrangement is being implemented
so that Dalmia Cement shareholders can receive the dividend directly, thereby
avoiding double payment of corporation tax. This is an ingenious method of
distributing dividend. Many holding companies are likely to emulate the example so as
to avoid the burden of double taxation. One of the questions that naturally arises is
whether this sort of arrangement is consistent with the parent company's hold over
thesubsidiary concern. This problem, however, does not arise if the managing
agents hold the majority of shares in both the parent and the subsidiary companies.
Does this arrangement involve an issue of bonus shares by, or an increase in capital of,
Dalmia Cement ? Dalmia Cement shareholders are not receiving any bonus
share. They are only receiving some shares of Orissa Cement in lieu of part of the
dividend. What is proposed is that the parent company w i ll gradually transfer its
holdings in the subsidiary company to its shareholders. This w i ll i nvolve re-
adjustments in the parent company's capital reserve account. Reserves of Dalmia
Cement are not going to be capitalised. No direct issue of bonus shares is
involved. The proposed arrangement w i ll not, by itself, lead to any increase in the
capital of the holding company. Though the ingenious way of dividend distribution
caused rumours of bonus issue by Dalmia Cement, it was subsequently realised that
the
arrangement had no such direct implication.. W h a t about the interests of the

shareholders of Dalmia Cement? That ultimately depends on whether the working
results of Orissa Cement compare unfavourably w i t h those of the holding company.
Though the arrangement means reduction in corporation-tax liabilities of the
companies concerned, it does not increase the income-tax liability of Dalmia Cement
sharehold

The project is performed at Dalmia Cements (Bharat) Ltd, Chennai. The project
focuses on studying the consumer behavior in selecting Cement for
construction. This will give Dalmia Cements an insight into the market and try
to identify the major factors expected by the consumers during cement
purchase. Cement customers are broadly classified into 3 segments-Individual
housing, Industrial Construction and Government infrastructure. Individual
houses constitute nearly 50% of the total by volume (Source: Indian Brand
Equity Foundation).Government Infrastructure and Industrial Construction
account for 25% each of the total by volume.
The Cement companies are interested in the individual housing segment
because it is highly profitable segment by value compared to the other two
segments. This segment is most profitable because the bargaining power of
individual house owners is less whereas the government and industries make
bulk purchase and ask for low prices. Therefore, the customer segment chosen
for this project was Individual houses segment which is profitable by volume
and value.
This marketing project focuses on finding out the major factors that influenced
their decision making in choosing cement. Exploratory research was first
carried out with 4 masons to get an insight into the cement industrys current
trends. Then, a questionnaire was prepared and pretested with 6 individual
owners. The questionnaire listing various factors affecting their decision process

was refined and administered with 75 individual house owners. Then, the data
was analyzed using SPSS Software. Factor analysis was done to summarize the
major factors that influenced decision making of cement buyers.
1.1. MAJOR FINDINGS
The research was conducted in Chennais suburban areas in Kanchipuram
district and in Kanchipuram.
1. There are 3 major factors that influence the purchase decision of individual
house owners, namely
a. The properties of cement like strength, durability, quick setting, and
fineness play a major role in choosing cement.
b.Secondly, the companys sales and marketing actions like media
promotion, service, competitive pricing comes out to be an important factor.
C.The recommendation of mason influences the customer in making the
choice of cement.
2. Ultratech and Dalmia Vajram are the most preferred cements in this sample
of 75.
3. People belonging to A1 and A2 socio-economic classes are the major
customers in this individual housing segment. 24 % of A1 class prefers Dalmia
Vajram and 17.3% of A2 prefers Dalmia Vajram among other cements in this
sample of 75.
Factor Analysis for A1 Socio-economic class and A2 socio-economic class
were done separately. The results are similar to the factor analysis done for the
entire sample. That is, the 3 major factors , namely, the physical properties of
cement, recommendation by influencers like mason and the sales and marketing
efforts of the company play a major role in purchase decision holds true for
both the A1 and A2 Socio-economic class who are the major customers of
cement.

A1-Businessmen, middle and senior Executives
A2-Businessmen, middle and senior executives with college education,
supervisors, graduate shop owners
4. Brand bought based on masons / contractors recommendations: 85%
5. Location: This chart represents the percentage of respondents in each locality
covered by the survey.
6. Income wise Distribution: 42.6% of the sample belongs to 20001-30000

categories and 29.3% belongs to 30001-50000 slabs.
7.Agewise Distribution: 37% of the respondents surveyed are within 46-50
years and 33% belongs to 51-55 years

1.2.CONCLUSION
1.There are mainly 3 factors that contribute to the purchase decision of cement
a.The properties of cement like strength, durability , quick setting, fineness,no
cracks.
b.Recommendation by mason plays a major role.
c.The companys sales and marketing efforts like price,brand
building,media,service also influence the customer.
2.People belonging to A1 and A2 socio-economic classes are the major builders
of individual houses. Therefore, the advertisements can focus on this segment in
order to motivate them.
1.3.RECOMMENDATIONS
1. As all the cement companies follow the Bureau of Indian Standards in cement
production, the properties of the cement offered by different companies remain
almost similar. There will not be much of product differentiation. Therefore,
the companies can focus on their sales and marketing efforts and try to stand out
only with the help of promotion, service, delivery,etc. The recommendations of
masons also play a major role.
As the masons recommendation plays a major role in selection of cement by the
consumer,the company can make special promotional effort to reach the masons by
organizing a meet-giving away presentation on features of brand, dinner, gifts,etc.to
promote the brand.
2.Brand building exercise needs to be done consistently to create awareness
among the consumer.
3.Reasonable prices are expected by the majority of the consumers. In contrast,
Ultratech and Dalmia Vajram which are priced higher, enjoy higher market
share inspite of lower priced brands. This shows that the brand quality
perception in consumers minds is related to price. People are willing to pay a

higher price for premium brands.

2.PROBLEM DEFINITION
2.1. BACKGROUND TO THE PROBLEM
2.1.1. COMPANY OVERVIEW
The company was founded in 1935 by Jaidayal Dalmia, with the cement
division being set up in 1939 in South India.It concentrates on cement, sugar
and power .The company boasts of over 70 years of strong experience.
In the pre-independence period, the Dalmia Group had set up four cement
plants, out of which two got affected by partition and Independence. The
remaining two are operational as Dalmia Cement and made strategic
investments in Orissa Cements Limited (OCL). DCBL has always been the
pioneer in introducing new technologies, which the other peers in the same
industry follow today. They are known to be the leader in their industry segment
in the niche category.
TABLE1
Revenue Breakup
Cement Business 72%
Sugar Business 16%
Refractories and Power 12%
Source:Bloombergutv
DCBL has business interests in two major segments namely Cement and Sugar
with share of ~72% and 16% respectively for FY09 and rest coming from
Power and others. DCBL has cement plants in Southern States of Tamil Nadu
(Dalmiapuram & Ariyalur) and Andhra Pradesh (Kadapa), with combined

capacity of 9 million tons per annum (MnT). With ~51% of its cement getting
sold in Tamil Nadu, 25% in Kerala, 11% in Karnataka, 9% in Andhra Pradesh
and rest 4% in eastern and other regions, DCBL enjoys double digit market
share in its region. DCBL is a pioneer in super specialty cements like Oil well,
Railway sleeper and Air strip. DCBL also has three Integrated Sugar Mills in
the State of UP with installed capacity of 22,500 tons of cane crush per day,
distillery capacity of 80 kilo litres per day (KLPD) & cogeneration facility.
DCBL also has stake in OCL ~ 21.7% having cement manufacturing capacity of
5.4 MnT .
TABLE 2
Dalmia cements Market share
Company Place Market share
Dalmia Cement Tamil Nadu 12%
Dalmia Cement Kerala 13%
OCL India West Bengal 8%
OCL India Orissa 29%
Source:Bloombergutv


TABLE 3
Cement Volumes for the Fiscal Year 2009
Cement Volume FY09(MT)
Dalmia Cement 3.41
OCL India 2.71
Total 6.14
Source:Bloombergutv
Dalmia Cement takes the credit of being the first to develop specialty cement
for Railway Sleepers way back in 1976.In the year 1984,Dalmia Cement
developed a special cement for petroleum oil wells,an import substitute

product,for the first time in India.They developed the air strip Cement for the
first time in India.
Impressed by the techno-leadership of Dalmia Cement,the World Bank set up
the Regional Training Centre for cement industry at Dalmiapuram,one of its
kind in South India,in association with Dalmia Cement in the year 1991.Dalmia
Cement has the distinction of being one of the first companies in India to be
awarded the ISO 9000 certification.Cement accounts for 70% of
revenues.Current Operating capacity is around 9MT.
Recently, Dalmia Cement has increased its stake in OCL India to
45.4%.Enterprise Value of cement unit and OCL India around Rs3300 cr and
Current Cement capacity of OCL India around 5.3 MT
Dalmia Cement plans 10 MT of additional Greenfield capacity by 2013 .
2.1.2.INDUSTRY ANALYSIS
The Indian cement industry with a total capacity of 200 million tonnes
(including mini plants) has emerged as the second largest market after China,
surpassing developed nations like the USA and Japan.
Low cost technology and extensive restructuring have made some of the Indian
cement companies the most efficient across global majors.
In FY09, the GDP growth slowed down to 6.7% compared to the 9% growth
reported in FY08.
However, cement consumption growth in FY09 at 8.4% has been able to
maintain its multiplier factor with GDP growth at 1.25 times.
In FY09, all the regions except the Western and the Northern region have
outperformed the industry in consumption growth. The Eastern region
continued its buoyant performance and registered the highest cement
consumption growth of 11.3% on yoy basis. The Southern and Central regions
also reported impressive double-digit growth of 10.4% in cement consumption.
But, the Northern region has registered the lowest growth in the cement demand

on yoy basis.Comparatively, poor demand growth registered by the Western
region was on account of high base of the last year and also slightly subdued
demand.
With focus on capacity addition, many small/medium players have been able to
capture more market share and consolidate their position in the industry in the
last two years. Market share of top five individual companies taken together
show a decline to a level of 44.3% in FY09 from 46.3% in FY08.
Even though the utilisation rate dropped, average cement prices in FY09 rose by
about 5% on yoy basis. But, the growth in cement prices remained slightly
subdued compared to 21% and 14%,registered in FY07 and FY08, respectively.
On the regional front, prices in the Southern region were firm and ruling
consistently at the highest level amongst all the regions in FY09. However, due
to slowdown in the cement off take and relatively low operating rate, prices in
the Northern region remained at the lowest levels compared to other regions.
In FY09, the cement industry witnessed a fall in profitability. Even though,
average realisation for the industry increased by about 4% on yoy basis, cost of
production has increased by 18.5% on yoy basis. Power and fuel cost for many
cement companies increased in FY09 mainly on account of substantial increase
in coal prices. As a result, the operating profit margin of the industry dropped
by about 8- 9% in FY09. Also, higher interest rates and depreciation provided
on expanded capacities took its toll on the net profit margin of the industry
which witnessed a decline by about 5% in FY09.
Going forward, cement companies would be benefited by their focus on captive
power generation which would help them to reduce power & fuel cost. With
reduction in coal prices, the authors have estimated that per tonne power & fuel
cost of the industry will decline by about 12% in FY10 on yoy basis.
Cement is a fine powder, which when mixed with water undergoes chemical
change and thereafter allowed to set and harden is capable of uniting fragments
or masses of solid matter together to produce a mechanically strong material.

Cement can be used as binding material with water, for bonding solid particles
of different sizes like bricks, stones or aggregate to form a monolith. Cements
used in construction of buildings and civil engineering works contain
compounds of lime, silica and alumina as their principal constituents and can be
called as complex compounds.
Cement is a very essential commodity used in the construction of buildings and
other structures.Cement is a binder, a substance which sets and hardens
independently, and can bind other materials together. It is also the second most
consumed material on the planet (WBCSD 2002-World Business Council for
Sustainable Development)
It is consented to be a core sector accounting for approximately 1.3% of GDP
and employing over 0.14 million people. Also the industry is a significant
contributor to the revenue collected by both the central and state governments
through excise and sales taxes. Cement is considered preferred building material
and is used worldwide for all construction works such as housing and industrial
construction, as well as for creation of infrastructures like ports, roads, power
plants, etc. Indian cement industry is globally competitive because the industry
has witnessed healthy trends such as cost control and continuous technology
upgradation.
Some of the reasons for its popularity and universal acceptance are listed
below:
a. Cement can be produced in large volumes in controlled condition, packed and
transported
b. Cement is several times stronger binding material than lime and clay
c. It can be mixed and used at will with locally available materials at site
d. When stored properly in ordinary atmosphere does not deteriorate for
reasonably longer time
e. When mixed with water, starts setting and acquires sufficient strength in a

day or two, where as other binding materials require much longer time
f. When water is added to quick lime, lot of heat is generated, but in case of
cement, heat generated is unnoticeable and comparatively much lesser
g.It can withstand compressive stresses well. Where tension and shear stresses
occur it gives good bond to steel reinforcement and transfers excess stresses to
steel.
h. It is produced from the materials like limestone, hematite, bauxite, clay, etc
which are abundantly available in the upper crust of the earth.
The Indian cement industry is extremely energy intensive and is the third largest
user of coal in the country. It is modern and uses latest technology, which is
among the best in the world. Also, the industry has tremendous potential for
development as limestone of excellent quality is found almost throughout the
country.India is the world's second largest producer of cement after
China.Indian cement industry is the largest with overall capacity of
217.9million tonnes. Cement contributes significantly to the GDP of the nation
directly and indirectly. Demand for cement in the country is expected to
continue its buoyant ride on the back of robust economic growth and
infrastructure development in the country. Cement industry has contributed
around 8% to the economic development of India.
Despite some consolidation, the industry remains somewhat fragmented and
merger and acquisition possibilities are strong. Investment norms including
guidelines for foreign direct investment (FDI) are investor-friendly. All these
factors present a strong case for investing in the Indian market.
2.1.3.TYPES OF CEMENT
There are some varieties in cement that always find good demand in the
market.
Among the different varieties of cement, India produces Ordinary Portland
Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag
Cement (PBFS), Oil Well Cement,Rapid Hardening Portland Cement and

Sulphate Resisting Portland Cement. The share of blended cement in total
cement production has increased from 29 per cent in 1997-98 to 54.5 per cent in
2003-04.
Ordinary Portland Cement (OPC): Also referred to as grey cement or OPC,
it is of much use in ordinary concrete construction. In the production of this
type of cement in India, Iron (Fe2O3), Magnesium (MgO), Silica (SiO2),
Alumina (AL2O3), and Sulphur trioxide (SO3) components are used.There are
2 grades of cement OPC43 and OPC53.It accounts for 70% of the
consumption.OPC comes in 3 different grades-Ordinary Portland Cement 33,
43, 53 grade (OPC), 53-S (Sleeper Cement). 33, 43 and 53 grade in OPC
indicates the compressive strength of cement after 28 days when tested as per
IS: 4031-1988, eg, 33 Grade means that 28 days of compressive strength is not
less than 33 N/mm2 (MPa) . Similarly for 43 grade and 53 grade the 28 days
compressive strength should not be less than 43 and 53 MPa respectively. 43
and 53 grade are also being introduced in PPC and PSC shortly by the Bureau
of Indian Standards (BIS)
Portland Pozolona Cement (PPC): As it prevents cracks, it is useful in the
casting work of huge volumes of concrete. The rate of hydration heat is lower in
this cement type. Fly ash, coal waste or burnt clay is used in the production of
this category of cement. It can be availed at low cost in comparison to OPC.
PPC produces less heat of hydration and offers greater resistance to attack of
aggressive environment, gives long-term strength and enhances the durability of
structures. PPC is manufactured by inter grinding OPC clinker with 15-35% of
pozzolanic material. Pozzolanas are essentially siliceous or aluminous material,
which in itself possesses no cementitious properties, which will be in finely
divided form and in the presence of moisture react with calcium hydroxide,
liberated in the hydration process, at ordinary temperature, to form compounds
possessing cementitious properties. The pozzolanic materials generally used are
fly ash or calcined clay. PPC is used in heavy load infrastructure and

constructions such as marine structures, hydraulic structures, mass concreting
works, plastering, masonry mortars, and all applications of ordinary Portland
cement.
White cement: It is a kind of Ordinary Portland Cement. The ingredients of this
cement are inclusive of clinker, fuel oil and iron oxide. The content of iron
oxide is maintained below 0.4% to secure whiteness. White cement is largely
used to increase the aesthetic value of a construction. It is preferred for tiles and
flooring works. This cement costs more than grey cement.
Portland Blast Furnace Slag Cement (PBFSC):PBFSC consists of 45 per
cent clinker, 50 per cent blast furnace slag and 5 per cent gypsum and accounts
for 10 per cent of the total cement consumed. It has a heat of hydration even
lower than PPC and is generally used in the construction of dams and similar
massive constructions. PSC is obtained by mixing blast furnace slag, cement
clinker and gypsum and grinding them together to get intimately mixed cement.
The quantity of slag varies from 30-70%. The gain of strength of PSC is
somewhat slower than OPC. Both PPC and PSC will give more strength than
that of OPC at the end of 12 months. PPC and PSC can be used in all situations
where OPC is used, but are preferred in mass construction where lower heat of
hydration is advantageous or in marine situations and structures near seacoast or
in general for any structure where extra durability is desired.For eg, Marine
structure, structures near the sea, sewage disposal treatment works, water
treatment plants, etc
Oil Well Cement: Made of iron, coke, limestone and iron scrap, Oil Well
Cement is used in constructing or fixing oil wells. This is applied on both the
off-shore and on-shore of the wells.
Sulphate Resistant Cement: Sulphate Resistant Cement is used in projects
such as dams that are exposed to high amounts of sulfates. It is also used
wherever there are constructions that are in direct contact with clay soil, which
contains a large amount of sulfate salt, such as foundations and pillars.

Sulphate Resistant is a pre-blended, ready-to-use cement base grout containing
non-ferrous fluidities and anti-shrinkage compounds blended with siliceous
aggregate and Portland cement. A highly sulphate resistant cement, with an
extremely low C3A content, is utilized in the manufacture of Sulphate Resistant
Grout. This special cement is very resistant to attack from sodium and
magnesium sulphates found in ground water. SRC can be used for Foundation,
Piles, Basements, Underground structures, sewage and water treatment plants
and coastal works, where Sulphate attack due to water or soil is anticipated
2.1.4. MARKET PLAYERS
The larger players in the industry control nearly 53% of the capacity and
revenues for the sector in India. The key players in the country include
Associated CementCompanies (ACC), Ultratech
Cements, Grasim Industries, Gujarat Ambuja Cement and India Cements
Limited. The market share of the major cement players, in terms of revenue and
production.
TABLE4
Market Share in terms of Sales
S.No Cement Market Share
1. A C C 17%
2. Grasim 15%
3. Ultratech 12%
4. Ambuja Cements. 9%

5. Other players 47%
Source:CMA

CHART1
Major Market Players


.
Source:Cement Manufacturers Association
Associated Cement Companies Ltd (ACC)
Associated Cement Companies Ltd manufactures ordinary Portland
cement,composite cement and special cement.It has twelve manufacturing
plants located throughout the country with exports to
SAARC nations. The company plans capital expenditure through expansion of
existing units and/or through acquisitions. Non-core assets are to be divested to
release locked up capital. It is also expected to actively pursue overseas project
engineering and consultancy services.
Birla Corp
Birla Corp's product portfolio includes acetylene gas, auto trim parts, casting,
cement, jute goods, yarn, calcium carbide etc. The cement division has an
installed capacity of 4.78 million metric tonnes and produced 4.77 million
metric tonnes of cement in 2003-04. The company has two plants in Madhya
Pradesh and Rajasthan and one each in West Bengal and Uttar Pradesh and
holds a market share of 4.1 per cent. It manufactures Ordinary portland cement
(OPC), portland pozzolana cement, fly ash-based
PPC, Low-alkali portland cement, portland slag cement, low heat cement and
sulphate resistant cement. Large quantities of its cement are exported to Nepal
and Bangladesh. Going forward, the company is setting up its captive power
plant to remain cost competitive.


Century Textiles and Industries Ltd (CTIL)
The product portfolio of CTIL includes textiles, rayon, cement, pulp & paper,
shipping,property & land development, builders and floriculture. Cement is the
largest division of CTIL and contributes to over 40 per cent of the company's
revenues. CTIL has four plants that manufacture cement, one in
Chhattisgarh,two in Madhya Pradesh and one in Maharashtra. Going forward,
the company has scripted a three-pronged strategy closing down its shipping
business, continuing with its chemicals and adhesive division, and focusing on
cement, rayon and paper as its longterm business plan.

Grasim-UltraTech Cemco
Grasim's product profile includes viscose staple fibre (VSF), grey cement, white
cement,sponge iron, chemicals and textiles. With the acquisition of UltraTech,
L&T's cement division in early 2004,
Grasim has now become the world's seventh largest cement producer with a
combined capacity of 31 million tonnes. Grasim (with UltraTech) held a market
share of around 21 per cent in 2003-04. It has plants in Madhya Pradesh,
Chhattisgarh, Punjab, Rajasthan, Tamil Nadu and Gujarat among others. The
company plans to invest over US$ 9 million in the next two years to augment
capacity of its cement and fibre business. Its also plans to focus on its
international ventures, ramping up the capacity of Alexandra Carbon Black in
Egypt to 1,70,000 tonne per annum (from 1, 20,000 tpa) and raising the capacity
of the carbon black plant in China from 12,000 tpa to 60,000 tpa.
Gujarat Ambuja Cements Ltd (GACL)
Gujarat Ambuja Cements Ltd was set up in 1986 with the commencement of
commercial production at its 2 million tonne plant in Chandrapur, Maharashtra.
The group has clinker manufacturing facilities at Himachal Pradesh, Gujarat,
Maharashtra, Chhattisgarh, Punjab and Rajasthan. The company has a market
share of around 10 per cent, with a strong foothold in the northern and western

markets. Gujarat Ambuja is India's largest cement exporter and one of the most
cost efficient firms. GACL has a 14.45 per cent stake in ACC, making it the
second largest cement group in the country, after Grasim-UltraTech Cemco.
The company has free cash flows that it is likely to use to grow inorganically.
The company is scouting for a capacity of around two million tonne in the
northern and western markets. It has also earmarked around US$195-220
million for acquisitions
India Cements
India Cements is the largest cement producer in southern India with plants in
Andhra Pradesh and Tamil Nadu. Its product portfolio includes ordinary
Portland cement and blended cement.The company has limited its business
activity to cement, though it has a marginal exposure to the shipping business.
The company plans to reduce its manpower significantly and exit non-core
businesses to turnaround its fortune. It also expects the export market to open
up, with the Gulf emerging as a major importer.
Jaiprakash Associates Limited
Jaiprakash Industries, now known as Jaiprakash Associates Limited (JAL) is
part of the
Jaypee group with businesses in civil engineering, hospitality, cement,
hydropower,
design consultancy and IT. It has plants located in Rewa & Bela (Madhya
Pradesh) and Sadva Khurd (Uttar Pradesh). The company is upgrading its
capacity to 6.5 million tonnes through the modernizing of the existing units and
the commissioning of a new grinding unit at Tanda (Uttar Pradesh) with an
investment of US$ 163 million. The company manufactures a wide range of
world class cement of OPC grades 33, 43, 53, IRST-40 and special blends of
pozzolana cement.
Madras Cements
Madras Cements Ltd is one of the oldest cement companies in the southern

region and is a part of the Ramco group. The company is engaged in cement,
clinker, dolomite, dry mortar mix, limestone,
ready mix cement (RMC) and units generated from windmills. The company
has three plants in Tamil Nadu, one in Andhra Pradesh and a mini cement plant
in Karnataka. Madras Cements plans to expand by putting up RMC plants. As
Karnataka is a promising market, the company is further expanding its capacity
from the present 1.5 million tonnes to 3.4 million tonnes through an investment
of US$ 9 million.

Holcim
Holcim is a key player in aggregates, concrete and construction related services.
It has a strong market presence in over 70 countries and is a market leader in
South America and in a number of European and overseas markets. Holcim
entered India by means of a long-term strategic alliance with Gujarat Ambuja
Cements Ltd (GACL). The alliance aims to strengthen their clinker and cement
trading activities in South Asia, the Middle East and the region adjoining the
Indian Ocean. Holcim also intends to use India as an additional base for its IT
operations, R&D projects as well as a procurement sourcing hub to generate
additional synergies and value for the group.
Italcementi Group
The Italcementi group is one of the largest producers and distributors of cement
with 60 cement plants, 547 concrete batching units and 155 quarries spread
across 19 countries in Europe, Asia, Africa and North America. Italcementi is
present in the Indian markets through a 50:50 joint venture company with Zuari
Cements. All initiatives in southern India are routed through the joint venture
company, while Italcementi is free to buy deals in its individual capacity in
northern India.
Lafarge India
Lafarge India Pvt Ltd, a subsidiary of the Lafarge Group, has a total cement

capacity of 5 million tonnes and a clinker capacity of 3 million tonnes in the
country. Lafarge commenced operations in 1999 and currently has a market
share of 3.4 per cent. It exports clinker and cement to Bangladesh and Nepal. It
produces Portland slag cement, ordinary Portland cement and Portland
pozzolana cement. The Indian cement plants are located in Chhattisgarh and
Rajasthan. Lafarge Cement has become the largest cement selling firm in the
Indian markets of West Bengal, Bihar, Jharkhand and Chhattisgarh.
The recent years have witnessed a surge of foreign direct investment in the
cement sector. International players like France's Lafarge, Holcim from
Switzerland, Italy's Italcementi and Germany's Heidelberg Cements hold more
than a quarter pie of the total capacity.
Holcim, one of the world's leading suppliers of cement, has 24 plants in
the country and enjoys a market share of about 23-25 per cent. It will
further invest about US$ 2.49 billion in the next five years to set up plants
and raise capacity by 25 mt in the country. Holcim has a global sale
worth about US$ 20 billion, where India contributes US$ 22.5 billion.
Italcementi Group, the fifth largest producer of cement in the world
acquired full stake in the K.K. Birla promoted Zuari Industries' cement, to
strengthen its presence in India lining up US$ 300 million investment to
increase the capacity of Zuari Industries from 1.7 mtpa to about 6-7 mtpa.
Moreover, it plans to invest US$ 174 million over the next two years in
various greenfield and acquisition projects.
The French cement major, Lafarge, acquired the cement plants of
Raymond and Tisco with an installed capacity of 6 mtpa. It plans to
double its capacity to 12 mt over the next five years by adopting the
greenfield expansion route.
Heidelberg cement has entered into an equal joint-venture agreement with
S P Lohia Group controlled Indo-Rama cement. It aims at a 50 per cent

controlling stake in Indo-Rama's grinding plant of 0.75 mtpa at Raigad in
Maharashtra. Heidelberg is also taking over Mysore cement of S K Birla
group at a consideration of US$ 93 million.
REGIONWISE PLAYERS
NORTHERN REGION
1.Grasim Industries Ltd
2.Ambuja Cements Ltd.
3. A C C Ltd
4. Prism Cement Ltd.
5.Birla Corporation Ltd.
6.Shree Cement Ltd.
7.J K Cement Ltd.
8.Binani Cement Ltd.

EASTERN REGION
1.Ambuja Cements
2.Grasim Industries Ltd.
3.A C C Ltd.
4.Ultratech Cement Ltd.
5.Birla Corporation Ltd.
6.Century Textiles & Inds. Ltd.
7.O C L India Ltd.

SOUTHERN REGION
1.Grasim Industries Ltd.
2.A C C Ltd.
3.Ultratech Cement Ltd.
4.India Cements Ltd.
5.Madras Cements Ltd.

6.Dalmia Cement (Bharat) Ltd.
7.Chettinad Cement Corpn. Ltd.
WESTERN REGION
Ambuja Cements Ltd.
Grasim Industries Ltd.
A C C Ltd.
Ultratech Cement Ltd.
Century Textiles & Inds. Ltd.
Sanghi Industries Ltd.
FOREIGN PLAYERS
1.Lafarge
2.Holcim
3.Italcementi Group
2.1.5.CONSUMPTION PATTERN & DEMAND DRIVERS
In the current fiscal (2009-10) cement consumption has shot up,
reporting, on an average, 12.5% growth in consumption during the first
eight months with the growth being aided by strong infrastructure
spending,especially from the govt sector.
The overall outlook for the industry is positive and shows significant
growth on the back of robust demand from housing construction,National
Highway Development Project and other infrastructure development
projects.
Cement is mainly used in Independent houses, housing complexes,
commercial complexes and infrastructure.
The demand drivers for the cement sector continue to be housing,
infrastructure and commercial construction, etc.
Housing sector acts as the principal growth driver for cement. However,
in recent times, industrial and infrastructure sector have also emerged as
demand drivers for cement.

Individual housing sector is the major consumer of cement (50% of
cement demand) followed by the government infrastructure sector.
The customers are categorized as retail customers and industrial
customers
Retail customers:
People who build their own houses or contractors who opt to buy cement
through distribution channel are the retail customers. A retail customer
can buy cement from a retail outlet (Hardware shop) from his area
Industrial customers: A customer who has a registered company and
buys large quantities of cement can buy cement directly from sales
points. Government is an industrial customer.










Over the next five years, the numbers of households are expected to
increase at a CAGR of 2.3 per cent, against a population growth rate of
over 1.7 per cent. The growth in urban households will be
higher than rural households, shifting the rural-urban household ratio
from 70:30 to 67:33. As the growth in households is higher than the
population growth, it will accelerate the demand for new
houses. Higher demand and greater affordability due to lower interest
rates and tax breaks is expected to trigger an unprecedented housing
CHART2
Consumption Pattern in India

Source:Indian Brand Equity Foundation Sectoral Report
Housing
Infrastructure
Corporate
50%
25%
25%

boom. The housing finance industry has estimated a latent
demand of 33 million houses and forecasts a growth of 50 per cent per
annum till 2007. With the housing sector accounting for 50 per cent of the
current cement demand, this boom is expected
to propel even higher cement demand.
2.1.6.REGIONAL PATTERN
Transporting cement, a bulk commodity, it over long distances is
uneconomical. This has resulted in cement being largely a regional play
with the industry divided into five main regions. north, south, west, east
and the central region. The southern region accounts for the largest share
in overall production (29 per cent) due to the vast availability of
limestone. This is followed by the northern (21 per cent) and the western
regions (19 per cent).
CHART3
Cement Production


Source:Indian Brand Equity Foundation Sectoral Report

Cement consumption varies across regions due to the differences in the
demand-supply balance, per capita income and the level of industrial
development in each state. In 2008-2009, northern India accounted for the
highest proportion of cement consumption (32 per cent), followed by the
southern (28 per cent), western (25 per cent) and eastern regions (15 per
North
South
East & West
21%
29%
19%

cent). Over the years
it has been observed that demand in the east has been driven by the
housing sector, whereas infrastructure, investments in industrial projects
and the housing sector (in varying proportions) have propelled demand in
the western, northern and southern regions. The western and northern
regions are the most lucrative markets due to their higher price
realisations.









Among the Indian States,Maharashtra is leading in consumption(12.18%)
followed by Uttar Pradesh.In production terms,Andhra Pradesh is leading
with 14.72% of total production.Northern and Southern regions consume
around 20-30% while the central and western region consume only
around 16-18%.
Therefore, the competition in the cement industry in India is increasing at
a rapid rate. There are several players in the cement industry. Many
foreign players are also entering Indian Markets by acquiring substantial
stakes in Indian Companies. The Indian Cement Market is flourishing
with multiple brands.
The Cement industry is currently dominated by 20 Companies which
account for 70% of the market. Although consolidation has taken place in
the Indian cement industry with the top five players controlling almost
CHART4

Source:Indian Brand Equity Foundation




0
10
20
30
40
North South East West
Cement Consumption Pattern
Cement Consumption
Pattern

60% of the capacity, the balance capacity still remains pretty fragmented.
2.1.7.CEMENT MANUFACTURING TECHNOLOGY
The manufacturing process of cement consists of the mixing, drying and
grinding of limestone, clay and silica into a composite mass.The mixture
is then heated and burnt in a pre-heater and kiln to be cooled in an air
cooling system to form clinker, which is the semi-finished form. This
clinker is cooled by air and subsequently ground with gypsum to form
cement.
Portland cements are made by grinding a mixture of limestone, clay and other
corrective materials, viz. Laterite, Bauxite,etc. Essential constituents mainly
are Lime, Silica, Alumina and Iron Oxide. The process of manufacturing
consists of grinding of raw materials into fine powder, mixing them and
burning in a kiln at about 1400 deg. C. The resultant product is called Clinker.
Clinker is cooled, ground to fine powder with gypsum. The end product is
cement.

There are three types of processes to form cement - the wet, semi-dry and
dry processes. In the wet/semi-dry process, raw material is produced by
mixing limestone and water (called slurry)and blending it with soft clay.
In the dry process technology,crushed limestone and raw materials are
ground and mixed together without the addition of water.
The dry and semi-dry processes are more fuel-efficient. The wet process
requires 0.28 tonnes of coal and 110 kWh of power to manufacture one
tonne of cement, whereas the dry process requires only 0.18 tonnes of
coal and 100 kWh of power. Coal and power costs account for 35 per
cent of the total cement production costs. With 95 per cent of the total
capacity based on the modern dry process technology, the Indian cement
industry has become more cost efficient. Top companies in the cement
industry match quite well with world standards in terms of energy

(thermal energy Kcal/kg of clinker - India 665 against 690 of Japan) and
pollution norms (SPM of 40 in India against 20 in Japan).

CHART 5

Source:Indian Brand Equity Foundation
Sectoral Report
The main raw materials used in the cement manufacturing process are
limestone, sand, shale, clay, and iron ore. The main material, limestone, is
usually mined on site while the other minor materials may be mined
either on site or in nearby quarries. Another source of raw materials is
industrial by-products. The use of byproduct materials to replace natural
raw materials is a key element in achieving sustainable development.
Raw Material Preparation-Blasting and Crushing of Limestone
Mining of limestone requires the use of drilling and blasting techniques.
The blasting techniques use the latest technology to ensure vibration,
dust, and noise emissions are kept at a minimum. Blasting produces
materials in a wide range of sizes from approximately 1.5 meters in
diameter to small particles less than a few millimeters in diameter.
Material is loaded into trucks for transportation to the crushing plant.
Through a series of crushers and screens, the limestone is reduced to a
size less than 100 mm and stored until required. Depending on size, the
minor materials (sand, shale, clay, and iron ore) may or may not be
crushed before being stored in separate areas until required.
Cement process
Dry
Wet & Semi-dry
5
%
95%

Grinding
The raw materials are next ground together in a rawmill. Passing into the
rawmill, the mixture is ground to rawmix. It is important that the rawmix
contains no large particles in order to complete the chemical reactions in
the kiln, and to ensure the mix is chemically homogenous.
In the wet process, each raw material is proportioned to meet a desired
chemical composition and fed to a rotating ball mill with water. The raw
materials are ground to a size where the majority of the materials are less
than 75 microns. Materials exiting the mill are called "slurry" and have
flowability characteristics.
Blending and Homogenization
This slurry is pumped to blending tanks and homogenized to ensure the
chemical composition of the slurry is correct. This slurry is conveyed to
the blending system by conventional liquid pumps. Following the
homogenization process, the slurry is stored in tanks until required. In the
case of wet process, water is added to the rawmill feed, and the mill
product is a slurry with moisture content usually in the range of 25-45%
by mass. In the case of a dry process, the rawmill also dries the raw
materials, usually by passing hot exhaust gases from the kiln through the
mill, so that the rawmix emerges as a fine powder. This is conveyed to
the blending system by conveyor belt or by a powder pump.
Homogenization: Calcium and silicon are present in order to form the
strength-producing calcium silicates. Aluminium and iron are used in
order to produce liquid ("flux") in the kiln burning zone. The liquid acts
as a solvent for the silicate-forming reactions, and allows these to occur at
an economically low temperature. Insufficient aluminium and iron lead to
difficult burning of the clinker, while excessive amounts lead to low
strength due to dilution of the silicates by aluminates and ferrites. Very
small changes in calcium content lead to large changes in the ratio of alite

to belite in the clinker, and to corresponding changes in the cement's
strength-growth characteristics. The relative amounts of each oxide are
therefore kept constant in order to maintain steady conditions in the kiln,
and to maintain constant product properties.
In the dry process, each raw material is proportioned to meet a desired
chemical composition and fed to either a rotating ball mill or vertical
roller mill. The raw materials are dried with waste process gases and
ground to a size where the majority of the materials are less than 75
microns. The dry materials exiting either type of mill are called "kiln
feed". The kiln feed is pneumatically blended to ensure the chemical
composition of the kiln feed is well homogenized and then stored in silos
until required.
Whether the process is wet or dry, the same chemical reactions take place. Basic
chemical reactions are: evaporating all moisture, calcining the limestone to
produce free calcium oxide, and reacting the calcium oxide with the minor
materials (sand, shale, clay, and iron). This results in a final black, modular
product known as "clinker" which has the desired hydraulic properties. In the
wet process, the slurry is fed to a rotary kiln, which can be from 3.0 m to 5.0 m
in diameter and from 120.0 m to 165.0 m in length. The rotary kiln is made of
steel and lined with special refractory materials to protect it from the high
process temperatures. Process temperatures can reach as high as 1450oC during
the clinker making process.
In the dry process, kiln feed is fed to a preheater tower, which can be as high as
150.0 meters. Material from the preheater tower is discharged to a rotary kiln
with can have the same diameter as a wet process kiln but the length is much
shorter at approximately 45.0 m. The preheater tower and rotary kiln are made
of steel and lined with special refractory materials to protect it from the high
process temperatures.
Regardless of the process, the rotary kiln is fired with an intense flame,

produced by burning coal, coke, oil, gas or waste fuels. Preheater towers can be
equipped with firing as well. The rotary kiln discharges the red-hot clinker
under the intense flame into a clinker cooler. The clinker cooler recovers heat
from the clinker and returns the heat to the pyroprocessing system thus reducing
fuel consumption and improving energy efficiency. Clinker leaving the clinker
cooler is at a temperature conducive to being handled on standard conveying
equipment.
Finish Grinding and Distribution
The black, nodular clinker is stored on site in silos or clinker domes until
needed for cement production. Clinker, gypsum, and other process additions
are ground together in ball mills to form the final cement products. Fineness of
the final products, amount of gypsum added, and the amount of process
additions added are all varied to develop a desired performance in each of the
final cement products. Each cement product is stored in an individual bulk silo
until needed by the customer. Bulk cement can be distributed in bulk by truck,
rail, or water depending on the customer's needs. Cement can also be packaged
with or without color addition and distributed by truck or rail.
2.1.8.COST
Over the past seven years, cost of cement production has grown at a CAGR of
8.4%.Also, the producers have been able to pass on the hike in cost to
consumers on the back of increased demand. Average realizations have
increased from Rs. 1,880 per tonne in FY 03 to Rs. 3,133 per tons in FY 09, at a
CAGR of 13.6%, which has been reflected in higher profit margins of the
industry.To reduce the cost of production, the industry has focused on captive
power generation. Proportion of cement production through captive power route
has increased over the years. Also, cement movement by rail has increased over
the years. Freight and energy costs are also increasing; however, in the current
market scenario, manufacturers have the flexibility to pass on the increase in
costs to end consumers.

Let us have a look at the cost factors affecting the cement industry
Capacity Utilization: Since the industry operates on fixed cost, higher the
capacity sold, the wider the cost distributed on the same base. But one should
also keep in mind, that there have been instances wherein despite a healthy
capacity utilization, margins have fallen due to lower realizations.
Power: The cement industry is energy intensive in nature and thus power costs
form the most critical cost component in cement manufacturing (about 30% to
total expenses). Most of the companies resort to captive power plants in order to
reduce power costs, as this source is cheaper and results in uninterrupted supply
of power.
Therefore, higher the captive power consumption of the company, the better it is
for the company.
Freight: Since cement is a bulk commodity, transporting is a costly affair (over
15%). Companies, which have plants located closer to the markets as well as to
the source of raw materials have an advantage over their peers, as this leads to
lower freight costs. Also, plants located in coastal belts find it much cheaper to
transport cement by the sea route in order to cater to the coastal markets such as
Mumbai and the states of Gujarat and Tamil Nadu. On account of sufficient
reserves of raw materials such as limestone and gypsum, the raw material costs
are generally lower than freight and power costs in the cement industry. Excise
duties imposed by the government and labor wages are among the other
important cost components involved in the manufacturing of cement.
Operating margins: The company should have a consistent record of
outperforming its peers on the operational performance front i.e. it should have
higher operating margins than its competitors in the industry. Factors such as
captive power plants, effective capacity utilization results in higher operating
margins and therefore these factors should be looked into. Since cement is a
regional play on account of its high freight costs, the company should not have
all its plants concentrated in one region. It should have a geographical spread so

that adverse market conditions in one region can be mitigated by high growth in
the other region.
2.1.9.GOVERNMENT POLICIES
Government policies have affected the growth of cement plants in India in
various stages. The control on cement for a long time and then partial decontrol
and then total decontrol has contributed to the gradual opening up of the market
for cement producers. The stages of growth of the cement industry can be best
described in the following stages:
Price and Distribution Controls (1940-1981)
During the Second World War, cement was declared as an essential commodity
under the Defense of India Rules and was brought under price and distribution
controls which resulted in sluggish growth. The installed capacity reached only
27.9 MT by the year 1980-81.
Partial Decontrol (1982-1988)
In February 1982, partial decontrol was announced. Under this scheme, levy
cement quota was fixed for the units and the balance could be sold in the open
market. This resulted in extensive modernization and expansion drive, which
can be seen from the increase in the installed capacity to 59MT in 1988-89 in
comparison with the figure of a mere 27.9MT in 1980-81, an increase of almost
111%.
Total Decontrol (1989)
In the year 1989, total decontrol of the cement industry was announced. By
decontrolling the cement industry, the government relaxed the forces of demand
and supply. In the next two years, the industry enjoyed a boom in sales and
profits.
By 1992, the pace of overall economic liberalization had peaked;
ironically,however, the economy slipped into recession taking the cement
industry down with it. For 1992-93, the industry remained stagnant with no
addition to existing capacity.

Government Controls
The prices that primarily control the price of cement are coal, power tariffs,
railway, freight, royalty and cess on limestone. Interestingly, all of these prices
are controlled by government
Opening up the FDI channel
The impact of government policies on cement demand has been steadily
decreasing with the sector being gradually deregulated. At present, 100 per cent
foreign direct investment (FDI) is permitted
in the cement industry. Lafarge was the first foreign company to enter the
Indian market in 1999.

State policies and export norms to encourage investment
Both the state and export policies promote cement production. Exporters can
claim duty drawbacks on imports of coal and furnace oil up to 20 per cent of the
total value of imports. Most state governments offer fiscal incentives in the
form of sales tax exemptions/deferrals in order to attract investment. In some
states, this applies only to intra-state sales, like Madhya Pradesh and Rajasthan.
States like Haryana offer a freeze on the power tariff for 5 years, while Gujarat
offers exemption from duty on electricity.
Urban Land Ceiling Act repeal could be a driver
The Urban Land Ceiling Regulation Act (ULCRA) enacted to control and
prevent the concentration of urban land, has been repealed in many states. This
could facilitate the development of such land for housing and other
construction.
Union Budget 2010
Though cement is the most essential infrastructure input, the tax on cement is
the highest among the items required for building infrastructure. The total
government levies and taxes on cement constitute 60 per cent or more of the ex-
factory price, Levies and taxes on cement in India are far higher than most of

the other countries in the Asia-Pacific Region where the average tax is just 11.4
per cent, with the highest levy of 20 per cent being in Sri Lanka. While steel
attracts four per cent VAT, for cement it is as high as 12.5 per cent.
The Union Budget of 2010 has been a mixed bag for cement industry.
In the Union Budget of 2010,although the government has refrained from
loweing the taxes and duties on cement,the government has decided to spend
Rs. 1.37 lakh crore for Infrastructure Development and The government has
increased budgetary allocation for roads under NHDP. Further, with more
incentives being spelled out for the infrastructure and housing sector.The
government has proposed to allocate19,894 crore for Road Development.
The introduction of coal cess is proving to be having a multiplier effect across
board in terms of cost rise. Cement companies claim that production cost will
have to rise because of this. This coupled with the excise rollover of about 2%
will surely increase price of cement per bag.
The existing excise rate of bulk cement after the proposed changes will become
10% or Rs 290 per tonne whichever is higher from 8 % or Rs 230 per tonne
now. Clinker price of Rs 300 per tonne will now become Rs 375 per tonne.

Wherever retail cement price exceeds Rs 190 per bag, the existing excise rate of
8% of retail sale price will become 10%. If the retail cement price does not
exceed Rs 190 per bag, the existing rate of Rs 230 per tonne will stand
enhanced to Rs 290 per tonne.
2.1.10.CONSOLIDATION OPPORTUNITY:MERGERS AND
ACQUISITIONS
The cement industry in India is still highly fragmented with over 50 players.
The presence of excess capacity in the industry has triggered large-scale
consolidation, a trend expected to continue during the next 3-4 years.
For cement companies based in India, South-East Asia and the Middle East
there are potential and lucrative export markets. Low cost technology and

extensive restructuring have made some of the Indian cement companies the
most efficient across global majors. Despite some consolidation, the industry
remains somewhat fragmented and merger and acquisition possibilities are
strong.
Increased activity in infrastructure and a booming real estate market have seen
foreign firms vying to acquire a share of the pie.
Holcim strengthened its position in India by increasing its holding in
Ambuja Cement from 22 per cent to 56 per cent through various open
market transactions with an open offer for a total investment of US$ 1.8
billion. Moreover it also increased its stake in ACC cement with US $
486 million, being the single largest acquirer in the cement sector.
Leading foreign funds like Fidelity, ABN Amro, HSBC, Nomura Asset
Management Fund and Emerging Market Fund have together bought
around 7.5 per cent in Indias third-largest cement firm India Cements
(ICL) for US$ 148.19 million.
Cimpor the Portugese cement maker paid US$ 75.76 million for Grasim
Industries 53.63 per cent stake in Shree Digvijay cement
Some of the other major mergers and acquisitions in the recent past include
CRH acquiring My Home Industries for US$ 462 million, Lafarge buying L&T
Concretes ready-mix concrete (RMC) business for US$ 349 million and
Heidelberg consolidating its business with Mysore cement and Indorama, and
Italcementi acquiring 100 per cent stake in Zuari cement and 95 per cent stake
in Shree Vishnu among others.

TABLE5
Cement capacity that can be sold

East 1.20 mT
West 2.36 mT
North 10.37 mT
South 9.42 mT
Total 23.35 mT
Source:CRISIL

According to CRISIL estimates, given the demand-supply gap of roughly 40
million tonnes, capacity addition is expected over the next five years. Of this,
almost 30 million tonnes will be met through greenfield/brownfield expansions
and 10 million tones through blending. The capacity addition of 30 million
tonnes would require an investment of around US$ 2.2 billion.
Consolidation is expected to increase further in the cement industry. Around 23
million tonnes of additional capacity could be sold simply because on a stand-
alone basis these units are unviable. As part of a larger group, their operations
could be cost effective. This opens up a number of possibilities for acquisitions
and mergers.
Cement industry in India is currently going through a consolidation phase.
Some examples of consolidation in the Indian cement industry are: Gujarat
Ambuja taking a stake of 14 per cent in ACC, and taking over DLF Cements
and Modi Cement; ACC taking over IDCOL; India Cement taking over Raasi
Cement and Sri Vishnu Cement; and Grasim's acquisition of the cement
business of L&T, Indian Rayon's cement division, and Sri Digvijay Cements.
Foreign cement companies are also picking up
stakes in large Indian cement companies. Swiss cement major Holcim has
picked up 14.8 per cent of the promoters' stake in Gujarat Ambuja Cements
(GACL). Holcim's acquisition has led to the emergence of two major groups in
the Indian cement industry, the Holcim-ACC-Gujarat Ambuja Cements
combine and the Aditya Birla group through Grasim Industries and Ultratech

Cement. Lafarge, the French cement major has acquired the cement plants of
Raymond and Tisco. Italy based
Italcementi has acquired a stake in the K.K. Birla promoted Zuari Industries'
cement plant in Andhra Pradesh, and German cement company Heidelberg
Cement has entered into an equal joint-venture agreement with S P Lohia Group
controlled Indo- Rama Cement.
Though the industry saw consolidation by domestic players starting in the mid-
1990s, it was only in the late 1990s that foreign players entered the market. The
structure of the industry can be viewed as fragmented, although the
concentration at the top has increased, as the top 5 players control around
60.28% of market share, which was 55% in 1989-90, whereas the other 39.72%
of market share is distributed among 50 minor players. The fragmented
structure is a result of the low entry barriers in the post decontrol period and the
ready availability of technology.The extent of concentration in the Indian
cement industry has increased over the years. This Concentration is mainly
because of the focus of the larger and the more efficient units to consolidate
their operations by restructuring their business and taking over relatively weaker
units. Also the relatively smaller and weaker units are finding it difficult to
resist the cyclical pressure of the cement industry. Some of the key benefits
(ICRA 2006) accruing to the acquiring companies from these acquisition deals
include-
Economies of scale resulting from the larger size of operations
_ Savings in the time and cost required setting up a new unit
_ Access to newer markets
_ Access to special facilities / features of the acquired company
_ Benefits of tax shelter
The cement industry is witnessing a number of multinationals entering the
market and mergers and acquisitions in domestic market itself, bringing smaller
players under the umbrella of larger companies, and larger companies coming

under the umbrella of global players.
The booming demand for cement, both in India and abroad, has attracted global
majors to India. In 2005-06, four of the top-5 cement companies in the world
entered India through mergers, acquisitions, joint ventures or greenfield
projects. These include France's Lafarge, Holcim from Switzerland, Italy's
Italcementi and Germany's Heidelberg Cements. The consolidation witnessed in
the industry in recent times has resulted in two crucial domestic deals. First
being the de-merger of L&Ts cement (renamed as Ultratech Cement Ltd.)
division and its acquisition by Grasim. This has led to the creation of cement
giant, making the Ultratech- Grasim combine the market leader in the country in
terms of market share, particularly in the South. The other consolidation effort
was seen when Gujarat Ambuja acquired 14.4% stake in ACC in 2000 (India
Infoline 2003). Following this Holcim took a big stake in ACC in the year 2005
and has recently announced an acquisition of 14.8% in Gujarat Ambuja Cement
Ltd., now Ambuja Cements Ltd. Thus, the top two groups in the industry,
Aditya Birla Group (Grasim and Ultratech Cements Ltd. combine) and Holcim
Group (Ambuja Cements Ltd. - ACC Ltd. combine) now control more than 45
% of total capacity in the country.
Therefore,these players provide various offers to push the sales of their cement
products.The consumer makes a choice from these multiple offers in hand.
2.1.11. COMPETITOR ANALYSIS-PORTERS 5 FORCES MODEL
Supply The demand-supply situation is tightly balanced with the latter
being marginally higher than the former.
Demand Housing sector acts as the principal growth driver for cement.
However, in recent times, industrial and infrastructure sector have
also emerged as demand drivers for cement.
Barriers to
entry
High capital costs and long gestation periods,high
capacity.Access to limestone reserves (principal raw material for

the manufacture of cement) also acts as a significant entry barrier.
Bargaining
power of
suppliers
Licensing of coal and limestone reserves, supply of power from
the state grid and availability of railways for transport are all
controlled by a single entity, which is the government. However,
nowadays producers are relying more on captive power, but the
shortage of coal and volatile fuel prices remain a concern.
Bargaining
power of
customers
Cement is a commodity business .The industries and government
make bulk purchases.So,they bargain and the value of the
segment is less compared to individual customers whose
bargaining power is less.
Competition Due to large number of players in the industry and very little
brand differentiation to speak of, the competition is intense with
players resorting to expanding reach and achieving pan India
presence













PORTERS 5 FORCES MODEL




\
















2.1.12.SEGMENTATION
Differences between 2 Segments
TABLE6
Differences between 2 segments

Parameter Housing Govt
1.Share/size by vol 50% 25%
2.Consistency of steady sporadic/economy related
Threat of Substitutes -
LimitedOnly bitumen in road, and
engineering plastics in building
offer some element of
competition,
otherwise no close
Bargaining Power of
Suppliers-Very High
Monopolistic control of
external cost element
(coal,power,
transportation and
taxes) results in high
bargaining power with
the government
Inter Firm Rivalry-Intense
Large number of players,
intermittent overcapacity;
marginal product
differentiation; high storage
costs; and, high exit barrier in
form of significant capital
investment has led to stiff
competition in the industry.
Bargaining Power of
Buyers-Limited

The individual house
owners do not make bulk
purchase.So,have less
bargaining power.
Threat of New Entrants-
Limited
High capital investment,
broad distribution network
and oversupplied market
deter new entrants.
However, technology and
manpower are easily available.

Demand
3.Buying system No tenders Tenders-lowest bid
4.No. Multiple clients Lesser
5.Tech expertise Low High
Since the government does bulk purchase of cement,it can bargain over the
price.As a result,the cement sales to government will reduce profits.Whereas,the
retail consumers power is low and they contribute to 50% of volume which is
higher than the government.Therefore,the key consumer is retail consumer.
Target Customer Definition for Dalmia Cements
Private Housing Segment (Individual Houses)
1.Geographic segmentation-
Region-South India
State-Kerala,Andhra Pradesh,Karnataka,Tamil Nadu
City- Outskirts of Tier-I cities like
Bangalore,Hyderabad,Cochin,
Chennai
Tier-II cities like Madurai,Ernakulam.
Rural Areas
2.Demographic segmentation-
Age: 25-55
Family cycle-Married

Socio-economic class-A,B,C
2.2.STATEMENT OF THE PROBLEM
To identify key factors leading to the purchase of a particular brand of cement
3.APPROACH TO THE PROBLEM
3.1.RESEARCH OBJECTIVE
To study the consumer behaviour in cement, esp. decision making w.r.t. brand

choice;
and to recommend an appropriate marketing strategy to Dalmia Cement based
on the above
3.2.SCOPE OF STUDY
This study focuses on consumers who bought cement in Chennai & suburbs
recently.
4.RESEARCH DESIGN
4.1.TYPE OF RESEARCH DESIGNS USED
1.Exploratory Research Design-The primary objective of Exploratory
Research is to provide insights into, and an understanding of the problem from
a small sample.
2.Descriptive Research Design- It is used to describe the characteristics of
relevant consumer groups.It is a structured design marked by a clear hypothesis
of the problem.
4.2.INFORMATION NEEDS
The information that is needed is profile of the customer and customers
choice of cement.
4.3.DATA COLLECTION FROM SECONDARY SOURCES
The secondary data was collected from the company and the companys
website.
The web has been a major source of collection of secondary data where from
data regarding the Indian Cement Industry was collected with regards to a brief
history, government regulations. The data collected gives us a view of the major
players in the industry and their current competitive position in the market.
The data was also collected from hardware stores and masons to get an insight
into the cement industry and current trends in the industy.
4.4.DATA COLLECTION FROM PRIMARY SOURCES
The basic research paradigm is followed:
1) Define the target population.

2)Select a sampling technique.
3)Determine the sample size.
4) Do the research on the sample.
5) Infer results from the sample back to the population.
Target Population
The population consists of all individual house owners in Chennai alone. The
sample was chosen based on judgemental sampling. That is, the sample
elements was chosen in Kanchipuram district of TamilNadu.
The bargaining power of individual house owners is less as far as purchase of
cements is concerned. The government and the industrial customers go for bulk
purchase.So,their bargaining power is high.Therefore,the value of that segment
is less compared to the value of the individual housing segment.


4.5.SCALING TECHNIQUE
Interval Scale is used in this project.In interval scale,numerically equal
distances on the scale represent equal values in the characteristic being
measured.
The Scaling Technique used is Likert Scale.It is a non-comparative scaling
technique.A non-comparative scaling technique evaluates one object at a
time.7-point Likert Scale is used.1-Not important and 7 represents
Important.High score represents favorable attitude and low score represents an
unfavorable response.
Likert scale is easy to construct and administer.Respondents easily understand
the scale.
For example,
TABLE7
Likert Scale
Not important

Very Important
a.Reasonable Price of Cement 1 2 3 4 5 6 7
b.Strength of cement 1 2 3 4 5 6
7
c.Quick setting 1 2 3 4 5 6 7
d.Durability of cement 1 2 3 4 5 6 7
e.Color of Cement 1 2 3 4 5 6 7
f.Trusted Brand Name 1 2 3 4 5 6
7
g.Unadulterated 1 2 3 4 5 6 7
h.Direct Delivery from factory 1 2 3 4 5 6 7
i.Ideal Customer Service 1 2 3 4 5 6 7
j.Reduction in Cracks 1 2 3 4 5 6
7
k.Fineness of Cement 1 2 3 4 5 6
7
l.Available in nearby shops 1 2 3 4 5 6
7

m.Recommended by 1 2 3 4 5 6
7
Mason / contractor
n.Recommended by shopkeeper 1 2 3 4 5 6 7
o.Recommended by engineer 1 2 3 4 5 6
7
p.Used widely 1 2 3 4 5 6
7
q.Extensive Media coverage 1 2 3 4 5 6
7


4.6.QUESTIONNAIRE DEVELOPMENT AND PRETESTING
In order to perform the survey, a questionnaire is designed keeping in mind the
study of the market
Questionnaire for Study of Cement Preference
The questionnaire prepared must aid in gathering primary data from the
customers, i.e. from the market. The questionnaire was designed based on the
following paradigm:
The individual question content was designed
Question structure and wording was decided
The questions were arranged in proper order.
The form and layout was designed.
The questionnaire was pretested with 6 respondents and then refined before
actual research.

4.7.SAMPLING TECHNIQUE
Sample was selected based on qualitative factors like number of
variables,nature of research.The sampling method adopted is Judgement
Sampling, a Non Probability sampling method .Judgement sampling is a form
of convenience sampling in which the population elements are selected based
on the judgement because the researcher believes that the sample is
representative of the population of interest.
4.8.FIELD WORK
A sample size of 75 was researched.The research was done in Chennai and
suburban areas of Chennai.

5.DATA ANALYSIS
5.1.METHODOLOGY
1.Exploratory Research was done initially with 4 masons to get an insight into

the problem.
2.Questionnaire was prepared and the research was carried out with a sample of
6.
3.The questionnaire was modified and was administered with a sample of 75.
4.Factor analysis was carried out.
5.2.PLAN OF DATA ANALYSIS
5.2.1.EXPLORATORY RESEARCH-PILOT INTERVIEWS.
Null Hypothesis H
0
:To find out the major factors influencing choice of cement.
Survey on cement usage in Individual houses and Flats:
Mason is found to be the decision maker in both individual houses and flats.
But, in case of individual houses, the customer has a say in selecting cements.
However, in most cases, mason decides the cement because he is believed to
possess technical expertise.
Sample size=4
Location: A Construction site in Chennai
A mason and a worker at a construction site in Chennai said that they
prefer Dalmia Cements because of the following reasons:
It is old and hence trustworthy.
The main reason for preferring Dalmia Cements is that it is strong.
They can mix extra bags of sand with Dalmia Cement whereas that
cannot be the case with other cements.
No cracks if Dalmia Cements is used.
They feel that Dalmia cements is unadulterated whereas other cements
are mixed with ash/rock powder.
A mason said that he would like to go for Coromandel and another
preferred UltraTech
Setting time with Coromandel is Fast.
Setting time with Ultratech is very fast.
They find that Ultratech/coromandel is unadulterated.

3.People give importance to unadulterated,strong cements which sets and
hardens fast and price.
5.2.2.DESCRIPTIVE RESEARCH
Null Hypothesis H
0
: There are 3 dimensions namely, cement properties,
companys sales and marketing actions and recommendation by masons which
influence the decision making of the cement customers.
Descriptive Research was done with a sample of 75 to find out the consumer
behaviour in choosing cement.
Factor Analysis using SPSS is done to identify the major factors responsible for
the purchase decision.
The research method used in this project is factor analysis. Factor analysis is
primarily used for data reduction and summarization. As there are a large
number of variables, most of which are correlated and which must be reduced to
a manageable level, so these relationships among the sets of many interrelated
variables are examined and represented in terms of a few underlying factors
with the help of SPSS.
5.2.3.FACTOR ANALYSIS
Factor analysis is basically an interdependence technique in which an entire set
of interdependent relationships are examined. It is used to identify underlying
dimensions or factors, that explain a set of correlations among a set of variables.
Each variable is expressed as a linear combination of underlying factors.
If the variables are standardized,the factor model may be represented as :
Xi = Ai1F1+Ai2F2+Ai3F3+.+AimFm+ViUi
Where

Xi = ith Standardized variable
Aij = Standardized Multiple Regression coefficient of variable i on common
factor j.
F = Common factor
Vi = Standardized Regression coefficient of variable i on unique factor j
Ui = The unique factor for variable i.
M = number of common factors.
There are a number of techniques that can be used to assist in the decision
concerning the number of factors to retain:
Kaisers criterion;
scree test
The communality is measured which helps in finding the amount of variance
that the variable shares with the other variables, which in turn, gives the
proportion of variance explained by the common factors. Bartletts test of
sphericity is used to examine if the variables are uncorrelated in the population.
Also, the appropriateness of the method of factor analysis is tested by the
Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy index. Higher
values between 0.5 and 1.0 indicate that the method is appropriate and values
below that indicate the inappropriateness of the method.
The data for the purpose of the analysis will be collected with the help of
surveys and questionnaire from a pre- defined sample of respondents. The
process of data collection is structured, which means that a formal questionnaire
is prepared and questions are pre-arranged in a specific order.

The Order bias was removed by changing the order of listing of attributes after
every 5 interviews.
5.2.4.SAMPLE INPUT
There are 17 Questions in questionnaire and sample size was 75.Each question
was given a response on a 1-7 Likert Scale representing
1-Not important
7-Very important
5.2.5.SAMPLE OUTPUT
Factor extraction involves determining the smallest number of factors that
can be used to best represent the interrelations among the set of variables.
There are a variety of approaches that can be used to identify (extract) the
number of underlying factors or dimensions.

Principal Components analysis attempts to produce a smaller number of
linear combinations of the original variables in a way that captures (or
accounts for) most of the variability in the pattern of correlations.It
provides an empirical summary of the dataset.
1.Correlation Matrix
In the Correlation Matrix table, we should look for correlation
coefficients of .1 and above
If we dont find any in our matrix then we should reconsider the use of
factor analysis.
The following table indicates the major players and their share in the
Cement sector:-

(Million
tonnes)
S. No. Group Installed Capacity Cement
Market * Market share
As on
Production Share (%)

31.3.2009 30.9.2009 2008-09
2009-10 (Apr-Sep)
1 A.C.C. Ltd. 22.41 22.41 20.95
10.38 10.73
2 Grasim Industries 19.65 19.65 16.32
9.50 9.82

3 Ambuja Cements Ltd. 18.30 18.30 18.01
9.13 9.44
4 UltraTech Cement Ltd. 21.90 21.90 15.86
8.25 8.53
5 India Cements 10.74 11.84 9.11
4.94 5.11
6 Jaypee Group 9.93 12.13 8.05
4.79 4.95
7 Shree Cement 9.10 9.10 7.78
4.57 4.72
8 J.K. Group 9.37 10.17 7.50
3.93 4.06
9 Madras Cements 8.92 10.12 6.27
3.91 4.04
10 Century Textiles 7.80 7.80 7.22
3.70 3.83
11 Dalmia Cement 6.50 9.00 3.38
2.05 2.12
All India 219.17 230.82 181.61
96.73
* Based on Cement Production - 2009-10 (Apr-Sep)




ACC cement South Zone
Particulars Price
change
Capacity
utilisation
Change in
production
Operating
margin
Change in
PAX
March 05 100 89 100 19 89
March 06 95 91 102 30 91
March 07 126 89 96 29 89
March 08 150 83 96 26 83
March 09 160 90 104 33 90
March 10 139 - - 23 -
March 11 163 - - 20 -
Source: Financial data: Moneycontrol.com,other:CMIE data
ACC Ltd. is Indias oldest and second largest cement company with a total
Capacity of about 30 MMTPA. It commands a market share of 10.3% compared
to 18.3% of Ultratech Cementsand 9.6% of Ambuja Cements. It recently
commissioned the worlds largest cement kiln with 12500TPD capacity. It was
acquired in 2005 by Holcim Ltd one of the worlds leading suppliers of
cement. Ambuja Cements is also a part of the Holcim group.
ACC ltd. has a pan India presence. This geographical diversity lends it a unique
advantage. Since cement prices vary across regions, this pan India presence
augurs well for the company as it de-risks the effect of this price change to a
certain extent.
It is only in the western region that ACC has a low presence in its overall
manufacturing pie mainly because of the presence of its sister company viz.
Ambuja Cements in the western region. (The regional distribution of ACCs

cement capacity is given in the pie-chart). Also, one of its main advantages is
that it is backward integrated as far as its requirement for power is concerned.

Good growth in Sales and EPS: The analysis of the companys 10 YEAR X-
Ray indicates that it has had a cyclical performance. This comes from the very
nature of the cement industry. Over a 5 year period the company has grown its
Net Sales by 12.4%; this is on account of increasing capacity expansion and
higher realisation of prices. Its EPS (earnings per share) have increased at a
much faster rate of ~18% CAGR over 10 years.
Increased profit margins: The large earnings growth has come because of
decreasing reliance on electricity provided by SEB (State Electricity Boards) as
the company is backward integrated as far as power requirement is concerned.
Also, higher cement prices and lower interest costs have augured well for its
earnings growth. This fast growth in earnings compared to sales has resulted in
higher NPM (Net Profit margin) today over the start of the decade. Its NPM in
2003 was ~5% with capacity utilization at 83% compared to NPM in 2010 at
~14% and with capacity utilization at 77%. Thus, a lower capacity utilization
still leads to higher NPM, this has occurred largely due to higher operational
efficiency and much better Capital Structure.
High ROE and ROIC: ACC has enjoyed a high ROE and ROIC over the last
decade because of the operational efficiency, more optimal capital structure, and
negative non-cash working capital.
o Operational efficiency which is evident from its rising NPM despite lower
capacity utilization.
o An optimal capital structure evident from its Debt/Equity ratio which was
1.68 about a decade ago and has pared down to just 0.48. The companys
capacity expansion programs over the years have been financed mainly out of
its earnings rather than debt. This has had a positive impact on the companys
NPM.

o ACC and Ambuja Cements are the only large cap cement company to enjoy
a negative non-cash working capital. This means that it takes more credit
from its vendors than it keeps inventory and it gives credit to its customers. This
has largely come because, ACC can leverage its large economies of scale, its
brand to run a very tightly run ship.

All these 3 points allow the company to enjoy a good NPM and higher
ROIC and ROE.

Looking at all this the companys 10 YEAR PERFORMANCE has been
rated GREEN (Very Good).
Impressive quarterly performance: The Company registered a good growth
(31%) in its Net Sales backed by volume growth (up 17%) as compared to the
previous year. Net Profit at Rs. 167.5 Cr. was up by 67% mainly due to higher
other income and fall in purchase of traded cement.
Going forward: The Company is seeing increasing dispatches month of
December saw an increase of 9% in dispatches. But on the costs front, the
outlook of coal (a key raw material) in terms of availability and pricing does not
seem too favourable.
Also, the overall outlook of the cement industry is bleak. The cement Industry is
facing one of its weakest cycles, with large capacity addition coming online, the
cement market across India is expected to stay weak for the next few quarters.

Hence, the company is expected to witness growth in sales, but margins may
remain suppressed due to oversupply of cement and coal costs.
Hence, the short-term future prospects of the company can be expected to
beOrange (Somewhat Good).
Competitive Advantage What makes ACC a leader?
Over the years ACC has developed a few competitive advantages which have
helped it maintain its leadership position. These are:
Its all India market share of 10.3% after Ultra Techs 18.3%, allows it to
enjoy economies of scale like most other peers. Significantly the companys net
price realizations per tonne of cement are higher than that of Ultratech Cement
across the whole Industry cycle. The higher prices realizations are because ACC
cement is considered to be a premium brand than Ultratech Cement. It recently
introduced a new product specifically meant for use in coastal regions;
introduction of such region specific products will help it continue to command a
premium pricing.

One of the most innovative companies. This gets reflected in its enhanced
operational efficiencies, optimum capital structure, negative non-cash working
capital, and a First Mover advantage in Ready Mix Concrete. Its association
with HOLCIM and Ambuja Cements will allow it to derive large economies of
scale, and best international practices e.g. HOLCIMs European plants on an
average have 20% of its energy been met by alternative fuel and raw material.
Such technology exposure will lead to next phase of Growth in NPM over next
two decades.
Its backward integration as far as power is concerned. ACC has a Captive
Power Plant (CPP) capacity of 361 MW from Coal Power Plants and 19 MW of
Wind Turbine Generation. Currently ACC derives about 65-66% of its power
needs from CPP and about 33% from SEBs. CPP produced power is at least

35% cheaper than the power purchased from SEBs or externally. ACC has
been continuously adding CPP power to its Energy Portfolio. By the end of Q3
CY 2011 ACC would have increased its CPP power by 25MW by
commissioning a 25MW CPP at WADI. This will have a positive impact on the
companys costs and hence augur well for its margins.
Product Analysis: Cement inherently is a commodity product, but Ready Mix
Concrete (RMC) is a highly specialised product. ACC Concrete currently
contributes just 7% of sales to ACC. Going forward this is expected to increase
to the global average of around 30-40% of ACC revenues coming from RMC
business. This also is expected to have a positive impact on NPM and ROIC.
Geographical Presence: ACC has a pan India presence with large exposure in
capacity terms to Southern and Northern India. The figure below highlights its
market share in various regions in India.

Expansion plans: Coal Prices remains the significant risk to the profitability of
ACC business. As a way of De-risking its business ACC is actively scouting for
COAL BLOCKS in India and outside India through its subsidiary ACC
Minerals Resources Ltd. The subsidiary already has a Joint Venture Agreement
with Madhya Pradesh State Mining Corporation Limited for development of
four coal blocks.
Industry Prospects and Structure: Indias per capita consumption of cement
is just 1/7th of China. This per capita consumption is expected to increase led
by large Infrastructure and roads build up that is necessary to maintain an 8-9%
GDP growth rate in the next decade. Revival in roads contract by the
government and the real estate industry will give a flip to Cement industry. But
large capacity additions are already planned with about 40MMTPA coming on
stream in 2011, this would keep the Cement markets weak over short term and
may lead to likely consolidation among cement players in the next few years.
All this may result in lower profit margins than what ACC has seen over last 5
years.
Rising energy prices remains the biggest concern for ACC. Power & fuel
and freight prices both are impacted by energy prices. Both power & fuel and

freight constitute together about 36% of ACCs Sales. Any significant increase
in Energy prices thus remains a significant risk towards maintaining Profit
margins at healthy level.
Demand-Supply mismatch:
Cement Industry is facing one of its weakest cycles, with large capacity addition
coming online. The cement market across India is expected to stay weak till
2015. Capacity utilization wont reach near its decade high before 2015. While
demand is expected to grow at 10% CAGR over next few years, planed capacity
additions would lead to large Demand Supply gap. This is a cause for concern
for many cement players as demand as well as realizations will be affected for
the next couple of years.

Hence, despite these concerns over a long-term period, ACC is expected to have
good growth at the back of its strong competitive advantages, pan-India
presence and expansion plans. Hence, the long-term future prospects of ACC
are expected to be Green (Very Good).
ACC Ltd. is Indias second largest cement player. With strong competitive
advantages like its leadership position, backward integration and
operational efficiency, in the long-term ACC Ltd. is poised to grow.
Currently, its stock price is at Rs. 1174. So, lets see what the technical chart
of the company indicates? Click to view the chart


ACC is among those very few stocks that are in longer term uptrend from their
bottom in 2008/09. The stock has been trading in an upward channel since
2009. Till now, stocks attempt to break this channel (upward or downward) has
not been successful. Investors should watch out for price movements near these
parallel lines. Any break out (again upward or downward) could lead to a major
price movement.
However, remember technical should only be used as a supporting tool to
fundamentals. One should always take an investment decision based on
how fairly is the company priced.
Considering its fundamentals, ACC Ltd. is an investment worthy company. It is
considered to be a safe-bet as compared to mid and small cap stocks. However,
the current sluggish scenario in the cement industry as a whole does create
concerns for the short-term. Thus, investors should invest in the company only
at a discount to its MRP.
So, does the current price offer an attractive discount to its right value
(MRP) or is it over-priced? It is always best to invest at an attractive
discount to its MRP, to get maximum returns at minimum risk. Become a
member of MoneyWorks4me.com to know its sensible buy- price and hence
take the right action for this company.

Disclaimer: This publication has been prepared solely for information purpose
and does not constitute a solicitation to any person to buy or sell a security. It
does not constitute a personal recommendation or take into account the
particular investment objectives, financial situations or needs of an individual
client or a corporate/s or any entity/ies. The person should use his/her own
judgment while taking investment decisions.



Chettinadu cement-South zone
Particulars Price
change
Capacity
utilisation
Change in
production
Operating
profit
margin
Change in
PAX
March 05 100 123 100 22 100
March 06 95 131 107 24 143
March 07 126 149 121 33 410
March 08 150 161 131 37 586
March 09 160 159 142 41 -
March 10 139 71 181 37 346
March 11 163 55 208 30 269
Source: Financial data: Moneycontrol.com,other:CMIE data
Chettinad cement is operating its cement business spanning three generations.
Since its establishment in 1962 with a wet process cement plant at Puliyur near
Karur, Chettinad cement has been expanding and making itself versatile in the
field of cement products.

Major supplier of Southern India cement needs, Chettinad Cement supplies the
"glue" upon which many residential, commercial and engineering projects are
built. Chettinad Cement has established its position in the southern market by
innovatively aligning its products and services to the needs of cement users.

Chettinad Cement's modern, flexible manufacturing plant produces a wide range
of cements which can be delivered in bulk using reliable road tanker fleet.

Under its Builders Choice brand name, Chettinad Cement offers an extensive
range of bagged products that includes Ordinary Portland cements and blended

cements to suit most building and construction applications. For over four
decades, the Chettinad cement companies have built a reputation for serving the
construction industry with high-performance products that encourage creativity
and ensure longevity. As the creative use of cementitious materials continues to
grow in popularity, in both masonry and concrete applications, so too, does our
commitment to providing customers with the widest range of cements to
achieve the maximum in creativity, versatility and integrity.

Chettinad Cements are carefully proportioned, highly accurate blends of quality
materials including blended cement& Portland cement are manufactured under
controlled conditions assuring reliable performance, and providing consistent
quality.

Chettinad Cement has always strived for high quality production and
maintained international standards. The company has won many laurels for its
cement production and has ISO 9001/2008, ISO 14001/2004 and IS 18001/2007
certifications. It has grown steadily from time to time through its consistent
quality and customer service.


SPECIALITY OF PRODUCTS & SERVICE Ordinary Portland Cement
(OPC)
Our Gray Ordinary Portland Cement is a high-quality, cost-effective building
material mainly composed of clinker that meets all applicable chemical and
physical requirements and is widely used in all construction segments:
residential, commercial, industrial, and public infrastructure. Chettinad cement
is the result of careful effort in the research and development of our cement
engineers and scientists. It is specially blended with good quality control
monitoring systems, high quality cement engineered for use in all structural,
building and particularly useful in marine and hydraulic construction. Chettinad
Cement is extremely easy to work with and produces consistently excellent
results every time. This consistent quality, versatility and proven strength make
it the choice for builders, architects, engineers, contractors.
The composition of the cement is constantly monitored and maintained to
guarantee high quality performance as per cement class specs requirements.
Portland Pozzolana Cement (Ppc) - Blended Cement
This Blended hydraulic cements are produced by
intergrinding or blending Portland cement and
supplementary cementitious materials such as fly ash.
The use of blended cements in ready-mix concrete
reduces mixing water and bleeding, improves
workability and finishing, inhibits sulphate attack and


the alkali-aggregate reaction, and reduces the heat of
hydration. Depending on the constituents, blended
cements can confer desirable qualities to concrete such
as lighter colour, workability, or low heat of hydration.
Slag from steel making and fly ash from the power
industry are two commonly added materials in blended
cements. By putting waste to work, blended cements
contribute to sustainable development. We've made
blended cements for over 20 years.


Sulphate Resisting Portland Cement (SRPC)
SRPC is a type of Portland Cement in which amount of tri-calcium aluminate
(C3A) is restricted to low value. Chettinad SRPC has unique quality of having
low C3A value. SRPC can be used for structural concrete wherever OPC are
usable under normal condition. Use of Chettinad SRPC is more beneficial in the
condition where the concrete is exposed to the deterioration due to sulphate
attack and exposed directly to sea coast.

Portland Slag Cement (PSC)
PSC is produced by an intimate and uniform inter-grinding of Portland Cement
Clinker and granulated slag with addition of Gypsum. Chettinad PSC has
unique physical properties which make it ideal for use in a variety of attack
prone application like construction in the saline atmosphere along our coast
liners and soil area and sewage prone area. Chettinad offers an array of blended
cements which have a lower CO2 footprint resulting from their lower clinker
content due to the addition of supplementary cementitious materials. The use of
blended cements reinforces our strong dedication to sustainable practices and
furthers our objective of offering an increasing range of more sustainable
products.

Technical Services
Chettinad Cement Corporation Limited offers various services to our customers.
Some of these include: Selection of proper aggregates materials for concrete
mix design We help our customers in identifying which size and type of
aggregates are appropriate for a certain concrete work for economical concrete
mix design as the use of good material is important in order to reduce the cost of
the intended project.

Concrete mix design for different applications
Depending on the structural concrete strength required and condition in which
the concrete will be used, we advise the customers on selection of type/class of
cement to be used, maximum amount of cement per cubic meter of concrete as
well as maximum water cement ratio, the use of admixture to modify the

concrete workability etc.

General technical information on cement/concrete
To safeguard the interest of the customers, we always give tips to our customers
cement storage facility, handling of cement bags, stacking of cement bags,
preparation and treatment of casted concrete, general technical information
concerning cement etc.
Sl.
No.
AWARDS YEAR
1 0.4 MTPA cement production capacity with wet process plant
installed at Puliyur.
1967
1 (a) 1983-85 Three No. of 1500KVA / each capacity Yanmar (Japan)
DG sets installed to overcome EB power shortage
1967
2 Modernised into dry process plant to a capacity of 0.8 MTPA with
a kiln capacity of 2000 TPD commissioned with modern vertical
roller mills for fuel & limestone grinding.
1989
3 2 Nos. of 5.4 MVA Capacity WARTSILA DG set installed. 1990
4 66 Nos. of wind electric Generator of total capacity 17.3 Mw
installed at Poolavadi Udumaplet Taluk.
1994
96
5 ISO 9002 Certificate received. 1995
6 Stacker & Re-claimer for Limestone installed. 1996
7
Belt Elevator for Raw mill and Kiln feed installed.
1996
97
8 A) Impact Crusher for lime stone crushing at mines installed.
B) Bag filter for coal mill grinding system.
1997
9 Vertical roller mill for cement grinding installed. Additional ESP
installed for Kiln/ Raw mill to handle excess process gases.
1998
10 CIS/CFG Cooler installed. Low pressure cyclone installed. Latest
Technology LV-Tech classifier installed in Raw Mill. The plant
capacity increased to 1.2 MTPA cement.
2000
11 Green field Cement plant with capacity of 0.9 MTPA was
commissioned at Karikkali.
2001
12 Rock breaker (Terminator) installed in mines. 2001
13 ISO 14001:2004 is implemented . 2003
14 Environment Management Service Certificate option. 2004
14
(A)
1 No. 15MW Coal based Captive Power Plant commissioned in 12
Months at Karikkali.
2004
15 Fly Ash Silo construction work completed at Puliyur and
Karikkali.
2005
16 Roller press with ball mill for cement grinding with capacity 0.7
MTPA installed at Karikkali.
2006

17 Vertical roller mill for cement grinding installed. Additional ESP
installed for Kiln/ Raw mill to handle excess process gases.
2006
18 Karikkali plant capacity increased to 2.0 MTPA by increasing of
blended cement production.
2007
19 Bag House installed in Raw Mill/Kiln Circuit in addition to the
existing ESP at Puliyur.
2007
20 Energy dispersive X-Ray specto meter was put into service for
increasing the out put and economical mines operation &
conservation of minerals.
2007
21 Advance Research laboratories, Switzerland make X-Ray
Spectrometer - Sequential type was commissioned for
augmenting clinker production and its quality.
2007
22 Seethainagar Mines crusher capacity was upgraded for supply of
40% Karikkali plant requirement of Limestone.
2007
23 Coal based 15 MW capacity CPP was commissioned during Feb-
2008 at Puliyur Works.
2008
24 Automation & control sections PLC's OS software up gradation
and PLC's capacity.
2008
25 KHD make Burner Management System for kiln operation to
improve quality of clinker and to save thermal energy.
2008
26 Coal based 2 x 15 MW capacity CPP was commissioned during
Sep-2008 at Ariyalur.
2008
27 Green field Cement plant with capacity 2.75 MTPA was
commissioned during Dec-2008 at Ariyalur.
2008
28 Video conferencing facility was commissioned between Puliyur,
Karikkali, Ariyalur and Head Office for more effective and faster
communications and project monitoring.
2008
29 Brown field Cement plant with capacity 2.75 MTPA was
commissioned at Ariyalur during October-2009.
2009
29
(A)
Coal based 1 x 15 MW capacity CPP was commissioned during
Jan-2010 Erection and Commissioning of 2 Cement Plants in
World Record Time at Ariyalur - 30 Months from Bhoomi Pooja
to Commissioning Highest Production Capacity for Cement in a
Single Location at Ariyalur Three No. 15 MW Coal based
Captive Power Plants Commissioned in 18 months at Ariyalur
Chettinad Cement Technical Team rated No 1 by FLS Denmark at
Ariyalur
2010
30 Roller press with ball mill for cement grinding with capacity 0.5
million commissioned during February -2010 at Puliyur.
2010
31 Brown field Cement Plant with capacity of 2.5 MTPA was
commissioned at Karikkali in March 2011 along with coal based
2011

30MW captive power plant within the same premises
32 Work is under progress for a new Green field production line of
2.5 MTPA cement with 1 No. of 30MW Coal based captive
power plant in Kallur Village, Chincholi Taluk and Gulburga
Dist of Karnataka state and expected to be commissioned in year
2012.
2011
33 32.Installed Capacity as of now is 11.7 MTPA Puliyur 1.7
MTPA
Karikkali Line I 2.0 MTPA
Karikkali Line II 2.5 MTPA
Ariyalur Line I 2.75 MTPA
Ariyalur Line II 2.75 MTPA
2011

Chettinad Cement has attached great importance to social responsibility and
environmental values. This is manifest in the installation of the latest pollution
control equipment in the plant. The Company added another feather to its cap
by installing and commissioning a giant, sophisticated, high-tech and power
efficient O & K cement mill resulting in a quantum leap in production to
touch One Million Tonne mark.

No. of Establishments / branches / work sites
The company has 3 integrated plants in Tamilnadu at Puliyur, Karikkali and
Ariyalur.
The company is setting up one more cement plant at Kallur, Karnataka
Puliyur Plant
Kumara Rajah Muthiah Nagar,
Puliyur CF Post
Karur District- 639 114
Tamil Nadu
Phone: 04324 251354, 251355
Fax: 04324 251320
E Mail: contact@chettinadmail.com
Karikkali Plant
Chettinad Cement Corporation Ltd.,
Rani Meyyammai Nagar,Vedasandur Taluk,
Karikkali Post,
Dindigul District 624 703
Tamil Nadu
Phone: 04551 234441, 234431
Fax: 04551 234440,
E Mail: info@chettinadmail.com
Ariyalur Plant
Trichy-Ariyalur Road
Keelpaluvur
Ariyalur 621 707
Ph : 04329-247774, Fax : 04329 - 247778

Email : ariyalur@chettinadmail.com
Kallur Project
Survey No.5, Sangem.K Village, Kallur Works
Bhaktampalli (Post), Chandapur S.O,
Chincholi (Taluk), Gulbarga (Dist),
Karnataka (State)- 585 305
Ph : 08475 - 273029
Fax : 08475 273019, Email : kallur@chettinadcement.com
FINANCIAL HIGHLIGHTS:

1996-
97
1997-
98
1998-
99
1999-
00
2000
-01
2001-
02
2002
- 03
2003-
04
Turn Over - Nett.
Including Other
Income(Rs. In Lacs)
20820 21269 19716 20116 19530 20292 26837 32614




With growing demand for Cement within India and South East Asian countries,
Chettinad Cement is all set for expansion in the new millennium. True to its
tradition, this deeply rooted tall corporate tree continues to grow and swell its
girth. We have decided to expand our horizons by starting another green field
cement plant of 0.9 million tonnes capacity per annum with an estimated cost of
about 350 Crores.

For more details contact:
M/s. Chettinad Cement Corporation Ltd,
5th Floor, Rani Seethai Hall,
603 Anna Salai, Chennai - 600 006.
Telephone No: +91-44-28292727
Fax No: +91-44-28291594
e-mail:Head office: chtdmds@vsnl.com/
Coimbatore:chtdcbe@vsnl.com/
Factory:cccl@tr.dot.net.in

Chettinad cement is operating its cement business spanning three generations.
Since its establishment in 1962 with a wet process cement plant at Puliyur near
Karur, Chettinad cement has been expanding and making itself versatile in the
field of cement products.

Major supplier of Southern India cement needs, Chettinad Cement supplies the
"glue" upon which many residential, commercial and engineering projects are
built. Chettinad Cement has established its position in the southern market by
innovatively aligning its products and services to the needs of cement users.


Chettinad Cement's modern, flexible manufacturing plant produces a wide range
of cements which can be delivered in bulk using reliable road tanker fleet.

Under its Builders Choice brand name, Chettinad Cement offers an extensive
range of bagged products that includes Ordinary Portland cements and blended
cements to suit most building and construction applications. For over four
decades, the Chettinad cement companies have built a reputation for serving the
construction industry with high-performance products that encourage creativity
and ensure longevity. As the creative use of cementitious materials continues to
grow in popularity, in both masonry and concrete applications, so too, does our
commitment to providing customers with the widest range of cements to
achieve the maximum in creativity, versatility and integrity.

Chettinad Cements are carefully proportioned, highly accurate blends of quality
materials including blended cement& Portland cement are manufactured under
controlled conditions assuring reliable performance, and providing consistent
quality.

Chettinad Cement has always strived for high quality production and
maintained international standards. The company has won many laurels for its
cement production and has ISO 9001/2008, ISO 14001/2004 and IS 18001/2007
certifications. It has grown steadily from time to time through its consistent
quality and customer service.


SPECIALITY OF PRODUCTS & SERVICE Ordinary Portland Cement
(OPC)
Our Gray Ordinary Portland Cement is a high-quality, cost-effective building
material mainly composed of clinker that meets all applicable chemical and
physical requirements and is widely used in all construction segments:
residential, commercial, industrial, and public infrastructure. Chettinad cement
is the result of careful effort in the research and development of our cement
engineers and scientists. It is specially blended with good quality control
monitoring systems, high quality cement engineered for use in all structural,
building and particularly useful in marine and hydraulic construction. Chettinad
Cement is extremely easy to work with and produces consistently excellent
results every time. This consistent quality, versatility and proven strength make
it the choice for builders, architects, engineers, contractors.
The composition of the cement is constantly monitored and maintained to
guarantee high quality performance as per cement class specs requirements.

Portland Pozzolana Cement (Ppc) - Blended Cement
This Blended hydraulic cements are produced by
intergrinding or blending Portland cement and
supplementary cementitious materials such as fly ash.
The use of blended cements in ready-mix concrete
reduces mixing water and bleeding, improves
workability and finishing, inhibits sulphate attack and
the alkali-aggregate reaction, and reduces the heat of
hydration. Depending on the constituents, blended
cements can confer desirable qualities to concrete such
as lighter colour, workability, or low heat of hydration.
Slag from steel making and fly ash from the power
industry are two commonly added materials in blended
cements. By putting waste to work, blended cements
contribute to sustainable development. We've made
blended cements for over 20 years.



Sulphate Resisting Portland Cement (SRPC)
SRPC is a type of Portland Cement in which amount of tri-calcium aluminate
(C3A) is restricted to low value. Chettinad SRPC has unique quality of having
low C3A value. SRPC can be used for structural concrete wherever OPC are
usable under normal condition. Use of Chettinad SRPC is more beneficial in the
condition where the concrete is exposed to the deterioration due to sulphate
attack and exposed directly to sea coast.

Portland Slag Cement (PSC)
PSC is produced by an intimate and uniform inter-grinding of Portland Cement
Clinker and granulated slag with addition of Gypsum. Chettinad PSC has
unique physical properties which make it ideal for use in a variety of attack
prone application like construction in the saline atmosphere along our coast
liners and soil area and sewage prone area. Chettinad offers an array of blended
cements which have a lower CO2 footprint resulting from their lower clinker
content due to the addition of supplementary cementitious materials. The use of
blended cements reinforces our strong dedication to sustainable practices and
furthers our objective of offering an increasing range of more sustainable
products.

Technical Services
Chettinad Cement Corporation Limited offers various services to our customers.
Some of these include: Selection of proper aggregates materials for concrete
mix design We help our customers in identifying which size and type of
aggregates are appropriate for a certain concrete work for economical concrete
mix design as the use of good material is important in order to reduce the cost of

the intended project.

Concrete mix design for different applications
Depending on the structural concrete strength required and condition in which
the concrete will be used, we advise the customers on selection of type/class of
cement to be used, maximum amount of cement per cubic meter of concrete as
well as maximum water cement ratio, the use of admixture to modify the
concrete workability etc.

General technical information on cement/concrete
To safeguard the interest of the customers, we always give tips to our customers
cement storage facility, handling of cement bags, stacking of cement bags,
preparation and treatment of casted concrete, general technical information
concerning cement etc.


MILESTONE AND ACHIEVEMENT
Sl.
No.
AWARDS YEAR
1 0.4 MTPA cement production capacity with wet process plant
installed at Puliyur.
1967
1 (a) 1983-85 Three No. of 1500KVA / each capacity Yanmar (Japan)
DG sets installed to overcome EB power shortage
1967
2 Modernised into dry process plant to a capacity of 0.8 MTPA with
a kiln capacity of 2000 TPD commissioned with modern vertical
roller mills for fuel & limestone grinding.
1989
3 2 Nos. of 5.4 MVA Capacity WARTSILA DG set installed. 1990
4 66 Nos. of wind electric Generator of total capacity 17.3 Mw
installed at Poolavadi Udumaplet Taluk.
1994
96
5 ISO 9002 Certificate received. 1995
6 Stacker & Re-claimer for Limestone installed. 1996
7
Belt Elevator for Raw mill and Kiln feed installed.
1996
97
8 A) Impact Crusher for lime stone crushing at mines installed.
B) Bag filter for coal mill grinding system.
1997
9 Vertical roller mill for cement grinding installed. Additional ESP
installed for Kiln/ Raw mill to handle excess process gases.
1998
10 CIS/CFG Cooler installed. Low pressure cyclone installed. Latest
Technology LV-Tech classifier installed in Raw Mill. The plant
capacity increased to 1.2 MTPA cement.
2000
11 Green field Cement plant with capacity of 0.9 MTPA was 2001

commissioned at Karikkali.
12 Rock breaker (Terminator) installed in mines. 2001
13 ISO 14001:2004 is implemented . 2003
14 Environment Management Service Certificate option. 2004
14
(A)
1 No. 15MW Coal based Captive Power Plant commissioned in 12
Months at Karikkali.
2004
15 Fly Ash Silo construction work completed at Puliyur and
Karikkali.
2005
16 Roller press with ball mill for cement grinding with capacity 0.7
MTPA installed at Karikkali.
2006
17 Vertical roller mill for cement grinding installed. Additional ESP
installed for Kiln/ Raw mill to handle excess process gases.
2006
18 Karikkali plant capacity increased to 2.0 MTPA by increasing of
blended cement production.
2007
19 Bag House installed in Raw Mill/Kiln Circuit in addition to the
existing ESP at Puliyur.
2007
20 Energy dispersive X-Ray specto meter was put into service for
increasing the out put and economical mines operation &
conservation of minerals.
2007
21 Advance Research laboratories, Switzerland make X-Ray
Spectrometer - Sequential type was commissioned for
augmenting clinker production and its quality.
2007
22 Seethainagar Mines crusher capacity was upgraded for supply of
40% Karikkali plant requirement of Limestone.
2007
23 Coal based 15 MW capacity CPP was commissioned during Feb-
2008 at Puliyur Works.
2008
24 Automation & control sections PLC's OS software up gradation
and PLC's capacity.
2008
25 KHD make Burner Management System for kiln operation to
improve quality of clinker and to save thermal energy.
2008
26 Coal based 2 x 15 MW capacity CPP was commissioned during
Sep-2008 at Ariyalur.
2008
27 Green field Cement plant with capacity 2.75 MTPA was
commissioned during Dec-2008 at Ariyalur.
2008
28 Video conferencing facility was commissioned between Puliyur,
Karikkali, Ariyalur and Head Office for more effective and faster
communications and project monitoring.
2008
29 Brown field Cement plant with capacity 2.75 MTPA was
commissioned at Ariyalur during October-2009.
2009
29
(A)
Coal based 1 x 15 MW capacity CPP was commissioned during
Jan-2010 Erection and Commissioning of 2 Cement Plants in
2010

World Record Time at Ariyalur - 30 Months from Bhoomi Pooja
to Commissioning Highest Production Capacity for Cement in a
Single Location at Ariyalur Three No. 15 MW Coal based
Captive Power Plants Commissioned in 18 months at Ariyalur
Chettinad Cement Technical Team rated No 1 by FLS Denmark at
Ariyalur
30 Roller press with ball mill for cement grinding with capacity 0.5
million commissioned during February -2010 at Puliyur.
2010
31 Brown field Cement Plant with capacity of 2.5 MTPA was
commissioned at Karikkali in March 2011 along with coal based
30MW captive power plant within the same premises
2011
32 Work is under progress for a new Green field production line of
2.5 MTPA cement with 1 No. of 30MW Coal based captive
power plant in Kallur Village, Chincholi Taluk and Gulburga
Dist of Karnataka state and expected to be commissioned in year
2012.
2011
33 32.Installed Capacity as of now is 11.7 MTPA Puliyur 1.7
MTPA
Karikkali Line I 2.0 MTPA
Karikkali Line II 2.5 MTPA
Ariyalur Line I 2.75 MTPA
Ariyalur Line II 2.75 MTPA
2011

Chettinad Cement has attached great importance to social responsibility and
environmental values. This is manifest in the installation of the latest pollution
control equipment in the plant. The Company added another feather to its cap
by installing and commissioning a giant, sophisticated, high-tech and power
efficient O & K cement mill resulting in a quantum leap in production to
touch One Million Tonne mark.

No. of Establishments / branches / work sites
The company has 3 integrated plants in Tamilnadu at Puliyur, Karikkali and
Ariyalur.
The company is setting up one more cement plant at Kallur, Karnataka
Puliyur Plant
Kumara Rajah Muthiah Nagar,
Puliyur CF Post
Karur District- 639 114
Tamil Nadu
Phone: 04324 251354, 251355
Fax: 04324 251320
E Mail: contact@chettinadmail.com
Karikkali Plant
Chettinad Cement Corporation Ltd.,
Rani Meyyammai Nagar,Vedasandur Taluk,

Karikkali Post,
Dindigul District 624 703
Tamil Nadu
Phone: 04551 234441, 234431
Fax: 04551 234440,
E Mail: info@chettinadmail.com
Ariyalur Plant
Trichy-Ariyalur Road
Keelpaluvur
Ariyalur 621 707
Ph : 04329-247774, Fax : 04329 - 247778
Email : ariyalur@chettinadmail.com
Kallur Project
Survey No.5, Sangem.K Village, Kallur Works
Bhaktampalli (Post), Chandapur S.O,
Chincholi (Taluk), Gulbarga (Dist),
Karnataka (State)- 585 305
Ph : 08475 - 273029
Fax : 08475 273019, Email : kallur@chettinadcement.com

Major Clients
APR Projects Ltd Arun Excello Group
Aster Infratek Pvt. Ltd
BGR Energy Systems (Mettur Thermal
Power Plant)
Bridge & Roof Co. (I) Ltd
Consolidated Construction Consortium
Ltd
Coromandel Engg. Co. Ltd
Director General of Supplies &
Disposals, New Delhi
East Coast Construction Co. Ltd ETA Construction India Ltd
Gammon India Ltd Indu Projects, Hyderabad
ISRO, Trivandrum ITD Cementation
IVRCL Infrastructure & Projects Ltd JMC Projects
JSW Steel & Power Ltd KGISL Trust, Coimbatore
Larsen & Toubro Ltd Lafarge Aggregates Pvt. Ltd
Madhucon Projects Ltd (NHAI Road
Project)
Marg Ltd
Meytas Properties & Developers NAPC Ltd
Navayuga Engg. Co. NCC Ltd
NLC Thermal Power Plant Ltd
(NTPL)
Nuclear Power Corporation Ltd
(Kudankulam)
Oriental Structural Engineers Pvt Ltd
(Road proj)
P & C Constructions Pvt Ltd
Parsn Group RayMix Concrete India P Ltd

RDC Ready Mix Concrete REC, Calicut
RMC Ready Mix Concrete Sahyatri Industries Ltd
SEW Infrastructure Ltd Shapoorji & Pallonji
Simplex Infrastructures Sintex Industries Ltd
SPIC SMO Ltd, Tuticorin SPL Infrastructure
Sterlite Industries Ltd Tata Projects
Transstroy India Ltd. UEM Group
Ultratech RMC URC Constructions.
UST Global, Trivandrum Vijay Nirman Construction


FINANCIAL HIGHLIGHTS:

1996-
97
1997-
98
1998-
99
1999-
00
2000
-01
2001-
02
2002
- 03
2003-
04
Turn Over - Nett.
Including Other
Income(Rs. In Lacs)
20820 21269 19716 20116 19530 20292 26837 32614




With growing demand for Cement within India and South East Asian countries,
Chettinad Cement is all set for expansion in the new millennium. True to its
tradition, this deeply rooted tall corporate tree continues to grow and swell its
girth. We have decided to expand our horizons by starting another green field
cement plant of 0.9 million tonnes capacity per annum with an estimated cost of
about 350 Crores.

For more details contact:
M/s. Chettinad Cement Corporation Ltd,
5th Floor, Rani Seethai Hall,
603 Anna Salai, Chennai - 600 006.
Telephone No: +91-44-28292727
Fax No: +91-44-28291594
e-mail:Head office: chtdmds@vsnl.com/
Coimbatore:chtdcbe@vsnl.com/
Factory:cccl@tr.dot.net.in




IMPORTANT MILESTONES AT PULIYUR WORKS
1989 DRY PROCESS KILN OF 1700 TRD COMMISSIONED WITH
VERTICAL ROLLER MILL FOR FUEL AND LIMESTONE

GRINDING
1990 2.NOS. 5400 KVA CAPACITY WARTSILA DG SETS INSTALLED
1994-
96
66.NOS. OF WIND ELECTRIC GENERATOR OF TOTAL
CAPACITY 17.3 MW INSTALLED AT POOLAVADI,
UDUMALPET TALUK
1995 GOT ISO-9002 CERTIFICATION
1996 STACKER & RECLAIMER FOR LIMESTONE INSTALLED
1996-
97
BELT BUCKET ELEVATOR FOR RAW MILL AND KILN FEED
INSTALLED
1997 A) IMPACT CRUSHER FOR LIMESTONE CRUSHING AT MINES
INSTALLED
B) BAG FILTER FOR COAL GRINDING SYSTEM INSTALLED
1998 VERTICAL ROLLER MILL FOR CEMENT GRINDING
INSTALLED. ADDITIONAL ESP INSTALLED IN KILN/VRM
CIRCUIT
1999 A) CIS/CFG COOLER INSTALLED
B) LOW PRESSURE CYCLONE INSTALLED
C) LATEST TECHNOLOGY LV- TECH CLASSIFER INSTALLED
IN RAW MILL
D) KILN CAPACITY INCREASED TO 2800 TPD
2001 A) ROCK BREAKER (TERINATOR) INSTALLED IN MINES B)
ISO-14001 IS UNDER IMPLEMENTATION
2001 GREEN FIELD CEMENT PLANT WITH 1.1 MILLIONCAPACITY
WAS COMMISSIONED AT KARIKKALI WORKS.



Bureau of Indian Standards has granted Environmental Management System
Certification Licence (Licence no:EMSC/L-6000230) as per IS/ISO 14001 :
1996 for Chettinad Cement Corporation Limited., Puliyur Cement Factory with
Effect from 23-07-2004 and is valid Upto 22-0702007

CHETTINAD CEMENT CORPORATION LTD., Puliyur Works.
ENVIRONMENTAL POLICY

We shall be commited to protect the Environment by continual Improvements
to comply with environmental legislation and other Requirements by adopting
well established Environmental Management System in our process leading to
manufacture of various grades of cement.

We therefore strive:

To reduce overall emissions and contamination.
To achieve continual improvement in the prevention of Environmental
pollution by adopting suitable technology and Practices.
To promote Greenary in and around factory.
To minimisw waste, to promote recovery, and to conserve Natural and energy
resources.
To create awareness among the employess and surrounding Community as to
the importance and need for protecting the Environment.
To reduce loss time by ensuring safe work practices.
To make available the policy to the public.Date 15.10.2003
Selection of Cement Companies for the Present Study
In Tamil Nadu, there are seven cement companies namely,
1. Madras Cements Limited (MCL)
2. India Cements Limited (ICL)
3. Chettinad Cement Corporation Limited (CCL)
4. Tamil Nadu Cements Corporation Limited (TANCEM)
5. Dharani Cements Limited (DhCL)
6. Dalmia Cements (Bharath) Limited
7. Associated Cement Company Limited (ACC)
Of the seven companies listed above only the first five companies have
their registered and corporate offices in Tamil Nadu. The remaining two
companies whose registered and corporate offices are located in other states are
excluded from the present study. Further, of the five companies whose registered
and corporate offices are located in Tamil Nadu, the Dharani Cements Limited is
excluded because it has commenced its operation only in 2000. Thus, only four

companies namely, Madras Cements Limited, India Cements Limited, Chettinad
Cement Corporation Limited and Tamil Nadu Cements Corporation Limited are
selected for analysing and evaluating the productivity performance. 10







CHAPTER - 4
ANALYTICAL STUDY
INTRODCUTION
The Financial Success of a firm depends mainly on its capital structure. Firms
with unplanned capital structure can prosper in short run but face difficulties in
mobilizing additional funds and increasing the value of the business in the long run.
The choice of debt and equity in the capital structure of corporate firms is an
important financial decision, in that; it influences both the return and risk of
shareholders. The excessive use of debt may endanger the survival of the corporate
firm. At the same time non-use of debt prevents the firm from an opportunity to
enhance the rate of return to its equity shareholders.
Capital structure refers to the proportionate relationship between different
components of financing mix or long term sources of funds such as debentures, long

term debt, preference capital and equity share capital including reserves and surplus.
A firm may decide to finance its investment requirements either through equity only
or through debt only or mixture of both. Normally firms follow the third option.
Capital Structure, some times known as financial plan, refers to the
components of long-term sources of funds such as equity share capital including
reserves and surpluses, debentures and other long-term loans. In the words of
Lawrence D. Schall and Charless W. Haley, the term 'capital structure means the
proportion of different types of securities issued by a firm. The optimal capital
structure is the set of proportion that maximizes the total value of the firm
1
.
'Financial Structure' refers to the left hand side of balance sheet as represented
by 'total liabilities'. It provides as insight into the various types employed in a business
enterprise. The financial structure of an enterprise, therefore, consists of three
segments- assets, liabilities and capital. The financial structure infact provides the
basic framework or design of the relationship between several elements composing
the assets and liabilities as reflected in balance sheet. On the other hand capital
structure is that part of the financial structure which represents long term funds. It is
the permanent financing of the firm, represented primarily by long-term debt,
preference stock and common stock including reserves and surpluses, but excluding
all short-term credits. In an industrial undertaking capital structure has decisive impact
on it's composition. The capital structure should be so designed as to achieve the
desired managerial goals. According to S.C.Kuchal, "within this framework of
equating the rate of return and the cost of capital, capital structure is sought by using a
proportion of debt such that the correct degree of trading on equity leading to financial
leverage will cause the highest market value of the ordinary shares"
2
. Capital
structure, therefore involves a choice between size and expected returns.
The Capital Structure of a business enterprise consists of debt and equity shares
which provide funds for a firm, "Capital structure is composed of a firm's finance of
its assets. It is the permanent financing of a firm represented by long term debt plus
preferred stock plus net worth"
3
. Apart from short term finance from creditors and

banks, companies are usually financed either by long term loans (debentures) carrying
a fixed rate of interest on capital or by ordinary shares carrying membership of a
company and dividends at the rate, which depend upon profits"
4
.
The basic pattern of capital structure can be simple or complex. A simple
capital structure consists of equity shares and preference shares. But a complex capital
structure consists of multi securities such as equity shares, preference shares,
debentures, bonds etc.


COMPONENTS OF STRUCTURE OF CAPITAL
The capital structure of an industry normally consists of equity capital,
preference share capital, reserves including retained earnings and long term
borrowings. A well planned capital structure is the prime factor in the success of an
organization. A business enterprise should have an efficient capital structure which
can provide a definite rate of return on the capital employed. Capital structure should
be flexible and it should be such that it can get the advantage of leverage and taxes.
The capital structure of cement companies consists of equity capital, preference
capital, reserves and surpluses and long term borrowed funds consisting of debentures
and long term loans.
CAPITAL STRUCTURE ANALYSIS OF SELECT CEMENT COMPANIES
Every company will have to plan its capital structure initially at the time of its
promotion and subsequently whenever funds are to be raised to finance investments.
The capital structure decision is a significant managerial decision as it influences the
shareholders' return and risk. Consequently the market value of the share is affected
by the capital structure decision. The problem of management of capital structure even
if presented infrequently, is of crucial importance with long term financial
implication. Hence, in the following section an attempt is made to study the system of
capital structure management in the selected cement companies under investigation.
For this purpose, discussions (interview method) were held with the finance managers
of selected cement companies, in addition to the analysis of the annual reports of such
units.
The overall financial structure of the cement industry in Andhra Pradesh has
been studied keeping in view the following objectives:

1. to examine the quantum and structure of long term and short term funds;
2. to evaluate the adequacy of long term funds; and

3. to ascertain the extent and justification for the use of debt.
Quantum and Structure of Long Term and Short Term Funds
The long term sources of finance for cement manufacturing undertakings in
Andhra Pradesh include net worth as denoted by equity share capital, preference share
capital, retained earnings and long-term loans form financial institutions and the
government whose repayment period is beyond one year. The intangibles were
subtracted in computing the amount of net worth. The short term sources of finance
include loans and advances from sundry creditors, provisions and others. The data
relating to the quantum and structure of long-term and short term funds in sample
cement companies are detailed in Tables from 1 to 8. The consolidated position of all
the sample units put together is used to measure the relative performance of the
individual units.
Analysis of Capital Structure-Consolidated
The long term funds share in the cement industry in Andhra Pradesh, as
represented by the sample units on an average during the period from 1999 to 2007,
was 87.92 percent of the total funds where as the share of short term funds were 12.08
percent. The long term funds floated between the lowest of 85.67 percent to the
highest of 90.59 per cent over the period of the study. Thus it is evident that the long
term funds occupied a dominant position in financing the assets of the cement
industry.
Among the long term funds the portion of borrowed funds constituted 49.26
percent of the total funds on an average and net worth accounted for 38.66 percent.
The equity base of the industry had shown slower improvement in absolute values.
With limited base of equity, the industry was mobilized long term funds in a
substantial form. Net worth has increased from Rs. 151607.38 lakhs in 1999 to Rs.
237756.17 lakhs in 2007 whilst long term borrowed funds increased from Rs.
375052.68 lakhs in 1999 to Rs. 501453.43 lakhs in 2007 (Table 1).
The Cement industry in Andhra Pradesh is mainly depend upon long term

funds (87.92 %), that too on borrowed funds (49.26 %). The equity base of industry,
though expanded, is not substantial. It is to be examined in the appropriate context of
this thesis why the phenomenon has arisen. Having analysed the financial structure of
the industry, unit-wise analysis is under taken to identify whether these trends hold
good in the case of individual sample units also.
Analysis of Capital Structure of Andhra Cements Limited
An analysis of quantum and structure of long term and short term funds of
Andhra Cements Limited is detailed in Table 2. The tangible net worth of the
enterprise was found to be decreased gradually from Rs. 25422.02 lakhs in 1999 to
Rs.19261.61 lakhs in 2005 and was faintly increased to Rs. 22967.90 lakhs in 2006.
The long term funds represented by this company on an average during the period
from 1999 to 2007, was 85.17 percent of the total funds, whereas the share of short
term funds were 14.83 percent. The long term funds floated between the lowest of
79.43 percent to the highest of 89.82 per cent over the period of the study. It is evident
that the company is maintaining approximately equal ratio of net worth and borrowed
funds except in the year 2006. Therefore, it can be conclude that the capital structure
of the company is balanced.


Table 1
Quantum and Structure of Long Term and Short Term Funds of Cement Industry
in Andhra Pradesh-Consolidated



Figure 1
Table 2
Analysis of Capital Structure of I ndia Cements Limited
The long term and short funds on an average formed 90.51 percent 9.49 percent
respectively as against total sample average of 87.92 percent and 12.08 percent. The
long term funds floated between the lowest of 84.56 percent to the highest of 93.94
per cent over the period of the study. The tangible net worth of the enterprise was
found to be increased from Rs. 63015 lakhs in 1999 to Rs.142655 lakhs in 2007.
Among the long term funds the portion of borrowed funds constituted 56.79 percent
(Table 3). Thus it is evident that the company depends more on borrowed funds when
compared to that of net worth. The capital structure of the firm is not strong enough to
meet the long term requirements.
Analysis of Capital Structure of KCP Cements Limited
The long term funds which stood at Rs.19976.29 lakhs in 1999 rose to Rs.
21344.21 lakhs. Long term and short funds on an average formed 75.14 percent 24.86
percent respectively as against total sample average of 87.92 percent and 12.08
percent. The long term funds floated between the lowest of 68 percent to the highest
of 78.96 per cent over the period of the study. The net worth floated between the
lowest of 38.76 percent to the highest of 47.52 per cent over the period of the study.
The tangible net worth of the enterprise was found to be increased from Rs. 10688.32
lakhs in 1999 to Rs.14274.21 lakhs in 2007. Among the long term funds the portion of
borrowed funds constituted 29.60 percent (Table 4). Thus it is evident that the
company depends more on net worth when compared to that of borrowed funds. The

capital structure of the firm is strong enough to meet the long term requirements.
Analysis of Capital Structure of Rain Commodities Limited
The long term funds registered a sharp increase from Rs.8882.50 lakhs in 1999
to Rs. 10414 lakhs in 2007. Long term and short funds on an average formed 89.02
percent 10.08 percent respectively as against total sample average of 87.92 percent
and 12.08 percent. The long term funds floated between the lowest of 81.36 percent to
t h e h i g h e s t o f 9 7 . 9 3 p e r c e n t o v e r
Table 3
Table 4
the period of the study. The net worth floated between the lowest of 19.97 percent to
the highest of 97.93 per cent over the period of the study. The tangible net worth of
the enterprise was found to be increased from Rs. 6117.80 lakhs in 1999 to
Rs.10414.70 lakhs in 2007. Among the long term funds the portion of borrowed funds
constituted 30.47 percent (Table 5). There were no borrowed funds in the years 2003,
2005 and 2007. Thus it is evident that the company depends more on net worth when
compared to that of borrowed funds. The capital structure of the firm is strong enough
to meet the long term requirements.
Analysis of Capital Structure of Sri Vishnu Cements Limited
The long term funds increased from Rs. 6629.66 lakhs in 1999 to Rs. 8385.37
lakhs in 2007. Long term and short funds on an average formed 77.23 percent 22.77
percent respectively as against total sample average of 87.92 percent and 12.08
percent. The long term funds floated between the lowest of 69.67 percent to the
highest of 86.51 per cent over the period of the study. The net worth floated between
the lowest of 24.08 percent to the highest of 52.30 per cent over the period of the
study. It is evident from the Table 6 that there is no consistency in the volume of net
worth during the period of the study. The tangible net worth of the enterprise was
found to be increased from Rs. 2517.17 lakhs in 1999 to Rs.5977.89 lakhs in 2007.

Among the long term funds the portion of borrowed funds constituted 41.75 percent.
Thus it is evident that the company depends more on borrowed funds when compared
to that of net worth. Overall, the capital structure of the firm is considered to be
passable to meet the long term requirements.
Analysis of Capital Structure o/Zuari Cements Limited
Long term and short funds on an average formed 95.70 percent 4.30 percent
respectively as against total sample average of 87.92 percent and 12.08 percent. The
long term funds floated between the lowest of 93.78 percent to the highest of 96.32
per cent over the period of the study. The net worth floated

Table 5
Table 6
between the lowest of 49.32 percent to the highest of 74.67 per cent over the period of
the study. The tangible net worth of the enterprise was found to be increased from Rs.
37098.07 lakhs in 1999 to Rs.64698.07 lakhs in 2007. Among the long term funds the
portion of borrowed funds constituted 33.83 percent on an average while the net worth
61.87 percent (Table 7). Thus it is evident that the company depends more on net
worth when compared to that of borrowed funds. The capital structure of the firm is
strong enough to meet the long term requirements.


Analysis of Capital Structure ofPanyam Cements Limited
Long term funds recorded an average of -19.77 percent Short term funds were
119.77 percent of the total funds. Long term funds which were positive up to 2001
thereafter became negative. This trouble some situation has slowly emerged in the
enterprise because of recurring losses. By 2000, the net worth was drained and
because of continuing losses, it rose to (-) 106.60 percent of the total funds by the end
of the period of the study (Table 8). Even the long term borrowed funds were
insufficient to cover the mounting negative net worth. A situation arisen wherein the
assets of the company were financed totally by short term funds threatening the very
survival of its existence. The financial structure of the company is very much
precarious and threatens its very existence.
Analysis of Capital Structure ofKakatiya Cements Limited
In this company the long term funds increased from 71.20 percent in 1999 to
80.74 percent in 2007. Long term and" short funds on an average formed 73.76
percent 26..24 percent respectively as against total sample average of 87.92 percent
and 12.08 percent The long term funds floated between the lowest of 67.70 percent to
the highest of 83.50 per cent over the period of the study. The net worth floated
between the lowest of 26.36 percent to the highest of 49.42 per cent over the period of
the study. The tangible net worth of the enterprise was found to be increased from Rs.
4935 lakhs in 1999 to Rs.9060 lakhs in 2007. Among the long term funds the portion
Table 7
Table 8
Table 9
Table 10
Fig 2
of borrowed funds constituted 38.47 percent on an average while the net worth 35.30

percent. Thus the firm is maintains a balance between net worth and die borrowed
funds. The capital structure of the firm is strong enough to meet the long term
requirements.
ADEQUACY OF LONG TERM FUNDS
Long term funds are usually intended to finance not only long term assets i.e.,
fixed assets, but also a part of short term assets namely current assets. The excess of
current assets over current liabilities usually referred to as net working capital. It has
to be financed through long term funds. If only current liabilities are to be used to
finance the current assets, then it is obvious that there will not be any working capital
i.e., excess of current assets over current liabilities. If working capital means excess of
current assets over current liabilities, then the use of long term funds to finance a part
of current assets is compulsory.
In the following pages an attempt is made to study the adequacy of long term
funds to finance not only the fixed assets but also the current assets in the sample
cement companies. If the percentage of long-term funds is in excess of the percentage
of fixed assets, it indicates that the long term funds are adequate to finance the entire
fixed assets and also a part of current assets. If the percentage of long term funds is
less than the fixed assets it implies that these funds are insufficient even to finance the
fixed assets and consequently current liabilities were used not only to finance the
entire current assets but also a part of fixed assets. As a result the business unit has to
face tine problem of adverse liquidity in view of the presence of negative working
capital.
The quantum of long term funds, fixed assets and current assets as percentage
of total assets in the sample units, is presented in Table 10. During the period under
reference, the percentage of long term funds was higher than the percentage of fixed
assets in the consolidated position of the sample cement-units. The percentage of long
term funds varied in between 74.09 percent to 54.84 percent with an average of 65.57
percent. It implies that the entire fixed assets and A part of current assets were financed
by using the long term funds in the cement industry in Andhra Pradesh.

Analysis of Long Term Financial Position
To judge the long term financial position of the industry, leverage or capital
structure ratios are calculated. These ratios indicate the extent of funds provided by
owners and creditors. The relative claims of creditors and owners against the firm's
assets can be measured by debt-equity ratio. Different variables are used in computing
the ratio. One view is to calculate the debt-equity ratio by dividing long term debt by
shareholders' equity i.e., net worth. Another variation of debt-equity ratio is to divide
the long term debt plus short term loans and advances by net worth. Yet another
variation is to add preference share capital to long term debt, because the preference
dividend is fixed like the interest cost on debentures. All the three variations of debt
equity ratio are studied in relation to the sample cement units.
Measurement of Financial Strength
Financial strength indicates the soundness of the financial resources of an
organization to perform its operations in the long run. The parties associated with the
organization are interested in knowing the financial strength of the organization.
Financial strength is directly associated with the operational ability of the organization
and its efficient management of resources.
Analysis of financial strength has been made with a view to find out:
(i) Whether the unit will be able to repay its debt in time?
(ii) Whether the unit will be able to sustain itself in the long run?
(iii) Whether the capital funds are sufficient and are utilized for productive
purposes?
(iv) What is die type of affiliation of fixed assets to long term funds?
(v) Whether the rate of capital formation is sufficient to meet future needs?
The following ratios have been calculated to find out the long term financial
strength of the sugar units.

a. Debt-Equity Ratio
b. Interest Coverage Ratio and
c. Capital Gearing Ratio
Debt-Equity Ratio (Long term Debt to Shareholder's funds)
The term debt signifies total indentures of a company as consisting of its long
term obligations. Equity refers to own funds as represented by net worth. Debt-Equity
Ratio, also known as External-Internal Equity Ratio is calculated to measure the
relative claims of outsiders and the owners against the firm's assets. This ratio
indicates the relationship between the external equities or the outsiders' funds and the
internal equities or the shareholders' funds, thus: Debt-Equity Ratio = Outsiders'
Funds/Shareholders' Funds or Debt-Equity Ratio =External Equities/Internal
Equities. The two basic components of the ratio are outsiders' funds, i.e., external
equities and shareholders' funds, i.e., internal equities. The outsiders' funds include all
debts/liabilities to outsiders, whether long-term or short-term or whether in the form
of debentures, bonds, mortgages or bills. The shareholders' funds representing
accumulated consist of equity share capital, preference share capital, capital reserves,
revenue reserves and reserves representing accumulated profits and surpluses like
reserves for contingencies, sinking funds, etc. The accumulated losses and deferred
expenses are deducted from the total to find out shareholders' funds.
Relative interest of owners and creditors is to be judged by this ratio of equity
to debt. From creditors' point of view, it measures the extent to which their interest is
covered by owned funds. "Higher the coverage of owned funds, the lower will be the
ratio and greater will be the protection to the creditors against the possible losses in
the event of liquidation or wound up". Further this ratio is also important for judging
the financing policy of the management as to whether they are following over
conservative policy of financing or not. An ideal norm of the ratio is 100 percent; long
term debt should not exceed the owned funds in the business. However, debt-equity
ratio varies so widely between the companies and its level depends on such a wide

variety of factors that excessive reliance on any arbitrary standard may carry the risk
of a wrong course of judgment. Closer observation over a period of years exposes
useful indicators. But this again fails to bring out the optimal level at which gearing
can be allowed with assumed safety. In capital intensive industries, this ratio might be
300 percent to 400 percent. Therefore, the proportion of debt and equity of a concern
depends upon the nature of the business.
Debt Equity Ratio
For analyzing the composition of capital structure generally, a debt-equity ratio
is employed as a principle tool. This ratio is also known as net worth to total debt
ratio. The importance of this ratio is that it helps to ascertain as to who have the major
stake in the company. This ratio should be preferably less than 1:1 due to the fact that
borrowings should not exceed the shareholders funds. Therefore it is important that a
company should have a proper balance between it's paid up equity capital and debts.
The debt equity ratio in sample units is detailed in Table 11. It is evident from
the Table 11 that the debt equity ratio has highly positive correlation i.e., 0.92. The
debt equity ratio in the consolidated position registered a fluctuating trend. It recorded
an increasing trend in the first phase of the study i.e., increased from 2.53 to 2.92
during the period 1999 to 2002. Thereafter it registered a steep decrease and came
down to 1.75 by the year 2006. From there it registered a steady increase and reached
to 2.46 in 2007.During the later part of the period it registered a declining trend and by
the end of the study period the ratio rose to 2.46. Negative net worm was found in
Panyam Cements from 2002 to 2004. The extent of owner's funds as against the long
term borrowed funds was marginal. There exists no sufficient cushion for long term
creditors from equity funds. The interest of long term creditors is almost put at risk.
The long term solvency of the cement industry as depicted by the combined position
of sample units is in danger. The industry is processing unbalanced capital structure
and its financial strength is falling. The long-term creditors of cement industry are
exposed to the greatest financial risk.
Panyam's debt-equity ratio reached the highest of 3.16 in 2001 and thereafter

the company had negative net worth. This entire net worth of this enterprise was
evaporated because of continuing losses. Since 2004 the firm is being run on
borrowed funds. The long term solvency of this firm is at very low ebb. The debt
equity ratio of KCP cements, Zuari Cements and Panyam Cements are within the
standard norm of 2:1 prescribed for cement industry. Considering this, the interest of
long term creditors is well assured in these units.
The analysis point out that, in general the long term solvency of the cement
industry in Andhra Pradesh is threatening and long term creditors are exposed to the
highest degree of financial risk.
Table 11 displays the co-efficient of correlation between debt and equity. The
co-efficient of correlation for the cement industry in Andhra Pradesh worked out to
highly positive. It is highly positive in case of India Cements (0.94), Zuari Cements
(0.92) and moderate in case of KCP Cements (0.74),

Sri Vishnu Cements (0.69), Panyam Cements (0.69), Kakatiya Cements (0.60)
and in Andhra Cements (0.53). It is found to be negative in Rain Commodities
Limited (-0.80). It suggests that the debt and equity ratio varied proportionately during
the period of the study in India Cements and Zuari Cements Limited.
The debt and equity did not vary proportionately during the period under
reference and as such no proper relationship exists between debt and equity in Rain
Commodities Limited. From an analysis of the co-efficient of correlation concerning
individual sample units, it is identified that majority of the sample units either have
considerably positive correlation. It indicates the significant increase in the quantum
of debt along with the equity. Overall, it can be said that the majority of the
Table 11
Financial Performance of Indian Cement Industry
sample cement units followed a policy of maintaining a reasonably healthy proportion

of debt and equity.
ANALYSIS EARNINGS COVER FOR FIXED ASSETS
In the following pages an attempt is being made to analyze whether the
increasing proportion of employment of loans was justified in the light of the earnings
cover for fixed interest. Normally, the net profits before tax should be six times of
interest. If one uses net profits after tax then the coverage may be 3 to 4 times only.
Interest Coverage Ratio (Interest to Net Profit After Taxes)
Table 12 shows that the interest coverage ratio was below the norm of 3 to 4
times in all the sample cement unite except in the year 2007. Moreover the ITCR
followed a fluctuating trend in all the cement units. The average ITCR of the industry
is recorded only at 1.35 which far below than the norm of 3 to 4 times. The interest
coverage ratio for the sample units put together varied from a lowest of 0.09 times in
2003 to the highest of 4.51 in 2007 over the years.
The ITCR turned to be negative in 1999, 2000 and 2004 for Andhra Cements,
in 2003 for India Cements, in 2001 and 2005 for Rain Commodities, in 2003 for Sri
Vishnu Cements, in 2003 for Zuari Cements, from 2001 to 2006 for Panyam Cements.
The KCP Cements and Kakatiya Cements have maintained a positive ITCR over the
period of the study. The situation is alarming in Andhra Cements and Panyam
Cements. Both the units have used debt excessively. With continuing losses, they
were unable to meet the interest commitments and their financial standing and
credibility are questionable.
The ratio tended to decline sharply signaling the difficulties faced by the
industry in meeting the fixed interest obligations. In a majority of the years under
study the industry could not meet its interest commitments fully. The same is valid for
all the units except the KCP cements. As such there exists no justification for the
enhanced use of debt in the cement industry in Andhra Pradesh. The continuation of
this situation will surely land the industry in deep financial crisis.


Table 12

Analysis of Capital Gearing
In ascertain the degree of capital gearing, the relative proportion of equity
minus intangibles and the fixed dividend cum interest bearing funds represented by
preference share capital and long term borrowed funds has been analysed. In judging
the extent of capital gearing the relative proportion of equity interest as depicted by
ordinary share capital plus retained earnings less intangibles and the fixed dividend-
cum-interest bearing funds represented by preference share capital and long term
borrowed funds has been studied.
The particulars of capital gearing ratio of combined position is shown in Table
13. It is evident from the table that the capital structure of the cement industry in
Andhra Pradesh was highly geared during the period under study. The leverage ratio
decreased from 1.51 times in 1999 to 1.93 times in 2004. Afterwards the ratio has
declined gradually from 1.93 times in 2004 to 0.74 times in 2006. All time a low
gearing was registered in the year 2006. The capital gearing finally rest at 1.18 times
in 2007.Overall the capital structure of cement industry in Andhra Pradesh is highly
geared.
It can be seen from Table 13 that the CGR (Capital Gearing Ratio) of Andhra
cements increased steadily from 0.99 time in 1999 to 1.19 times in 2004, thereafter
declined progressively to 0.53 in 2006 and increased to 2.68 in 2007. Overall the
capital structure of Andhra Cements also highly geared. In India Cements the capital
gearing registered a fluctuating trend. The leverage was high during the period of the
study because the equity capital is lower than the fixed charge capital. A low gearing
of 0.82 times identified in 2006. On an average the CGR of India Cements stood at
2.02 times. Overall the capital structure of India Cements also highly geared.
In case of KCP cements the situation is different. The CGR of KCP cements varied
between 0.50 times and 1.03 times against an average CGR of 0.71 over the period of
the study. The capital structure of this company was low geared because equity capital

was higher than the fixed charge capital. In Rain Commodities the capital gearing
ratio highly volatile and it varied between a high ratio of 3.25 and a low ratio of zero
in 2007 as there was no debt. Overall the capital structure of Rain Commodities also
highly geared.



Table 13
Financial Performance of Indian Cement Industry
In Sri Vishnu Cements the capital gearing registered a fluctuating trend. A low
gearing of 0.40 times identified in 2007. On an average the CGR of India Cements
stood at 1.27 times. The capital gearing ratio of Zuari Cements is low geared during
the study period. A low gearing of 0.29 times identified in 2007. On an average the
CGR of Zuari Cements stood at 0.61 times.
In Panyam Cements the capital gearing registered a fluctuating trend. The CGR
is negative from 2005 to 2007 due to negative equity share holders' funds. On an
average the CGR of Panyam Cements stood at 1.57 times. Overall ihe capital structure
of Panyam Cements is highly geared. The capital structure of Kakatiya cements was
highly geared during the period under study. The capital gearing ratio increased from
0.98 times in 1999 to 1.62 times in 2002. Afterwards the ratio has~declined gradually
from 1.62 times in 2002 to 0.63 times in 2007.
CHAPTER SUMMARY
This chapter deals with the quantum and structure of long term funds and short
term funds, the adequacy of long term funds to finance the fixed assets and core
current assets and the extent and the justification for the use of debt and capital in the
cement industry.
An analysis of the components of the capital structure reveals that the cement
industry in Andhra Pradesh depended heavily on long term funds and significantly on
long-term borrowings. The equity base of industry, though expanded, is not
substantial. Preference capital as source of finance was not favorable. On the other
hand denture capital was gaining increased significance in the industry. The long term
funds were sufficient to finance the entire fixed assets and a part of the current assets.
During the entire period of the study, the borrowed funds are higher than that
of networh except in one year. Except KCP limited, Rain Commodities and Zuari all

the companies were depended more on borrowed funds. Andhra cements Limited and
Kakatiya Cements Limited maintained a balance between networh and borrowed
funds. The financial structure of Panyam Cements limited is very much precarious and
threatens its very existence. The capital structure of India Cements Limited is not
strong enough to meet the long term requirements. The capital structure of KCP
Cements, Rain Commodities, Sri Vishnu Cements and Zuari Cements is strong
enough to meet the long term requirements.
During the period under reference, the percentage of long term funds was
higher than the percentage of fixed assets in the consolidated position of the sample
cement companies. Except Kakatiya Cements and Panyam Cements all other cement
companies have sufficient long term funds to finance the fixed assets. It can be
concluded that the entire fixed assets and a part of current assets were financed by
using the long term funds in the cement industry in Andhra Pradesh. It can be said mat
there is a vast scope for Andhra cements, KCP Cements, Rain Commodities, and
Zuari Cements to raise funds through long term borrowings. It will considerably
benefit the equity shareholders. Otherwise, the owners will be deprived of the benefit
of trading on equity.
It can be said that the majority of sample cement units followed a policy of
maintaining a reasonably healthy proportion of debt and equity. Overall, the long term
solvency of the cement industry in Andhra Pradesh is threatening and long term
creditors are exposed to the highest degree of financial risk.
The ratio tended to decline sharply signaling the difficulties faced by the
industry in meeting the fixed interest obligations. In a majority of the years under
study the industry could not meet its interest commitments fully. The same is valid for
all the units except the KCP cements. As such there exists no justification for the
enhanced use of debt in the cement industry in Andhra Pradesh. The continuation of
this situation will surely land the industry in deep financial crisis. Overall the capital
structure of cement industry in Andhra Pradesh is highly geared.
REFERENCES

1. Lawrence D.Schall and Charles W. Haley (1983), Introduction to Financial
Management (3rd Edition), Tata McGraw Hill, New Delhi, p.339.
2. Kuchal, S.C. (1977), Financial Management: An Analytical and Conceptual
Approach, Chaithanya Publishing House, Ahmedabad, p.388.
3. Kulkarni, P.V. (1983), Financial Management, Himalaya Publishing House,
Bombay, p.363.
4. Philips, D. Francis (1980), The Foundations of Financial Management, (First
Indian Edition), Arnold Heinemann, p.192.
5. Bierman H. Jr. (1965), Financial Accounting Theory, the Macmillan Company,
ew York, p.213.
6. Kuchal, S.C, Op.cit, p.390.
7. Pandey, l.M. (1984), Financial Management, Vikas publishing House Private
Limited, New Delhi, p.227.
8. Earnest W. Walkar (1976), Essentials of Financial Management, 12nd Edition)
Prentice Hall, New Delhi, p 93.
9. George C. Phillippatos (1974), Essentials of Financial Management: Text and
Cases, Holden Day Inc., p.237.
10. Clifton Kreps, H. Richard F, Waucht (1975), Financial Administration, The
Dry den Press, Hinsdale, Illinois, p. 411.
11. Pandey, l.M. Op.cit, p.264.
12. Eugene F Brigham (1977), Fundamentals of Financial Management, The
Dryden Press, Hinsdale, Illinois, pp.473-74.
13. Sylvan D.Schwartzman and Richard E. Ball (1977), Elements of Financial
Statement Analysis, Van Nostrand Company, New York, p.65.
Analysis of Fixed Assets
INTRODUCTION
The successful operation of a business enterprise generally requires some assets
of fixed Character. These assets are used primarily in producing goods and in
operating the business. With the help of these assets, raw materials are converted into

finished products. "Fixed assets are not meant for sale and are kept as a rule
permanently in a business in order to carry on day to day operations". Their cost is
charged as depreciation charges over a period of years. The long term utility period of
the fixed assets was supported by R.N.Anthony and R.S.Reece when they observed
that "Fixed asset is an asset that is expected to provide service, for more than one year
usually for several years.
1

Fixed assets are very important for the business. According to J.Batty, "Fixed
assets are necessary for producing and distributing the products".
2
According to
Curran, "The selection of fixed or long-lived assets is one of the major problems
facing the financial management because it is these assets which contribute directly to
profitability. The techniques employed for selecting fixed assets are, therefore, among
the most important principles of modern financial; theory".
3

The adequacy of fixed assets in a business affects it's profits. More fixed assets
will be the cause of heavy depreciation burden and more money will be blocked in
fixed assets. If fixed assets of a firm are insufficient, the firm will not be able to
manufacture it's products smoothly and timely. According to Conner and Albeeto:
"The firm's liquidity is reduced if a company purchases more fixed assets".
4
The
investment in fixed assets should be appropriate, neither low nor very high. A Low
investment will mean that the concern is in need of some of the fixed assets which will
even obstruct proper utilization of the existing fixed assets. An overinvestment in
fixed assets will remain idle fixed assets which will result in lower profitability. The
use of current assets to a considerable extent depends on the use and maintenance of
fixed assets.
Management of fixed assets is one of the important tasks of financial
management today. It takes a longer period to recover investment in fixed assets than
the current assets and since change is a characteristic feature of a dynamic economy,
investment in these assets will be exposed to risks for a longer period of time. Another
factor is the heavy commitments made in fixed assets. The errors resulting from
acquisition and their utilization will have serious impact on profitability and so also on

the financial stability of the firm for a number of years.
The funds invested in fixed assets also form a significant portion of total funds;
as such it is necessary to keep an eye in the performance of fixed assets. The financial
manager should exercise extreme care and prudence in allocating funds between fixed
assets and current assets in the light of the twin objectives of the firm i.e., liquidity
and profitability. The amount of funds invested in fixed assets in a business
organization largely depends upon the nature of a business. The ratio of the fixed
assets to the total investment varies from industry to industry; generally a high
proportion of fixed assets is required in a consumer goods industry.
Fixed assets utilize working capital and in turn produce goods. The efficiency
with which the fixed assets are utilized is known as productivity of the fixed assets.
A detailed study of the formula employed in fixed assets is desired for the
following objectives: (1) to find out the growth rate of fixed assets over the period of
study. (2) to analyze the impact of fixed assets on operating revenue. (3) to determine
the efficiency with which fixed assets are utilized in a business; and (4) to know the
adequacy of long- term funds for fixed assets.
In order to attain the above mentioned objectives, the following aspects of
fixed assets of the selected cement companies were analyzed in the present study. 1.
Structure of Fixed Assets, (2) Growth rate and average annual growth of Gross Block
and Net Fixed Assets (3) Financing of Fixed Assets, a. Fixed assets to net worth, b.
Fixed assets to long-term funds, and (4) Efficient utilization of Fixed Assets.
STRUCURE OF FIXED ASSETS IN SELECT CEMNET COMPANIES
The structure of the various components of the fixed assets many be studied to
obtain a deep insight into the configuration of fixed assets. The percentage of land and
buildings, plant and machinery and others in proportion to gross block may also be
examined for this purpose.
Consolidated

The structure of fixed assets in the sample cement units (consolidated) is shown
in Table 1. The investment in fixed assets (net) n an average worked out to 69.67
percent of the total assets and it varied between the minimum of 61.27 percent and the
maximum of 84.53 percent during the period under reference.
It is, therefore evident that the major investment is in the form of fixed assets.
Despite year-to-year variations in terms of percentage, fixed assets (net) registered an
improvement in absolute figures from Rs.296739.30 lakhs in 1999 to Rs.495916.61
lakhs in 2007.
The percentage investment in gross block had advanced form 69.08 percent in
1999 to 84.53 in 2007. The pace of growth in gross block as well as fixed assets (net)
was highly progressive after 2000, thereby signifying that the pace of expansion
programme during this period was very rapid and appreciable.
Table 1

The total depreciation is the cumulative cost of fixed assets over a period of
time. The accounting for depreciation is significant because, on the one hand, it shows
the cost of utilization of fixed assets and, on the other, it signifies the remaining useful
life of the assets in monetary terms. The total amount of depreciation had recorded a
continuous upward trend in the cement industry.
The figure of depreciation which stood at Rs. 68197.31 lakhs in 1999 rose to
Rs. 160503.95 lakhs by the closing year of the study.
Andhra Cements Limited
In this sample company, the gross block (Refer Table 2) increased from Rs.
34146.31 crores to Rs. 32485 crores up to 2006 and decreased to Rs. 29961.60 crores
in 2007, during the period of the study reflecting active expansion of fixed assets.
Fixed assets (net) formed, on average 64.19 percent whilst current assets are 16.17
percent in the total investment. In the combined position, fixed assets far exceeded the

current assets in the total investment. No amount was invested in trade investments.
Considerable amount of depreciation was also provided. Expansion activity was
undertaken, largely, in the years 1999 and 2000 in this cement company.
India Cements Limited
The gross block (Refer Table 3) in this unit steadily increased from Rs.
164776.16 lakhs in 1999 to Rs.385605.00 in 2007. The expansion activity, which was
decreased from 1999 to 2001 on a minor scale, thereafter picked up momentum.
Depreciation was increased in the enterprise from 10.45 percent of the total assets in
1999 to 25.27 percent in 2007, averaged at 16.85 percent during the study period. The
investment in trade investments has increased form 0.93 percent in 1999 to 1.31
percent in 2007. Net fixed assets and current assets shared 54.57 percent and 40.61
percent respectively. Thus it is observed that one fifth of the investment was in the
form of fixed assets. Continuous expansion of fixed assets was facilitated because of
satisfactory profit performance by the company.
Fig.
Table 2
Table 3
KCP Cements Limited
The gross block (Refer table 4) in this unit increased from Rs.12778.01 lakhs in
1999 to Rs.20970.29 lakhs in2007. The expansion activity increased gradually during
the study period. Depreciation was increased in the enterprise from 24.58 percent of
the total assets in 1999 to 34.59 percent in 2007, averaged at 38.81 percent during the
study period. The investment in trade investments was maximum in 2000 and
minimum in 2007 and the average investment in trade investments works out at 18.02
percent of the total assets. Net fixed assets and current assets shared 53.96 percent and
49.04 percent respectively. Thus it is observed that the investment in current assets is
only four percent less than the fixed assets. Continuous contraction of fixed assets
drives the organization towards dismal profit performance by the company.

Rain Commodities Limited
The goes block (Refer Table 5) in this unit decreased from Rs.9886.20 lakhs in
1999 to Rs.zero lakhs in 2007. The expansion activity decreased gradually during the
study period. Depreciation was decreased from 47.75 percent of the total assets in
1999 to zero percent in 2007, averaged at 16.80 percent during the study period. The
investment was increased from a low of 5.4 in 1999 percent of total assets in trade
investments and to a high of 89.88 percent in 2007 and the average investment in trade
investments works out at 36.32 percent of the total assets. Net fixed assets and current
assets shared 66.25 percent and 31.38 percent respectively. Thus it is observed that the
investment in current assets approximately fifty percent less than the fixed assets.
Continuous contraction of fixed assets was an indication of dismal profit performance
by the company.
Sri Vishnu Cements Limited
The gross block (Refer Table 6) in this unit increased from Rs.10851.26 lakhs
in 1999 to Rs.11989.29 lakhs in 2007. The amount gross block varied between a
minimum of 102.53
Table 4
Table 5
Table 6
percent of total assets and a maximum of 128.57 percent of total assets. Depreciation
increased from 63.99 percent of total assets in 1999 to 71.05 percent in 2007 during
the study period. Trade investments identified only in the years 2006 and 2007.
Average investment in trade investments works out at 1.19 percent of the total assets
during the study period. Net fixed assets and current assets shared 48.47 percent and
37.32 percent respectively. Thus it is observed that the investment in current assets
was adequate to finance the current operations. The unit has been making continuous
losses. Hence, availability of funds was a serious constraint for the enterprise to
undertake any expansion programme.

Zuari Cements Limited
The gross block (Refer Table 7) in this unit increased from Rs. 45595.36 lakhs
in 1999 to Rs. 53811.03 lakhs in 2007. The expansion activity increased gradually
from 2000 to 2007. Depreciation was increased in the enterprise from 9.88 percent of
the total assets in 1999 to 27.75 percent in 2007, averaged at 17.26 percent during the
study period. The investment was increased from a low of 5.4 percent of total assets in
trade investments varied between a minimum of 26.17 percent of the total 48.57
percent of the total assets. The average investment in trade investments works out at
35.39 percent of the total assets. Net fixed assets and current assets shared 78.98
percent and 11.87 percent respectively. Thus it is observed that the investment in
current assets was too low compared to the investment in fixed assets. A low
investment in current assets may lead to lower the operating efficiency and liquidity of
the company.
Panyam Cements Limited
The gross block (Refer Table 8) in this unit decreased from Rs. 8737.00 lakhs
in 1999 to Rs. 6359.00 lakhs in 2007. The expansion activity decreased gradually
during the study period. Depreciation was varied between 48.22 percent and 107.82
p e r c e n t o f t o t a l a s s e t s d u r i n g t h e s t u d y p e r i o d . T h e
Table 7
Table 8
average depreciation works out- at 74.363 percent of total assets during the period of
the study. Trade Investments were decreased from Rs. 63 lakhs in 1999 to Rs. 38
lakhs in 2007. The average amount invested in Trade Investments on average works
out at 0.70 percent of total assets. Net fixed assets and current assets shared 44.30
percent and 55.70 percent respectively. Thus it is observed that the investment in
current assets was more than that of fixed assets during the period of the study. It
denotes that there was no expansion of fixed assets and that some of the fixed assets
were disposed off without replacements. This is also evident from the declining

figures of fixed assets. Net fixed assets formed, on an average 44.30 percent of total
assets. It is contrary to the trend observed in the combined position of sample units.
The enterprise made investment in current assets excessively not supported by fixed
assets. The unit has been making continuous losses. Hence, availability of funds was a
serious constraint for the enterprise to undertake any expansion programme. The
amount of depreciation provided too was not up to the desired level in view of
recruiting losses.
Kakatiya Cements Limited
The gross block (Refer Table 9) in this unit increased from Rs. 9969 lakhs in
1999 to Rs. 17182 lakhs in 2007. The expansion activity increased gradually during
the study period. Depreciation was varied between a low of 20.07 percent and high of
42.95 percent of total assets during the study period. / The average depreciation works
out at 28.57 percent of total assets during the period of the study. The company has
decreased its investment in trade investments from Rs. 36 lakhs in 2004 to Rs. 5 lakhs
in 2005 and was constant up to 2007. The amount in Trade investments on average
works out at 0.13 percent of total assets. Net fixed assets and current assets shared
54.63 percent and 45.37 percent respectively. A right mix of fixed assets and current
assets helped the organization to improve its profitability level.
Table 9
AVERAGE ANNUAL GROWTH IN GROSS BLOCK AND FIXED ASSETS
(NET) FIXED ASSETS (NET)
The average annual growth in gross block and fixed assets (net) can be studied
from Table 10. It is calculated by using the following formula: Absolute figure of
starting year minus absolute figure of starting year divided by the number of years.


Table 10
Average Annual Growth in Gross and Net Fixed Assets

Source: Table 10a and Table 10b.
It is evident that the combined position of the cement industry recorded an
average annual growth of Rs.39431.41 lakhs and Rs.13224.35 lakhs in gross block
and fixed assets (net) respectively. India Cements, KCP Cements, Zuari Cements, Sri
Vishnu Cements and Kakatiya Cements recorded a positive growth in gross block.
Andhra Cements, Rain Commodities and Panyam cements recorded a negative growth
in gross block. India Cements showed a largest expansion out of all the units in terms
of gross block. This was followed by Zuari Cements., KCP Cements, Kakatiya
Cements and Sri Vishnu Cements. The lowest growth was identified in Rain
Commodities followed by Panyam Cements and Andhra Cements. An analysis of
growth of fixed assets, (net) showed that Andhra Cements, KCP Cements and Panyam
Cements recorded a negative growth during the period of the study-India Cements,
Rain Commodities, Zuari Cements, Sri Vishnu Cements and Kakatiya Cements
registered a positive growth in net fixed assets. A highest positive growth
Table 10a
Table 10b
Figure 2
identified in India Cements followed by Zuari Cements, rain Commodities, Kakatiya
Cements and Sri Vishnu Cements In Andhra Cements, the growth of net fixed assets
showed a decline, bringing to the fore the fact that the expansion in this unit was not
under taken.
FINANCING PATTERN OF FIXED ASSETS
The investment in fixed assets involves commitment of funds for long periods

and usually it is difficult and costly to reverse it
5
As such fixed assets represent
permanent investment of funds and, therefore, have to be financed primarily by the
proprietors' funds of an undertaking as their interest in me enterprise is also more or
less permanent. Normally, the funds provided by proprietors should be adequate not
only to finance the entire fixed assets requirement, but also a part of the current assets
i e , core current assets representing permanent investment. But in certain instances, if
circumstances warrant, fixed assets may be financed by long term borrowed funds. In
other words, long term funds consisting proprietors funds and long term debt should
alone be used to finance the requirement of fixed assets. It implies that short term
should be avoided altogether in financing the fixed assets. Financing pattern of fixed
assets shows the long term vision of me management o the company. The long term
survival of the company in general depends upon the financing style of fixed assets by
the company. In order to analyze the financing pattern of fixed assets, the ratio of
fixed assets to net worth and the ratio fixed assets to long term funds are computed.
Fixed Assets to Net Worth
The relationship between fixed assets and tangible net worth, consisting of
preference and equity funds minus ^tangibles, is explained through the ratio of fixed
assets to net worth. The ratio is an important tool for judging the margin of safety for
lone term creditors. The lesser the ratio, greater is the margin of safety for long term
creditors. If the net worth is less than the fixed assets, it implies that the loan funds are
used to finance a part of the fixed assets, and when the amount of ownership funds
exceeds the value of the fixed assets, a part of net working capital is provided by the
shareholders. The yard stick for this measure is 0.65 times for industrial
undertakings.
6
It means mat 65 percent of ownership funds are to be used for
acquiring fixed assets and the rest for financing current assets. The ratio is calculated
by dividing the fixed assets (net) with the Net worth.
Fixed to net worth ratio is shown in Table 11. The ratio in combined position
moved from 1.51 times in 1999 to 1.08 times in 2007. A low ratio of 0.89 times
recoded in 2006. The ratio is evidently higher than the prescribed norm of 0.65 times.

The cement industry in Andhra Pradesh is staved of owners' funds because of
successive losses. The extent of fixed assets financing by these funds is normal. As the
owners' funds were totally insufficient to finance the fixed assets, the industry is
forced to use borrowed funds to finance these assets. In view of this, it is evident that
financing of core current assets through owners' equity cannot be imagined.

As regards the individual units are concerned, fixed assets to net worth is
negative in Panyam Cements from 2005 to 2007. It indicates that the entire financing
of fixed assets was from borrowed funds. It is because of recurring losses in this
e n t e r p r i s e . I n t h e r e s t o f t h e s a mp l e u n i t s t h e a v e r a g e r a t i o
Table 11
Figure
varied between the highest of 3.06 times in Rain Commodities to the lowest of zero
times in Rain Commodities. However, the average ratio of all the units during the
period of the study recorded a ratio higher than the standard of 0.65 times. The
situation is alarming in Rain Commodities Limited whose ratio touched 3.06 times in
2000 decreased to zero times by 2007. Such a situation too is observed in Panyam
Cements in which the net worth year after year became very this and ultimately
negative, A ratio below the standard recorded for Zuari Cements from2003 to 2007,
however, the average ratio of this enterprise during the period of the study works out
at 0.74 times. Such a situation too is observed in Andhra Cements in 2006. Thus, it
may be inferred that the cement industry in Andhra Pradesh employed borrowed funds
adequately in fixed assets with unbalanced capital structure which is detrimental to its
survival in the long run.
The Table 12 shows the statistical data relating to fixed assets and net worth. A
low degree of negative coefficient of correlation at 0.09 in the cement industry in
Andhra Pradesh suggests that it purchased an inconsistency policy in financing its
fixed assets. The correlation co-efficient between Fixed Assets and Net Worth

(consolidated) is found to be insignificant at 5% level. It also suggests that the owners'
funds were insufficient to finance the fixed assets requirement. The correlation co-
efficient between Fixed Assets and net-Worth is found to be significant only in Rain
Commodities (1 % level) and in Kakatiya Cements (5% level).
Fixed Assets to Long Term Funds
Usually funds provided by the shareholders should be adequate to cover the
fixed assets requirement and leave some margin for current assets. However, if it is
necessary to finance fixed assets under certain conditions by borrowed funds, only
long term debt should be preferred. In such a case, long term funds should be
sufficient to finance fixed assets leaving a part of these funds to finance permanent
current assets. The ratio provides a clue about the adequacy of long term funds in
financing fixed assets or the extent of fixed assets financed by current debt due to
shortage of long term funds. Ideally this ratio should not exceed unity. If it if more
than unity, it means that the long term funds are inadequate to finance the fixed assets
and if it is less than unity, it indicates that the long term funds are more than the fixed
assets and that they are used for purposes other than the long term assets i.e., for
financing working capital.
7
The ratio, therefore, is intimately connected with, the
concept of working capital.
It may not be out of context to know how this ratio is related with the concept
of working capital. More commonly., the working capital is known as excess of
current assets over current liabilities. Current assets exceeding current liabilities
denote that the excess of the current assets is being financed through long term funds.
Hence, long term funds must cover some current assets' requirement too and then only
the presence of working capital will be noticed if working capital is to be considered
as excess of current assets over current liabilities. If long term funds are not sufficient
to finance even fixed assets, then there will be working capital deficit. The enterprise
will suffer due to want of working funds. The ratio is calculated by dividing fixed
assets (net) with long term funds.
The Table 13 depicts the ratio of fixed assets to long term funds in sample

units. It is observed that the ratio, which was at 0.60 times in 1997, decreased to 0.50
times in 2007, recording an average of 0.53 times. The long term funds are sufficient
to finance fixed assets and current assets. Financing of core current assets though the
long term funds had increased from 0.40 times of long term funds to 0.46 times by
2004. By and large, long term funds were just adequate to finance the fixed assets and
current assets in the cement industry in Andhra Pradesh.
Andhra Cements fixed assets to long term funds ratio declined from 0.45 times
in 1999 to 0.38 times in 2007 during the period under reference recording an average
of 0.39 times. The enterprise had sufficient funds to finance its fixed assets. The firm
has not diverted working capital funds to finance the fixed assets. Any diversion of
working funds to finance
Table 13
Figure
fixed assets on a permanent basis threatens the long term solvency of the enterprise.
The same kind of situation was noticed in Panyam Cements from 2000 to 2001. In this
enterprise, long term funds were non-existent from 2002 onwards. The entire fixed
assets were financed through short term funds were against the sound principles of
finance.
In the other sample units, while the ratio on an average, worked out to the
lowest of 0.34 times in Rain Commodities, it went up to the highest of 0.74 times in
Kakatiya cements. It is indicative of die fact that long term funds were not only
adequate to finance the fixed assets but also to finance a part of current assets. But the
ratio tended to decline in Andhra Cements, India Cements, Rain Commodities, Sri
Vishnu Cements, Zuari Cements and in Panyam Cements year after year during the
period of the study. The decline in investment in fixed assets year after year in these
units may mess up long term survival of the organization. Kakatiya Cements
maintained a balance in the investment in the fixed assets during the period of the
study. Its investment in fixed assets varied between 0.63 times and 0.83 times, the

average ratio worked out at 0.74 times of the long term funds.
UTILIZATION OF FIXED ASSETS
The investment in fixed assets in any business undertaking shall be justified by
its sales. The turnover of fixed assets provides a good indicator in judging the
efficiency with which the fixed assets are utilized in an enterprise to generate the
sales. It enables the analyst to comprehend the number of times the fixed assets are
turned in sales. In other words, one can know the extent of investment required in
fixed assets to generate a given level of sales. The turnover of fixed assets investment
is defined as the relationship between the volume of business done and the amount of
capital tied up in fixed property investment.
8
It also indicates the adequacy of the sales
revenue in terms of investment in fixed assets. A high fixed assets turnover ratio
indicates efficient utilization of fixed assets in generating operating revenue. A low
lalio signifies idle capacity, inefficient utilization and management of fixed assets.
West wick also suggested the application of fixed assets turnover ratio to measure the
utilization of fixed assets.
9
The standard for this ratio is 5 times in the manufacturing
industry. The formula for derivation of fixed assets turnover may be expressed as ratio
of net sales to net fixed assets.
A cursory glance at Table 14 reveals that the ratio increased from 1.07 times in
1999 lo 1.46 times in2007 with an average of 1.03 times. The ratio was far less than
prescribed norm of 5 times in the cement industry in Andhra Pradesh. It may be
inferred that the utilization was ineffective. Power shortages, labor problems, transport
bottlenecks on the one hand and demand stagnation on the other were the reasons
attributed to poor capacity utilization. The poor utilization of fixed assets had
adversely affected the turnover rate. In turn, the turnover rate is quite insufficient to
lift the rate of return on capital employed to the desired level.
As regard the individual units are concerned, the fixed assts turnover ratio
exceeded the consolidated average of 1.03 times, in Andhra Cements (1.08 times),
KCP Cements (2.11 times), Rain Commodities (5.87 times), Sri Vishnu cements (3.19
times), Panyam cements (2.58 times) and Kakatiya Cements (1.19 times). In none of

the years under reference the sample units recorded the usual norm of 5 times except
in 2003 for Rain Commodities, in 2006 and 2007 for Sri Vishnu Cements and in 2007
for Kakatiy
a
Cements.
Andhra Cements fixed assets turnover ratio increased from 0.47 times in 1999
to 4.13 times in 2007 indicating the over utilization of fixed assets. Rain Commodities
fixed assets turnover ratio was the highest of all sample units. It happened not because
of higher level of sales but for low investment in fixed assets. These enterprises could
not undertaken expansion of fixed assets in view of financial crisis. Rain commodity's
ratio had declined from 2.97 times in 1999 to 1.71 times in 2002. This enterprise is
glaring example of under utilization of fixed assets. The fixed assets turnover ratio
steeply increased to 27.49 times in 2003 due to sale of fixed assets.
Andhra Cements, India cements, Zuari cements and Kakatiya cements
maintained a low fixed assets turnover indicating the dismal performance in
Table 14
Figure
managing the fixed assets. Sri Vishnu Cements and Panyam cements are the two
sample enterprises whose turnover improved form 2.91times to 5.49 times and 3.47
times to 4.21 times respectively implying better use of fixed assets in generating the
sales. Zuari Cements' turnover rate remained consistent but for marginal changes. The
analysis points out that the sample enterprises have under utilized their fixed assets.
The capacities created in these enterprises were not-used aptly in generating sales, the
prime source of revenue to a business enterprise.
IMPACT OF GROSS BLOCK ON SALES AND OPERATING PROFIT
MARGIN
The expansion of gross block should be related to sales so as to evaluate its
impact on sales as well as on operating profits. The increase in sales should justify the
increase in gross block. The impact of gross block on sales is positive provided the

pace of increase in sales exceeds that of the gross block and there is every justification
for the expansion of gross block. If the rate of increase in gross block is higher than
the sale, it indicates excess investment in gross block and therefore, mediocre
utilization of fixed assets. If the operating profit also shows an impressive rising trend
along with the increase in gross block and sales, it reflects better operating profit
shows a declining trend, then expansion may not be profitable tough there is increase
in sales, This is an indication of operating inefficiency in the business undertaking.
An index of gross block and sales along with operating net profit margin
presented in Table 15. In use consolidated position of the sample cement units, the
indices of gross block progressed form 100 to 109 during the period of the study
indicating expansion undertaken in the industry. Indices of sales also increased form
100 to 113 during the period of the study. The expansion in fixed assets had not
resulted in any increase in operating profit margin up to 2006. A negative operating
profit margin in 2003 indicates the expansion in fixed assets and increase in sales has
not resulted in any growth in operating profit margin. Even thereafter, the rate of
increase in operating profit margin

Table 15
far outstripped the pace of increase in gross block and sales. It implies that the
expansion had no positive impact on operating profit margin. Expansion did not result
in growth of operating profit margin; hence (here is no justification for the expansion
of fixed assets in the cement industry in Andhra Pradesh. Further operating margin
had sharply fallen from 12 percent in 1999 to a negative figure of 5 percent in 2003.
Though the industry showed a marked performance in 2007, it is evident that the
productivity of fixed assets expansion in terms of increase in sales and operating profit
was negative. Therefore, ineffective under utilization of fixed assets was evident in the
cement industry in Andhra Pradesh.
As regard the individual units are concerned, expansion in fixed assets took

place in Andhra in 2002 only and thereafter no expansion is evident form the
declining indices of gross block. There was no spurt in sales as can be noticed form
the declining indices of sales from 2003 to 2006. The operating profit margin of this
enterprise was characterized by high volatility. The impact of gross block on sales was
negative.
In India cements, the indices of gross block increased from 100 in 1999 to 234
in 2007. Whereas, the indices of sales are declined sharply from 100 in 1999 to 74 in
2003, thereafter the indices of sales increased to 163 by 2007. The operating profit
margin of this company followed the trend of sales during the period of the study.
There was advancement in the indices of gross block and sales pointing to the positive
impact of expanding gross block on sales and operating profit margin.
In KCP cements, the indices of gross block increased from 100 in 1999 to 164
in 2007. Whereas, the indices of sales are declined sharply from 100 in 1999 to 71 in
2002, thereafter the indices of sales increased to 161 by 2007. The operating profit
margin of this company followed the trend of sales during the period of the study.
There was advancement in the indices of gross block and sales pointing to the positive
impact of expanding gross block on sales and operating profit margin.
In Rain Commodities, gross block indices rose from 100 to 231 whilst sales
rose from 100 to 181 up to 2002. The later thereafter declined and nosedived to zero
by 2007. The pace of increase in the indices of gross block up to 2002 was more than
that of the sales. Further, the operating profit margin, which was 12 percent in 1999,
declined to a negative figure of 184 in 2005. Thus it is evident additions to fixed
assets did not generate more sales and operating profit.
In Sri Vishnu Cements, the indices of gross block increased from 100 in 1999
to 110 in 2007. Whereas, the indices of sales increased sharply from 100 in 1999 to
138 in 2007. The operating profit margin of this enterprise was characterized by high
volatility. The impact of gross block on sales was negative.
In Zuari cements, the indices of gross block increased from 100 in 1999 to 118

in 2007. Whereas, the indices of sales are declined sharply form 100 in 1999 to 90 in
2004, thereafter the indices of sales increased to 136 by 2007, Operating profit margin
of this unit was negative from 1999 to 2001 and in 2003. Thus, it is evident that the
productivity of fixed assets expansion in terms of increase in sales and operating profit
was negative upto 2006. Therefore, ineffective under utilization of fixed assets,
therefore, was evident in the cement industry in Andhra Pradesh.
In Panyam cements, the gross block this expanded marginally in 2000,
thereafter declined. Sales indices too registered a steep decline and the operating profit
margin reported negatively. The impact of gross block on sales and operating profit
margin was ineffective.
Kakatiya's indices of gross block and sales rose from 100 to 172 and 100 to 224
respectively. There was advancement in the indices of gross block and sales pointing
to the positive impact of expanding gross block on sales. The pace of increase in sales
was more than that of the gross block. The operating profit margin varied between the
lowest of 8 percent in 2000 and to the highest of 19 percent in 2003 with an overall
tendency to increase. In fhe context of the sample units, the impact of gross block on
sales and operating profit was relatively better.
CHAPTER SUMMARY
This chapter examines the structure and growth of fixed assets, evaluates their
financing pattern and utilization of these assets and assesses the impact of gross block
on sales and operating profit margin.
The pace of growth in gross block as well as net fixed assets was highly
progressive, thereby signifying that the pace of expansion programme during this
period was very rapid and appreciable in the cement industry. The total amount of
depreciation had recorded a continuous upward trend in the cement industry. In
Andhra Cements the investment in fixed assets far exceeded the investment in current
assets. No amount was invested in trade investments. Considerable amount of
depreciation was also provided. In India Cements one fifth of the investment was in

the form of fixed assets. Continuous expansion of fixed assets was facilitated because
of satisfactory profit performance by the company. In KCP Cements the investment in
current assets is only four percent less than the fixed assets. Continuous contraction of
fixed assets drives the organization towards dismal profit performance by the
company. In Rain Commodities the continuous contraction of fixed assets was an
indication of dismal profit performance by the company. In Sri Vishnu Cements, the
investment in current assets was adequate to finance the current operations. The
availability of funds was a serious constraint for the company to undertake any
expansion programme as the unit has been making continuous losses. In Zuari
Cements the investment in current assets was too low compared to the investment in
fixed assets. A low investment in current assets may lead to lower the operating
efficiency and liquidity of the company. Panyam Cements made investment in current
assets excessively not supported by fixed assets. The availability of funds was a
serious constraint for the company to undertake any expansion programme as the unit
has been making continuous losses. A right mix of fixed assets and current assets
helped the Kakatiya cements to improve its profitability level. India Cements, KCP
Cements, Zuari Cements, Sri Vishnu Cements and Kakatiya Cements recorded a
positive growth in gross block. Andhra Cements, Rain Commodities and Panyam
cements recorded a negative growth in gross block. India Cements showed a largest
expansion out of all the units in terms of gross block. This was followed by Zuari
Cements, KCP Cements, Kakatiya Cements and Sri Vishnu Cements. The lowest
growth was identified in Rain Commodities followed by Panyam Cements and
Andhra Cements. An analysis of growth of fixed assets (net) showed that Andhra
Cements, KCP Cements and Panyam Cements recorded a negative growth during the
period of the study. India Cements, Rain Commodities, Zuari Cements, Sri Vishnu
Cements and Kakatiya Cements registered a positive growth in net fixed assets. A
highest positive growth identified in India Cements followed by Zuari Cements, rain
Commodities, Kakatiya Cements and Sri Vishnu Cements. In Andhra Cements, the
growth of net fixed assets showed a decline, bringing to the fore the fact that the
expansion in this unit was not undertaken. The cement industry in Andhra Pradesh is
starved of owners' funds because of successive losses. The extent of fixed assets

financing by these funds is normal. As the owners' funds were totally insufficient to
finance the fixed assets, the industry is forced to use borrowed funds to finance these
assets. In view of this, it is evident that financing of core current assets through
owners' equity cannot be imagined. The long term funds were just adequate to finance
the fixed assets and current assets in the cement industry in Andhra Pradesh. The poor
utilization of fixed assets adversely affected the turnover rate. In turn, the turnover
rate is quite insufficient to lift the rate of return on capital employed to the desired
level. The expansion had no positive impact on operating profit margin. Expansion did
not result in growth of operating profit margin; hence there is no justification for the
expansion of fixed assets in the cement industry in Andhra Pradesh. Though the
industry showed a marked performance in 2007, it is evident that the productivity of
fixed assets expansion in terms of increase in sales and operating profit was negative.
Therefore, ineffective or under utilization of fixed assets was evident in the cement
industry in Andhra Pradesh.
REFERENCES
1. Anthony
/
R.N. and Reece, R.S. (1975), Management Accounting:
Text and Cases, Richard D Irwin, Homewood, Illinois, p.98.
2. Batty, J., Management Accountancy (1991), p.106, quoted in Jain,
P., Financial Management, Prentice Publishers, Jaipur, p.151.
3. Ward, S. Curran (1970), Principles of Financial Management, McGraw Hill
Co., p.89.
4. Dennis, J.O. Corner and Albeeto, T. Bueso, Managerial Finance, Theory and
Techniques, p-197.

5. Hunt, P., William, CM., and Donaldson, G. (1965), Basic Business Finance-
Text and Cases, Illinois: Richard D. Irwin, pp. 114-115.
6. Weston, J.F., and Brigham, E.F. (1972), Managerial Finance, New York:

Rinehart and Winston, Inc., p,88.
7. Hingorani, N.L. and Ramanathan, A.R. (1977), Management Accounting, New
Delhi: Sultan Chand & Sons, p. 115.
8. Bogen, J.I. (1957), Financial Hand Book, New York: The Ronald Press,', pp.
751-752.
9. Westwick, C.A. (1975), Management: How to Use Ratios, Epping Essex:
Grower Press Limited, p'.5.
Analysis of Working Capita
CONCEPT, IMPORTANCE AND OBJECTS In general terms, Working
Capital Management is concerned with the problems that arise in attempting to
manage the current assets, the current liabilities and the inter-relationship that exists
between them. The aim of working capital management is to manage the concern's
current assets and current liabilities in such a way that an adequate working capital is
maintained. An adequate level of working capital provides a business with operational
flexibility. Emerson has very rightly observed that "Business with an adequate level of
working capital has more options available to it, and can make its own choice as to
when working capital will be used and how it will be used. On the other hand if a firm
is short of working capital, it may be forced to limit business operations, extension of
credit to customers and the amount that it invests in inventory. This will adversely
affect production as well as sales which in turn will affect profitability of the
concern".
1


Meaning and Definition
Funds required for carrying on current operation have been variously called as
short-term financing, short-term funds, working capital etc., by various authors. The
term working capital seems to be more suitable for the present purpose as it has been
more frequently used in business and is understood quite commonly.

Capital can be determined into two main categories: (i) fixed capital; and (ii)
working capital. Fixed capital represents that past of business resources which is
invested in fixed assets of the business firm. Working capital, on other hand,
represents that part of business resources which makes the business work and paves its
way from year to year. In fact, there is no universally accepted definition of working
capital which makes the business work and paves its way from year to year. In fact,
there is no universally accepted definition of working capital, but the one most widely
acceptable is the observation that "Working Capital represents the excess of current
assets over current liabilities"
2
.
Working capital management is also known as current assets management
because it requires much of the financial manager's time. James C. Ven Home has
opined that, "working capital management usually is considered to involve the
administration of current assets-namely, cash and marketable securities, receivables
and inventories- and the administration of current liabilities" .
3
Brown and Howard
hold the view that, "Although the term 'Working Capital' has been deprecated by the
Institute of Chartered Accountants for use in balance sheets and has preferred the term
"current assets less current liabilities" nevertheless/for management purposes the
former is a useful phrase to summarize the factor which is effective lifeblood of any
business".
4

Operationally, working capital is the excess of current assets over current
liabilities. If the latter were larger than the former, the difference would be called a
'Working Capital Deficit". If working capital is insufficient, a time will come when
some new funds from more permanent sources will have to be brought into the
business to increase it or else much of the current assents would have to be liquidated
to pay current debts
5
.
METHODS OF ESTIMATING WORKING CAPITAL REQUIREMENT
The basic object of financing working capital needs is either to measure the
cash position of the firm or to exercise control over the liquid solvency position of the
firm.

Working capital requirement can be determined mainly in two ways:
Operating Cycle Approach: The operating cycle of a firm begins with the
acquisition of raw material and ends with the collection of receivables. It may be
divided into four stages, (i) Raw material and stores storage stage, (ii) Work-in-
process stage, (iii) Finished goods inventory stage, (iv) Debtors collection stage
The duration of the operating cycle is equal to the sum of the duration of each
of these stages less the credit period allowed by the suppliers of the firm. In symbols:
0 = R + W + F + D-C
Where, O = duration of operating cycle, R ~ raw material and stores storage
period, W = work-in-process period, F = finished goods storage period, D = debtors
collection period, and C = creditors payment period
The components of the operating cycle may be calculated as below: /R =
Average stock of raw materials and stores/ Average raw materials and stores
consumption per day/W = Average work-in-process inventory/Average cost of
production per day/F = Average finished goods inventory/Average cost of goods sold
per day/D = Average book debts/Average credit sales per day/C =Average trade
creditors/Average credit purchases per day
This method is more dynamic and refers to the working capital in realistic way.
Assuming a normal product manufacturing-cum-selling business, we can determine
the operating cycle period on a stage-wise basis. After computing the period of one
operating cycle the number of operating cycles that can be completed during a year is
calculated by dividing 365 days by the period of operating cycle. Thus, to asses the
requirement of the workings-capital, operating expenditure during the year is divided
by the number of operating cycles in a year.
Forecasting of Current Assets and Current Liabilities Method: In this method,
first of all the estimate of all the current assets is made. Thus, estimate of amount of
raw materials and finished goods to be held in stock and amount of materials that will

remain tied in process and outstanding receipts from different parties and other
receipts will have to be made. This estimate should be followed by estimate of current
liabilities comprising outstanding payments of wages, stores, materials, rent,
administrative expenses, taxes and other expenses. Difference between the forecasted
amount of current assets and current liabilities gives net working capital requirements
of the firm. To mis amount, a flat percentage would be added by way of provision for
contingencies. The rationale of making this provision lies in the fact that most of the
figures required to build up a composite figure of working capital only be guess
estimates even with the best of efforts and the provision for contingencies should
provide cushion to the management with which they can withstand any business
orders. Tandon Committee has recommended this method for estimation of working
capital.
TECHNIQUES OF WORKING CAPITAL ANALYSIS
According to Kuchhal: "A study of the causes of changes that take place in the
balances from time to time is necessary"
19
. This involves the basic approach to
working capital analysis. Changes in balances can be measured in rupee amounts and
also in percentages by comparing current assets, current liabilities and working capital
over a given period.
There are at hand several tools of financial analysis of working capital. The
important of them are as follows:
Trend Analysis: Such analysis presents a picture of the current assets and
current liabilities over a period of two years and enables us to study the increase and
decrease in the individual current assets, current liabilities and its effect on the
working capital position.
Ratio Analysis: The ratio analysis of working capital can be used by
management is being used in the firm. The most important ratios for working capital
is being used in the firm. The most important ratios for working capital management
are: (i) turnover of working capital (net sales divided by net working capital) (ii)

current ratio (current assets divided by current liabilities), and (iii) current debt to
tangible net worm (current liabilities divided by tangible net worth). Ratio analysis
takes two forms: behavior of ratios over a period of years to determine trend;
comparing ratios for one concern with those of the other concerns in the same line of
business. In making such comparisons allowance must be made for differences in the
character of enterprise and for special accounting practices and policies pursued
by each undertaking.
Funds Flow Analysis: According to Kuchal; "Funds flow analysis is an
effective management tool to study how funds have been procured for the business
and how they have been employed. This technique helps to analyze changes in
working capital components between two dates"
20
. The comparison of current assets
and current liabilities, as shown in the balance sheet at the beginning and end of a
specific period, show changes in type of current assets, as well as the source from
which working capital has been obtained.

Statistical Techniques: Use of statistical techniques has become a normal
phenomenon in any type of analysis. The statistical techniques which are proposed to
be used in the analysis of working capital management of cement companies are: (i)
Measures of central tendency; (ii) Measures of dispersion; (iii) Analysis of time series;
(iv) Chi-square test; and (v) Analysis of variance.
TRENDS IN WORKING CAPITAL IN SAMPLE UNITS An examination of
the trends in current assets, current liabilities and net working capital enables the
financial analyst to assess the state of working capital position. In order to ascertain
the working capital trends, indices of current assets, current liabilities and net working
capital have been computed. Working capital position in a concern would be
s a t i s f a c t o r y , p r o v i d e d t h e p a c e o f
Table 1
increase in current assets is more than that of the current liabilities and vice-versa. If

he net working capital indices also increase, it further confirms the strengthening
working capital position in a business under taking.

Figure 1: Working Capital Indices-Consolidated
The indices of Net working for the sample units are presented in Table 1.
Indices have been calculated taking 1999 as base year. Net working capital indices are
not calculated for those units whose net working capital was negative in the base year
(1999). It is observed that the indices of net working capital increased sharply from
100 to 191.63 percent confirming the increasing working capital condition of the
cement industry in Andhra Pradesh. It may be inferred that the working capital
condition of Andhra, Rain Commodities and Panyam is precarious and threatening up
to 2005. By and large the working capital solvency of the sample units was up to
standard level except Rain Commodities and Panyam Cements. Overall, the indices of
working capital showed an increasing trend from 1999 to 2007. On an average the use
of working capital increased by 46.29 percent during the study period.
Analysis of Variance ('F Test) in Working Capital
In order to test the significance of variances in the indices of working capital
between the enterprises and in between the years, the F test (analysis of variance)
based on these two ways classification has been adopted.
Table 1A explains that, there is significant difference in net working capital
indices in between units among the various years, the F-Value is 16.60774 which is
significant at 1% level. There is no significant difference in working capital indices in

between years among the different units, the F-Value

Table 1a
is 0.250852 which is not significant at 5% level. Hence, it can be concluded, over the
years, there has been no significant variation in net working capital indices of the
sample units.
Working Capital Turnover Ratio
Working Capital turnover ratio evaluates effective utilization of the net
working capital. A high working capital turnover ratio indicates an efficient use of
working capital. A low turnover ratio indicates excess working capital invested in the
business. It also indicates ineffective use of working capital. This ratio may be
calculated as under:
Turnover of Working Capital = Net Sales/Working Capital Table 2 shows the
particulars of working capital turnover ratio in selected cement mills during the period
from 1999 to 2007. lt can be observed from the data given in Tables 2 that the
working capital turnover ratio of the cement industry in Andhra Pradesh is more than
2 times except in 2002 and 2004. The high trend in working capital turnover ratio
indicates the effective utilization of working capital in cement industry of Andhra
Pradesh. The low trend in working capital turnover indicates the ineffective utilization
of working capital in India Cements. The average working capital turnover ratio was
negative in Andhra Cements and Panyam Cements indicates ineffective utilization of
working capital. A very high working capital turnover ratio was identified in KCP, Sri
Vishnu, Zuari Cements and Kakatiya Cements, which may be the result of
overtrading. Overtrading is indicated by an increase in the amount of revenue without
corresponding Increase in the amount of working capital On the other hand a very low
ratio may be the result of under trading which means more working capital funds have
been invested in the business than necessary. Further it can be observed that the
working capital turnover ratio was more than one in India Cements during the period

of the study. It can be said that all units have utilized tlieir working .capital efficiently
except Andhra Cements and Panyam Cements.
Table 2
Figure
Impact of Working Capital Performance on Profitability
This section presents an analysis of the effect of working capital performance
on profitability. The working capital analysis in the present study includes the analysis
of working capital turnover ratio, inventory turnover ratio and current ratio.
Profitability is measured in terms of the ratio of net earnings to sales. To study the
intensity of the linear relationship between working capital ratios and profitability, co-
efficient of correlation has been computed. The results are shown in Table 3.
Table 3
Co-efficient of Correlation Between Working Capital Ratios and Profitability
It is evident from the Table 3 mat for cement industry in Andhra Pradesh the
Working capital turnover ratio has a low degree of positive correlation (0.18127) with
profitability and its coefficient found to be insignificant at 5 percent level. Inventory
turnover ratio also registered a low degree of positive correlation (0.17908) with
profitability and its coefficient is found to be insignificant at 5 percent level. Current
ratio also registered a low degree of negative correlation (-0.02033) with profitability
and its coefficient is found to be significant at 5 percent level.


ANALYSIS OF INVENTORY
One of the challenging tasks of the finance manager is the efficient
management of inventory, an inseparable part of working capital sphere. A
considerable amount of funds is required to be committed in inventories. It is
therefore, absolutely imperative to manage inventories efficiently and effectively in
order to avoid unnecessary investment in them. An undertaking neglecting the
management of inventories will be jeopardizing its long term profitability and may fail
ultimately. It is possible for a company to reduce its level of inventories to a
considerable degree, 10 to 20 percent of current assets, without adverse effects on
production and sales, by using simple inventory planning and control techniques. The
reduction in excessive inventories carries a favorable impact on the company's
profitability. The efficiency of inventory management in an undertaking depends upon
the inventory management practices adopted by it.
In cement industry the components of inventory may be categorized into four
groups, viz., (i) raw materials; (ii) work-in-process (iii) finished goods and (iv) stores
and spares. The term inventory therefore implies the aggregate value of all these four
components in the industry.
The primary basis to test the inventory soundness is the computation of its turnover
defined as "the annual sales divided by the year end inventory". A quick turnover of
inventory leads to higher capital turnover and less investment in inventory and a slow
turnover implies lower capital turnover and consequently, higher investment in
inventory. Table 4 portrays the inventory turnover details. The financial analysts have
fixed a norm of 9 times as optimum turnover of inventory.


Table 4
Figure

The inventory turnover ratio of cement industry in Andhra Pradesh declined
from 9.17 times in 1999 to 8.23 times in 2007. Considering the usual norm of 9 times
inventory turnover, the cement industry's inventory performance was not satisfactory
during the period of the study except in 1999. All time a low inventory turnover ratio
(6.78) was identified in 2002.
With reference to individual units, the inventory turnover ratio exceeded the
industry average of 7.76 times is exceeded in all the units except Kakatiya cements
and KCP Cements. The inventory turnover of Kakatiya cements was alarming. The
highest inventory turnover ratio was reported in India cements, Rain commodities, Sri
Vishnu cements and Zuari Cements. A symptom of over trading identified in Rain
Commodities, Sri Vishnu cements and Zuari cements is not conducive for their long
term survival. Contrary to this, KCP cements and Kakatiya cements reported a low
inventory turnover reflecting that these enterprises were under traded. It may be
inferred that many of the sample enterprises tried to over trade with insufficient
investment made in their inventories.
Analysis of Receivables
Receivables management, to be successful, should ensure a comparatively
slower growth of receivables as against sales, a satisfactory receivables turnover ratio
and collection period, minimum bad-debt losses and effective use of the capital
invested. In order to achieve these objectives, the firms formulate sound credit and
collection policies. Professor Johnson suggests in these words: "The analysis of the
efficiency of granting credit has been done on the basis of a computation of the
turnover of accounts receivables
21
". In the words of Kent "The analysis of the
efficiency of collecting past due accounts has been made on the basis of the ageing of
accounts receivables
22
". Accordingly in the present study the following criteria have
been adopted to evaluate the performance of receivables management in the selected
cement companies in Andhra Pradesh: (1) Receivables to Total Assets Ratio, (2)
Receivables to Current Assets Ratio, (3) Receivables Turnover Ratio and (4) Debtor's
Collection Period.

Table 5 shows the particulars of ratio of receivables to total assets in selected
cement mills during the period from 1999 to 2007. It can be observed from the data
given in Table 5 that the average ratio of receivables to total assets works out to 5.51
percent for the cement industry in Andhra Pradesh. A high ratio of 27.94 percent was
identified in Panyam Cements. But this ratio is just 3 percent in Andhra Cements and
Zuari Cements. It indicates that except Panyam and Sri Vishnu cements, rest of the
sample units are following an effective credit policy.
Table 6 shows the particulars of ratio of receivables to current assets in selected
cement mills during the period from 1999 to 2007.lt can be observed from the data
given in Table 6 that the average ratio of receivables to total assets works out to 16.43
percent for the cement industry in Andhra Pradesh. A high ratio of 48.65 percent was
identified in Panyam Cements Limited. It can be noticed from the Table 6 that except
Panyam cements and Sri Vishnu cements, rest of the sample units are following an
effective credit policy.
Table 7 shows the particulars of ratio of receivables to turnover in selected
cement mills during the period from 1999 to 2007. It can be observed from the data
given in Table 7 that the average ratio of receivables to turnover works out to 8.71
times for the cement industry in Andhra Pradesh. An abnormal ratio of 277.11 times
was identified in Rain Commodities Limited. This is because of no turnover for this
unit from 2004-2007. But this ratio is just 4.95 percent in Panyam Cements, 8.55
times in Andhra Cements and 7.59 times in India Cements. It indicates that except
Panyam cements, Andhra Cements and India Cements rest of the sample units are able
to manage effectively their receivables.
Table 8 shows the collection period of sundry debtors. The debtor's collection
period varied between 43.24 days in 1999 to 40.10 days in 2007. Considering the
consolidated average
Table 5
Figure

Table 6
Figure
Table 7
Figure
Table 8
Table 8a
Figure
collection period of 43.36 days, it is identified that KCP Cements, Ram Commodities,
Sri Vishnu Cements and Zuari Cements pursued effective credit collection methods.
An average collection period of Panyam cements limited is 91.83 days, which is the
highest among the other sample units. The debtor's collection period of Panyam
Cements increased gradually from 72.88 days in 1999 to 106.82 days in 2007 and
decreased to 50.82 days in 2006 and further decreased to 28.71 days in 2007. Overall,
this unit is unable to manage its receivables. The credit policy and collection efforts of
Panyam, Andhra and India are ineffective. It can also be observed from the table that a
low average collection period is 21.31 days for Rain Commodities Limited.

An Analysis of Variance (F'-test) in Debtors Collection Period
Table 8 A presents the details of analysis of variance (F'-test) in debtors
collection period between the sample units over the study period. It can be observed
that, there is significant variation in the debtors' collection period between units
among the different years; F-Value is 20.37, which is highly significant of 1% level.
There is significant difference in the debtor's collection period between years among
different enterprises; the F-value is 2.80 which is significant al 5% level.
It is further hypothesized that there is no significant variation in the collections

over the years from 1999 to 2007. This is not accepted as the calculated value is more
than the table value of ' at 5% level of significance. Hence, it can be concluded, over
the years, there has been significant variation in collection period of the sample units.
ANALYSIS OF CASH POSITION
Cash is an important component of current assets and is most essential for
business operations. Cash is the basic input needed to keep the business running on a
continuous basis. It is also the ultimate output expected to be realized by selling the
service and product manufactured by the firm.
In the words of LM.Pandey: "The term cash includes coins, currency and
chequbs held by the firm and balances in its bank accounts. Some times near-cash
items such as marketable securities or bank time-deposits are included in cash. The
basic characteristics of near-cash assets if that they can readily be converted into cash.
Generally, when a firm has excess cash, it invests it in marketable securities. This kind
of investment contributes some profits to the firm"
B
.
Cash is both the beginning and the end of the working capital cycle, i.e., cash,
inventories, receivables, and cash. While the management of all firms should strive
hard to secure larger cash at the end of the working capital cycle than what had been
invested into it at its beginning, they must also make it a best possible minimum. This
is required to optimally utilize the cash and to avoid the situation of idle cash
balances.
Its effective management is the key determinant of sufficient working capital
management. In the words of P.V.Kulkarni. "Cash in the business enterprise may be
compared to the blood of the human body; blood gives life and strength to the human
body, and cash imparts life and strength-profits and solvency to the business
organization
24
". According to J.M.Keynes: "It is the cash which keeps a business
going. Hence, every enterprise has to hold necessary cash for its exiostence
25
". In a
business firm, ultimately, a transaction results in either an inflow or an outflow of
cash. In an effectively managed business, static cash balance situation generally does

not exist. A firm should keep sufficient cash, neither more nor less. Cash shortage will
disrupt the firm's manufacturing operation, while excessive cash will disrupt the firm's
profitability. Therefore, for its smooth running and maximum profitability proper and
effective cash management in a business is of paramount importance.
CASH MANAGEMENT IN SELECTED CEMENT COMPANIES
The purpose of this section is to explore how efficiently or effectively cash is
being managed by the selected cement companies in Andhra Pradesh. One of tire
major objectives of
table 9
figure
cash management, from the stand point of increasing return on investment, is to
economize on the cash holdings without impairing the overall liquidity requirements
df the concern. This is possible by effecting higher control over cashflows. The
following ratios have been calculated to analyze the control of cashflows: (i) cash to
total assets ratio (ii) cash to current assets.
Cash to Total Assets and Current Assets Ratio
Holding of unnecessary cash affects adversely the profitability of a concern,
since 'idle' cash as an asset is not only devoid of earning power, but on the contrary, it
also involves cost, if to be retained in a business with current bank account or any
account. Moreover, in an inflation-ridden economy, cash loses purchasing power as
well. A downward trend in this ratio over a period indicates the better control whereas
an upward trend reveals a slack control over cash resources. However, it is very
difficult to lay down any standard norm in this regard. The adequacy of cash in respect
of other components of current assets can be judged only from past experience.
However, in a comfortably financed business it will probably run not less than 5 to 10
percent of current assets. Since current liabilities are not expected to exceed one-half
of current assets, cash percentage should not run under 10 to 20 percent of the same.

Cash and bank balances as a percentage of total assets varied from the lowest of 0.64
percent to the higher of. 1.56 percent over the study period with an average of 0.93
percent (Refer Table 9). Cash balances maintained reported volatility over the years in
cement industry in Andhra Pradesh. An analysis of individual units points out that
Andhra Cements, KCP cements, rain Commodities, Sri Vishnu Cements, Panyam
Cements and Kakatiya Cements maintained cash balances more than the industry
average of 0.93 percent. The cash balances of India cements were alarming from 1999
to 2005. From 2006 onwards an upward trend was observed in India cements. A
sudden increase in cash balances of India cements was noticed in the year 2007. The
liquidity position of Andhra cements and Panyam cements also not satisfactory during
the study period. In all the liquidity position of the industry is not satisfactory due to
inability of three units out of eight units to maintain sufficient cash balances. It can
also be observed that there was no uniformity in cash balances of KCP limited over
the study period.
Table 10 shows that the cash and bank balances as a percentage of current
assets varied form the lower of 2.23 percent to the highest of 4.70 percent over the
study period with an average of 2.83 percent. Cash balances maintained reported
volatility over the years in cement Industry in Andhra Pradesh. An analysis of
individual units' points out that Andhra Cements, KCP cements, Rain Commodities,
Sri Vishnu Cements, Zuari cements and Kakatiya Cements maintained cash balances
more than the industry average of 2.83 percent. The cash balances of India cements
were alarming from 1999 to 2005. From 2006 onwards an upward trend was observed
in India cements and a sudden increase in cash balances of India cements was noticed
in the year 2007. The liquidity position of Andhra cements and Panyam cements is
also not satisfactory during the study period. In all the liquidity position of the
industry is not satisfactory due to inability of two units out of eight units to maintain
sufficient cash balances. It can also be observed that there was no uniformity in cash
balances of KCP limited, Rain Commodities, Sri Vishnu cements, Zuari Cements and
Kakatiya cements over the study period.
Cash to Sales Ratio

A study of cash to sales ratio will provide a deep insight into the cash balance
held in the paper companies. This is an important ratio of controlling cash. Cash to
sales ratio is calculated by dividing the figures of total sales by the figures of total
cash available at the end of the year. Greater cash to sales ratio indicates the effective
and better utilization of cash resources.
The cash to sales ratio in the selected cement companies in Andhra Pradesh is
given in Table 11. Cash to sales ratio of cement industry in Andhra Pradesh followed
a variable trend throughout the period of the study. It varied from 42.72 times

Table 10
Figure
in 1999 to 12.90 times in 2007, consisting a wide range of 29.82 times. The average
ratio of the industry was 43.09 times.
The study revealed that in Andhra Cements cash to sales ratio followed a
fluctuating trend throughout the period of the study. The average ratio worked out at
24.47 times. It was less than the average times of industry. The figures of this ratio
were more than the average ratio in 2001, 2002,2003 and 2005.
Cash to sales ratio in India Cements followed a declining trend throughout the
period of the study. It varied from726.18 times in 1999 to 9.80 times in 2007,
consisting a wide range of 716.38 times. The average ratio worked out at 371.83
times. It was far more than the average times of industry. The figures of this ratio were
more than the average ratio in 1999, 2000, 2001, 2002 and 2005.
It is evident that cash to sales ratio KCP Cements followed a variable trend
throughout the period of the study. It varied from 19.97 times in 1999 to 13.08 times
in 2007, with a range of 6.89 times. The average ratio worked out at 21.43 times. It
was less than the average times of industry. The figures of this ratio were more than
the average ratio from 2001 to 2005.

In Rain Commodities, cash to sales ratio had a fluctuating trend throughout the
period. It varied from 21.49 times in 1999 to zero times in 2007, with a range of 21.49
times. The average ratio worked out at 70.37 times. It was more than the average
times of industry. The figures of this ratio were more than the average ratio in 2002
and 2005 while these were less than the average ratio in the rest of the years.

The cash to sales ratio of Sri Vishnu Cements followed an erratic trend
throughout the period. It varied from 30.53 times in 1999 to 35.14 times in 2007, with
a range of 4.61 times. The average ratio worked out at 54.32 times. It was more than
the average times of industry. The figures of this ratio were more than the average
ratio in from 2000 to 2002.
It can be observed from Table 11 that cash to sales ratio Zuari Cements
followed a variable trend throughout the period of the study. It varied from 12.89
times in 1999 to 27.86 times in 2007. The average ratio worked out at 20.27 times. It
was less than the average times of industry. The figures of this ratio were more than
the average ratio in 2006 and 2007.
Table 11
Figure
In Panyam cements, cash to sales ratio had a fluctuating
trend throughout the period. It varied from 78.81 times in 1999
to 559.95 times in2007, consisting a range of 481.14 times. The
average ratio worked out at 122.69 times. It was more than die
average times of industry. The figures of this ratio were more
than the average ratio only in 2007.
The study revealed that in Kakatiya Cements cash to sales
ratio followed a variable trend throughout the period of the
study. The average ratio worked out at 23.89 times. It was less

than the average times of industry. The figures of this ratio
were more than the average ratio only in 2000.
It can be observed from the above analysis that the average
1
, times of this ratio
in India cements, Rain commodities, Sri; Vishnu cements and Panyam cements was
greater than the
1
average times of the ratio in industry as well as the other; selected
cement companies. This on the one hand stows a ; sound liquid position; while on the
other hand, it shows that a significant portion of cash balances remained idle. The
variations in the cash position were very significant in the case Rain commodities and
India cements in comparison with other cement companies. It should also be noted
that in Andhra cements, Zuari cements and KCP cements the proportion of cash to
sales was lower than in the industry as well as in other selected cement companies.
This shows liquid position of the Andhra cements, Zuari cements and KCP cements
was not good because a very low amount of cash balances was kept by the company.
Therefore, it is suggested that Andhra cements, Zuari cements and KCP cements are
required to maintain a . proper liquidity in the business.
CURRENT RATIO
The most widely used measure of liquid opposition of a firm is the current
ratio. This ratio is also known as the ratio of current assets to current liabilities or
working capital ratio. The current ratio is computed by dividing current assets by
current liabilities. Current assets include cash and these assets which can be converted
into cash within a year, such as marketable securities, debtors, inventories and loans
and advances.
Current liabilities include creditors, deposits bank overdraft and income tax
liabilities.
The current ratio gives the analyst a general picture of the adequacy of the
working capital of a company and of the company's ability to meet its day-to-day
payment obligations. It likewise, measures the margin of safety provided for paying
current debts in the event of reduction in the value of current assets.

A relatively high value of the current ratio is considered as an indication that
the firm is liquid and has the ability to pay its bills. On the other hand, a relatively low
value of the current ratio is considered as an indication that the firm will find
difficulty in paying its bills. As a conventional rule a current ratio of 2:1 or more is
considered to be satisfactory. But the amount of the working capital and the size of
current ratio depend upon many factors, a standard of common current ratio cannot be
designated as appropriate for all types of business. Therefore, as regards the industrial
firms with larger investment in fixed assets and a slower operating cycle, the standard
of this ratio may fall around 1.5:1. As such, sometimes a current ratio less than 2:1
happens to be good as well.
Current ratio gives an idea of the liquidity position and short term financial
strength of a concern
26
. As stated by R. K. Yorston et at., "The significance of the
current ratio is that it is not only a measure of solvency but is an index of the working
capital available to the enterprise
27
". According to Walker and Boughan: "A good
current ratio may mean a good umbrella for creditors against the rainy day, but to the
management it reflects bad financial planning or presence of idle assets or over
capitalization
28
" In the words of Clements and Dyer: "It is important that short term
assets meet short term liabilities, this ratio is a measure of safety, as business is unless
it has sufficient liquidity to meet its obligations
29
".
The current ratios computed for the selected enterprises are presented in Table
12. If the standard current ratio is to be taken as 2:1, only three of the enterprises have
current ratios of greater than 2. The number of enterprises for which current ratios are
less than 2 has been noticed to be five (Andhra, KCP,
Table 12
Table 12a
Figure
Sri Vishnu, Panyam and Kakatiya) in 1999. In 2000 Andhra cements, KCP
cements, Sri Vishnu Cements, Panyam cements and Kakatiya cements were showed a

current ratio of less than 2. The current ratio of Andhra cements was less than 2
throughout the period of the study.
The average current ratio of Andhra Cements worked out at 1.04 times which is
less than the standard norm of 2 and as well as the average of the industry. A high
current ratio was identified in India cements throughout the period of the study. The
average current ratio of India cements limited was 4.48 which is higher than the
industry average and the standard norm. The average current ratio of KCP cements
was 1.89 and current ratio of this company was less than 2 in 1999, 2000, 2005 and
2007. The average current ratio of Andhra Cements, KCP Cements, Sri Vishnu
Cements, Panyam Cements and Kakatiya Cements was less than 2 during the period
of the study. A low current ratio in comparison with the other unite was identified
Panyam Cements, followed by Andhra Cements and Sri Vishnu Cements.
The current ratio was fluctuated in between 0.41 times and 3.12 times in
Andhra Cements, between 2.91 times and 6.36 times in India Cements, between 1.46
times and 2.11 times in KCP cements, between 0.21 times and 8.61 times in Rain
Commodities, between 1.10 times and 2.28 times in Sri Vishnu Cements, between
1.75 times and 4.16 times in Zuari Cements, between 0.22 times and 1.15 times in
Panyam Cements, and between 1.37 times and 2.55 times in Kakatiya Cements.
It is seen that for the cement industry, the current ratio marked a variable trend
and it was fluctuated between 2.33 times and 3.10 times. The average current ratio of
the industry was 2.84 at the end of the period of the study. From the short-term
creditor's point of view the liquidity position of the industry was satisfactory. The
liquidity position of Andhra Cements, KCP cements and Panyam cements was
alarming. But the management of India cements should take steps to control the
excessive investment current assets because the some funds of this company remain
idle in the form of current assets, Current assets could not utilized properly by the
management of cement industry in Andhra Pradesh.


It is apparent from the study that the calculated values of 'F' ratio between the
years are 0.578 and 'F' ratio between the companies is 12.87. There is no significant
difference in the current ratio between the years among all the selected cement
companies. The current ratio between the companies among different years is
significant. Here also the null hypotheses are rejected which indicates that the current
ratio of different companies do not change according to industrial norms. It is a true in
both the cases i.e., any period or the kind of enterprise.
CHAPTER SUMMARY
In this chapter, the trends in working capital, adequacy of cash in terms of
liquidity, inventory adequacy and efficiency are analysed. By and large the working
capital solvency of the sample units was up to standard level except Rain
Commodities and Panyam Cements. Overall, the indices of working capital showed an
increasing trend during the study period. There is no significant difference in working
capital indices in between years among the different units. There is significant
difference in net working capital indices in between units among the various years.
The cement industry's inventory performance was not satisfactory during the
period of the study except in 1999. Inventory turnover ratio also registered a low
degree of positive correlation with profitability and its coefficient is found to be
insignificant. Current ratio also registered a low degree of negative correlation with
profitability and its coefficient is found to be significant. Overall, the cement
industry's inventory performance was not satisfactory during the period of the study.
The inventory turnover of Kakatiya cements was alarming. The highest inventory
turnover ratio was reported in India cements, Rain commodities, Sri Vishnu cements
and Zuari Cements. A symptom of over trading identified in Rain Commodities, Sri
Vishnu cements and Zuari cements is not conducive for their long term survival.
Contrary to this, KCP cements and Kakatiya cements reported a low inventory
turnover reflecting that these enterprises were under traded.
It can be concluded that except Panyam and Sri Vishnu cements, rest of the
sample units are following an effective credit policy. There is significant variation in

the debtors' collection period between units among the different years. There is
significant difference,in the debtor's collection period between years among different
companies. It can be concluded, over the years, there has been significant variation in
collection period of the sample units.
Cash balances maintained reported volatility over the years in cement industry
in Andhra Pradesh. An analysis of individual units points out that Andhra Cements,
KCP cements, rain Commodities, Sri Vishnu Cements, Panyam Cements and
Kakatiya Cements maintained cash balances more than the industry average. The
liquidity position of Andhra cements and Panyam cements also not satisfactory during
the study period. In all the liquidity position of the industry is not satisfactory due to
inability of three units out of eight units to maintain sufficient cash balances. There
was no uniformity in cash balances of KCP limited, Rain Commodities, Sri Vishnu
cements, Zuari Cements and Kakatiya cements over the study period.
Cash to sales ratio of cement industry in Andhra Pradesh had a variable trend
throughout the period of the study. The study revealed that the cash to sales ratio of
Andhra Cements, KCP Cements, Rain Commodities, Sri Vishnu Cements, Zuari
Cements, Panyam Cements and Kakatiya Cements followed a fluctuating trend
throughout the period of the study. Cash to sales ratio in India Cements followed a
declining trend throughout the period of the study. The variations in the cash position
were very significant in the case Rain commodities and India cements in comparison
with other cement companies. It should also be noted that in Andhra cements, Zuari
cements and KCP cements the proportion of cash to sales was lower than in the
industry as well as in other selected cement companies. This shows liquid position of
the Andhra cements,
Zuari cements and KCP cements was not good because a very low amount of cash
balances was kept by the company.
The liquidity position of Andhra Cements, KCP cements and Panyam. cements
was alarming. But the management of India cements should take steps to control the
excessive investment current assets because the some funds of this company remain

idle in the form of current assets, Current assets could not utilized properly by the
management of cement industry in Andhra Pradesh. The average current ratio of
Andhra Cements, KCP Cements, Sri Vishnu Cements, Panyam Cements and Kakatiya
Cements was less than standard norm during the period of the study. A low current
ratio in comparison with the other units was identified Panyam Cements, followed by
Andhra Cements and Sri Vishnu Cements. There is no significant difference in the
current ratio between the years among all the selected cement companies. The current
ratio between the companies among different years is significant.
REFERENCES
1. Henke O.Emerson (1974), Introduction to Accounting A Conceptual Approach,
1
st
ed., New York: Petrocelli/Charter, p.5.
2. J.L. Brown and L.R. Howard (1975), Principles and Practice of Management
and Accountancy, London: Mac Donald & Evans Ltd., p.55.
3. James C. Van Home (1982), Fundamentals of Financial Management, New
Delhi: Prentice-Hall of India Pvt. Ltd.
4. J.L. Brown and L.R. Howard, Op.cit., p.55.
5. H.G. Guthmann (1953), Analysis of Financial Statements, IV ed., New York:
Prentice Hall.

6. B.R. Choyal (1986), Financial Management of State Enterprises, Jaipur:
Printwell Publishers, p.l 10.
7. Adb Eli-Motall and M.H.B. (1958), "Working Capital; Its Role in the Shortrun
Liquidity Policy of Industrial Concers", Accounting Research, Vol.lX, p.266.
8. J. Fred Weston and F. Eugene Brigham (1975), Managerial Finance, New
York: Dryden Press, pp.123-124.

9. R.M. Srivastava (1986), Essentials of Business Finance, Bombay: Himalaya
Publishing House, p.509.
10. L.J. Gitman (1976), Principles of Management Finance, New York: Harper &
Raw, p. 140.
11. I.M.Pandey op.rit, p.282.
12. Ibid.
13. O.M. Joy (1977), Introduction to Financial Management, Home-wood:Richard
D.lrwin, Inc., lllions, p.406.
14. R.D. Kennedy and S.Y. McMulIen, op.cit.,pA50.
15. N.K.Kulshrestha, op. at., p.42.
16. Committee on Accounting Procedure, Restatement and Revision of Accounting
(1953), Research Bulletin No.43, American Institute of Accountants, New
York, June, p.27.
17. O.M.Joy, op. tit, p.408. IS. O.M.Joy, op. cit, p.417. .
19. SCKuchal, op. rif., p.155.
20. S.C.Kuchal, op. tit, p.157.
21. R.W. Johnson (1962), Financial Management 2
nd
"ed., Boston: Ally an and
Becon, pp.584-585.
22. Raymond P. Kent (1960), Corporate Financial Management, Home-wood:
Richard D.lrwin, Illinois, p.183.
23. l.M. Pandey (1979), Financial Management, New Delhi: Vikas Publishing
House Pvt. Ltd., p.301.
24. P.V. Kulkarni (1983), Financial Management, Bombay: Himalaya Publishing

House, p.412.
25. J.M. Keynes (1936), The General Theory of Employment, interest and Money,
Jevonovich, New York: Harcourt Brae, pp.170-174.
26. S.C. Bardia (1988), Working Capital Management, Jaipur: Pointer Publishers,
p. 186.
27. R.K.Yorston, E.B. Smyth, S.R. Brown and W.G. Roger (1953), Advanced
Accounting, 2
nd
ed., The Law Book Co. of Australia Pvt, p.134.
28. E.W. Walker and W.H. Boughan (1974), Financial Planning and Policy, Harper
International, Students Ed., Reprint, p.151.
29. J.H. Clements and L.S. Dyer (1977), Balance Sheet and the Lending Banks,
London: Europa, p.126.



ANALYSIS OF PROFITABILITY
INTRODUCTION
The term profit is an accounting concept which shows the excess of income
over expenditure viewed during a specified period of time. Profit is the main reason
for the continued existence of every commercial organization. Profit is the vital
objective of any economic activity. The basic financial objective of companies is to
maximize, within socially acceptable limits, profits from the use of funds employed by
them. The crucial measure of the effective performance of a business is profit, which
really is a measure of how well business is performed economically. If an enterprise
fails to make profit capital invested is eroded and if this situation prolongs, the
enterprise ultimately ceases to exist. Profits are the soul of the business without which
it is lifeless. Infact, profits are useful intermediate encouragement towards which a
firms capital should be directed. In other words, profit is the engine that drives the
business enterprise to achieve its objectives and is the reward for entrepreneur ship.
Therefore profit is the central goal in business and profit making should be the vital
objective in terms of which the general effectiveness is measured. On the other hand,
the term profitability is a relative measure where profit is expressed as a ratio,
generally as a percentage. Profitability depicts the relationship of the absolute amount
of profit with various other factors. Profitability is the most important and reliable
indicator as it gives a broad indicator as it gives a broad indicator of the ability of a
firm to raise income level
1
.
Prof. Lie Harmon remarks, Because profit generalizes all aspects of business
operations including quality of output, profit is used merely as the main generalizing
and stimulating indicator of efficiency as a device for rating the operations of an
enterprise
2
. Mc Alpine pointed out that profit cannot be ignored since it is both a
measure of the success of the business and the means of its survival and growth. In
view of financial manager, profits are the test of efficiency and measure of control.
Shareholders of the organization view it as a measure of worth of their investment. To
the creditors it is the margin of safety, to the employees it is source of fringe benefits,

to the government it is a measure of taxable capacity and the basis of legislative
action. Customers view profits as the demand for price cut and for the country it is an
index of the economic progress, national income generation and rise in the standard of
living. Thus a business enterprise is able to discharge its obligations to the various
interested segments of society only through profits
3
.
Profitability
Profitability may be expressed as a profit earning capacity of an investment
activity. The term Profitability is a combination of two words namely profit and
ability. To obtain profit, from accounting point of view total expenses are deducted
from the total revenues for a given period- The word ability means the earning power
of operating performance of the concern on its investment. Therefore, profitability
may be defined as the ability of a given investment to earn a return from its use.
4
In
this measure lie the results of past decisions, the indicium of managements
performance, the basis for valuing the owners equity in the firm
5
.
The Analysis of Profitability
Residual earnings are determined by the profitability of shareholders
investment, return on capital employed and the growth of the equity investment. The
analysis of the drivers of return on capital employed is called profitability analysis.
Profitability analysis is a tool for management planning, strategy analysis, and
decision making. Profitability analysis has mechanical aspect and answers the
questions like: What drives profitability of the firm? How will profitability change as
a result of a particular, decision and how does the change translate into value created
for shareholders? If a retailer decides to reduce and adopt a frequent buyer program
instead, how does this affect return on capital employed and the value of the equity?
What will be the effect of an expansion of retail floor space? Of an acquisition of
another firm
6
?
An analysis of the profitability reveals as to how the position of profits stands
as a result of total transactions made during a year. It need not be stressed that

profitability is analyzed through the computation of profit ratios. The profitability can
be measured and analyzed from three distinct stand points of management,
Shareholders, and Creditors. In computing profit ratios two issued are to be
considered: What shall be the basis of profitability? How profitability is to be
measured? The profitability can be analyzed either on the basis of operating profit or
in regard to net profit. It may be noted that the operating profit reflects profit from the
main business for which the enterprise was launched and offers the most reliable
measure for the long term perspective. On the other hand the net profit reflects the net
of operating and non operating income. It equips the analyst with the most reliable
measure of profitability from the short term point of view.
Profit from the point of view of the government is often quite different a figure
from that understood by the manager or owner of a business. Indeed, the accounting
view of profit, which is governed largely by law and by the established conventions of
the profession, does not necessarily represent the sum which the owner or manager of
a business considers free for withdrawal. The necessity for making appropriations
from conventional profit to cover taxation dues, specific reserves for future
contingencies, general reserve to maintain the capital in face of inflation, competition,
external developments and so forth, all tend to qualify the interpretation of profit as
sum which can be distributed to the proprietors of a business. Therefore, the nature of
profit is a matter of opinion or depends on a point of view and can be used as an
overall sign of the efficiency of an enterprise.


Profit Planning and Control
Profit planning is a systematic and formalized approach of determining the
effect of managements plans upon the companys profitability. A well organized
profit planning programme will help towards maintaining a level of profit which will
ensure the contribution of the business and fulfillment if other responsibilities.
Certainly, profit growth coupled with a high level of profit and the ability to maintain
reasonable profits helps towards (i) ensuring that shareholders to receive adequate
dividends; (ii) Preserving the asset-worth of the business, (iii) Generating out of
profits a sufficient cash flow to provide capital for expansion, and (iv) Providing funds
for the research and development of now and improved products to replace existing
products before they go onto decline. Therefore, profit planning control resembles
comprehensive budgeting or managerial budgeting.
Profitability can be measured in terms of different components of income
statement and balance sheet. More commonly used measures of profitability are: 1)
Profitability in terms of total investment, (2) Profitability in terms of sales,
(3) Profitability in terms of shareholders earnings,
(4) Profitability from creditors point of view. Besides the above other
profitability ratios are: (a) Gross profit to net sales Gross profit margin ratio), (b) Net
profit margin ratio, (c) Operating ratio, and (d) Assets turnover ratio.
To study the profitability management in the individual selected sugar units in
the private and public sector in Andhra Pradesh, Common size profit and loss
statements have been prepared and various ratios reflecting profitability and
relationship of various items of profit and loss account and balance sheet have been
computed. In addition to the common size statements, common size percentages, trend
ratios as well as individual ratios showing relationship between balance sheet and
income statements are also made. The profitability of the sample sugar mills has been
judged by examining the following ratios:
EVALUATION OF EARNING POWER OF SELECT CEMENT COMPANIES:

DUPONT ANALYSIS: RETURN ON EQUITY
Common, or Ordinary shareholders are entitled to the residual profits. The rate
of dividend is not fixed; the earnings may be distributed to shareholders or retained in
the business. Nevertheless, the net profits after taxes represent their return. A return on
shareholders equity is calculated to see the profitability of owners investment. The
shareholders equity is calculated to see the profitability of owners investment. The
shareholders equity or networth will include paid-up capital share capital, share
premium and reserves and surplus less accumulated losses. Net worth can also be
found by subtracting total liabilities from total assets. The return on equity is net profit
after taxes divided by shareholder equity which is given by net worth.
Table 1 shows Return on Equity of individual units from 1999 to 2007.
According to the details produced in Table 1 Return on Equity on consolidated basis
decline sharply from 2.78 percent in 1999 to a negative figure of 0.98 percent in 2005.
The situation was better from 2006 onwards. The ratio was maximum (31.33 percent)
in 2007 and minimum (-14.15 percent) in 2003. An average ratio of 1.24 percent
recorded during the period of the study. Overall, the return on equity of the cement
industry is not satisfactory, though a considerable growth identified in 2007.
As regards to the individual units the average return on equity of Andhra Cements,
Rain Commodities and Zuari Cements and Panyam Cements was alarming. Kakatiya
Cements showed a better performance than the other sample units followed by KCP
cements (7.36 percent), Sri Vishnu Cements (3.31 percent) and India Cements (1.82
percent). In Panyam Cements the Return on Equity was negative from 1999 to 2001
and in 2007. The situation in Zuari Cements is alarming; in this company the return on
equity was negative from 1999 to 2005.
Table 1
Figure
ANALYSIS OF OPERATING EFFICIENCY; RETURN ON NET ASSETS OR
RETURN ON CAPITAL EMPLOYED

Return on Net Assets (RONA) or Return on Capital Employed (ROCE) is the
measure of firms operating performance. It indicates the firms earning power. The
return on capital employed (ROCE) include how well the management had used the
funds supplied by creditors and owners. Apart from this, it shows earning power of die
operating assets. The higher the ROCE, the more efficient the firm is, in using funds
entrusted to it. In other words, ROCE is the key indicator of overall profitability of an
enterprise. This can be calculated by dividing the difference of total assets and
intangibles with the profit before interest and taxes. ROCE is equal to the profit
margin on sales multiplied by the capital turnover.
Table 2 shows Return on Capital Employed of individual cement companies
from 1999 to 2007. According to the data given in Table 2, the average return on
capital employed of the cement industry is 5.89 percent and it has been varied
between 0.72 percent and 16.41 percent. The situation was better from 2006 onwards.
The ratio was maximum (16.21 percent) in 2007 and minimum (0.72 percent) in 2003.
Overall, the operating efficiency of the cement industry is not satisfactory, though a
considerable growth identified from 2003 onwards.
The Operating efficiency of Rain Commodities on an average is healthy as
there was a spurt in operating efficiency in 2003. But when we look into year wise
performance the operating efficacy of this company was not satisfactory from 2004
onwards. The operating efficiency of Panyam Cements is precarious and on an
average the return on capital employed of mis company is negative for a period of five
years out of nine years of study. The operating efficiency of Sri Vishnu Cements and
Kakatiya cements is better than the other sample cement companies.
ANALYSIS OF FINANCIAL EFFICIENCY: FINANCIAL LEVERAGE
Financial leverage affects ROE and reflects financial efficiency of the firm.
ROE is thus a product of RONA (reflecting operational efficiency) and financial
leverage (reflecting financial efficiency). Table 3 shows the financial efficiency
(income statement) of the cement industry during the period of the study. The
financial efficiency of the industry from 2000 to 2005 is not satisfactory, though a

considerable improvement in the financial efficiency was observed in 2006 and 2007.
In case of sample cement companies, the financial efficiency of Andhra
cements, Rain Commodities, Sri Vishnu Cements, Zuari Cements and Panyam
cements is alarming. Out of eight sample cement companies six companies showed a
dwindling financial efficiency. Negative PBIT noticed in four companies out of eight
companies in 2003, as an effect a high negative ratio noticed in this year.
A series of negative net wroth noticed for a period of six years in Panyam
cements from 2001 to 2006. For a period of three years the netwroth is negative in
case of Rain Commodities. KCP cements showed a rational financial efficiency,
similarly Kakatiya cements showed a good financial efficiency during the period of
the study. The financial leverage of Kakatiya varied between 0.25 times and 0.71
times. The overall financial efficiency of the industry is at risk during the period of the
study.

The financial efficiency of Zuari cements was pathetic from 1999 to 2002 and
from 2004 to 2005. The financial efficiency of India Cements, Rain Commodities,
Zuari cements and Panyam Cements and was depressing respectively during the
period under reference.
Table 4 shows the financial efficiency (balance sheet) of the cement industry during
the period of the study. The financial efficiency of the industry sharply increased from
2.31 times in 1999 to 2.71 times in 2002, subsequently sharply decreased to 1.50
times in 2006. A little increase in the ratio is found in 2007. The average financial
efficiency of the cement industry in Andhra Pradesh is 2.26 times during the period of
the study. From the above analysis, it can be concluded that the overall financial
efficiency of the cement industry is not encouraging.
Table 2
Figure

Table 3

Figure
In case of sample cement companies, the financial efficiency of Andhra
cements, Rain Commodities, Sri Vishnu Cements, Zuari Cements and Fanyam
cements is alarming. Out of eight sample cement companies six companies showed a
dwindling financial efficiency. Negative PBIT noticed in four companies out of eight
companies in 2003, as an effect a high negative ratio noticed in this year.
. A series of negative netwroth noticed for a period of six years in Panyam
cements from 2001 to 2006. Financial efficiency of this company is disappointing as
the networth is negative for a period of six years out of eight years. The average ratio
shown in the Table 4 is the average figure of three years only. KCP cements showed a
rational financial efficiency, similarly Kakatiya cements showed a good financial
efficiency during the period of the study. The financial leverage of Kakatiya varied
between 24.69 percent and 70.67 percent. The financial efficiency of Panyam
Cements was depressing respectively from 200 onwards. The overall financial
efficiency of the industry is at risk during the period of the study. Thus, it can be
concluded that the financial efficiency of sample cement companies is not satisfactory
during the period of the study.
PROFIT MARGIN
The profit margin is a measure of overall profitability. This measure is also referred to
as the net income percentage or the return on sales. It varies with the disproportionate
variations in sales revenues in comparison to costs or vice versa. Thus costs are
remaining same, if the management decides to mark-up or mark down the price per
unit profit margin will go up or down accordingly. On the contrary price per unit
remaining the same, if the management succeeds in bringing downward variations in
all or some of the components of the cost structure the result will be an upward change
in the margin of profit on sales. The profit margin can be increased by marketing up

prices or by reduction in costs or by both. The more commonly used accounting forms
of profit are gross profit or operating profit (known as earning before interest and tax)
and net profit.


Table 4
Figure
Table 5
Figure
The profit margin of the cement industry on an average is showed a declining
trend from the beginning of the study period. The profit margin declined from 13.62
percent in 1999 to 1.70 percent in 2003; hereafter an upward trend is observed and
reached a level of 26.56 percent by 2007. During the study period an average of 11.25
percent of profit margin recorded for this industry.
As regards to the individual units the profit margin ratio is below than the
industry average in Rain commodities, Sri Vishnu cements, Zuari cements and
Panyam cements. A negative profit margin observed in Rain Commodities and
Panyam Cements. Out of eight companies under study two companies showed a
negative profit margin and four companies showed an average ratio below the industry
average. The profit margin of all the cement companies has improved from 2006
onwards except Rain Commodities and Panyam Cements in 2006. Though a positive
profit margin ratio observed for the industry, the overall profitability of the industry is
not encouraging during the period of the study.
ASSETS TURNOVER RATIO
Assets are used to generate sales. Therefore, a firm should manage its assets to
maximize sales. The relationship between sales and assets is called assets turnover.

Several assets turnover ratios can be calculated.
Assets turnover ratio of the Cement Industry declined gradually from 70.02
percent in 1999 to 44.64 percent by 2004. During 2005 the recovery phase started in
the industry. The assets turnover ratio steadily increased from 2005 onwards and
reached the maximum level in 2007. On an average the assets turnover of the industry
works out to 58.03 percent during the study period.
In case of sample cement companies, the assets turnover of Andhra Cements is
encouraging during the period of the study. It can be said (hat this company has
utilized its assets at optimum level. The similar trend observed in KCP cements, Rain
commodities from 1999 to 2003, Sri Vishnu cements and Kakatiya cements. Panyam
cements were unable to manage its assets during the period of the study and its
average turnover ratio is negative.
Even Zuari cements failed to manage effectively its assets from 2000 to 2005.
The performance of this company has improved in 2006 and 2007. Kakatiya cements
showed a solid performance in managing its assets during the period of the study.
India cements too failed to utilize its assets during the period of the study. For this
company a negative assets turnover ratio observed from 2002 to 20004. In all except
KCP cements, Sri Vishnu cements and Kakatiya cements the rest are failed to manage
their assets in 2003 and 2004, hence a low assets turnover. Thus, it is understood that
the assets turnover of the cement industry is not satisfactory during the study period.
PROFITABILITY MANAGEMENT IN SAMPLE CEMENT COMPANIES
Profitability can be measured in terms of different components of income
statement and balance sheet. More commonly used measures of profitability are
briefly explained.
Gross Profit Margin
It reflects the efficiency with which management produces each unit of
product. This ratio indicates the average spread between the cost of goods sold and the

sales. It expresses the relationship of gross profit on sales to the net sales in terms of
percentage; representing the percentage of gross profit earned on sales is calculated as
follows:
Gross Profit Margin = (Gross Profit/Net Sales) x 100
Thus, the determinants of this ratio are the gross profit and net sales which
mean sales after deducting the value of goods returned by the customers.

Table 6
Figure
Expressed in percentage this ratio serves a meaningful purpose. A high
operating profit margin relative to the industry average implies that the firm is able to
produce at a relatively lower cost. A lower rate suggests a poor business. The factors
affecting the decrease in this ratio are as follows: (1) Increase costs without
corresponding increase in selling price. (2) Reduction in selling price without
corresponding decrease in costs. (3) Items of stocks omitted from inventory. (4)
Valuation of opening stock at a higher figure. (5) Valuation of a closing stock at a
lower figure. (6) Misappropriation of stock. (7) Goods purchased other than for
business purposes but accounted for in purchases. (8) Commission of stocks.
A gross margin ratio may increase due to any of the following factors. (1)
Higher sales prices, cost of goods sold remaining constant. (2) Lower cost of goods
sold, sales price remaining constant. (3) A combination of variations in sales price and
costs, the margin widening, (a) An increase in the proportionate volume of higher
margin items.
The gross profit margin can be analyzed in two ways, first the gross profit
margin before depreciation and second after depreciation. In this study, operating
profit margin has been analyzed through operating profit margin after depreciation.
The ratio is of vital importance for gauging business results. Gross profit finally gives

a balance of net profit after deducting, selling, distribution, and administrative
expenses, and financial charges like interest on borrowings etc. Gross profit should be
of appreciable amount so that percentage of net profit in relation to sales revenue and
ultimate shareholders earnings may be adequate. Gross profit margin indicates the
extent to which selling price of goods per unit may decline without resulting in losses
from operations for the firm.
The gross profit margin of the combined position of sample units reported a
overall increase from 32.96 percent in 1999 to 47.74 percent in 2007 with an average
of 30.54 percent (Table 7) The increasing gross profit margin is indicative of
increasing profitability of sales in the industry in view of escalating costs of inputs
used in cement manufacturing. Further, the rate of growth in sales in the industry was
satisfactory.
Table 7
Figure
Considering the combined average of 30.54 percent gross profit margin, it is observed
that gross profit margin of India cements (37.71 percent), KCP Cements (34.98
percent) and Rain Commodities (43.70 percent) was relatively better than that of the
other sample cement companies. Zuari cements (6.66 percent) and Panyam Cement
(0.44 percent) were unable to make effective gross profit on their sales for varied
reasons such as under utilization of capacity, production through inefficient wet
process. The gross profit ratio of the cement industry showed a positive growth from
2006 onwards in all the cement companies except Rain Commodities and Panyam
Cements. Panyam Cements gross profit ratio is positive only in 2007 during the period
under reference.
Net Operating Profit
Net operating profit is derived after deducting operating expenses including
cost of goods sold from net sales figure. The analysis of net operating profit sales
relationship reveals the efficiency of a business undertaking in controlling operating

expenses i.e., cost of goods sold depreciation and administrative and selling expenses.
The net operating profit to sales ratio relating to sample companies is detailed
in Table 8. The ratio was 12.07 percent in 1999, went down to - 5.39 percent in 2003,
there by gradually increased from -5.39 percent in 2003 to 25.82 percent in 2007, with
an average of 9.04 percent in cement industry in Andhra Pradesh. Further the
operating performance of the industry reported an overall decline during the study
period. The average gross profit margin for the industry had worked out to 30.54
percent, against which the operating profit ratio computed was 9.04 percent.
Therefore, about 21.5 percent of sales were consumed by administrative and selling
expenses and depreciation alone leaving out a mere 9.04 percent of sales as net
operating profit. Therefore, it can be concluded that the operating performance of the
cement industry in Andhra Pradesh was not satisfactory.
In case of individual units, the net operating profit ratio over the study period
dwindled reflecting the industry trend identified earlier. The ratio fluctuated form a
negative margin of -14.22 percent in Panyam cements to the 14.92 percent in Kakatiya
cements among the sample units.
Table 8
Figure
The operating performance was relatively better in Kakatiya cements and India
cements as they reported more ratio than the industry average of 9.04 percent. It
indicates better control over administrative and selling expenses in the above said
companies. In the remaining units the net operating profit margin less than the
industry average of 9.04 percent. They could not effectively control their operating
expenses. Panyam cements, Andhra Cements and Rain commodities were
characterized by operating losses. Overall the operating performance of five
companies out of eight companies is not encouraging.
Thus it is evident that, individually excluding Kakatiya. cements, India cements
and KCP cements, other sample units showed unimpressive operating profit

performance. A close scrutiny of the components of operating ratio may reveal the
reasons for low net operating ratio in the sample units. Usually, operating expenses, if
at a higher level, reduce the extent of net operating profit to sales also gets reduced.
Hence, an examination of the operating ratio and its components is necessary.
Operating Ratio
The profitability of an enterprise basically depends upon the degree of
efficiency in conducting the business. The business operations are conducted
efficiently provided the operating expenses are kept at the possible minimum level so
that these expenses remain below the sales revenue and thereby the business
operations may result in profit situations. The operating ratio, therefore, acts as an
index of the efficiency of the conduct of business operations. An analysis of operating
ratio, to judge the operating efficiency of an enterprise requires a study of its
components. The operating ratio is computed by dividing all operating expenses, viz.,
cost of goods sold, depreciation and administrative expenses and selling expenses with
the sales figure. The operating ratio indicates what percent of sales has been affected
by the cost of goods sold and other operating expenses and what percent of sales is left
to covert interest, income tax, dividends and the firms need to retain profit for
expansion. A higher operating ratio is unfavorable since it will leave a small amount
of operating income to meet interest income tax and dividend. A lower ratio denotes
higher amount of operating profits and efficient conduct of business operations.
An analysis of the data provided in Table 9 gives a comprehensive view of the
quantum of operating expenses in cement industry in Andhra Pradesh. The operating
ratio in the industry had varied with the lowest of 74.25 percent in 2007 to the highest
of 105.39 percent in 2003, averaging 92.42 percent. The ratio was not only on the
higher side during the period under reference but also showed a rising tendency. The
higher operating expenses consumed larger proportion of operating revenues leaving
out a meager portion towards operating profit. The operating profit so earned was
quite insufficient to cover interest, taxes, dividends and need for retained earnings.
The conduct of business operations was marked by low operating efficiency. It is very

important to note that the operating ratio of the industry exceeded 100 percent in 2003
indicating that the industry had to bear the losses.
An analysis of individual units reveals that India cements, Kakatiya cements
alone had lower operating ratio than the industry average of 92.42 percent. These two
companies alone were able to control and regulate their operating expenses well in the
industry. Hence their operating efficiency was relatively better than that of the other
sample units under observation.
Panyam cements with an average operating ratio of 143.78 percent and Andhra
cements with 105.78 percent were clear examples of mounting operating inefficiency.
Further, their operating ratio registered an overall rise during the eight year period
under study. The former made operating losses from 2000 onwards while the latter
from 2003. They were unable to exercise adequate control over their operating
expenses.
Table 9
Figure
Even in the rest of the enterprises the average operating ratio computed ranged
between a minimum of 93.20 percent in KCP cements to a maximum of 97.91 in Rain
Commodities. In all the enterprises the ratio reported an overall increase reflecting
falling operating efficiency in these enterprises. The only solace is that enterprises
could reduce their administrative and selling expenses over the period under review.
It is pertinent to identify the reasons for higher and increasing operating ratio in
the sample cement companies. The cement industiy is location specific and is
dependent upon the availability of limestone, the major draw material which is
available in low quantities in a few states. But the markets are scattered throughout the
country. In Andhra Pradesh cement producing units are located very close to areas,
where the raw material is available. But the finished product, cement, is to be
transported to distant and scattered markets. Further, coal, another important input
used in cement production, needs to be transported to factory locations form far off

places. The transportation costs always maintain a rising trend in the country.
Consequently, the cost of transporting finished cement, on the one hand and getting
coal on the other is becoming a major problem. The transportation and handling
chargers for cement and coal are substantial. As a result, transportation costs, an
average account for 25-28 percent of the cost of sales.
The other important input used in the industry is power. Power costs account
for around 22-25 percent of the cost of sales. Further, frequent breakdowns in power
supply hamper production of cement. Added to this, the quality of power supply
provided to the industry is very poor.
Thus, costs of transportation, coal, power and limestone account for 75-80
percent of cost of sales. Though cement is a decontrolled product, all the above inputs
are controlled by me government. The taxes, tariffs, import duties and royalties are
imposed by the government on which the industry has no control whatsoever. Hence,
rise in these items leads to cost escalation ion the inputs used in cement production.
The industry therefore, is facing a high incidence of input costs and domestic taxes
combined with high limestone royalty charges- These costs also restrict the industrys
performance and growth and have a direct bearing on exports. Despite the industrys
state-of-the-art technology in cement manufacture, these costs expose the industry to
threats form imports.
All the factors disclosed above were very much relevant %even in the case of
sample units in Andhra Pradesh. The problem in many of the cement units such as
Panyam and Andhra was compounded because of absence effective system of cost
monitoring, regulation and control. The result was that the operating costs rose steeply
in these enterprises leaving out either meager profits, or resulting in losses.
Net Profit Margin
The Net Profit margin ratio is measured by dividing profit after taxes by sales.
It explains a relationship between net profit and sales and indicates managements
efficiency in manufacturing, administering and selling the products. This ratio is the

overall measure of the firms ability to turn each rupee sales into net profit. If the net
profit margin is inadequate, the firm will fail to achieve satisfactory return on
shareholders funds.
This ratio indicates the firms capacity to withstand adverse economic
conditions. A firm with a high net margin ratio would be in an advantageous position
to survive in the face of falling selling prices, rising costs of production or declining
demand for the product. It would early be difficult a firm to withstand these
adversities. Similarly, a firm with high net profit margin can make better use of
favorable conditions, such as rising selling prices, falling costs of production or
increasing demand for the product.
An analyst will be able to interpret the firms profitability more meaningfully if
he/ she evaluates both the ratios gross profit margin and net margin jointly. To
illustrate this if the gross profit margin has increased over years, but the net profit
margin has either remained constant or declined or has not increased as fast as the
gross margin, this implies that the operating expenses should be identified and
controlled. Gross Profit margin may decline due to fall in sales price or increase in the
cost of production. As a consequence net profit margin will decline unless operating
expenses decrease significantly. The crux of the argument is that both the ratios
should be jointly analysed and each item of expense should be thoroughly investigated
to find out the causes of decline in any or both the ratios.
Net profit to sales, other wise known as net profit margin, is indicative if the
position of sales that is left to the proprietors, after all costs, charges and expenses
have been deducted. It differs from net operating profit, in as much as it is computed
adding non-operating expenses such as loss on sale of old assets, provision for legal
charges etc. The net profit margin is indicative if managements ability to operate the
business with sufficient success not only to recover form revenues of the period, the
cost of merchandize or services, the expenses of operating the business and the cost of
borrowed funds, but also to leave a margin of reasonable compensation to the owners
who invest their capital taking risks. A high net profit margin would ensure adequate

return to the owners as well as enable a firm to withstand adverse business conditions.
The net profit margin i.e., net profit to sales, therefore, is widely used as a measure of
a firms overall profitability and is very useful to proprietors. The details pertaining to
net profit margin in sample cement units are embodied in Table 10.
It may be noticed that the industrys net profit performance had deteriorated
from 1.72 percent in 1999 to a negative figure of 1.11 in 2005, thereby steadily
increased to 20 percent in 2007. Out of the nine year period of study, the industry
made net profits for three years and losses in the remaining six years. Further, the
profit performance of the industry was characterized by volatility. The net operating
profit ratio for the industry was 9.04 percent, but the average net profit worked out to
0.17 percent only. The net profit margin was obviously, in order to overcome the
problems of shortage of funds for modernization and expansion and acute shortage of
working funds, mobilized larger quantum of loans both short-term and long term. But
the earnings made before interest and taxes were so low that in six of the nine years,
they were not sufficient even to cover interest charges resulting in negative net profit
margins.
In four out of eight sample units, the net profit margin on an average reported
was negative ranging between a minimum of 49.45 percent in Panyam cements to a
negative figure of 0.72 percent in Andhra cements. They include in the order of losses
made, Panyam cements (49.45 %), Rain commodities (21.08 %), Andhra cements (-
0.72 %) and Zuari cements (1.44 %). Losses reported an overall rise during the
period of the study in all the above mentioned cement companies. Their operating
profits were not even adequate to cover the interest charges. The net profit margin of
these enterprises turned negative.
In five of the sample units, the average net profit ratio registered positive
growth in 2007. But this profit performance too was not encouraging as they had very
low average net profit margins ranging between the lowest of 0.14 percent in Sri
Vishnu cements to the highest of 6.42 percent in Kakatiya. The profitability
performance of KCP and Kakatiya relatively better, than the other sample enterprises

during the period of the study.
Earnings per Share (EPS)
The profitability of the shareholders investment can also be measured in many
other ways. One such measure is to calculate the earnings per share. The earnings per
share (EPS) is calculated by dividing the profit after taxes by the total number of
ordinary shares outstanding. EPS calculations made over years indicate whether or not
the firms earnings power on per-share basis has changed over that period, The EPS of
the company should be compared with the industry average and the earnings per share
of other firms. EPS simply shows the profitability of the firm on a per-share basis; it
does not reflect how much is paid as dividend and how much is retained in the
business. But as profitability index, it is a valuable and widely used ratio.
Table 11 furnishes the Earnings Per Share of consolidated cement industry and
for the individual cement companies from
Table 10
Figure
Table 11
Figure
1999 to 2007. An analysis of Earnings Per Share reveals that in industrys
earning per share is negative from 2000 to 2005. Out of nine years of study the
industry performance is not encouraging for period of six years. The shareholders of
cement industry are at risk. Though the Earnings Per Share showed positive figures in
1999 and 2006, they are not sufficient to satisfy the existing share holders. After a
negative trend for a period of six years the earnings per share of the industry, has
improved in 2006 and 2007.
In case of sample cement companies under study, except Rain Commodities
and Panyam Cements rest have showed an improvement in earnings per share in 2006.

In 2007, except Panyam cements rest have showed a better performance. The situation
in Panyam cements is precarious. This company failed to earn positive earnings
during the period of the study. This company time after time was suffering from huge
losses from 1999 to 2007. Zuari cements also failed to earn positive earnings
consecutively from 1999 to 2006. In 2003 except Rain Commodities and Kakatiya
cements rest are failed to earn positive earnings, hence a low earnings per share for the
industry.
Thus, it can be concluded that the performance of the cement industry to
produce positive earnings was not satisfactory up to 2005 and relatively better from
2006 onwards.

APPENDIX
Measurement of Financial Health of Select Sample Cement
Companies using Multiple Discriminant Analysis (MDA)
The Indian cement industry is one of the pillar sectors of our economy as it
accounts for a significant portion of total industrial output of our country. Further it
plays a dominant role in satisfying basic needs {house construction) of human kind.
Cement Industry continues to adopt a series of readjusting and restructuring measures
including up gradation of technology. India is largest market with a great potential, as
the country possesses more than a billion people, vast territory and abundant
resources.
The cement industry can enlarge global market shares so long as the industry
players firmly seize the business opportunities, promptly solve outstanding problems
and improve weak links in their existing production chain. The industry is expected to
perform well in all the dimensions and achieve a healthy growth in its operations. In
order to manage stiff competition, drastic steps are to be taken to reduce cost of
production. In the changed environment, application of financial management

techniques would help the cement companies in increasing their productivity and
profitability. An attempt has been made in the present study to have an insight into the
examination of financial health of the select cement companies in Andhra Pradesh.
ALTMAN Z Score: Z score analysis has been established by Edward I.
Airman to evaluate the general trend in the financial health of an enterprise over a
period. Many of the individual accounting ratios used frequently to predict the
financial performance of an enterprise may only provide warnings when it is too late
to take a corrective action. Further single ratio does not convey much of the sense.
There is no internationally accepted standard for financial ratios against which the
results can be compared. Therefore, Edwin I Altman combined a number of
accounting ratios (liquidity, leverage, activity and profitability) to form an index of the
probability, which was effective indicator of corporate performance in pisdiliig bank
inptcy
7
. The data collected were first analyzed with the help of five accounting ratios.
These different ratios are combined into a single measure-Z Score Analysis with the
help of Multiple Discriminant Analysis (MDA). Z is the overall index and the
variables X
1
to X
4
are computed as absolute percentage values while X
5
is computed
in number of times.
The formula used to evaluate the Z score analysis as established by Altman
is as follows:
Z = 0.012X, + 0.014X, + 0.033X
3
+ 0.006X
4
+ 0.999X.
Variables (Ratios) used in Z Score Analysis
The following accounting ratios are used as variables to combine them into a
single measure, which is efficient in predicting bankruptcy.
X
;
: Vte Ratio of Working Capital to Total Assets (WC/TA*100). It is the measure of the
net liquid assets of a concern to the total capitalization.
X
2
: The Ratio of Net Operating Profit to Net Sales (NOP/S*100). It indicates the

efficiency of the management in manufacturing, sales, administration and other
activities.
X
3
: Vie Ratio of Earning before Interest and Taxes to Total Assets (EBIT/ TA*100). It is
a measure of productivity of assets employed in an enterprise- The ultimate existence
of an enterprise is based on the earning power (profitability).
X
4
: The Ratio of Market Value of Equity to Book Value of Debt (MVE/BVD *100). It is
reciprocal of the familiar debt-equity ratio. Equity is measured by the combined
market value of all shares, while debt includes both current and long term liabilities.
This measure shows how much assets of an enterprise can decline in value before the
liabilities exceed the assets and the concern becomes insolvent.
X: The Ratio of Sales to Total Assets (S/TA). The capital turnover ratio is a
standard financial measure for illustrating the sales generating capacity of the assets.
Accuracy and Effectiveness
Some studies measuring the effectiveness of the Z-score have shown the model
to be accurate with >70% reliability
3
. What is usually meant by accuracy is the
percentage of firms that are classified correctly, within the estimation sample, when
the Z-score values for firms are translated into yes/no predictions for whether each
turns out to be bankrupt. Because the parameters of the model are estimated based on
the same sample, and because the sample itself is not randomly selected, it is not
reasonable to project that the formula will achieve similar accuracy when applied for
making predictions about other firms.
From about 1985 onwards, the Z-scores gained wide acceptance by auditors,
management accountants, courts, and database systems used for loan evaluation. The
Altaian Z-Score model is not recommended for use with financial firms; because these
firms often have off-balance sheet liabilities that arent captured by the financial
statement data used in the Altaian Z-Score model
9
.
Table 12 Altman Z-score Analysis






Source: Annual Reports of Select Sample Cement Companies
Altaian Guidelines for Healthy Zone
Altman established the following guidelines to be used to classify firms as
either financially sound or bankrupt.
1. Below Z score of 1.8, the unit is considered to be in bankruptcy zone. Its
failure is certain and extremely likely and would occur probably within a
period of two years.
2. If a unit has a Z score between 1.8, and 3, its financial viability is considered
to be healthy. The failure in this situation is uncertain to predict.
3. Above Z score of 3, the unit is in too healthy zone. Its financial health is very
viable and not to fall.
Financial Health of Select Cement Companies:
The Altman Z score analysis was applied to evaluate the general trend in the
financial health of select sample cement companies by using ratio analysis. It can be
observed from the analysis provided in Table-12 that the cement companies under the
study were just on the range of financial collapse. The financial performance of all the
cement companies under study is in potential trouble and Rain Commodities is
heading towards bankruptcy. Rain Commodities has to take emergency steps to
turnaround the present situation, otherwise the chances are plenty that these
companies to become bankrupt in the coming two years if similar performance is

continued.

Reasons for the Poor Financial Health
The following are important reasons for poor financial health of cement
companies in Andhra Pradesh.
Majority of the sample cement companies faced the problem of under trading
owing to the excess working capital.
The negative operating profit/small portion of profit during the study period
was a serious concern. It was partly because of the fact that earnings were
eaten by excess working capital during the study period.
Majority of the sample cement companies failed to achieve the sales
targets/adequate sales. This was due to under utilization of available capacity,
which contributed for the deterioration of financial health.
% Excess debt was a serious concern as it carries with interest burden. This
also affected financial health.
CHAPTER SUMMARY
This chapter deals with the concept of profitability, measurement of
profitability in relation to total investment, sales and shareholders funds. It also deals
with the evaluation of earning power of select cement companies, analysis of
operating efficiency, analysis of financial efficiency and Measurement of Financial
Health of Select Sample Cement Companies using Multiple Discriminant Analysis
(MDA).
The overall profit performance of the cement companies under study was
inconsistent. The return on equity and operating efficiency of the cement industry is
not satisfactory, though a considerable growth identified in 2007. The overall financial
efficiency of the industry is at risk during the period of the study. The financial

efficiency of the industry from 2000 to 2005 is not satisfactory, though a considerable
improvement in the financial efficiency was observed in 2006 and 2007. In case of
sample cement companies, the financial efficiency of Andhra cements, Rain
Commodities, Sri Vishnu Cements, Zuari Cements and Panyam cements is alarming.
Out of eight sample cement companies six companies showed a dwindling financial
efficiency. Negative PBIT noticed in four companies out of eight companies in 2003,
as an effect a high negative ratio noticed in this year.
The Operating efficiency of Rain Commodities on an average is healthy as
there was a spurt in operating efficiency in. 2003. But when we look into year wise
performance the operating efficacy of this company was not satisfactory from 2004
onwards. The operating efficiency of Panyam Cements is precarious and on an
average the return on capital employed of this company is negative for a period of five
years out of nine years of study. The operating efficiency of Sri Vishnu Cements and
Kakatiya cements is better than the other sample cement companies.
The profit margin of the cement industry on an average is showed a declining
trend from the beginning of the study period. As regards to the individual units the
profit margin ratio is below than the industry average in Rain commodities, Sri
Vishnu cements, Zuari cements and Panyam cements. A negative profit margin
observed in Rain Commodities and Panyam Cements. Out of eight companies under
study two companies showed a negative profit margin and four companies showed an
average ratio below the industry average. The profit margin of all the cement
companies has improved from 2006 onwards except Rain Commodities and Panyam
Cements in 2006. Though a positive profit margin ratio Observed for the industry, the
overall profitability of the industry is not encouraging during the period of the study.
The assets turnover of the cement industry is not satisfactory during the study
period. In case of sample cement companies, the assets turnover of Andhra Cements is
encouraging during the period of the study. It can be said that this company has
utilized its assets at optimum level. The similar trend observed in KCP cements, Rain
commodities from 1999 to 2003, Sri Vishnu cements and Kakatiya cements. Panyam

cements were unable to manage its assets during the period of the study and its
average turnover ratio is negative.
The gross profit ratio of the cement industry showed a positive growth from
2006 onwards in all the cement companies except Rain Commodities and Panyam
Cements. Panyam Cements gross profit ratio is positive only in 2007 during the period
under reference. The operating performance of five companies out of eight companies
is not encouraging. The operating performance was relatively better in Kakatiya
cements and India cements as they reported more ratio than the industry average. It
indicates better control over administrative and selling expenses in the above said
companies. In the remaining units the net operating profit margin less than the
industry average. They could not effectively control theiroperating expenses. Panyam
cements, Andhra Cements and Rain commodities were characterized by operating
losses.
It is very important to note that the operating ratio of the industry exceeded 100
percent in 2003 indicating that the industry had to bear the losses. An analysis of
individual units reveals that India cements, Kakatiya cements alone had lower
operating ratio than the industry average. These two companies alone were able to
control and regulate their operating expenses well in the industry. Hence their
operating efficiency was relatively better than that of the other sample units under
observation. The problem in many of the cement units such as Panyam and Andhra
was compounded because of absence effective system of cost monitoring, regulation
and control. The result was that the operating costs rose steeply in these enterprises
leaving out either meager profits, or resulting in losses.
In five of the sample units, the average net profit ratio registered positive
growth in 2007. But this profit performance too was not encouraging as they had very
low average net profit margins ranging between the lowest of 0.14 percent in Sri
Vishnu cements to the highest of 6.42 percent in Kakatiya. The profitability
performance of KCP and Kakatiya relatively better, than the other sample enterprises
during the period of the study.

The performance of the cement industry to produce positive earnings was also
not satisfactory up to 2005 and relatively better from 2006 onwards. The financial
performance of all the cement companies under study is in potential trouble and Rain
Commodities is heading towards bankruptcy. Rain Commodities has to take
emergency steps to turnaround the present situation, otherwise the chances are plenty
that these companies to become bankrupt in the coming two years if similar
performance is continued.
REFERENCES
1. Bradley, J.F. (1965), Administrative Financial Management, New York:
Rinehart and Winston, p.104.
2. Mc Alpine, T.S. (1969), Profit Planning and Control, London: Business
Book Ltd., p.108.
3. Kulksherestha, N.K. (1972), Analysis of Financial Statements of Indian paper
Industry, Aligarh: Navman Prakasham, p.74.
4. Harvard, B.B. & Upton, M. (1961), Introduction to Business Finance,
McGraw-Hill Book Company, New York, p. 150.
5. Curran Ward, S. (1970), Principles of Financial Management, McGraw-Hill
Book Company, New York, p.34.
6. Stephen H. Penman (2003), Financial Statement Analysis and Security
Valuation, McGraw-Hill Education (Asia), New York, pp. 348-349.
7. Altman. I. Edward (1968), Financial Ratios, Discriminant Analysis and
Prediction of Corporate Bankruptcy, Journal of Finance, Vol. XXIII, No. 4,
(September), pp.589-609.
8. Mansur. A. Mulla (2002), Use of Z Score Analysis for Evaluation of Financial
Health of Textile Mills- A Case Study, Abhigyan. VoI.XIX. No.4. Jan-March,
pp.37-41.

Accountant, July, Vol. 39, No.7, pp.591-593.
Conclusions and Suggestions
CONCLUSIONS
A critical Analysis of the financial performance of selected cement companies
was made in the preceding chapters of the present thesis. The present study Financial
Performance of Private Sector Cement Companies in Andhra Pradesh has brought to
fore many interesting observations throwing light on the financial performance of
select companies. The conclusions that are emerged from the study are briefly
summarized hereunder.
ANALYSIS OF CAPITAL STRUCTURE An analysis of the components of
the capital structure reveals that the cement industry in Andhra Pradesh heavily
depended on long term funds and significantly on long-term borrowings. The equity
base of the industry/ though expanded, is not substantial. Preference capital as source
of finance was not favorable. On the other hand debenture capital was gaming
increased significance in the industry. The long term funds were sufficient to finance
the entire fixed assets and a part of the current assets.
The long term funds occupied a dominant position in financing the assets of the
cement industry. During the entire period of the study, the borrowed funds are higher
than that of networh except in one year. Except KCP Limited, Rain
Commodities and Zuari all the companies were depended more on borrowed
funds. Andhra Cements Limited and Kakatiya Cements Limited maintained a balance
between networh and borrowed funds. The financial structure of Panyam Cements
limited is very much precarious and threatens its very existence. The capital structure
of India Cements Limited is not strong enough to meet the long term requirements.
The capital structure of KCP Cements, Rain Commodities, Sri Vishnu Cements and
Zuari Cements is strong enough to meet the long term requirements.
During the period under reference, the percentage of long term funds was

higher than the percentage of fixed assets in the consolidated position of the sample
cement companies. Except Kakatiya Cements and Panyam Cements all other cement
companies have sufficient long term funds to finance the fixed assets. It can be
concluded that the entire fixed assets and a part of current assets were financed by
using the long term funds in the cement industry in Andhra Pradesh. It can be said that
there is a vast scope for Andhra cements, KCP Cements, Rain Commodities, and
Zuari Cements to raise funds through long term borrowings. It will considerably
benefit the equity shareholders. Otherwise, the owners will be deprived of the benefit
of trading on equity.
Majority of sample cement units followed a policy of maintaining a reasonably
healthy proportion of debt and equity. Overall, the long term solvency of the cement
industry in Andhra Pradesh is threatening and long term creditors are exposed to the
highest degree of financial risk. The ratio tended to decline sharply signaling the
difficulties faced by the industry in meeting the fixed interest obligations. In a
majority of the years under study the industry could not meet its interest commitments
fully. The same is valid for all the units except the KCP cements. As such there exists
no justification for the enhanced use of debt in the cement industry in Andhra Pradesh.
The continuation of this situation will surely land the industry in deep financial crisis.
Overall the capital structure of cement industry in Andhra Pradesh is highly geared.


ANALYSIS OF FIXED ASSETS
The pace of growth in gross block as well as net fixed assets was highly
progressive, thereby signifying that the pace of expansion programme during this
period was very rapid and appreciable in the cement industry. The total amount of
depreciation had recorded a continuous upward trend in the cement industry. In
Andhra Cements the investment in fixed assets far exceeded the investment in current
assets. No amount was invested in trade investments. Considerable amount of
depreciation was also provided. In India Cements one fifth of the investment was in
the form of fixed assets. Continuous expansion of fixed assets was facilitated because
of satisfactory profit performance by the company. In KCP Cements the investment in
current assets is only four percent less than the fixed assets. Continuous contraction of
fixed assets drives the organization towards dismal profit performance by the
company. In Rain Commodities the continuous contraction of fixed assets was an
indication of dismal profit performance by the company. In Sri Vishnu Cements, the
investment in current assets was adequate to finance the current operations. The
availability of funds was a serious constraint for the company to undertake any
expansion programme as the unit has been making continuous losses. In Zuari
Cements the investment in current assets was too low compared to the investment in
fixed assets. A low investment in current assets may lead to lower the operating
efficiency and liquidity of the company. Panyam Cements made investment in current
assets excessively not supported by fixed assets. The availability of funds was a
serious constraint for the company to undertake any expansion programme as the unit
has been making continuous losses. A right mix of fixed assets and current assets
helped the Kakatiya cements to improve its profitability level. India Cements, KCP
Cements, Zuari Cements, Sri Vishnu Cements and Kakatiya Cements recorded a
positive growth in gross block. Andhra Cements, Rain Commodities and Panyam
cements recorded a negative growth in gross block. India Cements showed a largest
expansion out of all the units in terms of gross block. This was followed by Zuari
Cements,
KCP Cements, Kakatiya Cements and Sri Vishnu Cements. The lowest growth

was identified in Rain Commodities followed by Panyam Cements and Andhra
Cements. An analysis of growth of fixed assets (net) showed that Andhra Cements,
KCP Cements and Panyam Cements recorded a negative growth during the period of
the study. India Cements, Rain Commodities, Zuari Cements, Sri Vishnu Cements and
Kakatiya Cements registered a positive growth in net fixed assets. A highest positive
growth identified in India Cements followed by Zuari Cements, rain Commodities,
Kakatiya Cements and Sri Vishnu Cements. In Andhra Cements, the growth of net
fixed assets showed a decline, bringing to the fore the fact that the expansion in this
unit was not under taken. The cement industry in Andhra Pradesh is starved of
owners funds because of successive losses. The extent of fixed assets financing by
these funds is normal. As the owners funds were totally insufficient to finance the
fixed assets, the industry is forced to use borrowed funds to finance these assets. In
view of this, it is evident that financing of core current assets through owners equity
cannot be imagined. The long term funds were just adequate to finance the fixed
assets and current assets in the cement industry in Andhra Pradesh. The poor
utilization of fixed assets adversely affected the turnover rate. In turn, the turnover
rate is quite insufficient to lift the rate of return on capital employed to the desired
level. The expansion had no positive impact on operating profit margin. Expansion did
not result in growth of operating profit margin; hence there is no justification for the
expansion of fixed assets in the cement industry in Andhra Pradesh. Though the
industry showed a marked performance in 2007, it is evident that the productivity
7
of
fixed assets expansion in terms of increase in sales and operating profit was negative.
Therefore, ineffective or under utilization of fixed assets was evident in the cement
industry in Andhra Pradesh.


ANALYSIS OF WORKING CAPITAL
The working capital solvency of all the sample units is satisfactory except Rain
Commodities and Panyam Cements.
On the whole, the indices of working capital showed an increasing trend during
the study period. There is no significant difference in working capital indices in
between years among the different units. There is significant difference in net working
capita! indices in between units among the various years.
The cement industrys inventory performance was not satisfactory during the
period of the study except in 1999. Inventory turnover ratio also registered a low
degree of positive correlation with profitability and its coefficient is found to be
insignificant. Current ratio also registered a low degree of negative correlation with
profitability and its coefficient is found to be significant. Overall, the cement
industrys inventory performance was not satisfactory during the period of the study.
The inventory turnover of Kakatiya cements was alarming. The highest inventory
turnover ratio was reported in India cements, Rain commodities, Sri Vishnu cements
and Zuari Cements. A symptom of over trading identified in Rain Commodities, Sri
Vishnu cements and Zuari cements is not conducive for their long term survival.
Contrary to this, KCP cements and Kakatiya cements reported a low inventory
turnover reflecting that these enterprises were under traded.
It can be concluded that except Panyam and Sri Vishnu cements, rest of the
sample units are following an effective credit policy. There is significant variation in
the debtors collection period between units among the different years. There is
significant difference in the debtors collection period between years among different
companies. It can be concluded, over the years, there has been significant variation in
collection period of the sample units.

Cash balances maintained reported volatility over the years in cement industry
in Andhra Pradesh. An analysis of individual units points out that Andhra Cements,

KCP cements, Rain Commodities, Sri Vishnu Cements, Panyam Cements and
Kakatiya Cements maintained cash balances more than the industry average. The
liquidity position of Andhra cements and Panyam cements also not satisfactory during
the study period. In all the liquidity position of the industry is not satisfactory due to
inability of three units out of eight units to maintain sufficient cash balances. There
was no uniformity in cash balances of KCP limited, Rain Commodities, Sri Vishnu
cements, Zuari Cements and Kakatiya cements over the study period.
Cash to sales ratio of cement industry in Andhra Pradesh followed a variable
trend throughout the period of the study. The study revealed that the cash to sales ratio
of Andhra Cements, KCP Cements, Rain Commodities, Sri Vishnu Cements, Zuari
Cements, Panyam Cements and Kakatiya Cements followed a fluctuating trend
throughout the period of the study. Cash to sales ratio in India Cements followed a
declining trend throughout the period of the study. The variations in the cash position
were very significant in the case Rain commodities and India cements in comparison
with other cement companies. It should also be noted that in Andhra cements, Zuari
cements and KCP cements the proportion of cash to sales was lower than in the
industry as well as in other selected cement companies. This shows liquid position of
the Andhra cements, Zuari cements and KCP cements was not good because a very
low amount of cash balances was kept by the company.
The liquidity position of Andhra Cements, KCP cements and Panyam cements
was alarming. But the management of India cements should take steps to control the
excessive investment current assets because the some funds of this company remain
idle in the form of current assets, Current assets could not utilized properly by the
management of cement industry in Andhra Pradesh. The average current ratio of
Andhra Cements, KCP Cements, Sri Vishnu Cements, Panyam Cements and Kakatiya
Cements was less than standard norm during the period of the study. A low current
ratio in comparison with the other units was identified Panyam Cements, followed by
Andhra Cements and Sri Vishnu Cements. There is no significant difference in the
current ratio between the years among all the selected cement companies. The current
ratio between the companies among different years is significant.

ANALYSIS OF PROFITABILITY
The overall profit performance of the cement companies under study was
inconsistent. The return on equity and operating efficiency of the cement industry is
not satisfactory, though a considerable growth identified in 2007. The overall financial
efficiency of the industry is at risk during the period of the study. The financial
efficiency of the industry from 2000 to 2005 is not satisfactory, though a considerable
improvement in the financial efficiency was observed in 2006 and 2007. In case of
sample cement companies, the financial efficiency of Andhra cements, Rain
Commodities, Sri Vishnu Cements, Zuari Cements and Panyam cements is alarming.
Out of eight sample cement companies six companies showed a dwindling financial
efficiency. Negative PBIT noticed in four companies out of eight companies in 2003,
as an effect a high negative ratio noticed in this year.
The Operating efficiency of Rain Commodities on an average is healthy as
there was a spurt in operating efficiency in 2003. But when we look into year wise
performance the operating efficacy of this company was not satisfactory from 2004
onwards. The operating efficiency of Panyam Cements is precarious and on an
average the return on capital employed of this company is negative for a period of five
years out of nine years of study. The operating efficiency of Sri Vishnu Cements and
Kakatiya cements is better than the other sample cement companies.

The profit margin of the cement industry on an average is showed a declining
trend from the beginning of the study period. As regards to the individual units the
profit margin ratio is below than the industry average in Rain commodities, Sri
Vishnu cements, Zuari cements and Panyam cements. A negative profit margin
observed in Rain Commodities and Panyam Cements. Out of eight companies under
study two companies showed a negative profit margin and four companies showed an
average ratio below the industry average. The profit margin of all the cement
companies has improved from 2006 onwards except Rain Commodities and

Panyam Cements in 2006. Though a positive profit margin ratio observed for
the industry, the overall profitability of the industry is not encouraging during the
period of the study.
The assets turnover of the cement industry is not satisfactory during the study
period. In case of sample cement companies, the assets turnover of Andhra Cements is
encouraging during the period of the study. It can be said that this company has
utilized its assets at optimum level. The similar trend observed in KCP cements, Rain
commodities from 1999 to 2003, Sri Vishnu cements and Kakatiya cements. Panyam
cements were unable to manage its assets during the period of the study and its
average turnover ratio is negative. The gross profit ratio of the cement industry
showed a positive growth from 2006 onwards in all the cement companies except
Rain Commodities and Panyam Cements. Panyam Cements gross profit ratio is
positive only in 2007 during the period under reference. The operating performance of
five companies out of eight companies is not encouraging. The operating performance
was relatively better in Kakatiya cements and India cements as they reported more
ratio than the industry average. It indicates better control over administrative and
selling expenses in the above said companies. In the remaining units the net operating
profit margin less than the industry average.

They could not effectively control their operating expenses. Panyam cements,
Andhra Cements and Rain commodities were characterized by operating losses.
It is very important to note that the operating ratio of the industry exceeded 100
percent in 2003 indicating that the industry had to bear the losses. An analysis of
individual units reveals that India cements,Kakatiya cements alone had lower
operating ratio than the industry average. These two companies alone were able to
control and regulate their operating expenses well in the industry. Hence their
operating efficiency was relatively better than that of the other sample units under
observation. The problem in many of the cement units such as Panyam and Andhra
was compounded because of absence effective system of cost monitoring, regulation

and control. The result was that the operating costs rose steeply in these enterprises
leaving out either meager profits/ or resulting in losses.
In five of the sample units, the average net profit ratio registered positive
growth in 2007. But this profit performance too was not encouraging as they had very
low average net profit margins ranging between the lowest of 0.14 percent in Sri
Vishnu cements to the highest of 6.42 percent in Kakatiya. The profitability
performance of KCP and Kakatiya relatively better, than the other sample enterprises
during the period of the study.
The performance of the cement industry to produce positive earnings was also
not satisfactory up to 2005 and relatively better from 2006 onwards. The financial
performance of all the cement companies under study is in potential trouble and Rain
Commodities is heading towards bankruptcy. Rain Commodities has to take
emergency steps to turnaround the present situation, otherwise the chances are plenty
that these companies to become bankrupt in the coming two years if similar
performance is continued.

In nutshell the overall financial performance of private sector is not satisfactory
during the period of the study. On the basis of detailed analysis and conclusions drawn
from the study the hypothesis is accepted.
SUMMARY OF FINDINGS
The second chapter An Overview of the Cement Industry, discusses the
origin, processes of manufacturing technology and varieties of cement. This helps
to understand the position of the cement industry in the world, the growth and
development of the Indian cement industry during the Five-Year Plans, in the
period of decontrol and de-licensing in general. The capacity, production and 12

consumption of cement in India and in Tamil Nadu in particular are also
discussed.
Indian cement industry has a planned development during the Five Year
Plans. It had a higher growth rate after delicensing of the industry. Between
1990-91 and 1999-2000 the capacity of the industry grew by 7.57 per cent (from
59.12 million tonnes to 108.51 million tonnes).
The production and consumption grew by 8.06 per cent and 7.82 per cent
(from 45.76 million tonnes and 45.48 million tonnes to 94.21 and 92.05 million
tonnes) per annum, respectively.
As cement industry is location-specific, it has to be necessarily located
close to the main raw-material. Consequently, there has been a concentration of
cement industry around the sources of lime-stone. In the regional concentration,
the southeren region accounts for 33.06 per cent of the total cement industries in
India. The state of Andhra Pradesh stands first with 20 factories and Tamil Nadu
stands second with 11 factories in the southern region. In terms of capacity (8.82
million tonnes), it occupies the fifth rank among the States in India. Tamil Nadu
had witnessed tremendous annual growth rates of 6.01 per cent, 7.26 per cent, and
8.82 per cent of capacity, production and consumption respectively during the
study period. 13
In the third chapter, `A Comparative Analysis of Operating Efficiency, the

trends in capacity, production, market share, sales and average price realisation of
the four selected cement companies are discussed.
Madras Cements has recorded more than a two-fold increase both in
capacity and production. Its market share ranged from 2.4 per cent to 3.1 per cent.
There was a three-fold increase in sales value and the average price realisation
ranged between Rs.1,493 and Rs.2,595 during the period from 1990-91 to
1999-2000.
The India Cements had 157 per cent increase in capacity and a five-time
increase in production. Its market share ranged between 2.5 per cent and 6.6 per
cent. The sales volume increased from 1.17 million tonnes to 5.63 million tonnes.
India Cements sales growth was much higher than in other companies. India
Cements average price realisation was higher in the country.
The Chettinad Cements production was more than the capacity. The
market share ranged between 1.00 and 1.57 per cent. There was more than a twofold
increase in sales value. The average price realisation ranged from Rs.1,328
per tonne to Rs.2,567 per tonne of cement.
The Tamil Nadu Cements Corporation has not increased either its capacity
or its production. This has resulted in a lower percentage of market share. The 14
average price realisation ranged between Rs.1,536 and Rs.2,111 per tonne. Its
trends in capacity, production, market share and average price realisation were the
least as compared to other cement companies.

The operating efficiency is measured in terms of capacity utilisation,
limestone consumption, coal consumption, power consumption and average price
realisation per tonne of cement. The study of operating efficiency of four selected
Cement Companies reveals that the Chettinad Cements capacity utilisation was
131.90 per cent. The India Cements, the Madras Cements, and the Tamil Nadu
Cements Corporation had 85.10 per cent 83.50 per cent and 78.70 per cent of
capacity utilisation respectively. The Madras Cements and the India Cements had
resorted to a low-capacity utilisation in recent years to have control over the sale
price of cement.
The limestone consumption per tonne of cement production was found
fairly uniform in India Cements, Madras Cements and Chettinad Cement, whereas
it was higher by 1.41 times in Tamil Nadu Cements Corporation indicating the
least efficiency among the cement companies.
Madras Cements coal consumption was the lowest at 178 kgs. per tonne of
cement production followed by India Cements with 209 kgs. per tonne of cement
production which was considered to be more efficient. Chettinad Cement and 15
Tamil Nadu Cement Corporation had 254 kgs. and 257 kgs. of coal consumption
per tonne of cement production. This was considered to be not efficient.
The operating efficiencies of Madras Cements and Chettinad Cement were
considered to be good in terms of power consumption as these two companies

retained their power consumption at 90 Kwh. and 104 Kwh. As the power
consumption of 143 Kwh. in India Cements, and 130 Kw-hour per tonne of
cement production in Tamil Nadu Cement Corporation were higher than the
standard of 110 Kwh., their operating efficiencies were not satisfactory.
India Cements had the highest average price-realisation of Rs.2,403,
followed by Madras Cements with Rs.2,128.50 and Chettinad Cement with
Rs.1,999.30. Tamil Nadu Cements Corporation has been considered less efficient
with the lower price realisation of Rs.1,859.90 per tonne of cement sales.
As the sector-wise comparison of operating efficiency shows, the
performance of private sector cement companies was more outstanding than that
of the public sector cement company.
In the fourth chapter, the productivity performance of selected cement
companies had been analysed with the help of eight parameters adopted by Alan
Lawlor. They are, total earnings to conversion cost, purchased services to total
earnings, wages and salaries to sales percentage, profits to conversion cost ratio, 16
profits to sales percentage, profits per employee, sales per employee and value
added per employee. Besides this, 10 years average productivity ratios and
sector-wise comparison of productivity performance have been ascertained.
The ratio of total earnings to conversion cost indicates that there was a
consistently good earnings in all the companies except in the Tamil Nadu Cements

Corporation. It implies inadequate funds to meet costs. As a result, the output
was lower in proportion to their inputs. The sector-wise comparison of total
earnings to conversion cost ratio reveals that the earnings in the private sector
were consistently good. The purchased services to total earnings ratio indicates
the operating efficiency of the company in terms of purchased services cost. The
ten years average of purchased service to total earnings shows that Madras
Cements had lower ratio of 0.77 and Tamil Nadu Cements Corporation had higher
ratio of 1.01. The performance of Madras Cements was outstanding and had kept
its expenditure on purchased services strictly under control. Tamil Nadu Cement
Corporation performance was the least and it failed to control the expenditure on
purchased services. The sector-wise comparison of purchased services to total
earnings show that the private sector ratios were below unity and less than the
public sector. It indicates that the purchased services costs were higher in the
public sector. 17
Wages and salaries as percentage of sales reveals that Madras Cements and
Chettinad Cements were spending Rs.4.38 and Rs.4.46 while India Cements and
Tamil Nadu Cements Corporation were spending Rs.7.18 and Rs.11.20 for every
hundred rupees of sales.
The performance of Madras Cements and was outstanding. Tamil Nadu
Cements Corporation had a slackening attitude towards wages and salaries as the

ratios had shown a rising trend. Further, the private sector had more control on
wages and salaries than the public sector.
Profit to conversion cost ratio is used to determine the relative profitability
of the company. It was consistently good in all companies except Tamil Nadu
Cements Corporation. Tamil Nadu Cements Corporations performance was found
to be worse resulting in a huge loss. The sector-wise comparison of profit to
conversion cost indicates that the private sector is better, reporting good profits.
Profit as a percentage of sales indicates that Madras Cements profit was
high. Tamil Nadu Cements Corporations profit was found very low. The
sector-wise profit to sales indicates the performance in the private sector was
better than that in the public sector.
Among the selected cement companies, Madras Cements had good profit
per employee at Rs.3.552 lakhs. Tamil Nadu Cements Corporation had low profit 18
of 0.043 lakhs per employee. Consistently good performance was evident in the
private sector, as its overall average profit per employee was Rs.2.311 lakhs.
Sales per employee indicates that the Madras Cements had well performed
in generating sales per employee, followed by India Cements and Chettinad
Cements. Tamil Nadu Cements Corporations sales were below unity.
The sector-wise comparison of sales per employee indicates that the public
sector was below unity, whereas it was more than unity in the private sector. In the

case of value added, Madras Cements had performed well followed by Chettinad
Cements and India Cements, their value added per employee being Rs.9.46 lakhs,
Rs.7.18 lakhs and Rs.5.62 lakhs respectively. Tamil Nadu Cements Corporations
performance was low as it had only Rs.1.16 lakhs per employee. The sector-wise
value added per employee reveals that the public sector had earned less value
added.
In the fifth chapter, the trends in productivity growth of the selected cement
companies are analysed. The analysis has been segmented into four sections
namely measurement of output and inputs, analysis of output and inputs,
estimation of partial productivity, capital intensity and total factor productivitiy
(TFP) trends. Further, sector-wise (public and private) growth rates have also
been computed. Real value added has been taken as a measure of output by using 19
single deflation method. Capital and labour are considered as the measurement of
input. Time series data on real value added as a measure of output reveals that the
highest growth rate was obtained in Madras Cements, while the least growth rate
was found in Tamil Nadu Cements Corporation. Further, the annual growth rate
of the private sector was higher than that of the public sector. The time-series data
on labour input indicate that the highest growth rate of 3.95 per cent was found in
India Cement, while Tamil Nadu Cements Corporation had a negative growth rate
of (-)0.01 per cent. The sector-wise annual growth rate of labour input was found

negative in the public sector. This was mainly due to the cost reduction measures.
The growth rate of labour input was positive in the private sector. It was due to
the capacity additions. Gross fixed capital has been taken as the capital input. The
highest growth rate of capital input (28.42%) was found in Madras Cements and
the least growth rate of capital input (5.67%) was found in Tamil Nadu Cements
Corporation. It implies that there is a scope for introducing the latest production
technology in Tamil Nadu Cements Corporation. The highest annual growth rate
in capital output (25.70%) was found in the private sector while the least growth
rate of capital input was found in the public sector.
Labour productivity, capital productivity and capital intensity have been
considered to measure the partial productivity trends. The study reveals that there
was a decline in capital productivity. This implies that the capital requirement per 20
unit of output increased in all the companies and consequently future increase in
output would be needed more than proportional increase in capital investment.
Among the four companies, the performance of Madras Cements was the
best in the area of (labour and capital intensity) partial productivity. The
performance of Tamil Nadu Cements Corporation was the least.
The study observes that the decline in capital productivity with increasing
capital intensity in these companies is a matter of great concern, as it is not
consistent with the resource endowments of the economy. If these trends were not

reversed or checked, they would put a great strain on the economy in the form of
lesser demand for man power and greater demand for capital in future.
It also reveals that capital intensity (capital-labour ratio) had increased in all
the companies implying that more and more capital could be required for
generating employment in these companies.
The sector-wise comparison reveals that the growth of labour productivity
and capital intensity were more in the private sector than in the public-sector. The
capital intensity was found higher than that in labour productivity and capital
productivity in both the sectors.21
Total factor productivity (TFP) trends had been measured with the factor
productivity index. The ratio of output to a weighted combination of inputs is
known as total factor productivity index. It helps to measure the overall
efficiency. It is measured with the help of three important indices namely,
Kendrick index, Solow index, and Translog index (Divisa index).
Comparison of indices among the selected companies reveals that the
Madras Cements Limited had positive growth rates of 8.52 per cent, 8.58 per cent
and 8.60 per cent in Kendrick, Solow and Translog indices, respectively. It was a
better performer among the four companies. Further, there was a close
correspondence among the indices of each company. The sector-wise comparison
reveals that the performance of the private sector was better than that of the public

sector.
Therefore, declining capital productivity and unwarranted increase in
capital intensity had been the main causes of poor performance, that is, decline in
overall productive efficiency in Tamil Nadu Cements Corporation, a public sector
cement company. The inefficient management, shortage of power and lack of
other infra-structure facilities, industrial unrest and the like were responsible for
the poor performance but this study has not considered these factors. 22
Further, in the sixth chapter, the operating efficiency in terms of
productivity has been measured with the help of productivity ratios. These
productivity ratios have been divided into four areas namely, economic value
added (EVA) productivity, overall productivity, selling, distribution and
administration productivity and labour productivity. The EVA productivity
measures the true productivity by taking into account the total cost of all operating
capital. The Madras Cements had an outstanding performance when compared to
other three Companies. Further, it indicates that the Madras Cements and the
India Cements managed with the capital they had got, whereas the Chettinad
Cement and the Tamil Nadu Cements Corporations operating efficiency was
negative, without creating wealth.
The overall productivity indicates that the Madras Cements performance
was outstanding followed by Chettinad Cement and India Cements. The

Tamil Nadu Cements Corporations performance was the lowest among them,
indicating low efficiency in utilising the capital employed, fixed assets and
working capital. In the area of selling, distribution and administration
productivity, the Chettinad Cements performance was outstanding, as the
operating expenses were relatively low. In other words, its efficiency was high in
utilising the operating expenses. Tamil Nadu Cements Corporations performance
was the poorest on account of high salary expenses, distribution expenses, 23
travelling expenses and other related expenses. The labour productivity indicates
that the Madras Cements performance was outstanding followed by India Cements
and Chettinad Cement. Tamil Nadu Cements Corporations performance was the
least. It indicates that the operating efficiency was low due to inefficient workers,
much idle time, abnormal wastage and high production cost. The sector-wise
comparison reveals that the private sector cement companies performance was
better than that of public sector cement company in all the areas of productivity.
Finally, in this chapter, Hartleys Fmax Test Model has been applied to determine
whether the four areas of productivity had any difference or not. By using a level
e found in variances of four groups,
both company-wise and sector-wise.
SUGGESTIONS
The following are the suggestions based on the analysis of productivity in

the cement industry.
Production Technology
i) Precalciner System
In the production process, all the cement factories are not using the
precalciner system. The latest precalciner system should be introduced in all
factories. In this system raw-material is precalcined to a degree of 80 per cent to 24
95 per cent, before entering into the kiln by a secondary furnace. This reduces the
thermal load of the kiln, consequently the kiln size and its associated investments.
It increases the life of the kiln by 50 per cent and reduces the maintenance cost of
kiln.
ii) Vertical Roller Mill
The energy saving can be achieved by installing vertical roller mill instead
of ball mill. It can save as much as 30 per cent power and can also increase the
productivity by 60 per cent with efficient separators. It is economical in respect of
initial investment on buildings as well as running costs.
iii) X-ray spectrometer
To ensure better and specified quality of raw-material mixture in the
production process, the use of computer-operated x-ray spectrometer is
recommended.
iv) Flexible Manufacturing System

Every business faces competition in the face of globalisation. The cement
industries are forced to increase their levels of productivity so as to fix the price
and services competitively. Computer-assisted manufacturing can change the
labour intensive techniques. At the same time, it would store and supply the data 25
required for production and quality control. It helps managers to make better
decisions and to eliminate non-value added costs.
v) Activity Based Costing System (ABC)
Activity-based costing system is the collection of financial operation
performance information, tracing the significant activities of the firms to reduce
cost. It concentrates on activities which could be summed up as compiling the
cost of products and more accurate picture of costs, their relationship behaviour,
thus identifying opportunities for cost reduction through proper planning, control,
process and product improvement. The result for the system can better identify
the relationship between the causes (activities) and the effects (costs) in a more
detailed and accurate manner. It also makes it possible to compare and combine
the cost inter-related activities in various departments. Unnecessary costs can also
be identified and reduced. It measures and tracks the costs of significant activities
over time. It attempts to assign the costs of significant activities to the products
that cause those costs to be incurred. Therefore, the activity-based costing system
can help the management to have better cost control and reduce unnecessary costs

of production. 26
vi) Transportation
Cement is highly freight-intensive in nature. The industry faces serious
transportation constraints in terms of timely-available rail wagons. This has forced
manufacturers to move progressively larger quantities by road. But road
transportation is expensive. In order to reduce the manufacturing costs and
distribution costs, the companies should utilise the own your wagon (OYW) and
Build Operate Lease Transfer (BOLT) schemes of railways. Under these
schemes, the companies have to procure the wagons and lease the same to the
railways and in turn the railways will give priority in allotment of wagons.
vii) Human Resource Development
Among all the required resources of the industry, human resource plays a
vital role. Productivity of an industry can be effectively achieved through human
resource development. The following suggestions are offered for human resource
development.
i) Management should build a strong relationship with the employees by
carefully studying the individuals behaviour, ideas, attitude and expectations.
ii) Management should acknowledge employees outstanding performance
through public recognition with reward.27
iii) Management should administer fair treatment to subordinates alike and

also acknowledge the differences between mediocre employees and outstanding
employees for better motivation.
viii) Green Productivity
The cement industry, by the very nature of its raw materials and production
process, faces the problem of polluted environment. The cement industry should
develop total green productivity. All the cement plants have to plan their layouts
with green lawns, plantation, rose, gardens, lake views, fountains and the like to
create better environment for productivity improvement.
ix) Blended Cement
The cement industry should arrange for the promotion of blended cement in
the country through vociferous campaign at different levels including live projects
for demonstration. Consumers have to be encouraged to use blended cement
which produces more durable concrete, conserves limestone reserves, consumes
less energy and releases less CO2
to the atmosphere during manufacturing.
x) Taxation
The domestic price includes a large element of taxation and duties which
account for 60 per cent of the bare production cost or 25-30 per cent of the sale 28
price. The Government should take steps to reduce the present excise duty of 25
per cent on cement.

The Government should bring down the present customs duty of 30 per
cent on coal to five per cent as in the case of the cooking coal.
xi) Price
The Government should recommend the price norms for different cement
markets in the country.
The fair ex-stockist price should be computed by the Government and it
should be the average cost of delivering cement including taxes and cost of
production from the respective areas, to determine the fair price at market.
xii) Suggestions to Tamil Nadu Cements Corporation Limited,
Public Sector
In addition to the above suggestions in general, a spate of suggestions are
made to Tamil Nadu Cements Corporation in particular.
1. Replacement of old wet process production technology by the
establishment of million tonne capacity cement plant with precalciner
system is suggested to improve the production level, market share and
price realisation.29
2. In order to improve the operating efficiency in terms of limestone
consumption, only cement grade limestone should be used in
manufacturing cement. Further production of certain varieties namely
Portland, Pozzolana Cement (PPC) and Portland Blast Furnace Slag

Cement (PBFSC) should be increased as they consume less limestone
during their production process. Resultantly savings can be effected in
the consumption cost of limestone.
3. Inadequate funds to meet the cost resulted in low earnings to conversion
cost. The managements have to mobilise the adequate funds to meet the
cost. By doing so it can increase the production and thereby improve
the earnings.
4. Of various purchased services, repairs and maintenance, packing
charges and cost of raw materials are amenable to control by cement
units. In this context, the principles of Activity-Based Costing (ABC)
system as aforesaid, will be of much use in controlling the cost of
purchased services.
5. The employment of labour force is excessive when compared to
production. As a result, TANCEM spends Rs.11.20 as wages and
salaries for every hundred rupees of sales, which is higher than what the 30
private sector companies pay. To reduce the higher labour costs and to
increase the productivity levels, the management can implement the
system of voluntary retirement scheme.
6. Factory overheads have to be reduced in order to minimise the
conversion cost of 0.09 paise in every rupee of total cost incurred.

7. As operating cost is higher, it should be controlled to earn substantial
profit.
8. The management should take necessary steps to change the attitude of
the employees towards corporate goals of sales and profit.
9. Steps should be taken to reduce the cost of bought-out materials,
thereby value added per employee can be improved.
10.By adopting systematic and efficient purchase procedures the input cost
can be reduced. Further sales promotion techniques can be stepped up
to sell the cement at a premium price.
11.Management has to take necessary steps to mobilise more capital.
Labour productivity and capital intensity can be improved by investing
the required capital in infrastructure facilities.31
12.The cost of all operating capital should be reduced, so that it can
improve the EVA productivity and thereby create wealth.
13.Steps should be taken for better utilisation of both fixed and working
capital. Fixed capital is sunk in the form of obsolete machinery. It is to
be replaced with sophisticated machinery. Moreover, in the area of
working capital, the size of stores and supplies must be ideal.
14.The management has to take effective steps to reduce the selling,
distribution and administration costs so as to attain higher productivity

in selling, distribution and administration.
15.Management should identify and take necessary steps to retrench the
inefficient workers to attain higher labour productivity.
xiii) Scope for further Research
This study in its usual course, offers scope for further research in the
following areas:
1. Production function analysis of both regional and national level.
2. Cost function analysis.
3. Quality-productivity relationship using a production simulation game.
4. Green productivity in the cement industry.32
CONCLUSION
For the Indian cement industry, many challenges lie ahead. Increase in
productivity is imperative in order to raise the standards of living and also to make
the Indian exports globally competitive. Cement industry will have to devise
strategies for economising the use of inputs and curtailing costs so as to remain
competitive in the global trading environment.

SUGGESTIONS %
In the light of the earlier discussions and conclusions with regard to the
financial performance of selected cement companies the following suggestions are
offered for effective and efficient management of capital in the cement industry.

Capital Structure decisions should be made with reference to the cost of capital
A right mix of long term and short term funds is required to establish an even
relationship to make the capital structures of select cement companies balanced.
Andhra Cements, India Cements, Sri Vishnu Cements, Panyam Cements and Kakatiya
Cements should use more long term funds to finance not only the fixed assets but also
the core current assets to minimize the overall cost of capital. In order to derive the
advantages of trading on equity, the size of long term funds needs to be expanded. The
cement companies may aim at maintaining high gearing of capital by raising borrowed
funds in the form of debt securities like debentures, instead of in the form of long term
institutional loans.
Further, while financing of new expansion programmes in the cement industry,
it is desirable to go for an additional equity share capital by issuing new equity shares.
In addition to this a major part of the short term loans and advances may be allowed to
get converted into redeemable preference shares. Set up of a sound capital budgeting
system and making investment decisions on the basis of proper evaluation of
investment proposals may have need of for all the cement companies. The poor
utilization of fixed assets adversely affected the turnover rate. Expansion did not result
and growth of fixed assets in the cement industry in Andhra Pradesh. The quantum of
sales in relation to the size of the investment in fixed assets is poor at present.
Therefore, fixed assets should be utilized more effectively so as to generate more
sales. At the same time the operating costs should be controlled and kept at the
minimum possible level so that increased sales due to better use of fixed assets may
result in higher operating profit.
Sri Vishnu Cements should take necessary steps to improve the investment in
fixed assets to avoid mismatch between fixed assets and current assets. To provide
superior coverage of fixed assets, the proportion of long term funds should be
increased considerably. Further, as explained long term funds should be made
adequate enough to finance both the fixed assets and core current assets specifically in
Andhra Cements, Rain Commodities and Panyam Cements. Further, expansion should
be undertaken only when there exists scope to raise additional funds through equity

issue.
Working capital management is an important yardstick to measure a company
operational and financial efficiency. This aspect must form part of the companys
strategic and operational thinking. Efforts should constantly be made to improve the
working capital position. This should take into account the impact of unforeseen
events, market cycles, loss of a prime customer and actions by competitors. A review
of working capital needs and strategies is essential to protect the company from
internal and external influences.
A balance between liquidity and profitability is required for the effective
utilization of working capital. Andhra Cements, KCP Cements and Panyam Cements
experienced shortage cash and bank balances resulting in liquidity crisis. Therefore,
the situation demands immediate attention of the management for improving cash and
bank balances. The effective use of operating cycle concept help the companies to a
great extent to avoid unnecessary blocking up of funds in different stages of the cycle.

The variable component of working capital may be finance by cash credit
arrangement with banks. A regular and through examination of funds flow and cash
flow statements is required for effective cash management. Improvement in the
Management Information Systems with regard to cash planning, cash budgeting,
credit policy, material planning and programming, purchasing and sub contracting,
receiving and warehousing, store keeping, inventory controls and scrap and surplus
disposal would enable the management to take timely action with a view to avoid
embarrassment regarding the timely availability of working funds in future.
The cement companies facing deficit working capital should try to build up an
adequate working capital, the companies having excess working capital should try to
reduce the proportion by investing the excessive working capital in short term
marketable securities and investments. The companies while taking up the expansion
programme should also strengthen the current assets in order to utilize the expanded

installed capacity of plant and machinery to the optimum level.
The cement industry in Andhra Pradesh reported poor inventory performance
during the period of the study. Therefore periodical review of inventory levels shall be
made to ascertain the stock position and to avoid the risk of out of stock situations and
to control the carrying cost of inventory.
Conclusions and Suggestions
Efforts should be taken to identify the to dispose off of the idle assets to avoid
the loss of obsolescence. Stores and spares as far as possible should be purchased
from nearest markets. For effective optimum of inventory the companies may use
inventory control techniques such as ABC analysis, VED analysis and FSN analysis.
Establishment of stores and spares planning, monitoring and controlling department
help the companies in optimum utilization of stores and spares.
It is recommended to have an exclusive department for credit control in case
Sri Vishnu Cements and Panyam Cements because the existing credit policies of these
companies are not effective. The department should be entrusted with task of
developing a viable credit policy, formulating procedures for collection of debt,
developing methods for evaluating the creditworthiness of customers and to monitor
longstanding dues from the customers. In addition to this, efforts should be made by
these enterprises to setup efficiency in collection of accounts receivables.
The overall profit performance of cement companies was inconsistent.
Particularly, the financial efficiency of Andhra Cements, Rain Commodities, Sri
Vishnu Cements, Zuari Cements and Panyam Cements is alarming during the study
period. Therefore, to off-set the increase in the operating costs all these companies
should introduce the modern cost reduction techniques and cost control devices.
Proper monitoring of costs and effective cost reduction measures undoubtedly
enhances the profitability. Transportation costs occupied on an average one fourth of
total costs. To reduce the transportation cost the companies should identify innovative
logistics methods. External support from government is the need of hour for all the

cement companies in to have better control over the operating costs. To avoid wastage
and to control the production cost establishment of washaries is required to convert
the inferior quality of coal into superior quality of coal. Captive power generation sets
should established to avoid interruption of rotary kiln.
To identify and to push down the operating costs just in time, the companies
should adopt profit planning and control techniques such as marginal costing, cost-
volume-profit analysis, standard costing and flexible budgetary control systems. For
the successful implementation of the system of profit planning and control every
company should prepare a master budget. Operating costs should be regulated on
continuous basis through standardization, performance appraisal and corrective
measure. The companies should chalk out an action plan for the optimum utilization
of installed capacity to reap the benefits of economies of scale which in turn help the
company, to obtain higher returns on capital employed by the enterprises.
Majority of the cement companies still continuing the traditional packaging,
marketing and selling methods, techniques and strategies. It is also evident that the
range of product line (different quantities) is very limited in cement products.
Therefore the expansion of product line with different small quantities such as 5kg, 10
kg packets definitely increases the quantum of sales and it will have a positive effect
on the capital turnover and rate of return. It also helps the company to innovate new
domestic and international markets to cope with the problem of overproduction
compared with demand.
The companies should take prudent steps such as investor awareness camps
and programmes to hold back the existing equity share holders because the financial
performance cement industry is not satisfactory during the period of the study. While
formulating a dividend policy, market value of the security, earning capacity and
financial requirements of the undertaking and the impact of inflation must be taken
into account.
To conclude, the cement companies in Andhra Pradesh should design a
balanced capital structure, use fixed assets efficiently, adopt sound credit policies,

apply modern inventory and cash management systems and control operating costs
effectively in order to improve the financial performance in the future.




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Competitive Landscape, Department of Economics, University of Mumbai, Working
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Delhi.
Cement Statistics 2004, Cement Manufacturers Association, New Delhi: August
2004, p.16.
Kothari's Economic and Industrial Guide of India, Kothari and Sons, Chennai.
Stock Exchange Official Directory, The Stock Exchange Foundation, Mumbai.
The Hindu- Survey of Indian Industry, Kasturi and Sons Ltd., Chennai.
Times of India Directory and Year Book, Times of India Publications Ltd., Mumbai
The New Encyclopedia, Britannica Cement, Vol. 5.