Zeba Naz (Amu) Summer Training Report Auto Saved)

FINANCIAL ANALYSIS OF HINDALCO INDUSTREIS LIMITED,
RENUSAGAR .
ALIGARH MUSLIM UNIVERSITY
FINANCIAL ANALYSIS
OF
HINDALCO
INDUSTRIES LIMITED
Submitted To: Mr. B.B. Bhartiya
Submitted by:
ZEBA NAZ (09MBA56)
30 JULY 2010
FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED
Foreword
It is my pleasure to write that the project study titled “ANALYSIS OF

WORKING CAPITAL MANAGEMENT AND BALANCE SHEET OF
HINDALCO INDUSTRIES” by ZEBA NAZ for the summer training
during her MBA course is a sincere attempt. I am sure that her
observations and suggestions will be quite handy and useful for the
company.
The report is very useful for any young trainee as relevant information
has been compiled at one place in a logical and comprehensive manner. I
am of the view that the trainees are hardworking, determined and
committed to their targets.
In the end I appreciate the efforts put by them for this work and wish
them a very bright future in the years to come.
2
(DY.GENERAL MANAGER FINANCE)
Certificate
This is to certify that ZEBA NAZ, a bonafide students of Aligarh Muslim
University; Aligarh has undergone her summer internship at our
organization during the period dated __________ to __________ and has
completed the project study titled “ANALYSIS OF WORKING
CAPITAL MANAGEMENT AND BALANCE SHEET OF HINDALCO
INDUSTRIES”.
The work was carried out entirely by them and towards partial fulfillment
of the requirements for the award of the MBA Degree. During their stay
in the organization, their conduct has been __________________.
3
ACKNOWLEDGMENT
It is a great sense of satisfaction and a matter of privilege for us to work at Hindalco
Industries limited.
I wish to express my heartiest thanks to Renusagar Power Division for providing

me the opportunity to undergo training in an esteemed organization under such a
proactive environment, Systematic work approach and target oriented task
management of this division provided us with the much desired training experience
needed for future management professional.
It is our pleasure to thank Mr. Nishant Kr. Gupta, A.G.M (TTMDC), and HIL, to
whom we owe a lot for giving me an opportunity to do our training in this
organization. I also owe a special thanks to Mr. Sumant Kumar, DY. Manager
(Management services), and HIL for following me to do this project under their
guidance.
Our heartfelt thanks to our guide Mr. B.B. Bhartiya who accepted me, as a project
trainee in his group and helping in the project with words of encouragement and has
shown full confidence in my abilities.
I am also heartily thankful to the entire staff member of TTMDC, Technical

services who always have been a source of inspiration for me.
4
EXECUTIVE SUMMARY
The assigned project was focused on the detailed financial analysis of HINDALCO
for the period of 2007-08 to 2009-10. The analysis was done using the Annual
reports and the official financial statements released by the company. The analysis
contains following components:
a) Industry Analysis using Porter’s five forces
b) Swot analysis
c) Financial Statement Analysis:
 Liquidity Ratios
 Profitability Ratios
 Solvency Ratios
 Efficiency Ratios
 Capital Market Ratios
 Du-Pont Analysis
 Trend Analysis
d) Peer group comparison
5
INTRODUCTION:
Financial ratio analysis is an important topic and is covered in all mainstream corporate finance
textbooks. It is also a popular agenda item in investment club meetings. It is widely used to
summarize the information in a company's financial statements in assessing its financial health. In
today's information technology world, real time financial data are readily available via the
Internet. Performing financial ratio analysis using publications, such as Robert Morris Associates’
Annual Statement Studies, Dun & Bradstreet’s Key Business Ratios, Moody’s Manuals, Standard
& Poor’s Corporation Records, Value Line Investment Survey, etc., is no longer efficient. Since
students and investors now have easy access to on-line databases, the assignments on financial
ratio analysis can be modified accordingly to enhance learning.
Since it is important to understand how the company's profitability, efficiency, and leverage are
linked in its financial performance, one is required to demonstrate and evaluate its Du Pont
system over time. Both the company's profitability (as measured in terms of profit margin) and
efficiency (as measured in terms of asset turnover) determine its ROA. This ROA, along with the
company's financial leverage (as measured in terms of its equity multiplier), contributes to its
ROE. As the company's use of leverage magnifies its ROE, students are required to examine ROE
carefully. The changes in the company's ROE are to be noted and explained through its profit
margin, asset turnover, and equity multiplier over time. The objective is to identify the company's
strong area that can be capitalized upon and/or its weak area that must be improved upon.
To explain the variation in the company's financial ratios over time, the industry comparative
analysis must be performed along with the trend analysis. To evaluate the company's financial
performance against its key competitors, the company-to- company comparison report is retrieved
from the following path. The class assignment presented herein is designed to demonstrate how
to assess a company's overall operations over time and its current financial standing in the
industry.
6
ALUMINIUM INDUSTRY IN INDIA

Aluminium Industries in India is one of the leading industries in the Indian economy. The growth
of the aluminum Metal industry in India would be sustained by the diversification and exploration
of new horizons for the industry. India has huge deposits of natural resources in form of minerals
like copper, chromite, iron ore, manganese, bauxite, gold, etc. The India aluminum industry falls
under the category of non iron based which include the production of copper, tin, brass, lead, zinc,
aluminum, and manganese
Aluminium Industry in India is a highly concentrated industry with the top 5 companies
constituting the majority of the country's production. With the growing demand of aluminium in
India, the Indian aluminium industry is also growing at an enviable pace. In fact, the production
of aluminium in India is currently outpacing the demand.
Though India's per capita consumption of aluminium stands too low (under 1 kg) comparing to
the per capita consumptions of other countries like US & Europe (range from 25 to 30 kgs),
Japan (15 kgs), Taiwan (10 kgs) and China (3 kgs), the demand is growing gradually. In India, the
industries that require aluminium most include power (44%), consumer durables, transportation
(10-12%), construction (17%) and packaging etc.
The Background
Though the existence of Aluminium was first established in the year 1808, it took almost 46 years
to make its production commercially viable. The research work of several years resulted in
extracting the aluminium from the ore. Aluminium is third most available element in the earth
constituting almost 7.3% by mass. Currently it is also the second most used metal in the world
after steel. Due to the consistent growth of Indian economy at a rate of 8%, the demand for
metals, used for various sectors, is also on the higher side. As a result, the Indian aluminium
7
industry is also growing consistently. In FY09, the aluminium industry in India saw a growth of
about 9%.
The production of aluminium started in India in 1938 when the Aluminium Corporation of India's
plant was commissioned. The plant which was set up with a financial and technical collaboration
with Alcan, Canada had a capacity of producing 2,500 ton per annum. Hindustan Aluminium
Corporation (Hindalco) was set up in UP in the year 1959; it had a capacity of producing 20,000
ton per annum. In 1965, a public sector enterprise Malco which had a capacity of 10,000 ton per
annum was commissioned; by 1987, National Aluminium Company (NALCO) was
commissioned to produce aluminium. It had a capacity of producing 0.218 million ton.
During the 1970s, the government started regulating and controlling the Indian aluminium
industry. Restrictions in entry and price distribution controls were quite common in the Indian
aluminium sector. Aluminium Control Order was implemented where the aluminium producers
had to sell 50% of their products for electrical usages. However, in 1989, the order was removed
as the government decontrolling was revoked. With de-licensing of industry in 1991, the liberal
import of technologies and capital goods was started. The liberalization resulted in a growth rate
of 12% of the industry, comparing to the growth rate of 6% during the 1980.
Overview Aluminium Industry:

India is world's fifth largest aluminium producer with an aluminium production competence of
around 2.7 million tonnes, accounting almost 5% of the total aluminium production in the world.
India is also a huge reservoir of Bauxite with a Bauxite reserve of 3 billion tones.
The production
India lies at the eighth position in the list of leading primary aluminium producers in the world.
India saw a significant growth in aluminium production in the past five years. In 2006-07, the
production target of aluminium in India laid by the Ministry of Mines, Government of India was
1,153 KT, which was augmented to 1,237 KT in the next year (2007-08). Due to the growing
demand from the construction, electrical, automobiles and packaging industry, the production of
8
aluminium also hiked up. In FY 09, the total aluminium production in India was around 1.35
tones.
The Consumption
After a stagnant consumption of primary aluminium in India from the end of 1990s to 2002 (when
the consumptions were between 500 – 600 KT), it started rising sharply since 2002. The
consumption reached at 1,080 KT in 2006. The per capita consumption of aluminium in India
continues to remain abysmally low at under 1 kg as against nearly 25 to 30 kgs in the US and
Europe, 15 kgs in Japan, 10 kgs in Taiwan and 3 kgs in China. The key consumer industries in
India are power, transportation, consumer durables, packaging and construction. Of this, power is
the biggest consumer (about 44% of total) followed by infrastructure (17%) and transportation
(about 10% to 12%). However, internationally, the pattern of consumption is in favour of
transportation, primarily due to large-scale aluminium consumption by the aviation space.
The Major Players

The Indian aluminium industry is dominated by four or five companies that constitute the
majority of India's aluminium production. Following are the major players in the Indian
aluminium industry:
 Hindustan Aluminium Company (HINDALCO)

 National Aluminium Company (NALCO)
 Bharat Aluminium Company (BALCO)
 MALCO
 INDAL
9
Hindalco Industries:
Set up in 1958, is under the Aditya Birla Group. Its businesses include the manufacture of Copper
and Aluminium and in both; the company is a leader in the industry. The Hindalco Industries
Ltd's market value is US$ 2.96 billion and it has around 13,675 employees.
The Company Hindalco Industries (commissioned in 1962) has its facility for Aluminium at
Renukoot in eastern U.P. Today, the company has grown to become India's biggest producer of
integrated Aluminium and ranks top in the global sector as the producer of low cost top quartile.
The net operating and sales revenues of the Hindalco Industries Company had amounted to Rs
42,737 million in 2005-2006; while the next year it stood at Rs. 46,779 million.
The various Aluminium products manufactured by the Hindalco Industries are:
• Primary Aluminium
• Alumina Chemicals
• Wire Rods
• Rolled Products
• Alloy Wheels
• Foils
The various Copper products manufactured by the Hindalco Industries are:

• Copper Cathodes
• Precious Metals
• Rods of Cast Copper
10
Hindalco Industries has an important market share in all the categories it operates. In the domestic
market, it enjoys a market share of 44% in Foils, 63% in Rolled Products, and 42% in Primary
Aluminium. The Copper division of the Hindalco Industries has a market share of around 40% in
the domestic market. This has been due to the fact that the company utilizes the best raw material
and the latest technology in the manufacture of its products. As a result, the products of the
Hindalco Industries Ltd are of the best quality.
The Hindalco Industries Company's products are exported in large quantities to Taiwan, Middle
East, Korea, and Southeast Asia. Hindalco Industries has become a leading company in India on
the basis of its quality of products. It is for this reason that its exports are also increasing.
Madras Aluminium:
Madras Aluminium is a subsidiary of Vedanta Resources and was established in the year 1965.
The company is located in Salem city in Tamil Nadu where it has a large power plant. The
company conducts activities such as smelting, refining, mining, and so on.
Products of Madras Aluminium

Madras Aluminium Co. produces Ingots of E.C. and Alloy grade. The ingots vary in weight and
use a wide variety of chemicals such as magnesium, chromium, iron, aluminium, and copper.
Madras Aluminium Co. manufactures wire rods which serve as electrical conductors. These rods
involve a complex production procedure involving rolling as well as casting. The diameter of the
E.C. Grade rods measure 9.5 mm and the tensile strength varies between 9 to 14.5 kg per square
millimetre. The length of the rod can be extended by 22% and the electrical conductivity is 61%
whereas the coil weighs 1.80 to 2.20 MT. The alloy grade rods have a tensile strength that varies
from 13-16 kg per millimetre and the minimum electrical conductivity is 55%. The weight of the
coil is equal to the E.C. grade rods and can be lengthened by 12-16%. They also manufacture bus-
bars of varied sizes and cross sections. These bus-bars are used in industries dealing in energy
sources such as for the transfer of current.
11
National Aluminium Company Limited:

National Aluminium company Limited better known as NALCO was incorporated in 1981 as a
public sector enterprise under the Indian government. Since then, NALCO has grown to become
the largest integrated aluminium unit in Asia and is also one of the largest aluminium complexes
of the world.
Activities of NALCO include a plethora of aluminium and related procedures such as refining,
smelting, bauxite mining, casting, railway operations, port operations, and power generation. In
order to fulfil its vision of becoming a "company of global repute in the aluminium sector", and
driven by its mission of attaining business growth, competitive advantage, and the satisfaction of
customers and investors, NALCO has adopted some pioneering practices as well as state-of-the-
art technology in its manufacturing units that are spread across the country. It is due to the efforts
of NALCO that India has attained self-sufficiency in terms of aluminium and has also gone on to
excel in aluminium production standards.
NALCO's registered/corporate office is located in Bhubaneswar. The main bauxite mines under
NALCO are located in Panchpatmali. NALCO's alumina refinery is located at Damanjodi and its
rolled production units, captive power plant, and aluminium smelter can be found at Angul.
NALCO also owns port facilities at Vishakhapatnam.
National Aluminium Company Limited is primarily engaged in the production of 5 types of

products: Aluminium metal (comprising of ingots, cast strips, billets, wire rods, sows, and allow
wire rods), Alumina and Hydrates (comprising of calcined alumina and alumina hydrate),
aluminium rolled products, Zeoilte-A, and special alumina chemicals.
NALCO has impressed customers and investors with continual growth over the years. In 2006,
NALCO produced 4,623,278 MT of bauxite and 358,734 MT of aluminium. The company's
export turnover for 2006-07 amounted to Rs. 2585 crore. Its gross sales were worth Rs. 6514
crore and profits after tax were to the tune of Rs. 2381 crore.
National Aluminium Company Limited is headed by 5 directors -Mr. K.K. Mallick, Mr. P.K.
Routray, Mr. C.R.Pradhan, Mr. B.L. Bagra, and Mr. Joy Varghese. The National Aluminum
12
Company Limited has offices in New Delhi, Mumbai, Kolkata, Bangalore, Mumbai, Chennai,
Paradip, and Vishakhapatnam.
NALCO has also been a pioneer in corporate social responsibility (CSR) in the Indian public
sector. For example, when NALCO was being built in Damanjodi and Angul, it led to the
displacement of more than 600 families in 50 villages. For these families NALCO provided
employment to the respective nominees. NALCO has also spent as much as Rs. 100 crore for
championing various social causes and development activities. The company has also revamped
the infrastructure and other facilities in the nearby villages. NALCO has also prioritized
communication, drinking water, education, and healthcare for the villages adjoining its plants.
Successful operations of the company in terms of pisciculture and social forestry have led to the
increase of employment generation of income for local residents in areas where National
Aluminium Company Limited has a presence.
Sterlite Industries (India) Limited:

Sterlite Industries (India) Limited is the principal subsidiary of Vedanta Resources Group. Its
chief products are Copper Cathodes and Copper Rods. The company also operates the largest
capacity of continuous Cast Copper Rod plants.
Sterlite Industries has laid great emphasis on customer relationship and quality assurance; using
the best technology, along with their social responsibility. Sterlite Industries certifications are ISO
9001(2000), ISO 14001(1996), and OHSAS 18001(1999).
Sterlite Limited has a domestic market share of 43 percent by volume in 2005-06. It has made
sales of Rs.67921 million during 2005-06 with CAGR of 28 percent. It has operations based on a
Sulphuric Acid Plant, a Copper Rods Plant, a Phosphoric Acid Plant, a Smelter, Refinery, and
various mines.
13
Some brief descriptions of Sterlite products are:

Copper products: Comprises two products; namely, Copper cathodes (produced using the
highly effective ISA electro-refining technology), and Continuous cast copper rods (manufactured
using the Propezi technology).
Chemical products: Include Phospho Gypsum, Hydro Fluo Silicic Acid, Sulphuric Acid,
Ferro Sand, Phosphoric Acids.
Precious metals: Copper concentrate, few traces of gold and silver in the products.
Sterlite Industries has contributed immensely to society and environmental areas. Some of its
efforts in this regard are solid waste and secured landfill, collection of primary gas emissions,
monitoring of air quality, education, sports, community, and health welfare.
Today, Sterlite Industries has a number of excelling frontiers credited to its name. Let us take a
glimpse into these as well:
 First company in South India to go in for a secured land fill

 First private sector smelter in India
 First Copper Smelter in the world to be accredited with "Five Star" rating by British
Safety Council
 Extensive use of TQM to efficiently maximize employee involvement
 National Award in Excellence in Energy Management for the last six years in a row
 Zero-effluent discharge systems integrated at every plant
 Currently 11% of copper requirement met by captive mines
14
 Sterlite Industries (India) Limited has thus, laid a profound impact in the manufacture of
copper based products; while at the same time moving towards the conservation of the
natural environment.
INDAL:
Indal is the integrated aluminium extrusion manufacturers in south east Asia. In its over 30 year
journey to excellence, Indal has become one of the largest integrated aluminium extrusion
manufacturers in South East Asia region that delivers value in product quality and customer
service. Several advantages that our customers will be able to gain from us are competitive price,
quality control and excellent customer service.
Being an ISO 9001:2000 certified company and having semi-automatic production facilities,
Indal's aluminium extrusion and fabrication division ensures that production process adheres with
the international quality standard. We provide customer with the highest quality and precision
from product design stage to product delivery. We also perfected our service with surface
anodizing and paint coatings finishing facilities and on time delivery.
BALCO:
Bharat Aluminium Company Ltd. (BALCO) has been closely associated with the Indian
aluminium industry, playing a pivotal role in making aluminium a leading metal with myriad uses
ranging from household and industrial requirements to aerospace applications. BALCO is part
of Vedanta Resources, a London listed metals and mining major with Aluminium, Copper and
Zinc operations in UK, India and Australia.
15
GLOBAL ALUMINIUM INDUSTRY

Global production of primary aluminium rose continuously from 32 million tonnes (MT) in 2005
to 38 MT in 2007, registering a CAGR of 9%. However, during 2008 the production remained
flattish at around 38 MT (2007 levels) on account of significant fall in demand in the second half
of the year due to the global credit crisis. This created a large amount of demand supply gap, thus
making the inventory levels at LME reach their multi year highs. China accounted for around
30% of the total global aluminium production. Asia, once again showed the largest annual
increase in consumption of primary aluminium, driven largely by increased industrial
consumption in China, which has emerged as the largest aluminium consuming nation,
accounting for 35% of global primary aluminium consumption in 2008. As far as the global
consumption goes, it declined by around 3%YoY to 37 MT in 2008
The Indian aluminium industry registered a growth of around 9% in FY09. Strong growth in
industrial, infrastructure, automobile, transportation and power sectors during the first half of the
fiscal were the key drivers for the demand. However, realizations for the fiscal fell significantly
on account of fall in LME prices due to the global credit crisis, thus causing a dent in margins. On
the other hand, the steep depreciation of Indian rupee against the US dollar impacted the industry
positively. The total aluminium production in the country stood at around 1.35 m tonnes in FY09.
Prospects
Overseas Demand Boosting Metal Prices - Demand in emerging markets like China and India,
coupled with drastically reduced inventories and lower output, have boosted US metal prices. US
16
Steel raised its prices three times between June and July 2009, while Alcoa boosted aluminium
prices by 6 percent since the first quarter, according to BusinessWeek.com. Industry observers
differ over whether prices will continue to rise, however. Some say US auto production is too
weak to sustain higher prices, while Chinese consumption may slow. Output has furthermore
stagnated despite higher prices, leaving metal makers still in search of profits.
Climate Bill Could Impact Steel Costs - A Congressional climate-change bill could add $1
billion to production costs for US steel producers by 2030. The Waxman- Markey bill calls for the
reduction of carbon emissions by 17 percent by 2020 and more than 80 percent by 2050. The
domestic steel industry accounts for about 9 percent of heavy emissions in the US heavy industry
sector. Steel earnings could drop by 2 to 5 percent as a result of the legislation, and could fall
further unless an offset penalty is imposed on imported steel, according to a recent Goldman
Sachs report.
Steel Imports Drop - US steel imports in June 2009 dropped to their lowest levels since 1975,
according to the American Iron and Steel Institute. Steel import permit applications declined 23
percent compared to May, with Japan, India, South Korea, and China submitting the largest
finished steel applications. Despite the falling applications, some industry observers are still
concerned over unfairly traded imports: steel imports boast a 28 percent market share, while
domestic production has slowed to 49 percent of capability.
• Globally, the demand for aluminium is projected to fall by around 7% in 2009 on account
of subdued conditions in the key user industries. However, China is projected to maintain
the consumption levels of 2008 mainly due to the fiscal stimulus package that is likely to
support its ailing economic growth. The revival in the demand for the metal is expected to
start from 2010 globally. As per Alcoa, world’s largest aluminium producer, the demand
for aluminium is projected to grow at around 6% CAGR till 2018 on account of newer
packaging applications and increased usage in automobiles, consumer durables,
construction and defence.
17
• With key consuming industries forming part of the domestic core sector, the
Aluminium industry is sensitive to fluctuations in performance of the economy. Power,
infrastructure and transportation account for almost 3/4th of domestic aluminium
consumption. With the government focusing towards bringing back GDP growth rates of
above 8%, the key consuming industries are likely to lead the way, which could positively
impact aluminium consumption. Domestic demand growth is likely to remain robust over
a long term period.
A US$ 29 billion corporation, the Aditya Birla Group is in the League of Fortune 500. It is anchored by
an extraordinary force of 130,000 employees, belonging to 30 different nationalities. In the year 2009,
the Group was ranked among the top six great places for leaders in the Asia-Pacific region, in a study
conducted by Hewitt Associates, RBL Group and Fortune magazine. In India, the Group has been
adjudged the best employer in India and among the top 20 in Asia by the Hewitt-Economic Times and
Wall Street Journal Study 2007.
Over 60 per cent of the Group's revenues flow from its overseas operations. The Group operates in 25
countries – India, UK, Germany, Hungary, Brazil, Italy, France, Luxembourg, Switzerland, Australia,
USA, Canada, Egypt, China, Thailand, Laos, Indonesia, Philippines, Dubai, Singapore, Myanmar,
Bangladesh, Vietnam, Malaysia and Korea. The Aditya Birla Group is India’s second largest business
house with turnover of over 200 billion-asset base values at over Rs. 180 Billion and nearly 72,000
employees all over the world. Over 75 units in India and overseas as well and international trading
operations
ABG is committed to the future of India, for over 50 years now.

• Gross Revenue- Rs. 26,000 crores
• Gross Assets - Rs. 25,700 crores
• Shareholders - Rs. 6, 50, 000
18
Globally, the Aditya Birla Group is a metals powerhouse, among the world's most cost-efficient
aluminium and copper producers. Hindalco-Novelis is the largest aluminium rolling company. It
is one of the three biggest producers of primary aluminium in Asia, with the largest single
location copper smelter.
 The fourth-largest producer of insulators
 The fourth-largest producer of carbon black
 The fifth-largest producer of acrylic fiber
 The tenth-largest cement producer
 Among the best energy-efficient fertiliser plants
In India:
 Largest cement producer
 Largest premium, branded apparel company
 The second-largest producer of viscose filament yarn
 The second-largest in the chlor-alkali sector
 Among the top five cellular operators
 Among top 10 Indian BPO companies by revenue size
 Among the top five asset management and private sector life insurance companies
 Among the top three supermarket chains in the retail business
Rock solid in fundamentals, the Aditya Birla Group nurtures a culture where success does not
come in the way of the need to keep learning afresh, to keep experimenting.
Group Vision:
To be a premium metals major, global in size and reach, excelling in everything we do, and
creating value for its stakeholders.
Group Mission:
19
To relentlessly pursue the creation of superior shareholder value, by exceeding customer

expectation profitably, unleashing employee potential, while being a responsible corporate
citizen, adhering to our values.
Overview of Hindalco:
The Hindalco story dates back to the young Indian democracy of the 1950s. Ready to take a giant
leap, India was geared to make it big, especially in terms of innovation and industrialisation.
Hindalco embarked on its journey in 1958. Its first real contribution to the vision of an industrial
India occurred four years later, when the visionary — late Mr. G.D. Birla set up India's first
integrated aluminium facility at Renukoot, in the eastern fringe of Uttar Pradesh, India. It was
backed by a captive thermal power plant at Renusagar in 1967. Hindalco attained its leadership
position in the aluminium industry under the dynamic leadership of the late Mr. Aditya Vikram
Birla — a formidable force in the Indian industry.
And it was through the vision and guidance of Mr. Kumar Mangalam Birla, the Group Chairman
that the business segments of aluminium and copper areconsolidated to make Hindalco the non-
ferrous metals powerhouse it is today. This was achieved in part by expansion through mergers
and acquisitions with companies such as Indal and Birla Copper. Hindalco also secured copper
reserves and amplified its operating base by acquiring the Australian Nifty and Mt. Gordon
copper mines.
20
Over the years, Hindalco has grown into the largest vertically integrated aluminium company in
the country and among the largest primary producers of aluminium in Asia. Its copper smelter is
today the world's largest custom smelter at a single location.
In 2007, the landmark acquisition of Novelis Inc., the world's largest aluminium rolling company,
placed Hindalco's footprint across the globe, securing it a rank amongst the top five global
aluminium majors and also placing it in the Fortune 500 league
Aluminium business
Hindalco is Asia's largest integrated primary producer of aluminium and among the most cost-
efficient producers globally. Our aluminium units across India encompass the entire gamut of
operations, from bauxite mining, alumina refining, aluminium smelting to downstream rolling,
extrusions and recycling. In India, we enjoy a leadership position in aluminium and downstream
products. Our product range includes rolled products, extrusions, foils, primary aluminium ingots,
billets, wire rods and aluminium slabs.
Hindalco metal is accepted under the high-grade aluminium contract on the London Metal
Exchange (LME) as a registered brand. We have also been accorded the Star Trading House
status in India.
Hindalco’s integrated complex at Renukoot , in Uttar Pradesh, India, houses an alumina refinery,
an aluminium smelter and facilities for the production of semi fabricated products. Power is
sourced from our Renusagar power plant, located about 45 km from Renukoot.
The captive power plant located at Renusagar, Uttar Pradesh, with 10 power generating units, has
a current generation capacity of 742 MW. Excellent operational standards have ensured a
consistent plant load factor of over 90 per cent. The integrated complex at Renukoot also houses a
co-generation plant with a capacity of 37.5 MW. A new co-generation plant with a capacity of 41
MW has just been commissioned to meet the requirements of the enhanced post-expansion
capacities.
21
Other facilities include an aluminium smelter at Hirakud (Odisha) with a captive power plant and
coal mine, alumina refineries at Muri (Jharkhand), and Belgaum (Karnataka), and rolling mills at
Belur (West Bengal), and Taloja, Mouda (Maharashtra), foil rolling at Kalwa (Maharashtra) and
Silvassa (Union Territory of Dadra and Nagar Haveli) and an extrusions plant at Alupuram
(Kerala).
A strong presence across the value chain and synergies in operations has given Hindalco a
dominant share of the domestic value-added products market. In India, the company enjoys a
leadership position in speciality aluminas and hydrates as well as in primary aluminium and
downstream semi-fabricated products.
Hindalco product range includes:

Ingots
Hindalco produces high-purity ingots through smelting. Alloy ingots of various grades are also
produced and mainly used for the production of castings in the auto industry and in electrical
applications. Both these products are re-melted and further processed into a large number of
products for various downstream applications.
Hindalco metal is accepted under the high-grade aluminium contract on the London Metal
Exchange (LME) as a registered brand.
Wire Rods
Hindalco manufactures wire rods in a continuous casting and rolling process. Electrical conductor
(EC) wire rods are used for the production of cables and ACSR and AAC conductors. Alloy wire
rods are used to produce AAA Cconductors.
Billets
22
Hindalco's aluminium billets are produced by a state-of-the-art Wagstaff casting process using
Airslip technology. These are top-quality billets with a smooth finish. They are used mainly to
produce extrusions and forgings.
Foil and packaging Delivering 'never-before-tried' solutions to customers in India and across the
globe, Hindalco has the distinction of being India's premier supplier of foil and foil laminates —
plain, lacquered and printed. Our foil and packaging division operates out of three modern, well-
equipped plants located at Kalwa in Maharashtra, Silvassa in Dadra and Nagar Haveli and Kollur
in Andhra Pradesh, India. These well-equipped foil rolling and converting facilities provide a
veritable 'one-stop-shop' for packaging solutions. The plants also employ high-end technology
and professional expertise to develop visually appealing and functionally useful packaging.
RESEARCH METHODOLOGY:
The methodology followed in this project involved the following Phases:
OBJECTIVES OF THE STUDY:

 To know about the current assets and current liabilities position of Hindalco Industries
Ltd.
 To determine the ratios relating to the working capital.
 To find out the Gross Working Capital position of Hindalco Industries Ltd.
 To know about the net working capital position of Hindalco Industries Ltd.
RESEACH DESIGN:
 A research design specifies the methods and procedures for conducting survey. Research
design is the plan and structure of investigation so conceived as to obtain answer to
23
research questions. The plan is overall scheme of the research. Descriptive Research
Design has been adopted while doing the research.
DATA COLLECTION METHOD:
 Data required for the project e.g. Balance Sheet, statement of Profit & Loss
Account etc. were collected from the annual reports of Hindalco period of 2008-09 and
2009-10. Besides for Explanation of several issues, different articles, Internet data’s,
books etc were consulted. The data collected is a Secondary Data.
TYPE OF THE PROJECT:

The project is descriptive and analytical in nature.
FINANCIAL ANALYSIS
Definition and Explanation of Financial Statement
Analysis:
Financial statement analysis is defined as the process of identifying financial strengths and
weaknesses of the firm by properly establishing relationship between the items of the balance
sheet and the profit and loss account.
There are various methods or techniques that are used in analyzing financial statements, such as
comparative statements, schedule of changes in working capital, common size percentages, funds
analysis, trend analysis, and ratios analysis.
Financial statements are prepared to meet external reporting obligations and also for decision
making purposes. They play a dominant role in setting the framework of managerial decisions.
But the information provided in the financial statements is not an end in itself as no meaningful
conclusions can be drawn from these statements alone. However, the information provided in the
24
financial statements is of immense use in making decisions through analysis and interpretation of
financial statements.
Tools and Techniques of Financial Statement

Analysis:
Following are the most important tools and techniques of financial statement analysis:
1. Horizontal and Vertical Analysis

2. Ratios Analysis
1. Horizontal and Vertical Analysis:

Horizontal Analysis or Trend Analysis:
Comparison of two or more year's financial data is known as horizontal analysis, or trend
analysis. Horizontal analysis is facilitated by showing changes between years in both dollar and
percentage form.
Trend Percentage:
Horizontal analysis of financial statements can also be carried out by computing trend
percentages. Trend percentage states several years' financial data in terms of a base year. The
base year equals 100%, with all other years stated in some percentage of this base.
Vertical Analysis:
Vertical analysis is the procedure of preparing and presenting common size statements.
Common size statement is one that shows the items appearing on it in percentage form as well as
in dollar form. Each item is stated as a percentage of some total of which that item is a part. Key
financial changes and trends can be highlighted by the use of common size statements.
25
Ratios Analysis:
The ratios analysis is the most powerful tool of financial statement analysis. Ratios simply means
one number expressed in terms of another. A ratio is a statistical yardstick by means of
which relationship between two or various figures can be compared or measured. Ratios
can be found out by dividing one number by another number. Ratios show how one
number is related to another.
Profitability Ratios:
Profitability ratios measure the results of business operations or overall performance and
effectiveness of the firm. Some of the most popular profitability ratios are as under:
• Gross profit ratio

• Net profit ratio
• Operating ratio
• Expense ratio
• Return on shareholders’ investment or net worth
• Return on equity capital
• Return on capital employed (ROCE) Ratio
• Dividend payout ratio
• Earnings Per Share Ratio
• Price earnings ratio
Liquidity Ratios:
Liquidity ratios measure the short term solvency of financial position of a firm. These ratios
are calculated to comment upon the short term paying capacity of a concern or the firm's
ability to meet its current obligations. Following are the most important liquidity ratios.
• Current ratio
• Liquid / Acid test / Quick ratio
Activity Ratios:
Activity ratios are calculated to measure the efficiency with which the resources of a firm
have been employed. These ratios are also called turnover ratios because they indicate the
26
speed with which assets are being turned over into sales. Following are the most important
activity ratios:
• Inventory / Stock turnover ratio

• Debtors / Receivables turnover ratio
• Average collection period
• Creditors / Payable turnover ratio
• Working capital turnover ratio
• Fixed assets turnover ratio
• Over and under trading
Long Term Solvency or Leverage Ratios:

Long term solvency or leverage ratios convey a firm's ability to meet the interest costs and
payment schedules of its long term obligations. Following are some of the most important
long term solvency or leverage ratios.
• Debt-to-equity ratio
• Proprietary or Equity ratio
• Ratio of fixed assets to shareholders funds
• Ratio of current assets to shareholders funds
• Interest coverage ratio
• Capital gearing ratio
• Over and under capitalization
WORKING CAPITAL MANAGEMENT

Working Capital refers to the cash a business requires for day-to-day operations, or more
specifically, for financing the conversion of raw material into finished goods, which the company
sells for payment. Among the most important items of Working Capital are levels of inventory,
accounts receivable and accounts payable. Analysts look at these items for signs of a company’s
efficiency.
Funds are also needed for short-term purposes, for the purpose of raw materials, payment of
wages and other day-to-day expenses, etc. These funds are known as Working Capital. In simple
27
words, Working Capital refers to that part of the firm’s capital, which is required for financing
short- term or current assets such as cash, marketable securities, debtors and inventories.
Working Capital is a valuation metric that is calculated as current assets minus current liabilities.
Working capital is also known as Operating Capitals.
Working Capital is needed for the following purposes:

 For the purchase of raw material.
 To incur day-to-day expenses and overhead costs such as fuel, power and office expenses,
etc.
 To meet the selling costs as packing, advertising etc.
 To provide credit facility to the customers.
 To maintain the inventories of raw materials, work-in-progress, stores and spares and
finished stock.
 To pay wages and salaries.
Steps involved in working capital management:

 Forecasting the Amount of Working Capital
 Determining the Sources of Working
Objectives of Working Capital Management:

 Deciding Optimum Level of Investment in various WC Assets.
 Decide Optimal Mix of Short Term and Long Term Capital
 Decide Appropriate means of Short Term Financing
28
WORKING CAPITAL MANAGEMENT:

The working capital requirement of a firm depends, to a great extent upon the operating cycle of
the firm. The operating cycle may be defined as the time duration starting from the procurement
of goods or raw material and ending with the sales of realization. The length and nature of the
operating cycle may differ from one firm to another depending upon the size and nature of the
firm. In a trading concern, there is a series of activities starting from procurement of goods
(saleable goods) and ending with the realization of sales revenue (at the time of sale itself in the
case of cash sales and at the time of debtors realization in case of credit sales).similarly in case of
manufacturing concern, this series starts from the procurement of raw materials and ending with
the sales realization of finished goods. In both the cases, however, there is a time gap between the
happening of the first event and the happening of the last event. This time gap is called the
operating cycle.
Thus, the operating cycle of a firm consists of the time required for the completion of the
chronological sequences of some or all of the following:
1. Procurement of raw material and services.

2. Conversion of raw material into work-in-progress.
3. Conversion of work-in-progress into finished goods.
4. Sale of finished goods (cash or credit)
5. Conversion of receivable into cash.
DUPONT ANALYSIS
29
A method of performance measurement that was started by the DuPont Corporation in the
1920s. With this method, assets are measured at their gross book value rather than at net book
value in order to produce a higher return on equity (ROE). It is also known as "DuPont
identity".
DuPont analysis tells us that ROE is affected by three things:
1) Operating efficiency, this is measured by profit margin.
2) Asset use efficiency, which is measured by total asset turnover.
3) Financial leverage, which is measured by the equity multiplier.
It is believed that measuring assets at gross book value removes the incentive to avoid investing
in new assets. New asset avoidance can occur as financial accounting depreciation methods
artificially produce lower ROEs in the initial years that an asset is placed into service. If ROE is
unsatisfactory, the DuPont analysis helps locate the part of the business that is underperforming.
The Du Pont identity breaks down Return on Equity (that is, the returns that investors receive
from the firm) into three distinct elements. This analysis enables the analyst to understand the
source of superior (or inferior) return by comparison with companies in similar industries (or
between industries).
The Du Pont identity, however, is less useful for some industries, such as investment banking,
that do not use certain concepts or for which the concepts are less meaningful. Variations may be
used in certain industries, as long as they also respect the underlying structure of the Du Pont
identity.
Du Pont analysis relies upon the accounting identity, that is, a statement (formula) that is by
definition true.
30
ROE = Profit Margin (Profit/Sales) * Total Asset Turnover

(Sales/Assets) * Equity Multiplier (Assets/Equity)
ANALYASIS & INTERPRETATION
31
SWOT analysis of Hindalco Industries

Ltd
Strength & Opportunities
 The standalone sales increased by 7% Rs. 19,536 cr for FY 10. The company has
sustained a better cost management in FY10.
 In this FY10, Hindalco operated very much efficiently producing the highest metal ever
complemented by its substantial cost savings.
 Hindalco has scaled up its Hirakud smelter and power expansion project to 360 KTPA
from the earlier planned 213 KTPA. The captive power plant for the project will be raised
to 967.5 mw as against the proposed 467.5 mtpa.
 The copper business contributed Rs 12,575 cr in net sales, a rise of 13%. The EBIT for the
copper business soared three times to Rs 1,003 cr.
 Aditya Birla Minerals, the Australian mining subsidiary of Hindalco, report net profit of
Rs 246 cr against a loss Rs 304 cr last year.
 Hirakud’s Brownfield expansion is underway from 155 ktpa to 213 ktpa by 2012.
 Hindalco is the largest aluminum producer in India with a market share of 45% and is the
32
only player that converts 67% of metal production into value added products like
aluminum foils & packaging material.
 Hindalco has a copper smelting capacity of 500 kpta that is largest in Asia.
 The company has a future plan of tripling its aluminum production in next three years
through Brownfield and Greenfield expansions in India.
Weakness & Threats:
 Copper business lost Rs. 750 cr as well on lower by-product credit.
 Post repayment of bridge loan and low treasury corpus for acquisition of Novelis and
expansion plans led other income of the company too declined by Rs. 377 cr to Rs. 260 cr.
 Hirakud’s Brownfield expansion from 155kpta to 213 kpta is pushed back by 8 months i.e.
in Q4FY12.
 The company’s consolidated sales fell by 8% to Rs. 60, 722 cr due to weak global
demand.
 Utkal alumina 1.5 mtpa aluminum refinery’s commissioning has been pushed back to Q2
FY12 presents a major challenge in its domestic business front.
 Commitment on Rs. 56b capex has been increased by 15pp to 81% taking its project cost
marginally higher to Rs. 400 mn. a worrying cash outflow for Hindalco industries.
 Aluminum business, one of its core business revenue fell by 11% to Rs. 48,901 cr due to
lower LME and less demand in world markets and eroded its aluminum business profit by
around Rs. 750 cr.
33
 In short term Hirakud’s expansion is seen in FY11 while most of its project are
completing in FY 12 & FY 14. Till then the company has a huge cash outflow to maintain.
WORKING CAPITAL MANAGEMENT AT

HINDALCO
In Hindalco working capital requirement is finance basically through following sources:
 Internal funds
 Short term securities and interest thereon
 Bank loan
A. Internal Funds: An internal fund denotes the funds generated through operation of the
firm i.e., through sales turnover. This is major source of financing working capital
requirement of the firm.
B. Short-Term Securities: On account of uncertainties attached with generation of

funds through sales, the company has invested in several short-term securities to meets its
day-to-day requirements of funds. The maturity of these securities is from source of
financing WCR.
Hindalco has Short-term Investment in:

1. Debenture of HPCL Unit of UTI, HDFC, ICICI, IDBI, Franklin Templeton Funds, Birla
Mutual Funds, GIC Mutual funds and Alliance Mutual Funds, DSP Merrill Lynch Mutual
Funds, Standard Chartered Mutual Funds, Zurich India Mutual Funds.
34
The total current investment of the company at the year ended 31.03.08 amount to Rs.
40,508.81 Lacs.
2. Besides above, the company has various credit arrangements with banks to finance the
daily WCR. These are of following types:
 Cash credit
 Purchase/ discounting of bills
 Working capital term loan
 Letter of credit
I. Cash Credit:
The Company has cash credit facilities with various banks. The administrative of this is
done at the principal office at Renukoot. However, it’s Regional and Area offices are
authorized to utilize the cash credit facilities up to the limit described by the principal
office.
II. Purchase/ Discounting of Bills:

The company also purchases and discounts the bills issued by its customers to meet the
daily requirements.
III. Working Capital Term Loan
IV. Letter of Credit
35
The company’s Export/ Import operations are done through LOC.
STATEMENT OF WORKING CAPITAL

Particulars 2007-08 2008-09 2009-10
(A) Current Assets
Inventories 5097.91 4 ,070.14 5,921.41
Sundry Debtors 1565.02 1 ,201.22 1,311.87
Cash & Bank Balance 146.98 8 43.72 140.21
Other C.A. 62.3 5 1.78 53.43
Loan & advances 979.46 1 ,573.05 1,437.37
Total 7851.67 7 ,739.91 8,864.29
(B) Current Liabilities
Liabilities 2894.78 1 ,868.91 5,426.93
Provisions 906.01 8 03.16 721.49
Total 3800.79 2 ,672.07 6,148.42
Working Capital 4050.88 5067.84 2715.87
Increase/ (Decrease) W.C. - 1016.96 -2351.97
36
The above data shows that working capital is decreasing in comparison to last year’s which is not
good for the liquidity of the company. Current assets and current liabilities have increased by
14.52% and130.1 respectively in 2009-10. This means current asset is not adequate to meet
current liabilities as increase in current liability is more. Ideal current ratio is 2:1 but ratio for
2009-10 is 1.3:1. Company should try to manage its current liabilities.
STATEMENT OF FINANCIAL ANALYSIS
STANDALONE FINANCIAL PERFORMANCE-FY10

Mar- Mar- ABSOLUT
PROPORTIONA
Hindalco Industries Ltd 09 10 E
TE CHANGE
1 Year 1 Year CHANGE
18856. 19796.
Total income 1316.63 7.2
3 13
18052. 19408.
Sales 1355.05 7.51
97 02
Other operating income 166.68 128.26 -38.42 23.05
Other income 636.65 259.85 -376.8 59.18
15183. 16586.
Total expenditure 1402.58 9.00
78 36
(Increase)/decrease in stock 520.58 -755.25 1275.83 245.1
10331. 13225.
Consumption of raw materials 2894.59 28.02
09 68
37
Purchase of traded goods 113.04 71.99 -41.05 36.31

Employees cost 818.58 877.75 59.17 7.23
1897.5
Power and fuel 1938 46.43 2.45
7
1502.9 1228.1
Other expenditure -274.73 18.27
2 9
3, 2,542.5
PBIDT -484.69 16.01
027.25 6
Interest 3 36.93 278 -58.93 17.5
2, 2,264.5
PBDT -425.76 15.83
690.32 6
Depreciation 645.27 667.21 21.94 3.4
Tax 4 60.05 348.93 -111.12 24.15
2,230.2 1,915.6
PAT -314.64 14.11
7 3
23754. 27906.
Net Worth 4152.24 17.47
74 98
Paid up Equity Shares (Face
1 70.05 191.37 21.32 12.53
Value: Rs 1/- per share)
23,584. 27,715.
Reserves 4,130.92 17.51
69 61
8, 6,356.9
Total Borrowing -1967.39 23.63
324.29 0
2, 6,148.4
Current liabilities & provisions 3,476.35 130.1
672.07 2
36735. 41762.
Total assets 5027.16 13.68
35 51
9, 11,437.
Fixed assets 2,161.01 23.29
276.60 61
Current assets, loans and 7,739.9 8,864.2
1124.38 14.521
advances 1 9
9,148.8 21,480.
Investment 2331.99 12.17
4 83
CONSOLIDATED FINANCIAL PERFORMANCE
ABSOLUTE PROPORTINATE
PARTICULARS FY09 FY10
CHANGE CHANGE
Net Sales &
Operational 65963 60722 -5231 -8
Revenues
PBIDT 3661 10069 6408 175
PBT -605 6181 …. ….
PAT 484 3,925 711 484 3925 3441 711
38
EPS (Rs) 3.21 22.17 18.96 590
 Net sales were lower mainly on account of lower Aluminum LME.
 Profit for FY09 includes unrealized derivative loss of $519 mn while profit for FY10
includes unrealized derivative gain of $578 mn – pertaining to Novelis.
RATIO ANALYSIS OF HINDALCO

Financial ratios are a relatively easy way to get a basic understanding of the financial health of an
organisation. They range from the very simple to the complex, and the relevance of many of the
ratios depends on the nature of the organisation and therefore should only be compared with
similar companies.
39
1. PROFITABILITY RATIOS:
Profitability Ratios are used to assess a business's ability to generate earnings as compared to its
expenses and other relevant costs incurred during a specific period of time.
Return on Total Assets (ROTA):

Ratio measuring the operating profitability of a firm, expressed as a percentage of the operating
assets. ROTA indicates a firm's ability to efficiently allocate and manage its resources but (unlike
'return on equity') ignores the firm's liabilities. It is calculated by
ROTA = (Income before interest and tax / Total Assets)*100
Particulars 2007-08 2008-09 2009-10
EBIT 2521.35 2381.98 1875.35

TOTAL ASSETS 30888.86 36735.35 41762.51
ROTA 8.16 6.48 4.49
40
As per the above data it can be observed that ROTA is decreasing continuously as compared to
previous years. Investment in total assets has also increased. Revenue from aluminium has
decreased as compared to copper but net sales from aluminium has increased. Expenses in stock,
compensation of raw material, employees cost, power and fuel and depreciation including
impairment has increased continuously. It indicates company is not using it’s asset effectively to
generate funds.
Return on Capital Employed (ROCE):

A ratio that indicates the efficiency and profitability of a company's capital investments. ROCE
should always be higher than the rate at which the company borrows, otherwise any increase in
borrowing will reduce shareholders' earnings.
ROCE = (EBIT / Capital Employed)*100
Particulars 2007-08 2008-09 2009-10

EBIT 2521.35 2381.98 1875.35
Capital employed 17294.18 32082.61 34267.87
ROCE 14.62 7.42 5.47
41
The future maintainable profits have not matched the pace with the increase in company’s capital
employed . Since capital employed comprises of shareholder’s fund, reserves and surplus and
loans, it has been observed that shareholder’s fund has increased a little but more amount is
transferred to reserves and surplus. Thus resulting in blocking funds.
Return on Equity (ROE):

The amount of net income returned as a percentage of shareholders equity. Return on equity
measures a corporation's profitability by revealing how much profit a company generates with the
money shareholders have invested.
ROE= {(PAT)/Net Worth}*100

Net Worth= Share Capital + General Reserves – Misc. Expenditure
Particulers 2007-08 2008-09 2009-10
PAT* 2859.38 2230.27 1,915.63
Net Worth 17294.18 23755.15 27906.98
ROE 16.4 9.4 6.8
42
Due to decrease in financial leverage Net Worth of company has increased. Also the future
maintainable profit has not increased in the same proportion as the Net Worth of the company
thus ROE for the company has gone down.
2. MARGIN RATIOS:
It is the amount of profit (at the gross, operating, pre tax or net income level) generated by the
company as a percent of the sales generated. The objective of margin analysis is to detect
consistency or positive/negative trends in a company's earnings.
Positive profit margin analysis translates into positive investment quality. To a large degree, it is
the quality, and growth, of a company's earnings that drive its stock price.
Gross Margin Percentage (GMP):

A financial metric used to assess a firm's financial health by revealing the proportion of money
left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as
the source for paying additional expenses and future savings.
43
GMP = (GROSS PROFIT/SALES)*100
PARTICULARS 2007-08 2008-09 2009-10

SALES 18909.08 18052.97 19,408.02
GROSS PROFIT 3888.22 3606.08 3021.91
GMP 20.56 19.97 15.57
In the above case a decline can be seen in the GP ratio which is due to the reason that increase in
sales has not resulted in an increase in GP which has gone down year after year and due to the
increase in cost of production.
Operating Profit Margin (OPM):

A ratio used to measure a company's pricing strategy and operating efficiency. Operating margin
is a measurement of what proportion of a company's revenue is left over after paying for variable
costs of production such as wages, raw materials, etc. A healthy operating margin is required for a
company to be able to pay for its fixed costs, such as interest on debt.
Operating margin gives analysts an idea of how much a company makes (before interest and
taxes) on each dollar of sales. When looking at operating margin to determine the quality of a
company, it is best to look at the change in operating margin over time and to compare the
44
company's yearly or quarterly figures to those of its competitors. If a company's margin is

increasing, it is earning more per dollar of sales. The higher the margin, the better.
OPM = (OPERATING PROFIT/SALES)*100
PARTICULARS 2007-08 2008-09 2009-10

SALES 18909.08 18052.97 19,408.02
OPERATING PROFIT 2521.35 2223.92 2542.56
OPM 13.33 12.32 13.10
As the ratio measures the quantum and extent of expenditure incurred in producing and selling the
goods. The operating profit margin has remained almost stable in 2009-10. The operating profit
has been able to match the increase in sales. It means the level of operating expenses have been
able to match the increase in sales. High operating profit margin shows that company is in good
state and has healthy margins. One of the primary reasons being that it is the market leader thus is
able to command its position in market.
Net Profit Margin (NPM):
45
A ratio of profitability calculated as net income divided by revenues, or net profits divided by
sales. It measures how much out of every dollar of sales a company actually keeps in earnings.
Profit margin is very useful when comparing companies in similar industries. A higher profit
margin indicates a more profitable company that has better control over its costs compared to its
competitors.
Looking at the earnings of a company often doesn't tell the entire story. Increased earnings are
good, but an increase does not mean that the profit margin of a company is improving. For
instance, if a company has costs that have increased at a greater rate than sales, it leads to a lower
profit margin. This is an indication that costs need to be under better control.
NPM = (PROFIT AFTER TAX/SALES)*100
PARTICULARS 2007-08 2008-09 2009-10

PAT 2859.38 2230.27 1,915.63
SALES 18909.08 18052.97 19,408.02
NPM 15.12 12.35 9.87
46
The reduction in Net profit margin primarily is due to high increase in interest paid during the
year. Also there is a reduction in the leverage of the company and decrease in profit of sales.
3. ACTIVITY RATIOS:
Accounting ratios are the techeniques that measure a firm's ability to convert different accounts
within their balance sheets into cash or sales. Companies will typically try to turn their production
into cash or sales as fast as possible because this will generally lead to higher revenues. Such
ratios are frequently used when performing fundamental analysis on different companies. The
asset turnover ratio and inventory turnover ratio are good examples of activity ratios.
Inventory Turnover Ratio (ITR):

A ratio showing how many times a company's inventory is sold and replaced over a period.
Although the first calculation is more frequently used, COGS (cost of goods sold) may be
substituted because sales are recorded at market value, while inventories are usually recorded at
cost. Also, average inventory may be used instead of the ending inventory level to minimize
seasonal factors.
This ratio should be compared against industry averages. A low turnover implies poor sales and,
therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. High
inventory levels are unhealthy because they represent an investment with a rate of return of zero.
ITR = Cost of Goods Sold (COGS) / Average Inventory
47
PARTICULARS 2007-08 2008-09 2009-10

COGS 15020.87 14446.89 16386.11
AVERAGE INVENTORY 4706.61 4584.03 4995.78
ITR(TIMES) 3.19 3.15 3.28
ITR has increased in 2009-10 which indicate over investment is done in stocks in comparison to
previous years.
Days of Inventory Holding:

This ratio calculates the no. of days, on an average, that elapse between finished goods production
and sale of goods or average number of days we held our inventory before a sale. A low number
of inventory days are desirable. A high number of days imply that management is unable to sell
existing inventory stocks.
INVENTORY HOLDING PERIOD- 360/INVENTORY TURNOVER
PARTICULARS 2007-08 2008-09 2009-10

ITR 3.19 3.15 3.28
IHP 112.85 114.28 109.78
48
There has been a rise in IHP ’09 which was not healthy as large stock has been kept due to less
sales but has gone down in2009-10.
Working Capital Turnover Ratio (WCTR):

A measurement comparing the depletion of working capital to the generation of sales over a given
period. This provides some useful information as to how effectively a company is using its
working capital to generate sales.
A company uses working capital (current assets - current liabilities) to fund operations and
purchase inventory. These operations and inventory are then converted into sales revenue for the
company. The working capital turnover ratio is used to analyze the relationship between the
money used to fund operations and the sales generated from these operations. In a general sense,
the higher the working capital turnover, the better because it means that the company is
generating a lot of sales compared to the money it uses to fund the sales.
WCTR = NET SALES/AVERAGE WORKING CAPITAL

PARTICULARS 2007-08 2008-09 2009-10
NET SALES 18909.08 18052.97 19,408.02
AVERAGE WORKING CAPITAL 2819.33 3283.11 3891.85
49
WCTR 6.71 5.49 4.98
The ratio is continously decreasing as working capital employed has increased every year but net
sales has not increased in proportion to working capital , thus decreasing the efficiency of
working capital.
Fixed Assets Turnover Ratio (FATR):

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's
ability to generate net sales from fixed-asset investments – specifically property, plant and
equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the
company has been more effective in using the investment in fixed assets to generate revenues.
This ratio is often used as a measure in manufacturing industries, where major purchases are made
for PP&E to help increase output. When companies make these large purchases, prudent investors
watch this ratio in following years to see how effective the investment in the fixed assets was.
FATR = NET SALES/AVERAGE FIXED ASSETS

PARTICULARS 2007-08 2008-09 2009-10
NET SALES 18909.08 18052.97 19,408.02
AVERAGE FIXED ASSETS 8656.18 9052.9 10357.11
50
FATR(TIMES) 2.18 1.99 1.87
The net sales has declined from 2007-08 but has risen in 2009-10 and fixed asset has increased
resulting in low FATR. Capacity in form of fixed assets has increased but FATR has reduced thus
showing that company is working at low Capacity utilization.
Total Assets Turnover Ratio (TATR):
The total asset turnover ratio measures the ability of a company to use its assets to generate sales.
The total asset turnover ratio considers all assets including fixed assets, like plant and equipment,
as well as inventory and accounts receivable.
TATR = NET SALES/AVERAGE TOTAL ASSETS
PARTICULARS 2007-08 2008-09 2009-10

NET SALES 18909.08 18052.97 19,408.02
AVERAGE TOTAL ASSET 27914.41 33528.11 34563.80
TATR 0.68 0.54 0.56
51
The lower the total asset turnover ratio, as compared to historical data for the firm and industry
data, the more sluggish the firm's sales. This may indicate a problem with one or more of the asset
categories composing total assets - inventory, receivables, or fixed assets. The small business
owner should analyze the various asset classes to determine where the problem lies.
52
4. CAPITAL STRUCTURE AND SOLVENCY

RATIOS:
One of many ratios used to measure a company's ability to meet long-term obligations. The
solvency ratio measures the size of a company's after-tax income, excluding non-cash
depreciation expenses, as compared to the firm's total debt obligations. It provides a measurement
of how likely a company will be to continue meeting its debt obligations Acceptable solvency
ratios will vary from industry to industry, but as a general rule of thumb, a solvency ratio of
greater than 20% is considered financially healthy.
Generally speaking, the lower a company's solvency ratio, the greater the probability that the
company will default on its debt obligations
Debt-Equity Ratio:
A measure of a company's financial leverage calculated by dividing its total liabilities by
stockholders' equity. It indicates what proportion of equity and debt the company is using to
finance its assets. Sometimes only interest-bearing, long-term debt is used instead of total
liabilities in the calculation.
Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial
statements as well as companies'. A high debt/equity ratio generally means that a company has
been aggressive in financing its growth with debt. This can result in volatile earnings as a result of
the additional interest expense. If a lot of debt is used to finance increased operations (high debt to
equity), the company could potentially generate more earnings than it would have without this
outside financing. If this were to increase earnings by a greater amount than the debt cost
(interest), then the shareholders benefit as more earnings are being spread among the same
amount of shareholders. However, the cost of this debt financing may outweigh the return that the
53
company generates on the debt through investment and business activities and become too much
for the company to handle. This can lead to bankruptcy, which would leave shareholders with
nothing. The debt/equity ratio also depends on the industry in which the company operates. For
example, capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio
above 2, while personal computer companies have a debt/equity of under 0.5.
DEBT EQUITY RATIO = LONG TERM DEBT/NET WORTH
PARTICULARS 2007-08 2008-09 2009-10

LONG TERM DEBT 8328.58 8324.29 6356.9
NET WORTH 17294.18 23862.61 27910.97
D\E RATIO 0.48 0.35 0.22
The Debt Equity Ratio is very less and has reduced as compared to the previous year.Thus there is
in reduction in leverage of the company and most of the operations are financed through
shareholder’s equity.
54
AssetsLevarage Ratio (ALR):
ASSET LEVERAGE RATIO = TOTAL ASSETS/NET WORTH
PARTICULARS 2007-08 2008-09 2009-10

TOTAL ASSETS 30888.86 36735.35 41762.51
NET WORTH 17294.18 23862.61 27910.97
ALR 1.79 1.54 1.50
Low Asset Leverage ratio suggests that company is dependent more on the funds collected
through shareholder’s equity. Also the increase in total assets is less as compared to increase in
the Net Worth of the company thus there is a decrease in the ALR ratio from last years.
Interest Coverage Ratio (ICR):

A ratio used to determine how easily a company can pay interest on outstanding debt. The interest
coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of
one period by the company's interest expenses of the same period: The lower the ratio, the more
55
the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or
lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below
1 indicates the company is not generating sufficient revenues to satisfy interest expenses.
INTEREST COVERAGE RATIO = EBIT/INTEREST
PARTICULARS 2007-08 2008-09 2009-10

EBIDTA 3109.16 2223.92 2542.56
INTEREST 280.63 336.93 278
ICR 11.08 6.60 9.15
Interest coverage ratio is adequate to cover the interest expenses.
56
5. LIQUIDITY RATIOS:
A class of financial metrics that is used to determine a company's ability to pay off its short-terms
debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that
the company possesses to cover short-term debts. Common liquidity ratios include the current
ratio, the quick ratio and the operating cash flow ratio. Different analysts consider different assets
to be relevant in calculating liquidity. Some analysts will calculate only the sum of cash and
equivalents divided by current liabilities because they feel that they are the most liquid assets, and
would be the most likely to be used to cover short-term debts in an emergency.
A company's ability to turn short-term assets into cash to cover debts is of the utmost importance
when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use
the liquidity ratios to determine whether a company will be able to continue as a going concern.
Current Ratio:
A liquidity ratio that measures a company's ability to pay short-term obligations. The ratio is
mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and
payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the
more capable the company is of paying its obligations. A ratio under 1 suggests that the company
would be unable to pay off its obligations if they came due at that point. While this shows the
company is not in good financial health, it does not necessarily mean that it will go bankrupt - as
there are many ways to access financing - but it is definitely not a good sign.
The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to
turn its product into cash. Companies that have trouble getting paid on their receivables or have
long inventory turnover can run into liquidity problems because they are unable to alleviate their
obligations. Because business operations differ in each industry, it is always more useful to
compare companies within the same industry.
57
This ratio is similar to the acid-test ratio except that the acid-test ratio does not
include inventory and prepaid as assets that can be liquidated. The components of current ratio
(current assets and current liabilities) can be used to derive working capital (difference between
current assets and current liabilities). Working capital is frequently used to derive the working
capital ratio, which is working capital as a ratio of sales.
CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITIES
PARTICULARS 2007-08 2008-09 2009-10

CURRENT ASSETS 7851.67 7 ,739.91 8,864.29
CURRENT LIABILITIES 3800.79 2 ,672.07 6,148.42
CURRENT RATIO 1.80 2.3 1.29
Current Ratio of the company is low w.r.t to industry standards which is 2:1. Current asset and
current liabilities both has increased as compared to previous years .
Liqudity Ratio (LR):

A stringent test that indicates whether a firm has enough short-term assets to cover its immediate
liabilities without selling inventory. The acid-test ratio is far more strenuous than the working
58
capital ratio, primarily because the working capital ratio allows for the inclusion of inventory
assets.
Companies with ratios of less than 1 cannot pay their current liabilities and should be looked at
with extreme caution. Furthermore, if the acid-test ratio is much lower than the working capital
ratio, it means current assets are highly dependent on inventory. Retail stores are examples of this
type of business.
LIQUID RATIO = LIQUID ASSETS/CURRENT LIABILITIES
PARTICULARS 2007-08 2008-09 2009-10

LIQUID ASSETS 1774.3 2096.72 2942.89
CURRENT LIABILITIES 3800.79 2 ,672.07 6,148.42
LIQUID RATIO 0.46 0.78 0.48
The low value of the liquid ratio suggests that company’s current assets are highly dependent on
inventories, thus company may face difficulties in resolving short term liabilities.
59
DUPONT ANALYSIS OF HINDALCO

The DuPont Model is a technique that can be used to analyze the profitability of a company using
traditional performance management tools. To enable this, the DuPont model integrates elements
of the Income Statement with those of the Balance Sheet.
The advantages of DuPont Analysis are as follows:

 Simplicity
 Can be easily linked to compensation schemes
 Can be used to convince management about steps needed to professionalize
purchasing or sales function.
The limitations of DuPont Analysis are:

 It is based on accounting numbers which are not reliable\
 It does not include cost of capital
DUPONT ANALYSIS OF ROE (2009-10)

As per DuPont Analysis ROE depends on three things:
1. Operating Efficiency, measured by profit margin.
2. Asset use efficiency, measures by total asset turnover.
3. Financial leverage, measured by equity multiplier.
By this Approach
ROE= NPM * ATR*ALR

DUPONT ANALYSIS 2008-09 2009-10
ROE 9.4 6.8
NPM 12.35 9.87
ATR 0.54 0.56
ALR 1.54 1.50
60
ROE is decreasing for the year 2009-10. The main reason being the net worth of the company has
increased and overall debt has reduced thus company is more dependent on the funds collected
through shareholder’s equity rather than loans and leverage funds.
61
6. CAPITAL MARKET RATIO

Capital market ratios relate the market price of a company’s earnings and dividends. Price-
earnings (PE) ratio, dividend, and price to book ratio are the most commonly used ratios that aid
investors and analysts in understanding the strength of a company in the capital market.
Price Earning (PE) Ratio:

A valuation ratio of a company's current share price compared to its per-share earnings. Also
sometimes known as "price multiple" or "earnings multiple". In general, a high P/E suggests that
investors are expecting higher earnings growth in the future compared to companies with a lower
P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to
compare the P/E ratios of one company to other companies in the same industry, to the market in
general or against the company's own historical P/E.
The P/E is sometimes referred to as the "multiple", because it shows how much investors are
willing to pay per dollar of earnings. Calculated as:
Market value per share/Earnings per share (EPS)

PARTICULARS 2007-08 2008-09 2009-10
Price to cash earning (x)* - 8.67 14.44
* Stock price on 31st March
62
Price to Book (P|B) Ratio:

A ratio used to compare a stock's market value to its book value. It is calculated by dividing the
current closing price of the stock by the latest quarter's book value per share also known as the
"price-equity ratio”. A lower P/B ratio could mean that the stock is undervalued. However, it
could also mean that something is fundamentally wrong with the company. As with most ratios,
be aware that this varies by industry. This ratio also gives some idea of whether you're paying too
much for what would be left if the company went bankrupt immediately.
P/B Ratio = Stock Price/ (Total assets-Intangible Assets)
Earnings per Share (EPS):

The portion of a company's profit allocated to each outstanding share of common stock. Earnings
per share serve as an indicator of a company's profitability. Earnings per share are generally
considered to be the single most important variable in determining a share's price. It is also a
major component used to calculate the price- to- earnings valuation ratio. Two companies could
generate the same EPS number, but one could do so with less equity (investment) - that company
would be more efficient at using its capital to generate income and, all other things being equal
would be a "better" company.
EPS = PROFIT AFTER TAX (PAT) / AVERAGE OUTSTANDING SHARES
PARTICULARS 2007-08 2008-09 2009-10
EPS 22.8 12.23 10.01
63
PEER GROUP COMPARISON

PEER GROUP COMPARISON
10-Mar 10-Mar 10-Mar 10-Mar 10-Mar
PARTICULA HINDALC PAREKH ESS DEE MALC

NALCO
RS O ALUMINIUM ALUMINIUM O
5,158.0
SALES 19536.28 637.46 401.48 -
0
PAT 1,915.63 832.6 46.29 66.46 -
EQUITY 191.37 644.31 12.94 27.83 -
10- 10-
10-Mar 10-Mar 10-Mar
Mar Mar
PARTICULA
RS
KEY FINANCIAL RATIOS
OPM% 16.43 29.37 17.28 26.63 12.78
NPM% 9.81 16.14 7.26 16.55 8.77
RONW 1,001.01 129.22 14.85 16.54 16.81
64
EPS 10.82 12.92 35.77 23.88 4.08
CEPS 13.5 17.87 55.24 25.76 6.11
P/E - - - 21.63 -
CONCLUSION
 It can be observed that the Current Ratio of Hindalco is varied between
1.8 to 1.28, during the period from FY08 to FY10. It is evident that, on an
average, per one rupee of current liability, the company has been maintaining
1.28 rupee of current assets as a cushion to meet the short- term liabilities
usually, a Current Ratio of 2:1 is considered to be the standard to indicate
sound liquidity position, and Hindalco should try to maintain it’s liquidity
position.
 Quick ratio 1:1 is considered satisfactory. In 2009-10 it is 0.66 which again

can be considered non satisfactory. It may not be able to meet its current
liabilities on time, which is not good sign for the enterprises.
 The inventory turnover ratio shows how rapidly the inventory is
turning into receivables through sales. This ratio has been continuously
65
increasing since FY 2007-08. A high inventory turnover indicates the

efficient management of inventory because more frequently the stocks are
sold. So we can say that enterprises have a very good turnover ratio. Thus
Hindalco has a very good inventory management.
 Working Capital Turnover Ratio indicates the efficiency of the firm in
Utilizing the working capital in the business. It varies between 6.71 times and
4.89 times. Company should focus on working capital management.
 The current assets and liabilities are increasing year by year. It means
the company is investing in current assets and expending its business.
 Gross Working Capital has increased heavily as compared to year
2007-08.if we compare the Gross Working Capital of the years 2008-09 and
2009-10, there is slightly difference. It denotes the total working capital or
total investment in current assets.
 Net Working Capital is fluctuating from very high to very low. The
year 2009- 10 has lowest Net Working Capital as compared to earlier years.
The Net Working Capital measures the liquidity of the firm.
66
 The year 2009-10 has lowest Net Working Capital as compared to
earlier years. The company must increase its NWC. The greater the margin,
the better will be the liquidity of the firm.
 The company should maintain the low level of creditors because the
company can pay them easily whenever required.
 The company has 2nd highest market capitalization after NALCO. The
Company should try to increase productivity and produce products at lower

rate.
 The company should maintain a proper inventory management system,
so the unnecessary blockage of money can be avoided.
 The company must have adequate cash and bank balance to face any
situations.
SUGGESTIONS & RECOMMENDATIONS
67
 The year 2009-10 has lowest Net Working Capital as compared to
earlier years. The company must increase its NWC. The greater the margin,
the better will be the liquidity of the firm.
 The company should maintain the low level of creditors because the
company can pay them easily whenever required.
 The company has 2nd highest market capitalization after NALCO. The
company should try to increase productivity and produce products at lower

rate.
 The company should maintain a proper inventory management system,
so the unnecessary blockage of money can be avoided.
 The company must have adequate cash and bank balance to face any
situations.
68
Annual report
• 2007-08
• 2008-09
• 2009-10
Websites referred
www.hindalco.com
www.adityabirla.co
www.moneycontrol.com
69

Zeba Naz (Amu) Summer Training Report Auto Saved)

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Zeba Naz (Amu) Summer Training Report Auto Saved)

Uploaded by

Copyright:

Available Formats

FINANCIAL ANALYSIS OF HINDALCO INDUSTREIS LIMITED,

ALIGARH MUSLIM UNIVERSITY

It is my pleasure to write that the project study titled “ANALYSIS OF

(DY.GENERAL MANAGER FINANCE)

I wish to express my heartiest thanks to Renusagar Power Division for providing

I am also heartily thankful to the entire staff member of TTMDC, Technical

a) Industry Analysis using Porter’s five forces

c) Financial Statement Analysis:

 Capital Market Ratios

d) Peer group comparison

ALUMINIUM INDUSTRY IN INDIA

Overview Aluminium Industry:

The Major Players

 Hindustan Aluminium Company (HINDALCO)

The various Copper products manufactured by the Hindalco Industries are:

Products of Madras Aluminium

National Aluminium Company Limited:

National Aluminium Company Limited is primarily engaged in the production of 5 types of

Sterlite Industries (India) Limited:

Some brief descriptions of Sterlite products are:

 First company in South India to go in for a secured land fill

GLOBAL ALUMINIUM INDUSTRY

ABG is committed to the future of India, for over 50 years now.

To relentlessly pursue the creation of superior shareholder value, by exceeding customer

Hindalco product range includes:

OBJECTIVES OF THE STUDY:

 To determine the ratios relating to the working capital.

DATA COLLECTION METHOD:

TYPE OF THE PROJECT:

Tools and Techniques of Financial Statement

1. Horizontal and Vertical Analysis

1. Horizontal and Vertical Analysis:

• Gross profit ratio

• Inventory / Stock turnover ratio

Long Term Solvency or Leverage Ratios:

WORKING CAPITAL MANAGEMENT

Working Capital is needed for the following purposes:

 To meet the selling costs as packing, advertising etc.

 To provide credit facility to the customers.

 To pay wages and salaries.

Steps involved in working capital management:

 Determining the Sources of Working

Objectives of Working Capital Management:

 Decide Optimal Mix of Short Term and Long Term Capital

 Decide Appropriate means of Short Term Financing

WORKING CAPITAL MANAGEMENT:

1. Procurement of raw material and services.

DuPont analysis tells us that ROE is affected by three things:

1) Operating efficiency, this is measured by profit margin.

2) Asset use efficiency, which is measured by total asset turnover.

3) Financial leverage, which is measured by the equity multiplier.

ROE = Profit Margin (Profit/Sales) * Total Asset Turnover

ANALYASIS & INTERPRETATION

SWOT analysis of Hindalco Industries

Weakness & Threats:

 Copper business lost Rs. 750 cr as well on lower by-product credit.

WORKING CAPITAL MANAGEMENT AT

 Short term securities and interest thereon

B. Short-Term Securities: On account of uncertainties attached with generation of

Hindalco has Short-term Investment in:

 Purchase/ discounting of bills

 Working capital term loan

II. Purchase/ Discounting of Bills: