Financial Analysis Of Cement
Sector
Presented By
Group-3, Section C,
PGPM
Angad Singh (08P126)
Devarshi vajpayee
(08P137)
Lovely Krishna (08P146)
Pramat Malik (08P155)
Prashant (08P156)
Cement Sector : Overview
• 70 year old, Capacity ~ 200 MTpa, second only to China
• Top five companies constitute around 50 percent of the market
sector
• Current Per Capita consumption at 130 Kgs; China at 450 Kgs,
World Average 260 Kgs
• Tremendous scope for improvement
• Demand exceeds Supply
• Hard for New Players to enter
Cement Sector : Overview
(contd...)
• Freight intensive industry, hence regional
• Southern sector very important from both demand and supply
point of view
• Overall demand increasing at 8.37 percent
• Supply growing at 4.87 percent, current utilization at 93.8 percent
• Prices rising, thus government regulations and taxation policies
changed
• Prices to stabilise as new plants are established
Choice of Companies
• UltraTech cements Ltd. of Aditya Birla Group and ShriDigvijay
cements Ltd. of Cimpcor
• Reasons
» UltraTech a profit making company, while
ShriDigvijay is a loss making company
» Profits of UltraTech skyrocketing,while ShriDigvijay
reporting losses
• Thus we get a diverse range in performance and scale of
operations
• Also gives us insight into what can be avoided
UltraTech Cement Ltd.
• Grasim subsidiary, annual capacity 17 MT
• Five grinding units and three ports (Two in India and one in
SriLanka)
• Countries largest producer of Cement Clinkers
• Constitute 30 percent of India’s Exports
• Cement division demerged from L&T in 2004, UltraTech emerged
later
• Planning to foray into the market of RMC with expansion plans in
place
Shree Digvijay Cement Co Ltd.
• Established in 1949 in Sikka, Gujarat; flagship company of
Cimpcor (Portuguese firm)
• Pioneer in Indian cement sector
• Fully computerized plants with capacity of 1.30 MTPA
• Skills and Technology further honed by Cimpcor’s participation
• Kamal a well established brand with international presence
• Had to clear a contingent liability in FY08 with Grasim Industries
Ltd
Profitability Analysis – Ultratech
Cement
•Increase in Cost of Production by
5.5%
•Increase in Turnover by 14.63%
•Increase in Operating Expenses
by 8.5%
•Increasing trend for EBIT, EBITDA and
PAT
•Decent profitability ratios such as
Gross Profit, Cash Operating Profit ,
Profitability Analysis – Shree
Digvijay
•Increase in Cost of Production by
14.64%
•Decrease in Turnover by 2.19%
•Increase in Operating Expenses by
17.76%
•Decreasing trend for EBIT, EBITDA and
PAT
•Poor profitability ratios such as Gross
Profit, Cash Operating Profit , Operating
Efficiency Analysis – Ultratech
•Marginal increase in Fixed Assets
•Increase in Total Assets mainly
due to increase in CWIP
•Increase in inventories
•Reduction in Net Working Capital
§Increased current liabilities
§Increased provisions
§Increased capex
•Increase in D.T ratio
•Decrease in average collection
period
•Increase in creditors collection
period
Efficiency Analysis – Shree
Digvijay
•Marginal increase in Fixed Assets
•Substantial increase in Total
Assets mainly due to increase in
CWIP
•Increase in inventories
•Reduction in Net Working Capital
§Contingent liability had to
be met
§Pay revisions of employees
•Decrease in D.T ratio
•Increase in average collection
period
Liquidity Analysis
Ultratech Cement
•Decrease in all three ratios
§Higher CWIP
§Expansion Plans
§Dividend Payout
•Decent compared to industry
aggregate
Shree Digvijay Cement
•Increase in all three ratios
§Fresh Loans
§Higher amount of cash from
operations
•Strong short term liquid position
Solvency Analysis
Debt Equity Ratio
•Reduction for both companies
•Two view points
§Profit Making Company
-Cash generated from
operations were used for
growth
§Loss Making Company
-Bad credit history
Interest Coverage Ratio
•Increase for Ultratech indicates
prompt repayment capability
•Decrease for Shree Digvijay indicates
lack of repayment capability
Inventory Valuation
• ShreeDigvijay
» Finished goods and stocks are valued at the lower
of cost or net realizable value
» Raw material, packing materials and fuel cost is
determined on basis of quarterly weighted average
method
• UltraTech
» Inventories valued at the lower of cost or net
realizable value, except scrap which is valued at
net realizable value
» Finished good and process stock includes cost of
conversion and other costs incurred in bringing the
inventories into current form and location
» Obsolete, defective and unserviceable inventories
are duly provided for
Depreciation & Amortization
• Both companies follow straight line method as per schedule XIV of
Companies act, 1956
• UltraTech
» Assets acquired up to September 30 1987, are
depreciated at rates prevailing at the times of
acquisition
» value of leasehold land and mining lease is
amortized over the period of the lease
» Assets not owned by the company are amortized
over period of the lease
» Depreciation on additions / deductions is calculated
pro-rata from / to the month of addition / deduction
Depreciation and Amortization
(contd…)
• Shree Digvijay
» Use of higher or accelerated rate if justified by
technical estimates
» Assets less than Rs 5000 are fully depreciated
within the year of purchase
» Freehold land is not depreciated, since it is deemed
to have indefinite economic life
Cash Flow Statement Analysis
•Increase in cash realized through
operating activities
•Substantial increase in investing
activities
•Increase in cash realized through
financing activities due to short term
•Increase in cash realized through
operating activities
•Marginal increase in investing
activities
•Increase in cash realized through
financing activities is mainly due to
losses not yet written off and
Market Performance
•Market Value of Shree Digvijay and UltraTech as on 5th September
2008
•Being a profit earning firm, UltraTech has much higher value than
Shree Digvijay
•EPS of UltraTech has increased from 62.84 to 80.94 due to trust
created in shareholders
References
• Annual Reports of UltraTech Cement Ltd and Shree Digvijay
Cement Co Ltd
• [Link]
• [Link]
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