A

PROJECT ON

SUBMITTED BY

(T.Y.B.F.M. SEM-V)

PROJECT GUIDE

SUBMITTED TO

UNIVERSITY OF MUMBAI

RSETs

GHANSHYAMDAS SARAF COLLEGE

OF ARTS & COMMERCE

Affiliated to University Of Mumbai

Reaccredited by NAAC with A Grade

S.V. Road, Malad (West)

Mumbai-400064

A.Y: 2017-2018
 RSETs

GHANSHYAMDAS SARAF COLLEGE

OF ARTS & COMMERCE

Affiliated to University Of Mumbai

Reaccredited by NAAC with A Grade

S.V. Road, Malad (West), Mumbai-400064

CERTIFICATE

I, Prof. _ hereby certify that a student of

Ghanshyamdas Saraf College of Arts & Commerce of T.Y.B.F.M. (Semester V)
has completed project on in the Academic
year 2017-2018.

This information submitted is true and original to the best of my knowledge.

External Examiner: Principal

Date:

Project Coordinator:

Date:
 ACKNOWLEDGEMENT

I take this opportunity to thank the UNIVERSITY OF MUMBAI for giving me a

chance to do this project.

I express my sincere gratitude to the Principal Dr Sujata Karmarkar, Chief

Coordinator Dr Lipi Mukherjee, Course Coordinator Prof. Prasanna
Choudhari and Project Guide Prof.

As well as teaching staff and our library staff for their constant support and helping
for completing the project.

My deep sense of gratitude to the staff and employees of (Company Visited) for
their support and guidance.

I am also grateful to my friends for giving me moral support during the course of
my project work Lastly, I would like to thank each and every person who helped
me in completing the project successfully

Especially My Parents.
 DECLARATION

I a student of Ghanshyamdas Saraf College of Arts &

Commerce, T.Y.B.F.M. (Semester V) hereby declare that I have completed
project on in the
Academic year 2017-2018.

This information submitted is true and original to the best of my knowledge.

Date: Signature of Student

 INDEX

Sr .No. TOPICS PAGE

NO
1 Executive Summary
2 Research Methodology
Objective of Project
Scope of Study
Data Collection Method
3 Introduction
Introduction
Evaluation
History
Definition
4
5
6
7
8
 Executive Summary:-

Cement is a key infrastructure industry. Indian cement industry is 84 years old. It has 120 large
cement plants besides some 300 mini plants with installed capacity of about 163 million tones and
a production of 131.88 million Prices moved above rs.160-180 everywhere in last year. The
demand is expected to remain strong The Indian cement Industry not only ranks second in the
production of cement in the world but also produces quality cement which meets global standards.
, the industry faces a number of constraints in terms of high cost of power, high railway tariff; high
incidence of state and central levies and duties; lack of private and public investment in
infrastructure projects; poor quality coal and inadequate growth of related infrastructure like sea
and rail transport, ports and bulk terminals. In order to utilize excess capacity available with the
cement industry, the government has identified the following thrust areas for increasing demand
for cement:

-Housing development programs;

-Promotion of concrete highways and roads;

-Use of ready-mix concrete in large infrastructure projects;

-Construction of concrete roads in rural areas under Prime Ministers Gram Sadak Yojana.

The financial analysis has been done on

1. India Cements Ltd.

2. Birla Corporation Ltd.
3. Madras Cements
4. K.C.P.Ltd
5. Chettinad cements ltd.

1
 Research Methodology

PROBLEM STATEMENT: - Recent Performance of cement sector

RESEARCH OBJECTIVES: - To examine overall financial performance of the cement Sector

Research Methodology and analysis: The methods used are fundamental basic analysis from
STRATEGIC FINANCIAL MANAGEMENT. The companys financial was calculated on the
basis of FUTURE CASH FLOW OF THE FIRM is calculated on the basis of different growth
rates such as 5%, 8%, 125 and 15%.Change in Capex, change in working capital, has been
calculated on net block taking Fy 14 as a base year, and then it was calculated with different growth
rates such as 5%, 8%, 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital
employed)*100. It has been calculated from 2004-2014. It has been compared along with other 4
companies it ROCE has been taken among the 5 companies.

Data Collection Method

Secondary data has used for the study.

Secondary data is collected from library, text books, and journals, articles from newspapers and
from relevant websites available on internet.

2
 INTRODUCTION

Every developed and developing nations favorite project is infrastructure and cement is a key
infrastructure industry. India is fast emerging on the world map as a strong and efficient economy
and an effective global power. The country is going through a multiple phase of rapid development
and growth. All the core industries and sectors of the country are registering growth and thus,
luring investors. And cement industry is one of them. With growing Government Expenditure on
Infrastructure sector in India has generated a higher demand of cement in the country and resulted
increased participation of larger companies in the sector making seventy years old Indian cement
industry second largest cement producer in the world, producing more than 200 million tons
annually. There are a total number of 134 large cement plants with an installed capacity of 173.08
million tones approximately and more than 350 operating mini-cement plants, with an estimated
capacity of 11.10 million tons per annum. At early stage it was highly centralized sector but it has
been decontrolled from price and distribution on 1st March, 1989 and further delicensed on 25th
July, 1991. For raising efficiency in the sector, the Planning Commission of India in the 10th plan
has formed a 'Working Group on Cement Industry'. However, the government regulatory body
monitors the performance of the industry and prices of cement at regular intervals. The constraints
faced by the industry are reviewed in the Infrastructure Coordination Committee meetings held in
the Cabinet Secretariat under the Chairmanship of Secretary (Coordination).Its performance is also
reviewed by the Cabinet Committee on Infrastructure.

HISTORY OF CEMENT INDUSTRY

Curiosity of exploring something good in the 18th century activated honorable people to explore
the truth and to understand why some limes possess hydraulic properties. John Smeaton generally
known as "father of civil engineering in England" concentrated his efforts in this field. Getting
influenced by the work of Smeaton and Parker in 1812 the French Engineer Louis Vicat started

3
investigative study of hydraulic lines. In 1818 an English patent was granted to Maurice Leger for
"Improvement method of making lime" (Leger used Vicat's method), in 1822 the civil commercial
production of "British Cement" had been started by James Frost at Swanscombe based on a patent
for "a new cement or artificial stone. Joseph Aspedin, an English Bricklayer in 1824 should be
credited for the invention of Portland cement. It involves a double kilning such as was described
by Vicat. In 1838 Isaac Johnson a young chemical engineer innovated the modern Portland cement.
In 1875, standards of cement were proposed by German Chemist Wilhelm Michaelis. Further the
chamber kiln was an improved design developed and patented by Mr. Johnson. Portland cement
Company in 1898 bought revolution in cement industry by improving the design of kilin. After
1900 there was speedy growth in both rotary kiln and auxiliary equipment technology in the US.

Indian Cement Industry

Cement hold key status in infrastructure industry and in India it has undergone a major shift over
the last 6 years but still brand premium is almost non-existent in the industry. India is second
largest producer of cement in the world and produce 200 plus million tons of cement annually but
it ranks below steel and aluminum in terms of value-addition though it is a highly capital-intensive
industry and operates with a high level of fixed cost and therefore volume growth is critical. India
is also producing different varieties of cement like Ordinary Portland Cement (OPC), Portland
Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFC), Oil Well Cement, Rapid
Hardening Portland Cement, etc. Between April to November 2008, 25 per cent of all cement
produced was OPC, 67 per cent was PPC and 8 per cent was PBFC. For its smooth survival access
to raw materials (limestone and coal) and consuming markets are equally important in the long
term. In order to meet ever growing demand, cement companies are multiplying their production
capacity and fast developing new plants and expected to add 111 MT of annual capacity by the
end of 200910 (FY 2010), riding on the back of approximately 141 outstanding cement projects.
According to a report by the ICRA Industry Monitor, the installed capacity is expected to increase
to 241 MTPA by FY 2010-end. For the past couple of years in general Indian cement industry
demand growth has surpassed the nations economic growth rate and is likely to record an annual

4
growth of 10 percent will continue to grow by 1.2 x GDP growths in FY10, with higher domestic
demand resulting in increased capacity utilization. According to a Research Analyst at RNCOS,
The Indian cement industry is expected to grow rapidly in coming years due to heavy demand
from housing, retail and infrastructure industry. Though India has low per capita consumption (110
Kgs of cement in India as compared to world average of 260 Kgs), moreover, several players have
decided to raise their production capacity during 2009-2012, which, in turn, boosts the production
volume of the cement industry.

As per the Department of Industrial Policy and Promotion's latest data reveled that Indian cement
modern plants are among the best in the world and comprises of 134 large cement plants with
overall installed capacity of 173.08 million tones along with more than 350 operating mini-cement
plants, with an estimated capacity of 11.10 million tones per annum. Continuous technological
changes, upgrading and assimilation of latest technology have been going on in the cement
industry. At present 93 per cent of the total installed capacity in the industry is based on modern
and environment-friendly dry process technology and remaining 7 per cent of the capacity is based
on old wet and semi-dry process technology. The cement industry in India has to be viewed on a
regional basis viz. northern, western, southern and eastern. Since demand is erratic in certain
regions, companies that focus on these regions suffer if there is a decline in prices. The Indian
cement industry is highly fragmented; generally the top six companies share almost 60% of
industry capacity and the remaining 40% is distributed among 40 small players. The boom in the
real estate and construction industry in India saw a sudden and sharp increase in the price of
cement, to the extent of a price increment as high as 17 per cent in a single month (Ritu Raj Arora
and Runa Sarkar). Against a 17 per cent rise in demand last year, cement industry saw a sluggish
growth in installed capacity, at only a little more than 1 per cent, says a recent study conducted by
the Government (D.Murali). With increase in production capacity, in tune with the demand, we
need to focus on good construction practices as quality works is poor at present, especially
material prepared for construction at site. This would help in improving the life span of the
structure (Nitish Bhartwal). Further R. Dadras (1999) measure technical efficiency of the cement
industry and suggested that efficiency is time decreasing and ownership type affects the efficiency
of cement industry and Government interventions, price controls and export bans have contributed

5
to decreasing efficiency trend. M. Sameti (1995) measures the efficiency of cement manufactures
of public and private sectors and reveled that productivity of capital in private sector companies
has experienced the highest level as compared with other sectors, while some countries (China)
benefited joining WTO, others suffered from loss of domestic industry, moreover the success
depends crucially on the structure of industry and the level of protections imposed before joining
WTO. The state has still to play an important role in determining the development path in a
developing country like India. Though the neo-liberal development paradigm expects that, the role
of the state is to undertake market friendly intervention so as to enable markets to operate
efficiently (Indira Hirway and Amita Shah).

Global participation

The consolidation so far has not been limited to the home grown players; a lot of foreign players
are keen to get into the Indian market. The newfound interest of the global bigwigs in the Indian
cement arena has a pretty simple reasoning behind it; huge potential for growth in the medium and
the long run, and a strategic base for a possible injection of cement at competitive prices to China
and other Asian Countries.

It would only be unfair to expect that the global bigwigs would sit back and watch without being
part of the action. Its no wonder that the top ones (Lafarge, Holcim and Heidelberg) have increased
their investments in India. The government initiatives to extend a variety of incentives to the
industry to spur growth in the housing and other infrastructure sectors is only going to increase
cement demand in the medium term. Having mentioned earlier that the per capita cement
consumption in India is very low, the multinational majors see a huge potential for this pie to grow
and thus are eager to have a slice through acquisitions. The acquirer and the acquired. The
following acquisitions have happened in the recent past Grasim: UltraTech (L&T) ACC: IDCOL
Lafarage : Tisco, Raymonds Gujarat Ambuja :DLF, ACC Cement FranCais : Zuari Heidelberg :
Mysore Cement Holcim: Gujarat Ambuja

Its interesting to note that ACC took over state-owned Industrial Development Corporation of
Orissa Ltd (IDCOL) in Dec 2003, only to be merged with by Gujarat Ambuja which in turn has
been taken over by Holcim recently. ACC and Gujarat Ambuja are now the two arms of Swiss

6
cement giant Holcim with a 24 per cent share of the Indian market and nearly 35 million tons
capacity. The Indian Cement Industry is evolving and evolving for the good. The action that we
have seen is not the end, it is would continue for some time. Though the bigger players have created
bigger entities there have isolated smaller entities who would eventually have to come together
either to grow or be part of some bigger entity. As global majors strengthen presence Indian
cement industry logs highest growth in output

The industry has witnessed strong consolidations as several global majors like Lafarge, Holcim
and Heidelberg have strengthened their foothold here through M&A route. As a result these foreign
companies are controlling more than 25 per cent of the market. One of the reasons for strong
interest shown by the foreign players is due to lower per capita consumption of cement in India
Vis a Vis other Asian countries. For example, India has per capita consumption of mere 125 kg as
against China of 800 kg, 960 kg of South Korea and 450 kg of Thailand. In other words, there is
good scope for cement consumption to increase over the years.

Cement production slowed in 2014-15, with a sharp decline recorded in March, data from the index
of six infrastructure industries showed today. The overall six core sector index, which has a
combined weight of 26.7 per cent in the index of industrial production, grew by 10 per cent in the
month, as against 7.1 per cent in March 2014. Cement production growth, which has a weight of
1.99 per cent in the IIP, fell this March to 5.5 per cent, as against 17 per cent in the same month
last year. For the 12-month period (April-March 2014-15), production growth slowed to 9.1 per
cent, as against 12.4 per cent in 2005-06. Cement industry executives expect the slowdown to
continue in the coming months.

Expectations

Government in order to curb the inflation very recently reduced the import duty on cement from
12.5 per cent to Zero. But we feel this will not have any impact. There are two reasons for the
same. First, cement being bulky in nature will not be an easy to import and at the same time our
Indian ports are not good enough to manage large quantity of cement being imported. Second,
prices of cement in the international market are quite high as compared to domestic market. Hence,
we dont expect any threat from exports numbers going forward.

7
The industry has been demanding the reduction on the excise front. In fact, last time excise duty
on cement increased was in 2003-04 when increased from Rs 350 per tonne to Rs 400 per tonne.
Now industry wants the same to rolled back to Rs 350 per tonne. Besides, this it wants government
to continue to have specific rate of excise duty as against ad valorem (white cement has Ad valorem
duty of 16 per cent). Our talk to industry players suggest that instead of giving any direct benefits
the government should further increase the thrust on the infrastructure and that should help the
cement industry to report better growth. To keep maintain high economic rate of return the
national policy makers should continue with their emphasis on construction and infrastructure
development.

The present scenario of cement industry is very good in terms of demand and with the prices going
above Rs 160 to Rs 180 everywhere. Most importantly, the gap between the demand and supply
does not exist any longer in any part of the country.

Domestic consumption with 11 per cent increase and exports keeping up with the last year levels,
the Indian cement industry is expected to cross 150 million tones in dispatches, including domestic
consumption, and exports during 2005-06 from all plants put together, including mini cement
plants. Mini cement plants everywhere are operating at 100 per cent capacity utilization. The
margins are improving in line with others.

Cement consumptions are as follows:

South 30 per cent (26 per cent),

East 17 per cent (17 per cent),
North 20 per cent (21 per cent),
Central 16 per cent (17 per cent), and
West 18 per cent (20 per cent).

The figures for the current year are for April-November period while the figures in brackets
represent full year for the year 2004-05. Also, there is an increase in the consumption of PPC
cement from 48 per cent to 50 per cent.

8
Today, cement from Andhra is going all over India, including Assam, Meghalaya, Jharkhand,
Orissa, West Bengal, Chhattisgarh, Gujarat and Maharashtra. More cement is likely to flow into
Tamil Nadu from the state in view of cut in sales tax.

Any further increase in demand in the South India will benefit the cement industry here. Cement
movement from Gujarat to Mumbai is also coming down due to exports while cement movement
from Orissa into Andhra has stopped and, in fact, cement is flowing into Orissa as well.

Impact of globalization on cement industry

Open market and globalization has impacted Indian Cement Industry in a big way and has helped
the industry to restructure itself to compete with the alterations in all regards. The international
cement demand is derivative in nature as it solely depends on the constructional activities, real
estate and other related industrial activities. Keeping pace with the advance technological world,
the Indian cement industry has transformed itself into more advanced and globally at par one. The
Indian cement industry is among the oldest industries and has been catering to India's cement
requirements from more than seventy years. It is not only meeting the requirements arisen within
the domestic territory but also fulfilling the burgeoning demands of the international arena. India
is also exporting good amount of cement clinker and by products of cement. With futuristic
development policy the Government of India has lifted the ban on cement export but has allowed
permitted shipments only through Gujarat ports. According to the Directorate General of Foreign
Trade, The existing ban on export of cement and cement clinker shall not be applicable to export
from ports of Gujarat". Due to the superlative quality, the Indian cement has established high status
on the global map. Gradually the consumption of cement has increased in India by nearly 7.5%.
With the globalization of Indian cement industry many foreign cement manufacturers (Heidelberg
Cement, Holcim Cement Italcementi cement) has established agreements and deals with their India
counter parts to have a share of the growth, though the majority of the players in the Indian cement
industry are private sector organizations and are highly regulated. Increase in demand will increase
the production and consumption and will impact the overall profitability of the cement industry.
The Indian cement industry will continue to show steady performance by increasing its capacity
another 50 Million Tons in 2009 despite the recession and slump in the countrys housing industry,
stated H M Bangur, President of Cement Manufacturers Association (CMA) and reported by
economic times.

9
Impact of Inflation on Cement Industry

Inflation is indirect tax which cannot be omitted. With inflated economy every segment of industry
has to face the heat of cost. Cement seems to be one of the worst hit sectors as the prominent
industry players have reported 42 percent jump in the raw material cost against 25 percent increase
in sales in the last quarter of fiscal '08. A recent study by industry body ASSOCHAM on 'Cost
Escalation in Cement Industry has revealed that the cement industry facing the charges of
cartelization, has borne a sharp rise of 42 percent in its raw material cost in the fourth quarter of
fiscal 2008 even as the wholesale prices of cement surged by 8.5 percent during this period.
According to AEP the wholesale prices of limestone, a key ingredient for cement manufacturing,
have climbed by 13.9 percent in first three months of the year 2008. Fire clay has risen by as much
as 30 percent. The power and fuel cost, which constitute 60 per cent of the total operating
expenditure of the cement companies have increased by 24 percent in the fourth quarter. This is
on account of the 10 rise in coal prices," said ASSOCHAM President, Venugopal N. Dhoot. Due
to inflation one-third market share of industry, have registered least or no growth in the last quarter
of financial year 2007-08. But at the same time cement remains one of the highest tax items in the
country under the higher duty regime, the cement production growth declined from 9.5 percent in
April-February 2014-15 to 7.5 percent in the corresponding period of the financial year 2007-08.
The AEP stated that continued rise in the raw material cost of the cement companies may prove
detrimental to their expansion plans in view of their inability to share the cost burden with the
consumers. Under the shadow of inflation companies are registering percent growth in sales with
no growth in net profit. Industries, whose three-fourth revenue comes from cement segment,
recorded a rise of 26 percent while sales grew by 18.7 percent. The net profit growth was restricted
to nine percent.

10
Impact of Taxation on Cement Industry

Despite the changes in export policy and labialization, feel good factor in the cement industry is
mirage, major cement players are echoing the same view that the taxation will impact negatively.
As A.K. Jain Executive Director, ACC Ltd points out, "Our major problem continues to be the
high incidence of statutory taxes and levies. Currently, this is of the order of Rs 950 per tonne.
This is higher than the incidence on any other building material and certainly the highest in the
world. Yet, excise duty was raised by Rs 50 per tonne in the last budget." The differential excise
duty structure which was introduced in the Union Budget of fiscal 2007-08, was further revised
upwards in the central budget for fiscal 09, wherein excise duty on bulk cement was increased
from previous Rs. 400 per tonne to '14 percent or Rs. 400 per tonne whichever is higher.' Also,
the excise duty on cement clinkers was raised from Rs. 350 per tonne to Rs. 450 per tonne. P.C.
Nalwaya, Vice President, Indo Rama Cements Ltd, says, "The cement industry, the mother of all
infrastructure industries, does expect some relief in the 2004-05 Union budgets since, currently,
the taxation component in the cement price is almost equal to its production cost like Rs 700-800
per tonne. The taxation includes (all per tonne) excise-duty of Rs 400, sales tax of Rs 300-400,
octroi of 4 per cent and corporate tax."
Introduction of VAT may provide a partial solution to their problem, though. The burden of
VAT may have to be borne by the cement producers. With high duties and various taxes
companies will feel negative impact on their profitability and thus it needs prompt and positive
consideration for its growth and global competition.

11
Cement majors post increase in sales

Cement majors have reported a substantial year-on-year increase in volume sales for the month of
February. The Associated Cement Companies reported a 11.8 per cent increase in sales at 15.34
lakh tones in February this year as against 13.72 lakh tones in February last year. Gujarat Ambuja
Cements Ltd reported a 16 per cent increase in dispatches, which figured at 10.72 lakh tones (9.27
lakh tones). The Aditya Birla group's (largely Grasim and UltraTech) cement dispatches for the
month grew by 16.06 per cent, to 25.35 lakh tones. Production increased as well. ACC reported a
12.2 per cent increase in production for the month, which stood at 15.43 lakh tones. At GACL,
production grew by 12 per cent to 10.51 lakh tones.

The Aditya Birla group reported a 13.34 per cent increase in production, which stood at 25.24 lakh
tones.

Outlook

Cement industry

Rise in prices of cement by Rs 5 per bag is due to rise in price of Coal.

Interest rate on housing loan reduced by 25 basis points which might fuel the growth of
construction.
Better realization have led rise in profits of cement companies.
Cement manufactures tops in terms of capacity utilization in cement industry 100%.ss
Demand from gulf also fuels the prices.
Retailing and BPO infrastructure to push up cement demand.

12
 Consumption of cement in southern region has been declining in the recent months due
to rainy season.
The high price of cement in the north is due to the high prices of power and fuel.
International prices of non-coking coal have nearly doubled in the last 12 to18 months.
The cement cartel, which took the price in the country to a five-year high\

Fundamental analysis

Fundamental analysis of a business involves analyzing its financial statements and health, its
management and competitive advantages, and its competitors and markets.

The analysis is performed on historical and present data, but with the goal to make financial
projections. There are several possible objectives:

To calculate a company's credit risk,

To make projection on its business performance,

To evaluate its management and make internal business decisions,

To make the company's stock valuation and predict its probable price evolution.

Fundamental analysis. It's geared primarily at new investors who don't know a balance sheet from
a statement. While you may not be a "stock-picker extraordinaire"

The biggest part of fundamental analysis involves delving into the financial statements. Also
known as quantitative analysis, this involves looking at revenue, expenses, assets, liabilities and
all the other

Financial aspects of a company. Fundamental analysts look at this information to gain insight on
a company's future performance. A good part of this tutorial will be spent learning about the
balance sheet, income statement, cash flow statement and how they all fit together.

But there is more than just number crunching when it comes to analyzing a company. This is where
qualitative analysis comes in - the breakdown of all the intangible, difficult-to-measure aspects of
a company.

13
The Concept of Intrinsic Value Before we get any further, we have to address the subject of
intrinsic value. One of the primary assumptions of fundamental analysis is that the price on the
stock market does not fully reflect a stocks real value. After all, why would you be doing price
analysis if the stock market were always correct? In financial jargon, this true value is known as
the intrinsic value.

For example, lets say that a companys stock was trading at $20. After doing extensive homework
on the company, you determine that it really is worth $25. In other words, you determine the
intrinsic value of the firm to be $25. This is clearly relevant because an investor wants to buy
stocks that are trading at prices significantly below their estimated intrinsic value.

This leads us to one of the second major assumptions of fundamental analysis: in the long run, the
stock market will reflect the fundamentals. There is no point in buying a stock based on intrinsic
value if the price never reflected that value. Nobody knows how long the long run really is. It
could be days or years.

This is what fundamental analysis is all about. By focusing on a particular business, an investor
can estimate the intrinsic value of a firm and thus find opportunities where he or she can buy at a
discount. If all goes well, the investment will pay off over time as the market catches up to the
fundamentals.

The big unknowns are:

1) You dont know if your estimate of intrinsic value is correct; and

2) You dont know how long it will take for the intrinsic value to be reflected in the marketplace.

Criticisms of Fundamental Analysis, the biggest criticisms of fundamental analysis come primarily
from two groups: proponents of technical analysis and believers of the efficient market
hypothesis.

Fundamental Analysis: Introduction to Financial Statements

The massive amount of numbers in a company's financial statements can be bewildering and
intimidating to many investors. On the other hand, if you know how to analyze them, the financial
statements are a gold mine of information.

14
Financial statements are the medium by which a company discloses information concerning its
financial performance. Followers of fundamental analysis use the quantitative information gleaned
from financial statements to make investment decisions. Before we jump into the specifics of the
three most important financial statements - income statements, balance sheets and cash flow
statements - we will briefly introduce each financial statement's specific function, along with
where they can be found.

The Major Statements the Balance Sheet The balance sheet represents a record of a company's
assets, liabilities and equity at a particular point in time. The balance sheet is named by the fact
that a business's financial structure balances in the following manner:

Assets = Liabilities + Shareholders' Equity

Assets represent the resources that the business owns or controls at a given point in time. This
includes items such as cash, inventory, machinery and buildings. The other side of the equation
represents the total value of the financing the company has used to acquire those assets. Financing
comes as a result of liabilities or equity. Liabilities represent debt (which of course must be paid
back), while equity represents the total value of money that the owners have contributed to the
business - including retained earnings, which is the profit made in previous years.

The Income Statement While the balance sheet takes a snapshot approach in examining a business,
the income statement measures a company's performance over a specific time frame. Technically,
you could have a balance sheet for a month or even a day, but you'll only see public companies
report quarterly and annually.

The income statement presents information about revenues, expenses and profit that was generated
as a result of the business' operations for that period.

Statement of Cash Flows The statement of cash flows represents a record of a business' cash
inflows and outflows over a period of time. Typically, a statement of cash flows focuses on the
following cash-related activities:

Operating Cash Flow (OCF): Cash generated from day-to-day business operations

Cash from investing (CFI): Cash used for investing in assets, as well as the proceeds from the
sale of other businesses, equipment or long-term assets

15
 Cash from financing (CFF): Cash paid or received from the issuing and borrowing of funds

The cash flow statement is important because it's very difficult for a business to manipulate its
cash situation. There is plenty that aggressive accountants can do to manipulate earnings, but it's
tough to fake cash in the bank. For this reason some investors use the cash flow statement as a
more conservative measure of a company's performance

Fundamental analysis: The Income Statement

The income statement is basically the first financial statement you will come across in an annual
report or quarterly Securities And Exchange Commission (SEC) filing.

It also contains the numbers most often discussed when a company announces its results - numbers
such as revenue, earnings and earnings per share. Basically, the income statement shows how much
money the company generated (revenue), how much it spent (expenses) and the difference between
the two (profit) over a certain time period.

When it comes to analyzing fundamentals, the income statement lets investors know how well the
companys business is performing - or, basically, whether or not the company is making money.
Generally speaking, companies ought to be able to bring in more money than they spend or they
dont stay in business for long. Those companies with low expenses relative to revenue - or high
profits relative to revenue - signal strong fundamentals to investors.

Revenue as an investor signal

Revenue, also commonly known as sales, is generally the most straightforward part of the income
statement. Often, there is just a single number that represents all the money a company brought in
during a specific time period, although big companies sometimes break down revenue by business
segment or geography.

The best way for a company to improve profitability is by increasing sales revenue. For instance,
Starbucks Coffee has aggressive long-term sales growth goals that include a distribution system
of 20,000 stores worldwide. Consistent sales growth has been a strong driver of Starbucks
profitability.

16
The best revenue are those that continue year in and year out. Temporary increases, such as those
that might result from a short-term promotion, are less valuable and should garner a lower price-
to-earnings multiple for a company.

What are the Expenses?

There are many kinds of expenses, but the two most common are the cost of goods sold (COGS)
and selling, general and administrative expenses (SG&A). Cost of goods sold is the expense most
directly involved in creating revenue. It represents the costs of producing or purchasing the goods
or services sold by the company. For example, if Walmart pays a supplier $4 for a box of soap,
which it sells to customers for $5. When it is sold, Wal-Marts cost of goods sold for the box of
soap would be $4.

Next, costs involved in operating the business are SG&A. This category includes marketing,
salaries, utility bills, technology expenses and other general costs associated with running a
business. SG&A also includes depreciation and amortization. Companies must include the cost of
replacing worn out assets. Remember, some corporate expenses, such as research and development
(R&D) at technology companies, are crucial to future growth and should not be cut, even though
doing so may make for a better-looking earnings report. Finally, there are financial costs, notably
taxes and interest payments, which need to be considered.

Profits = Revenue - Expenses

Profit, most simply put, is equal to total revenue minus total expenses. However, there are several
commonly used profit subcategories that tell investors how the company is performing. Gross
profit is calculated as revenue minus cost of sales. Returning to Walmart again, the gross profit
from the sale of the soap would have been $1 ($5 sales price less $4 cost of goods sold = $1 gross
profit).

Companies with high gross margins will have a lot of money left over to spend on other business
operations, such as R&D or marketing. So be on the lookout for downward trends in the gross
margin rate over time. This is a telltale sign of future problems facing the bottom line. When cost

17
of goods sold rises rapidly, they are likely to lower gross profit margins - unless, of course, the
company can pass these costs onto customers in the form of higher prices.

Operating profit is equal to revenues minus the cost of sales and SG&A. This number represents
the profit a company made from its actual operations, and excludes certain expenses and revenues
that may not be related to its central operations. High operating margins can mean the company
has effective control of costs, or that sales are increasing faster than operating costs. Operating
profit also gives investors an opportunity to do profit-margin comparisons between companies that
do not issue a separate disclosure of their cost of goods sold figures (which are needed to do gross
margin analysis). Operating profit measures how much cash the business throws off, and some
consider it a more reliable measure of profitability since it is harder to manipulate with accounting
tricks than net earnings.

Net income generally represents the company's profit after all expenses, including financial
expenses, have been paid. This number is often called the "bottom line" and is generally the figure
people refer to when they use the word "profit" or "earnings".

When a company has a high profit margin, it usually means that it also has one or more advantages
over its competition. Companies with high net profit margins have a bigger cushion to protect
themselves during the hard times. Companies with low profit margins can get wiped out in a
downturn. And companies with profit margins reflecting a competitive advantage are able to
improve their market share during the hard times - leaving them even better positioned when things
improve again.

PRICING FACTORS

Prices across the country have risen substantially buoyed by the robust demand for cement. Prices
have risen by more than 30 per cent during April-January 2007 on an all India basis, with the
northern and eastern regions witnessing the highest and lowest growth of 32 per cent and 16 per
cent, respectively.

18
One of the key factors that seem to have a major say on stock price movements of cement
companies are cement prices! Given the volatility and seasonality involved in the same, should
one place such high weightage on cement prices to ascertain investment decision in cement stocks.

Since cement is essentially a commodity, brand premium is almost non-existent in the

industry. In terms of value-addition, this sector ranks below even steel and aluminium. It is a highly
capital-intensive industry. The Indian cement industry has to be viewed on a regional basis viz.
northern, western, southern and eastern. Since demand is unfavorable in certain regions, cement
companies that focus on these regions are affected if there is a decline in prices. The Indian cement
industry is also highly fragmented with the top six accounting for about 60% of industry capacity.
The rest 40% is distributed among 40 small players. The cement industry in India has emerged as
the second largest in the world, boasting of a total capacity of around 144 m tons (including mini
plants). However, on account of low per capita consumption of cement in the country (110 kgs/year
as compared to world average of 260 kgs) there is still a huge potential for growth of the industry.
a retail investor has to keep a tab on demand growth and capacity expansion plans for players.
The level of fragmentation and competition also play an important role in determining the prices
since the larger the number of players, the more difficult it would be to ensure stability in prices.
Institutional sales or big government contracts are normally won through bidding and this can also
help determine the level of prices for specific projects. Lastly, cement like any other commodity
business is cyclical in nature and hence its realisations also depend upon the position of industry
in the business cycle.

Today, the prices across the country are going up to unprecedented levels and plants here are able
to reach out to faraway places in tune with the demand. As a result, all the cement plants in the
state are operating at 100 per cent capacity utilisation and with improved bottomlines. The logistic
cost for AP companies in meeting the local demand is less compared to other states since cement
plants are scattered all over the state.

Earlier, the local demand was hardly 30 per cent of the capacity and the prices in other parts of the
country were also not attractive due to transport costs. Now, the local demand is more than 60 per
cent of the capacity and the prices elsewhere in the country are reaching the viable levels of Rs
180 to Rs 200 per bag. So, now the logistic costs are not coming in the way

19
of AP players to dispatch cement to distant places. Also, as limestone is available only in some
states like AP, we will always enjoy the benefit.

PRODUCTION

The official data released by the Cement Manufacturers Association that showed that the monthly
production in January-June this year is higher than the previous year.

PRODUCTION FIGURES
2014 2007
January 13.07 14.05
February 12.26 13.00
March 14.15 14.95
April 13.23 13.97
May 12.99 14.26
June 12.91 13.66*

Figures in million tonne * Provisional figures Source: Cement Manufacturers

Association

Production has been going up for the last two years. Measures have been taken to enhance
production further. The industry will add 80-100 million tonne in the next three or four years.

20
In 2004-05, the industry produced 127.57 million tonne, rising to 155.31 million tonne in 201407
up 21.74 per cent. In the current financial year, production is expected to cross 165 million
tones, he added.

The chief finance officer of a leading cement company said a price hike took place last year, but
not this year. Why single out the cement industry? Other sectors, such as steel, have also hiked
prices, he said, adding that steel companies raised prices by Rs 500-1,000 a ton this month.

The managing director of a multinational cement company said the taxes levied on the cement
industry are one of the highest in the country. We contribute nearly 67 per cent of our income,
including royalty payment for limestone, to the exchequer. Instead of giving relaxation on the tax
front, the industry is being pressured to go in for price cuts, he added.

PROCESS TECHNOLOGY

While adding fresh capacities, the cement manufacturers are very conscious of the technology
used. In cement production, raw materials preparation involves primary and secondary crushing
of the quarried material, drying the material (for use in the dry process) or undertaking a further
raw grinding through either wet or dry processes, and blending the materials. Clinker production
is the most energy-intensive step, accounting for about 80% of the energy used in cement
Production. Produced by burning a mixture of materials, mainly limestone, silicon oxides,
aluminum, and iron oxides, clinker is made by one of two production processes: wet or dry; these
terms refer to the grinding processes although other configurations and mixed forms (semi-wet,
semi-dry) exist for both types. In the dry process, the raw materials are ground, mixed, and fed
into the kiln in their dry state. In the wet process, the crushed and proportioned materials are ground
with water, mixed, and fed into the kiln in the form of slurry.

The choice among different processes is dictated by the characteristics and availability of raw
materials. The dry process is the more modern and energy-efficient configuration. In general, the
dry process is much more energy efficient than the wet process, and the semi-wet somewhat more
energy efficient than the semi-dry process. The semi-dry process has never played an important

21
role in Indian cement production and accounts for less than 0.2% of total production. Different
types of cement that are produced in India are:

Ordinary Portland Cement (OPC): OPC, popularly known as grey cement

Portland Pozzolana Cement (PPC)
White Cement: White cement is basically OPC
Portland Blast Furnace Slag Cement (PBFSC)
Specialized Cement
Rapid Hardening Portland cement
Water Proof Cement

DEMAND & SUPPLY

The demand drivers for the cement sector continue to be housing, infrastructure and commercial
construction, etc. We expect the proportion of infrastructure in total demand to improve further in
future, as the thrust on infrastructure development is on the rise. During April-November 2015,
cement demand grew by 10 per cent year-on-year (y-o-y) propelled by the growth witnessed in
end user segments such as housing, infrastructure etc. CRISIL Research expects demand to remain
strong and grow by over 12 per cent in the next 2 years.

Cement demand is expected to outstrip supply for the next year and a half as no major capacities
are coming on-stream, thus providing enough flexibility to cement manufacturers to further hike
the prices.

Today, cement from Andhra is going all over India, including Assam, Meghalaya, Jharkhand,
Orissa, West Bengal, Chhattisgarh, Gujarat and Maharashtra. More cement is likely to flow into
Tamil Nadu from the state in view of cut in sales tax. Any further increase in demand in the South
India will benefit the cement industry here. Cement movement from Gujarat to Mumbai is also
coming down due to exports while cement movement from Orissa into Andhra has stopped and,
in fact, cement is flowing into Orissa as well.

22
Earlier in 2014-15, the housing sector alone consumed 65 per cent of the total domestic
consumption. With the launch of several infrastructure projects, the housing consumption may
come down to 55 per cent as the infrastructure and other sectors are expected to move up to 45 per
cent from the present 35 per cent. Still, the main sector of consumption continues to be housing,
including commercial space, occupying more than 60 per cent. The current demand in the state for
2005-06 is expected to cross 15 million tons (11.5 million tons). We expect the demand here to go
past the 17.5-million mark in 2014-15 in view of irrigation and infrastructure projects being taken
up in the state. Weaker sections housing, construction of public toilets, schools in rural areas apart
from several private and public infrastructure projects will also give tremendous boost to the
cement consumption in the state. Most importantly, irrigation projects, worth nearly Rs 1 lakh
crore, will trigger unprecedented demand for the next 5-7 years.

Cement consumptions are as follows:

ZONAL CONSUMPTIONS
ZONE Year 201407 Year 201508
East 17% 17%
South 26% 30%
North 21% 20%
west 20% 18%
central 17% 16%

WHERE DOES INDIA STAND?

India's annual per capita cement production of 0.13 tones in FY2014 is significantly below the
world average of 0.3 tones and China's production of 0.76 tones during 2004. It has been observed
that cement consumption increases along with the rise in per capita income in developing
countries. Thereafter, once all the major developmental projects are in place and the country has a
per capita income comparable with that of the developed nations, the demand for cement

23
stagnates/declines. Accordingly, the per capita cement consumption also stagnates/declines.
Growth in population density is a minor (but steady) driver of demand growth for cement in all
countries. Cement consumption has a strong co-relation with GDP growth. High GDP growth leads
to high cement consumption. The reverse is true when GDP growth declines. The cement intensity
of GDP (i.e. rate of growth of cement consumption relative to GDP growth) is different for
different countries. For a under-developed country, the cement intensity of GDP is very low. It
rises with the progress in economic development, reaches a peak level, and then starts declining
once all the developmental projects are in place and the country has achieved a very high level of
economic growth.

While the Indian cement industry is in a surplus position since a long time, the surplus position is
gradually declining. While limited greenfield capacity is envisaged in the near to medium term, it
is very easy to increase capacity through either brownfield projects or by resorting to
manufacturing blended cements. As per present expansion plans, an additional 6.6 mtpa of
capacity is expected to be operational in FY2008. Considering an expected production and
consumption growth of 10% during FY2008 the demand supply position of the Indian cement
industry is expected to improve

OPPORTUNITIES, THREATS, RISKS AND CONCERNS

The cement industry is going through its boom period with full capacity utilization. Powered by
the GDP growth of 8-9%, the annual demand for cement in the country continues to grow at 810%.
As per NCAER study, under high growth scenario, the demand for cement (including exports) is
expected to increase to 244.82 million tones by 2010-11. As per the study, the demand is expected
to be much higher at 311.37 million tones, 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 materialization 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 till the
materialisation of such new capacities. However, the current high level of international crude
prices and its impact on the domestic prices of petroleum products is likely to make a dent in the

24
profitability but its impact will have to be seen depending upon the ability of the economy to pass
on such cost increase to the

consumer. While the freight cost could be optimized on the imported coal through usage of
companys 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 Government has
taken steps to increase the availability of indigenous coal for its expanded capacity across various
plants which can mitigate the impact of such high cost of imported coal for the plants located near
the coal fields in India.

The Governments 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.

Fundamental Analysis: The Balance Sheet

Investors often overlook the balance sheet. Assets and liabilities aren't nearly as sexy as revenue
and earnings. While earnings are important, they don't tell the whole story.

The balance sheet highlights the financial condition of a company and is an integral part of the
financial statements. (To read more on financial statement basics The Snapshot of Health The
balance sheet, also known as the statement of financial condition, offers a snapshot of a company's
health. It tells you how much a company owns (its assets), and how much it owes (its liabilities).
The difference between what it owns and what it owes is its equity, also commonly called "net
assets" or "shareholders equity".

The balance sheet tells investors a lot about a company's fundamentals: how much debt the
company has, how much it needs to collect from customers (and how fast it does so), how much
cash and equivalents it possesses and what kinds of funds the company has generated over time.

The Balance Sheet's Main Three Assets, liability and equity are the three main components of the
balance sheet. Carefully analyzed, they can tell investors a lot about a company's fundamentals.

25
Assets

There are two main types of assets: current assets and non-current assets. Current assets are likely
to be used up or converted into cash within one business cycle - usually treated as twelve months.
Three very important current asset items found on the balance sheet are: cash, inventories and
accounts receivables. Investors normally are attracted to companies with plenty of cash on their
balance sheets. After all, cash offers protection against tough times, and it also gives companies
more options for future growth. Growing cash reserves often signal strong company performance.
Indeed, it shows that cash is accumulating so quickly that management doesn't have time to figure
out how to make use of it. A dwindling cash pile could be a sign of trouble. That said, if loads of
cash are more or less a permanent feature of the company's balance sheet, investors need to ask
why the money is not being put to use. Cash could be there because management has run out of
investment opportunities or is too short-sighted to know what to do with the money.

Inventories are finished products that haven't yet sold. As an investor, you want to know if a
company has too much money tied up in its inventory. Companies have limited funds available to
invest in inventory. To generate the cash to pay bills and return a profit, they must sell the
merchandise they have purchased from suppliers. Inventory turnover (cost of goods sold divided
by average inventory) measures how quickly the company is moving merchandise through the
warehouse to customers. If inventory grows faster than sales, it is almost always a sign of
deteriorating fundamentals.

Receivables are outstanding (uncollected bills). Analyzing the speed at which a company collects
what it's owed can tell you a lot about its financial efficiency. If a company's collection period is
growing longer, it could mean problems ahead. The company may be letting customers stretch
their credit in order to recognize greater top-line sales and that can spell trouble later on, especially
if customers face a cash crunch. Getting money right away is preferable to waiting for it - since
some of what is owed may never get paid. The quicker a company gets its customers to make
payments, the sooner it has cash to pay for salaries, merchandise, equipment, loans, and best of
all, dividends and growth opportunities.

Non-current assets are defined as anything not classified as a current asset. This includes items
that are fixed assets, such as property, plant and equipment (PP&E). Unless the company is in

26
financial distress and is liquidating assets, investors need not pay too much attention to fixed assets.
Since companies are often unable to sell their fixed assets within any reasonable amount of time
they are carried on the balance sheet at cost regardless of their actual value. As a result, it's is
possible for companies to grossly inflate this number, leaving investors with questionable and
hard-to-compare asset figures.

Liabilities

There are current liabilities and non-current liabilities. Current liabilities are obligations the firm
must pay within a year, such as payments owing to suppliers. Non-current liabilities, meanwhile,
represent what the company owes in a year or more time. Typically, non-current liabilities
represent bank and bondholder debt.

You usually want to see a manageable amount of debt. When debt levels are falling, that's a good
sign. Generally speaking, if a company has more assets than liabilities, then it is in decent
condition. By contrast, a company with a large amount of liabilities relative to assets ought to be
examined with more diligence. Having too much debt relative to cash flows required to pay for
interest and debt repayments is one way a company can go bankrupt.

Look at the quick ratio. Subtract inventory from current assets and then divide by current liabilities.
If the ratio is 1 or higher, it says that the company has enough cash and liquid assets to cover its
short-term debt obligations.

Quick Ratio = Current Assets - Inventories

Current Liabilities

Equity

Equity represents what shareholders own, so it is often called shareholder's equity. As described
above, equity is equal to total assets minus total liabilities.

Equity = Total Assets Total Liabilities

The two important equity items are paid-in capital and retained earnings. Paid-in capital is the
amount of money shareholders paid for their shares when the stock was first offered to the public.

27
It basically represents how much money the firm received when it sold its shares. In other words,
retained earnings are a tally of the money the company has chosen to reinvest in the business rather
than pay to shareholders. Investors should look closely at how a company puts retained capital to
use and how a company generates a return on it.

Fundamental Analysis: The Qualitative factors The Company

Before diving into a company's financial statements, we're going to take a look at some of the
qualitative aspects of a company.

Fundamental analysis seeks to determine the intrinsic value of a company's stock. But since
qualitative factors, by definition, represent aspects of a company's business that are difficult or
impossible to quantify, incorporating that kind of information into a pricing evaluation can be quite
difficult. On the flip side, as we've demonstrated, you can't ignore the less tangible characteristics
of a company.

In this section we are going to highlight some of the company-specific qualitative factors that you
should be aware of.

Business Model

Even before an investor looks at a company's financial statements or does any research, one of the
most important questions that should be asked is: What exactly does the company do? This is
referred to as a company's business model it's how a company makes money. You can get a good
overview of a company's business model by checking out its website or reading the first part of its
10-K filing (Note: We'll get into more detail about the 10-K in the financial statements chapter.
For now, just bear with us).

Sometimes business models are easy to understand. Take McDonalds, for instance, which sells
hamburgers, fries, soft drinks, salads and whatever other new special they are promoting at the
time. It's a simple model, easy enough for anybody to understand.

Other times, you'd be surprised how complicated it can get. Boston Chicken Inc. is a prime
example of this. Back in the early '90s its stock was the darling of Wall Street. At one point the

28
company's CEO bragged that they were the "first new fast-food restaurant to reach $1 billion in
sales since 1969". The problem is, they didn't make money by selling chicken. Rather, they made
their money from royalty fees and high-interest loans to franchisees. Boston Chicken was really
nothing more than a big franchisor. On top of this, management was aggressive with how it
recognized its revenue. As soon as it was revealed that all the franchisees were losing money, the
house of cards collapsed and the company went bankrupt.

At the very least, you should understand the business model of any company you invest in. The
"Oracle of Omaha", Warren Buffett, rarely invests in tech stocks because most of the time he
doesn't understand them. This is not to say the technology sector is bad, but it's not Buffett's area
of expertise; he doesn't feel comfortable investing in this area. Similarly, unless you understand a
company's business model, you don't know what the drivers are for future growth, and you leave
yourself vulnerable to being blindsided like shareholders of Boston Chicken were.

Competitive Advantage

Another business consideration for investors is competitive advantage. A company's long-term

success is driven largely by its ability to maintain a competitive advantage - and keep it. Powerful
competitive advantages, such as Coca Cola's brand name and Microsoft's domination of the
personal computer operating system, create a moat around a business allowing it to keep
competitors at bay and enjoy growth and profits. When a company can achieve competitive
advantage, its shareholders can be well rewarded for decades.

Management

Just as an army needs a general to lead it to victory, a company relies upon management to steer it
towards financial success. Some believe that management is the most important aspect for
investing in a company. It makes sense - even the best business model is doomed if the leaders of
the company fail to properly execute the plan.

So how does an average investor go about evaluating the management of a company?

29
This is one of the areas in which individuals are truly at a disadvantage compared to professional
investors. You can't set up a meeting with management if you want to invest a few thousand
dollars. On the other hand, if you are a fund manager interested in investing millions of dollars,
there is a good chance you can schedule a face-to-face meeting with the upper brass of the firm.

Every public company has a corporate information section on its website. Usually there will be a
quick biography on each executive with their employment history, educational background and
any applicable achievements. Don't expect to find anything useful here. Let's be honest: We're
looking for dirt, and no company is going to put negative information on its corporate website.

Instead, here are a few ways for you to get a feel for management:

1. Conference Calls:

The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) host quarterly conference
calls. (Sometimes you'll get other executives as well.) The first portion of the call is management
basically reading off the financial results. What is really interesting is the question-and-answer
portion of the call. This is when the line is open for analysts to call in and ask management direct
questions. Answers here can be revealing about the company, but more importantly, listen for
candor. Do they avoid questions, like politicians, or do they provide forthright answers?

2. Management Discussion and Analysis (MD&A) :

The Management Discussion and Analysis is found at the beginning of the annual report (discussed
in more detail later in this tutorial). In theory, the MD&A is supposed to be frank commentary on
the management's outlook. Sometimes the content is worthwhile, other times it's boilerplate. One
tip is to

compare what management said in past years with what they are saying now. Is it the same material
rehashed? Have strategies actually been implemented? If possible, sit down and read the last five
years of MD&As; it can be illuminating.

3. Ownership and Insider Sales:

Just about any large company will compensate executives with a combination of cash, restricted
stock and options. While there are problems with stock options (See Putting Management under

30
the Microscope), it is a positive sign that members of management are also shareholders. The ideal
situation is when the founder of the company is still in charge. Examples include Bill Gates (in the
'80s and '90s), Michael Dell and Warren Buffett. When you know that a majority of management's
wealth is in the stock, you can have confidence that they will do the right thing. As well, it's worth
checking out if management has been selling its stock. This has to be filed with the Securities and
Exchange Commission (SEC), so it's publicly available information. Talk is cheap - think twice if
you see management unloading all of its shares while saying something else in the media.

4. Past Performance:

Another good way to get a feel for management capability is to check and see how executives have
done at other companies in the past. You can normally find biographies of top executives on
company web sites. Identify the companies they worked at in the past and do a search on those
companies and their performance.

5. Corporate Governance:

Corporate governance describes the policies in place within an organization denoting the
relationships and responsibilities between management, directors and stakeholders. These policies
are defined and determined in the company charter and its bylaws, along with corporate laws and
regulations. The purpose of corporate governance policies is to ensure that proper checks and
balances are in place, making it more difficult for anyone to conduct unethical and illegal activities.

Good corporate governance is a situation in which a company complies with all of its governance
policies and applicable government regulations (such as the Sarbanes-Oxley Act of 2002) in order
to look out for the interests of the company's investors and other stakeholders.

Although, there are companies and organizations (such as Standard & Poor's) that attempt to
quantitatively assess companies on how well their corporate governance policies serve
stakeholders, most of these reports are quite expensive for the average investor to purchase.

Fortunately, corporate governance policies typically cover a few general areas: structure of the
board of directors, stakeholder rights and financial and information transparency. With a little

31
research and the right questions in mind, investors can get a good idea about a company's corporate
governance.

6. Financial and Information Transparency

This aspect of governance relates to the quality and timeliness of a company's financial disclosures
and operational happenings. Sufficient transparency implies that a company's financial releases
are written in a manner that stakeholders can follow what management is doing and therefore have
a clear understanding of the company's current financial situation.

7. Stakeholder Rights:

This aspect of corporate governance examines the extent that a company's policies are benefiting
stakeholder interests, notably shareholder interests. Ultimately, as owners of the company,
shareholders should have some access to the board of directors if they have concerns or want
something addressed. Therefore companies with good governance give shareholders a certain
amount of ownership voting rights to call meetings to discuss pressing issues with the board.
Another relevant area for good governance, in terms of ownership rights, is whether or not a
company possesses large amounts of takeover defenses (such as the Macaroni Defense or the
Poison Pill) or other measures that make it difficult for changes in management, directors and
ownership to occur. (To read more on takeover strategies, see The Wacky World of M&As.)

8. Structure of the Board of Directors

The board of directors is composed of representatives from the company and representatives from
outside of the company. The combination of inside and outside directors attempts to provide an
independent assessment of management's performance, making sure that the interests of
shareholders are represented.

The key word when looking at the board of directors is independence. The board of directors is
responsible for protecting shareholder interests and ensuring that the upper management of the
company is doing the same. The board possesses the right to hire and fire members of the board
on behalf of the shareholders. A board filled with insiders will often not serve as objective critics

32
of management and will defend their actions as good and beneficial, regardless of the
circumstances

33
 Data Analysis and Interpretation

Birla Corporation Ltd.

Birla Corporation Ltd.(formerly Birla Jute & Industries), a part of M P Birla Group was established
in 1919. The company is into manufacture of cement, jute products, autoancillaries, PVC floor
coverings, wallpapers, coated cotton fabrics, etc. Its also has its presence in steel industry. The
company's cement capacity of 4.78 million tpa were spread in its four cement units located in
Madhya Pradesh, Uttar Pradesh, Rajasthan and West Bengal. But the jute, carbide, gases, synthetic
viscose/cotton yarn and PVC flooring & wall covering divisions are in West Bengal. It also has a
steel casting unit in Madhya Pradesh. The Auto Trim division of the company has three plants,
each in West Bengal, Maharashtra and Haryana. The subsidiaries of the company are Assam
Jute Supply Company Ltd, Talavadi Cements Ltd and Lok Cements Ltd. In 1994-95, two units
of the company Durgapur Cement Works and Birla Synthetics were awarded the ISO 9002
certification. Satna Cement Works and the jute division have also obtained the same certification.
In 1996-97, the company installed 2 DG sets of 6 MW capacity each at Satna and one DG set of
similar capacity at Chittor. The company modernized/upgraded one of its plants at Cittor Cement
Works at Chittorgarh during 2001-02. The installed capacity at Chittorgarh and the Company as a
whole increased to 20.00 lac tones. And debottlenecking carried out in Chittorgarh plant and
installed capacity was also increased to 45.10 lac tones. The company come out with a rights
issue of 2,20,01,528 ordinary shares of Rs 10 each for cash at a premium of Rs 9 per share
aggregating to Rs 41.8 cr to the existing ordinary shareholders of the company in the ratio of 2:5.
An expansion project was also taken up at Raebareli which was completed and as a result the
capacity of Cement Grinding was enhanced to 6.30 lac tones from 3.60 lac tones. With this
expansion the total installed capacity of the cement has increased to 47.80 lac tones p.a. The
company has expanded its installed capacity of Auto Trim Parts by 36000 Pcs. during 2004-05
and with this expansion the total installed capacity of Auto Trim Parts has increased to 603000
Pcs. During April 2004 the company has decided to close its Birla Synthetics at Birlapur and
in February 2005 the Birla Carbide & Gases unit at Birlapur, since there has been no production
in these units. The company has commenced commercial production in its new unit Durga Hi-

34
tech Cement at Durgapur, which has a capacity to manufacture 1 Million tones Cement during
December 2005.

Chettinad Cement Corporation Ltd

Incorporated in the year 1962, Chettinad Cement Corporation (CCCL) has been awarded the ISO
9002 certificate by the Bureau of Indian Standards, in 1994. It is the first company in Tamilnadu
to be honored with the certificate, in the field of mining. CCCL has diversified into shipping. Its
shipping fleet consisits of two bulk carriers viz m.v. Chettinand Tradition and m.v. Chettinad
Prince. The Second Cement plant at Karikkali,Tamil Nadu faced some teething problem in 2002
and in 2003 the plant was successful in making it fully operational with optimum efficiency.
During 2002-03 the comapny completed the Rights Issue of 84,31,700 equity shares in the ratio of
2:5 at a premium of Rs.26/- per share. The company has commissioned a 15 MW Captive
Thermal Plant at its plant at Karikal during October 2004.The Karur unit of Chettinad Cements
has been functioning with the highest operating ratio for any cement unit in the southern region.
In Sep. 94, the company commissioned 16 wind power generators near Poolavadi, Coimbatore. In
addition, 26 wind power generators have been installed in Mar.'95, in the same place. While 12
No of 225 KW each of Wind Power Generator commissioned in 1995-96.

Totally 66 wind power generators for a capacity of 17.35 MW have been installed in four phases
and they are functioning well. The project was financed by the Industrial Finance Corporation of
India (IFCI) and internal accruals. CCCL has diversified into shipping. Its shipping fleet consisits
of two bulk carriers viz m.v. Chettinad Tradition and m.v. Chettinad Prince. The Second Cement
plant at Karikkali,Tamil Nadu faced some teething problem in 2002 and in 2003 the plant was
successful in making it fully operational with optimum efficiency. During 2002-03 the company
completed the Rights Issue of 84,31,700 equity shares in the ratio of 2:5 at a premium of Rs.26/-
per share. The company has commissioned a 15 MW Captive Thermal Plant at its plant at
Karikal during October 2004.

India Cements Ltd(ICL)

India Cements Ltd(ICL) was established in Feb.'46, it is a diversified company with interests in
cement, shipping and real estate development. The first cement unit was commissioned in 1949 at
Sankarnagar, Tamilnadu. By 1970, the capacity was raised to 9.1 lac tpa. The second cement plant

35
at Sankari, Tamilnadu, was commissioned in 1963, with a capacity of 2 lac tpa, which was
increased to 4 lac tpa in 1966 and to 6 lac tpa in 1971. The subsidiaries of the company are ICL
Securities Ltd, ICL International Ltd, Industrial Chemicals & Monomers Ltd and ICL Financial
Services Ltd. In 1990 with ICL's acquisition of Coromandel Cement plant at Cuddapah, installed
Capacity rose to 2.6 million tones per annum. During 1991-92, the company started shipping
activities by time-chartering dry bulk-cargo carriers. In 1994 ICL successfully floated a US$ 50
million GDR issue. In 1995 it announced a 1:1 Bonus. It acquired its fifth bulk carrier in 1995.
The company is also engaged in real estate and property development and it also has a wind farm
in Coimbatore.

In 1996 ICL's green field cement plant at Dalavoi commenced commercial production with an
Installed capacity 90,000 TPA. In 2004 India cements acquired Aruna Sugars Finance Ltd which
was later renamed as India Cements Capital & Finance Ltd. It also acquired Cement Plant of
Visaka Cement Industry, at Tandur, Ranga Reddy district of Andhra Pradesh with Installed
capacity 9,00,000 Tones. The cement division of Raasi Cement (RCL) was vested with the
company from Apr.'98 under a scheme of arrangement. Also during the same year the company
hived off its shipping division to ICL Shipping (ICLS). It also acquired Cement Corporation of
India's Yerraguntla Cement Plant at Andhra Pradesh with an Installed capacity 4,00,000 Tones.
In Oct.'99, ICL Securities, the company wholly owned subsidiary acquired 49.05% of the equity
share capital in Sri Vishnu Cement (SVCL), simultaneously, Raasi Cement also acquired 39.5%
of the equity capital of SVCL. At present the company along with its subsidiary holds 94.16% of
the share capital of SVCL and is now a subsidiary of the company. The upgradation of the
Chilamakur cement plant to 3800 TPD has been completed. The upgradation in another group
company -- Sri Vishnu Cement -- from 2750 TPD of clinker to 3400 TPD was complete in the
fiscal 2001. During 2001-02, the company has launched a portal 'homztoday.com' containing A
to Z on home making. This is a comprehensive web site focusing on a variety of home needs and
providing various categories of users information ranging from property purchase to locating any
type of service provider to homes. During 2004-05, the unique Waste Heat Recovery System
for generation of power from waste gas at Vishnupuram plant was commissioned with generating
power of 7.7MW. Currently, the plant locations of the company are at Sankarnagar, Sankari and
Dalavoi in Tamilnadu, Chilamakur, Yerraguntla and Vishnupuram in Andhra Pradesh.

36
Madras Cements Ltd(MCL)

Madras Cements Ltd(MCL), a flagship of the Ramco group, is a major player in the blended
cement category in South India and is very popular for its Ramco brands of cements like `Ramco
super steel cement' and `Ramco super grade cement'. It also operates a ready mix concrete plant
(RMC) near Chennai. Between 1980 and 1985, it undertook a modernization programme and
replaced its four cement mills in R N Nagar, Tamilnadu, with a single new combined cement mill
which ensured substantial reduction in energy and operation costs. In 1986, MCL implemented
one more cement plant in Jayanthipuram, Andhra Pradesh. In 1990-91, the company expanded
the capacity of its factory by 100000 tpa at an estimated cost of Rs 21.5 cr. In 1992-93, it diversified
into power generation by setting up a 4-MW windmill at Muppandal in Kanyakumari, Tamilnadu,
which was upgraded by adding eight wind turbines of 250 kW, thereby taking the generation
capacity to 6 MW. In 1994-95, 70 additional wind mills were installed in Poolavadi, TN. The total
Installed capacity of these plants, consisting 123 Wind Energy Generators is 34.44 MW. During
2004-05, The company commissioned a 36 MW Thermal Power Plant at Alathiyur. The
company, for the first time in India, commissioned a surface mine to modernize the mine
operations at Ramasamyraja Nagar factory. The company received ISO 9002 certification for its
units in Ramasamyraja Nagar, Alathiyur and ready mix concrete unit in Vengaivasal. During
1999-00, the company's slag grinding project at Jayanthipuram for manufacture of blended cement
was commissioned and also the capacity of the Alathiyur unit was expanded by 0.2 million TPA.
The company's second unit at Alathiyur with a capacity of 15 lac tones at an estimated cost of Rs
300 crore was commissioned up to the clinkerisation in Jan.'01. The cement mill was
commissioned in May '01. The klin fitted with cross bar cooler, the first of its kind outside US and
the Vertical mill for cement grinding, the highest of its kind in Asia set up in Alathiyur Unit. The
company took over the assets of Karnataka Minerals & Manufacturing Co, a mini cement plant
situated at Mathodu, Hosadurga Taluk, Chitradurga Dist. The second klin at R Nagar was upgraded
in May'01 with the installation of fixed inlet segment to the cooler, new calciner and modifying
preheater cyclone, thereby increasing the capacity of the unit to 11 lac TPA of blended cement.
The company's new project Dry Motor Plant for manufacture of high technology construction
products such as render, skimcoat and dryconcrete started production from January 2003 in
Sriperumbudur, with the help of M.Tech, Germany who conducted the training assistance to the

37
architects, consultants, builders and contractors to know about the advantages of new product.
The company subdivided its value of Equity shares from Rs 100/- to Rs.10/- in the ratio 1:10 with
effective from Nov. 06, 2003

Madras Cements Ltd (MCL)

Madras Cements Ltd (MCL), a flagship of the Ramco group, is a major player in the blended
cement category in South India and is very popular for its Ramco brands of cements like `Ramco
super steel cement' and `Ramco super grade cement'. It also operates a ready mix concrete plant
(RMC) near Chennai. Between 1980 and 1985, it undertook a modernization programme and
replaced its four cement mills in R N Nagar, Tamilnadu, with a single new combined cement mill
which ensured substantial reduction in energy and operation costs. In 1986, MCL implemented
one more cement plant in Jayanthipuram, Andhra Pradesh. In 1990-91, the company expanded
the capacity of its factory by 100000 tpa at an estimated cost of Rs 21.5 cr. In 1992-93, it diversified
into power generation by setting up a 4-MW windmill at Muppandal in Kanyakumari, Tamilnadu,
which was upgraded by adding eight wind turbines of 250 kW, thereby taking the generation
capacity to 6 MW. In 1994-95, 70 additional wind mills were installed in Poolavadi, TN. The total
Installed capacity of these plants, consisting 123 Wind Energy Generators is 34.44 MW. During
2004-05, The company commissioned a 36 MW Thermal Power Plant at Alathiyur. The
company, for the first time in India, commissioned a surface mine to modernize the mine
operations at Ramasamyraja Nagar factory. The company received ISO 9002 certification for its
units in Ramasamyraja Nagar, Alathiyur and ready mix concrete unit in Vengaivasal. During 1999-
00, the company's slag grinding project at Jayanthipuram for manufacture of blended cement was
commissioned and also the capacity of the Alathiyur unit was expanded by 0.2 million TPA. The
company's second unit at Alathiyur with a capacity of 15 lac tones at an estimated cost of Rs 300
crore was commissioned up to the clinkerisation in Jan.'01. The cement mill was commissioned in
May '01. The klin fitted with cross bar cooler, the first of its kind outside US and the Vertical mill
for cement grinding, the highest of its kind in Asia set up in Alathiyur Unit. The company took
over the assets of Karnataka Minerals & Manufacturing Co, a mini cement plant situated at
Mathodu, Hosadurga Taluk, Chitradurga Dist. The second klin at R Nagar was upgraded in May'01
with the installation of fixed inlet segment to the cooler, new calciner and modifying preheater
cyclone, thereby increasing the capacity of the unit to 11 lac TPA of blended cement. The

38
company's new project Dry Motor Plant for manufacture of high technology construction products
such as render, skimcoat and dryconcrete started production from January 2003 in Sriperumbudur,
with the help of M.Tech, Germany who conducted the training assistance to the architects,
consultants, builders and contractors to know about the advantages of new product.

The company subdivided its value of Equity shares from Rs 100/- to Rs.10/- in the ratio 1:10 with
effective from Nov. 06, 2003 K C P Ltd A multi-product company with two sugar mills, a
downstream distillery, a cement plant and an engineering division, KCP was initially a sick sugar
unit (cap. : 600 tpd). It was taken over by the late Velagapudi Ramakrishna in 1941. The merger
of Challapalli Sugars - a BIFR company - with it in 1988 and expansions have increased its sugar
capacity tenfold to 6300 tpd over the last five decades. The cement factory, set up in 1958, was
the first dry process plant in India. The engineering division was set up in 1955 as an in-house
venture to manufacture sugar machinery required by the company. Manufacture of machinery
required for cement, chemicals, steel castings, etc, were later added to this division. Both the
cement and engineering divisions have been accredited with the ISO 9002 and ISO 9001
certification respectively in 1994. KCP hived off its sugar and industrial alcohol business, which
was transferred to a new company, KCP Sugar Industries Corporation. The Company also
undertook a joint venture with Vantech Industries for the manufacture of specialized insecticides.
KCP promoted FCB-KCP, a joint venture with FCB, France, in a 40:40 equity participation. The
new company is to manufacture and supply state-of-the-art machinery and technology to clients in
the sugar industry both in India and abroad. The cement unit of the company continues to retain
the ISO 9001 certification while the engineering unit was accredited to use the symbol 'S' and 'U'
of the American Society of Mechanical Engineers (ASME) for the manufacture and assembly of
power boilers and pressure vessels, respectively on 15 May'96. KCP has also received the
Certificate of Merit for outstanding export performance during 1994-95 among Non-SSI exporters
in industrial machinery panel for manufacture of sugar, paper, chemical, cement and
pharmaceuticals.

39
 ANALYSIS.

Financial Analysis of Birla Corporation Ltd.

The companys financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM
is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex
, change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23
cr was taken as a base as Net Block and then it was calculated with different growth rates such as
5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100.
it has been calculated from 2004-2014. it has been compared along with other 4 companies it
ROCE stands at 4th place among the 5 companies. the average expenses percentage of other 4
companies is 82.63 where its expenses percentage is 94.28 .the average 5 of expenses is taken as
82%. Ebit has also been calculated on various growth rates.

BIRLA

DEBT 271.78 INTEREST 13.62

Kd= 5.011406

D/E 0.76 Ke= 15 %

TAX 30%

EQUITY 65.2272 WACOC= 6.27

WACOC= KeWe*KdWd TOTAL CAPITAL 337.01

The terminal value is calculated as 10th year FCFF (wacoc-growth rate)*100 Value of equity per
share varied from 789.39 at growth rate of 5% to -1515.11 at 8% to 967.92 at 12% and -945.36 at
15%. Value of firm is at 6350.54 at 5% growth rate to 11395.39 at 8% to -7181.73 at 12% and -
7007.98 at 15%.value of debt is 271.78 cr. Value of equity varied from 6078.76 at 5% to -11667.17
at 8% to -7453.51 at 12% and 7279.76 at 15%.

40
Financial Analysis of Chettinad cements Ltd.

The companies financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM
is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex
, change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23
cr was taken as a base as Net Block and then it was calculated with different growth rates such as
5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100.
it has been calculated from 2004-2014. it has been compared along with other 4 companies it
ROCE stands at 3rd place among the 5 companies. the average expenses percentage of other 4
companies is 82.63 where its expenses percentage is 76.29.it has been below average ,the average
5 of expenses is taken as 82%. Ebit has also been calculated on various growth rates.

chettinad cement

DEBT 304.91 Kd= 6.365813

D/E 1.96 Ke= 15 %

EQUITY 597.6236 TAX 30%

INTEREST 19.41 WACOC= 8.25

WACOC= KeWe*KdWd TOTAL CAPITAL 902.53

The terminal value is calculated as 10th year FCFF( wacoc-growth rate)*100 Value of equity per
share varied from -86.72 at growth rate of 5% to 400.63 at 8% to 4.88 at 12% and 287.76 at 15%.
Value of firm is at -2286.66 at 5% growth rate to 12124.93 at 8% to 306.35 at 12% and 1153.89
at 15%.value of debt is 304.91 cr. Value of equity varied from -2591.57 at 5% to 11820.02 at 8%
to 1.44 at 12% and 848.98 at 15%.

41
Financial Analysis of India Cements Ltd.

The companys financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM
is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex
, change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23
cr was taken as a base as Net Block and then it was calculated with different growth rates such as
5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100.
it has been calculated from 2004-2014. it has been compared along with other 4 companies it
ROCE stands at last place among the 5 companies. the average expenses percentage of other 4
companies is 82.63 where its expenses percentage is 83.22 .the average 5 of expenses is taken as
82%. Ebit has also been calculated on various growth rates.

India Cement

DEBT 1,525.24 Kd= 9.764365

D/E 2.81 Ke= 15 %

EQUITY 4285.9244 TAX 30%

INTEREST 148.93 WACOC= 8.98

WACOC= KeWe*KdWd TOTAL CAPITAL 5,811.16

The terminal value is calculated as 10th year FCFF (wacoc-growth rate)*100

Value of equity per share varied 1475.75 at growth rate of 5% to 728.43 at 8% to -314.3 at 12%
and -354.98 at 15%. Value of firm is at 3625.04 at 5% growth rate to 16421.52 at 8% to -6557.47
at 12% and -7453.97 at 15%.value of debt is 368.94cr. Value of equity varied from 3256.1 at 5%
to 16052.58 at 8% to -6926.41 at 12% and -7822.91 at 15%.

42
Financial Analysis of K C P Ltd.

The companys financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM
is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex
, change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23
cr was taken as a base as Net Block and then it was calculated with different growth rates such as
5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100.
it has been calculated from 2004-2014. it has been compared along with other 4 companies it
ROCE stands at 2nd place among the 5 companies. the average expenses percentage of other 4
companies is 82.63 where its expenses percentage is 90.8 .the average 5 of expenses is taken as
82%. Ebit has also been calculated on various growth rates.

K.C.P.LTD

DEBT 60.71 Kd= 7.313457

D/E 0.52 Ke= 15 %

EQUITY 31.5692 TAX 30%

INTEREST 4.44 WACOC= 9.86

WACOC= KeWe*KdWd TOTAL CAPITAL 92.28

The terminal value is calculated as 10th year FCFF( wacoc-growth rate)*100 Value of equity per
share varied from -145.5 at growth rate of 5% to -2209.19 at 8% to 785 at 12% and 1096.28 at
15%. Value of firm is at -126.87 at 5% growth rate to -11395.39 at 8% to 7181.73 at 12% and -
7007.98 at 15%.value of debt is 60.71 cr. Value of equity varied from 187.58 at 5% to -2269.9 at
8% to 724.29 at 12% and 1035.57 at 15%.

43
Financial Analysis of Madras cements Ltd.

The companys financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM
is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex
, change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23
cr was taken as a base as Net Block and then it was calculated with different growth rates such as
5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100.
it has been calculated from 2004-2014. it has been compared along with other 4 companies it
ROCE stands at 1st place among the 5 companies. the average expenses percentage of other 4
companies is 82.63 where its expenses percentage is 73.88 .the average 5 of expenses is taken as
82%. Ebit has also been calculated on various growth rates.

Madras cement

DEBT 602.44 Kd= 6.025496

D/E 1.78 Ke= 15 %

EQUITY 1072.3432 TAX 30%

INTEREST 36.3 WACOC= 8.10

WACOC= KeWe*KdWd TOTAL CAPITAL 1,674.78

The terminal value is calculated as 10th year FCFF( wacoc-growth rate)*100 Value of equity per
share varied from -371.59 at growth rate of 5% to 901.83at 8% to -107.62 at 12% and -106 at
15%. Value of firm is at -3469.72 at 5% growth rate to 109524.6at 8% to 12395.81 at 12% and
-12199.99 at 15%.value of debt is 602.44 cr. Value of equity varied from 4072.16 at 5% to -
108922.16 at 8% to -12998.25 at 12% and -12802.43 at 15%.

44
COST

Over the past five 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 07, 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.

45
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 utilisation 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

46
 Conclusion

We can conclude by the above performance of the companies. That some companies have
performed well and some are still lagging behind.

BIRLA CORPORATION LTD.

The companys financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM
is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex
, change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23
cr was taken as a base as Net Block and then it was calculated with different growth rates such as
5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100.
it has been calculated from 2004-2014. it has been compared along with other 4 companies it
ROCE stands at 3rd place among the 5 companies. the average expenses percentage of other 4
companies is 82.63 where its expenses percentage is 76.29.it has been below average ,the average
5 of expenses is taken as 82%. Ebit has also been calculated on various growth rates.

Chettinad cements Ltd.

The companys financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM
is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex
, change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23
cr was taken as a base as Net Block and then it was calculated with different growth rates such as
5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100.
it has been calculated from 2004-2014. it has been compared along with other 4 companies it
ROCE stands at 3rd place among the 5 companies. the average expenses percentage of other 4
companies is 82.63 where its expenses percentage is 76.29.it has been below average ,the average
5 of expenses is taken as 82%. Ebit has also been calculated on various growth rate.

47
The companys financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM
is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex
, change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23
cr was taken as a base as Net Block and then it was calculated with different growth rates such as
5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100.
it has been calculated from 2004-2014. it has been compared along with other 4 companies it
ROCE stands at last place among the 5 companies. the average expenses percentage of other 4
companies is 82.63 where its expenses percentage is 83.22 .the average 5 of expenses is taken as
82%. Ebit has also been calculated on various growth rates.

K C P Ltd.

The companys financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM
is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex
, change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23
cr was taken as a base as Net Block and then it was calculated with different growth rates such as
5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100.
it has been calculated from 2004-2014. it has been compared along with other 4 companies it
ROCE stands at 2nd place among the 5 companies. the average expenses percentage of other 4
companies is 82.63 where its expenses percentage is 90.8 .the average 5 of expenses is taken as
82%. Ebit has also been calculated on various growth rates.

Madras cements Ltd.

The companys financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM
is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex
, change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23
cr was taken as a base as Net Block and then it was calculated with different growth rates such as
5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100.
it has been calculated from 2004-2014. it has been compared along with other 4 companies it
ROCE stands at 1st place among the 5 companies. the average expenses percentage of other 4

48
companies is 82.63 where its expenses percentage is 73.88 .the average 5 of expenses is taken as
82%. Ebit has also been calculated on various growth rates

Financial Analysis of India Cements Ltd.

The companies financial was calculated on the basis of FUTURE CASH FLOW OF THE FIRM
is calculated on the basis of different growth rates such as 5%, 8%, 125 and 15%.Change in Capex
, change in working capital, has been calculated on net block taking Fy 06 as a base year. 500.23
cr was taken as a base as Net Block and then it was calculated with different growth rates such as
5%, 8% , 12% and 15%.Rate of Capital expenses is calculated as (PBIT/Capital employed)*100.
it has been calculated from 2004-2014. it has been compared along with other 4 companies it
ROCE stands at last place among the 5 companies. the average expenses percentage of other 4
companies is 82.63 where its expenses percentage is 83.22 .the average 5 of expenses is taken as
82%. Ebit has also been calculated on various growth rates

Thus we can conclude that:

1. The rise in the price of cement is because of the gap of demand & supply in the market. The
demand for cement is much higher than its actual supply. But with the production maximization,
which can be encountered in next few year, this gap may narrowed down, that may ensure the
market to be in equilibrium.

2. Decreasing per capita consumption doesnt affect the total consumption for the cement. It means
the infrastructure; contacted housing is using the bulk of the production.

3. In spite of High price of the product, the hick of demand because of the increasing rate of
infrastructural development.

4. Domestic price of cement is rising as well as the imported cement price is lowering. So
altogether the supply of the cement, which is affordable, will increase. This may in decrease the
gap between supply and demand.

5. Major Demand was from the housing sector, which may shift to infrastructure as lots of
infrastructural development processes has already being taken up & due to the increased price,
housing segment started showing a slowdown.

49
 Bibliography and Annexure

The Indian cement industry, ICRA, JULY 2014

Indian cement industry-a perspective of environment friendliness
Indian cement industry on concrete foundation, moneycontrol.com
The Indian Cement Industry, ICRA Industry Watch Series#1, Update-II, Aug 1995
Cement, equitymaster.com, November 28,2014
www.capitaline.com
www.saurasthracements.com
www.kcpltd.com
www.birlacorpltd.com
www.madrascement.com
www.nseindia.com
www.bseindia.com

50