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FIN 440.7 Group 07 Spring 2010 ID #:072 172 030, 072 209 030 Date of Submission: 11/04/2010 072 210 030, 081 065 030 Group Final Report: Cement Industry Analysis 1 HeidelbergCement Bangladesh Ltd. Company overview HeidelbergCement Bangladesh Ltd (HCBL) is a sister concern of Heidelberg Cement Group. Through acquisition of Chittagong Cement Clinker Grinding Company Ltd., it has brought together regional manufacturing whose history stretches back to the very beginning of commercial cement production in Bangladesh. HCBL is also a listed company since 1989 and its shares are being traded at both DSE and CSE. Leverage Analysis: Year 2006 2007 2008 Heidelberg Industry Heidelberg Industry Heidelberg Industry DOL 1.34 1.18 1.28 1.16 1.26 0.47 DFL 0.17 0.73 0.08 0.45 0.10 1.51 DCL 0.23 0.86 0.11 0.51 0.12 0.71 The HCBL has a larger amount of operating risk than the industry throughout the three years & in 2008 it becomes larger than previous several years because DOL follows that the higher the fixed operating costs. It looks bad than others though their revenue also rises during this period. The DFL of HCBL went down because they don’t have any new long term debt. The company had all positive EBIT, which lead to positive DFL indicating that the company earned more on the assets, purchased with the funds, than fixed cost of their use. HCBL had to keep the DFL lower because it has higher average than the industry in DOL & the management is efficient and effective enough to maintain lower DFL. As the DOL of the company fluctuated over time, the DCL also fluctuated over the times. However the HCBL’s Degree of risk is lower than the industry. Market Share: Items Heidelberg Industry Market Share Sales Tk 7,321,282,759 Tk 12,580,842,550 58.19% Total Assets Tk 5,870,541,000 Tk 10,595,109,552 55.40% As a market leader, the company has shown dominance in the cement industry compared to its competitors and has managed to capture majority of the market share. Therefore it can be considered as the corporate leader of the industry. Ratio Analysis: Liquidity Ratios(Items) Heidelberg Industry Comparison with industry Current Ratio 1.061 0.95 Better Quick Ratio 0.610.61 0.72 Almost Same Cash Liquidity Ratio 31.97 33.53 Lower Cash Conversion Cycle (days) 5.46 16.74 Better The HCBL had enough current assets to meet their current liabilities and the position is very tight in terms of liquidity though it is slightly higher than the industry. Their quick ratio became lower then the industry. The company had much more inventory in this period because their selling went down because of political unrest, worldwide economic recession etc that affect various construction and real estate company’s business who are the major client of the company. Hopefully, the company had much lower CCC than the average

Cement Industry Analysis

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FIN 440.7 Group 07 Spring 2010 ID #:072 172 030, 072 209 030

Date of Submission: 11/04/2010 072 210 030, 081 065 030

Group Final Report: Cement Industry Analysis

1

HeidelbergCement Bangladesh Ltd. Company overview HeidelbergCement Bangladesh Ltd (HCBL) is a sister concern of Heidelberg Cement Group. Through acquisition of Chittagong Cement Clinker Grinding Company Ltd., it has brought together regional manufacturing whose history stretches back to the very beginning of commercial cement production in Bangladesh. HCBL is also a listed company since 1989 and its shares are being traded at both DSE and CSE.

Leverage Analysis:

Year

2006 2007 2008

Heidelberg Industry Heidelberg Industry Heidelberg Industry

DOL 1.34 1.18 1.28 1.16 1.26 0.47

DFL 0.17 0.73 0.08 0.45 0.10 1.51

DCL 0.23 0.86 0.11 0.51 0.12 0.71

The HCBL has a larger amount of operating risk than the industry throughout the three years & in 2008 it becomes larger than previous several years because DOL follows that the higher the fixed operating costs. It looks bad than others though their revenue also rises during this period. The DFL of HCBL went down because they don’t have any new long term debt. The company had all positive EBIT, which lead to positive DFL indicating that the company earned more on the assets, purchased with the funds, than fixed cost of their use. HCBL had to keep the DFL lower because it has higher average than the industry in DOL & the management is efficient and effective enough to maintain lower DFL. As the DOL of the company fluctuated over time, the DCL also fluctuated over the times. However the HCBL’s Degree of risk is lower than the industry.

Market Share:

Items Heidelberg Industry Market Share

Sales Tk 7,321,282,759 Tk 12,580,842,550 58.19%

Total Assets Tk 5,870,541,000 Tk 10,595,109,552 55.40%

As a market leader, the company has shown dominance in the cement industry compared to its competitors and has managed to capture majority of the market share. Therefore it can be considered as the corporate leader of the industry.

Ratio Analysis:

Liquidity Ratios(Items) Heidelberg Industry Comparison with industry

Current Ratio 1.061 0.95 Better

Quick Ratio 0.610.61 0.72 Almost Same

Cash Liquidity Ratio 31.97 33.53 Lower

Cash Conversion Cycle (days) 5.46 16.74 Better

The HCBL had enough current assets to meet their current liabilities and the position is very tight in terms of liquidity though it is slightly higher than the industry. Their quick ratio became lower then the industry. The company had much more inventory in this period because their selling went down because of political unrest, worldwide economic recession etc that affect various construction and real estate company’s business who are the major client of the company. Hopefully, the company had much lower CCC than the average

FIN 440.7 Group 07 Spring 2010 ID #:072 172 030, 072 209 030

Date of Submission: 11/04/2010 072 210 030, 081 065 030

Group Final Report: Cement Industry Analysis

2

industry that shows supplier’s trustworthiness to them that arises because of their goodwill in the industry.

In the efficiency analysis, HCBL has shown diversity in playing role among various parts of the market. Though it had lower CCC than industry the DSO is much higher than the industry. Hopefully, PDP is higher so HCBL can come up to lower from industry. Therefore, the company used the NWC in efficient and effective way. Overall efficiency ratio shows that management should be aware about inventory management, collect receivables as early as possible and increase the FATO & TATO through generating huge amount of sales by utilizing assets.

Debt Mgt Ratios(Items) Heidelberg Industry Comparison with industry

Debt Ratio 0.44 0.65 Lower

Long Term Debt Ratio 0.04 0.11 Better

Debt to Equity Ratio 0.78 8.62 Lower

TIE Ratio 10.38 4.24 Higher

Cash Coverage Ratio 10.21 6.14 Better

HCBL now is in almost optimum debt equity position, so it creates larger wealth than the industry within very short term. Again the company is much more equity financed then the debt, so there is a chance to incur more opportunity cost of the company. Besides that, HCBL had less LTD that leads to less interest payment then industry. As a result, their TIE ratio goes up that leads the company to the favorable situation in the market.

Profitability Ratio(Items) Heidelberg Industry Comparison with industry

Profit Margin Ratio 0.13 0.06 Better

Basic Earning Power 0.17 0.10 Better

Return On Asset 0.14 0.07 Better

Return Of Equity 0.21 0.20 Better

Pay Out Ratio 0.14 0.23 Lower

Plough Back Ratio 0.90 1.20 Better

Growth Rate 0.19 0.24 Lower

The profitability ratio shows how HCBL become market leader in cement industry. Their profit margin, earning power and return is higher and better than the industry but they emphasize more on internal fund for investing or expanding projects. Though this does not make the investors happy, the value addition may result a large amount of capital gain. In Bangladesh perspective, capital gain from publicly held company is nontaxable but dividend

Efficiency Ratios(Items) Heidelberg Industry Comparison with industry

Inventory Turnover Ratio 5.47 17.60 Less efficient

Receivable Turnover Ratio 10.09 33.77 Less efficient

Daily Credit Sales (taka) 15,736,298.00 7,328,249.75 High

Days Sales Outstanding (days) 35.69 26.30 Less efficient

Fixed Asset Turnover Ratio 2.00 2.07 Almost Same

Total Asset Turnover Ratio 1.13 1.12 Almost Same

FIN 440.7 Group 07 Spring 2010 ID #:072 172 030, 072 209 030

Date of Submission: 11/04/2010 072 210 030, 081 065 030

Group Final Report: Cement Industry Analysis

3

is taxable. As a result some investors can feel wealthy because the retention ratio is high enough but not more than industry.

Market Value Ratio(Item) Heidelberg Industry Comparison with industry

EPS (taka) 102.44 38.57 Higher than competitors

Book Value Per Share (taka) 500.66 285.57 Higher than competitors

Market To Book Value Ratio 1.20 1.39 Wealth maximization seen

P/E Ratio 4.88 15.62 Lower than competitors

Dividend Yield 20% 30% Lower than competitors

EPS of the company is much higher than the industry. Though M/B ratio is lower than industry, market value > Book value. Price earning ratio is lower than the industry dividend yield is lower also because the company emphasize on retaining the income. So value addition higher and new investors, creditors willingly invest in the company. Risk Analysis: HCBL is financing more with the non-interest bearing current liabilities from 2002. So

the firm value of the Company was much higher than the invested capital from till our analysis of 2008.

Z-score of HCBL is 3.70, which is higher than 3.0, where industry average is 2.38; it is in favor of HCBL that is helpful to reduce the P (bankruptcy). So, higher rate is expected.

HCBL has a Beta (β) of 0.85 which indicate that their stock is as volatile as the overall market almost. If the overall market risk increases by 1 unit the company’s risk will rise by 0.85 units. Again, the Standard Deviation of HCBL is 3.38% which is risky for the investors compare to market SD of 1.23%. If stock price decline they will severely suffer.

The Economic value added for the company was positive in 2006-2008. The net operating profits were higher than the product of WACC & previous years invested capital for 2006-08. In other words, NOPAT of HCBL is covering the investments. It is minimizing its risk.

WACC of HCBL gradually decreased & average WACC of HCBL is 9.05% whereas the WACC of Industry average is 10.425%. Therefore, the cost of capital is lower than the competitors. HCBL is reducing its debt financing by using less costly capital that’s why high retention ratio.

The average market return is 0.08% where the HCBL has 0.18%.

Stock Price Evaluation: HCBL’s firm value in 2008 was BDT 10,108,845,285. Value of Debt was BDT 209,883,106. Value of Equity was 5,766,750,043 and number of Shares outstanding 5650000. So the Intrinsic Price/ share is taka 1020.66. The stock price at the 31 December 2008 was BDT 1214. Therefore, this is undervalued stock in terms of my analysis not market determinants. Dividend Policy: In the market the HCBL is in leadership position & its EPS & Cash flow shows it will be growing largely in the near future, so the investor can get capital gain and huge amount of cash dividend. As a result, there is lots of investors are here to invest into the company. So, the company may choose “Residual Dividend Policy” so that it can internally finance new project or expanding project. Forecasted IS & BS: From forecasted IS & BS we notice that the forecasted Net income and forecasted Total Asset will increase at their positive constant growth rate until 2011 when the constant operating income will increase to maintain the daily needs of NWC. Therefore we can say that it is a growing firm, so any investors can invest in HeidelbergCement Bangladesh LTD. with managing proper diversification process.

FIN 440.7 Group 07 Spring 2010 ID #:072 172 030, 072 209 030

Date of Submission: 11/04/2010 072 210 030, 081 065 030

Group Final Report: Cement Industry Analysis

4

Aramit Cement Limited Company Overview: Aramit cement limited was incorporated on 19th august 1995 as a public company limited by shares and was established with technical collaboration of a Chiness company for producing ordinary Portland cement form the very beginning of its commercial production that started on the 10th November 1999. The company has been maintain the quality of the product for which it has won the confidence of the customers. Company’s product carrying brand name Camel has already become highly popular among the consumers.

Leverage analysis: Year 2006 2007 2008

Aramit Industry Aramit Industry Aramit Industry

DOL 1 1.18 1 1.16 1 .47 DFL 1.41 .73 .9 .45 3.38 1.51

DCL 1.41 .77 .9 .48 3.38 1.98

The DOL is same over the year the last three year. That means 1% increase in sales will result in a 1% increase in EBIT. In 2006 & 2007 it is lower than industry but in 2008 it was double. So over all DOL is quite acceptable.The DFL of 2006, 2007 & 2008 is better than the industry. In 2008 it was 3.38 that means if 1% increase in operating income will lead to 3.38% increase in Earning Per Share.The DCL is same as DFL but the industry was fluctuated overtime. Market share:

Items Aramit Industry Market Share

Sales 1,921,215,880 12,580,842,550 15% Total Assets 1,637,776,815 10,595,109,552 15%

If we look at the industry we find that Aramit cement capture only 15% of the share. It is not the good sign for aramit cement. In a competitive market, in the long run aramit might be lose the market share.

Ratio Analysis:

Liquidity ratio Aramit Industry Comarison with industry

Current Ratio .48 .95 poor

Quick Ratio .34 .72 Not good

Net WCT Ratio (2.81) 8.57 Very Poor

Time To Ruin (days) 28.59 55.52 Poor

Cash Liquidity Ratio 5.37 33.53 Very Poor

Cash Conversion Cycle (days)

19.66 16.34 Average

The Aramit cement did not have enough current asset to meet their Current liabilities. Their Net WCT ratio is negative 2.81 that means if they fail to meet their Current laibilites over

FIN 440.7 Group 07 Spring 2010 ID #:072 172 030, 072 209 030

Date of Submission: 11/04/2010 072 210 030, 081 065 030

Group Final Report: Cement Industry Analysis

5

time & time, they might go for bankruptcy. Obviously it is a huge threat for Aramit cement. If we compare the industry their liquidity ratio is not good.

In the efficiency position, Aramit Cement was slightly riskier than industry. Their receivable turnover ratio is very poor compare to industry. In a competitive market it is big problem for the company. Their other ratios were almost same as industry. So currently, they are in a risky position in terms of efficiency.

Debt Ratios Items Aramit Industry Comparison with industry

Debt Ratio .96 0.65 Higher

Long Term Debt Ratio .16 0.11 Higher

Debt to Equity Ratio 29.28 8.62 Higher

TIE Ratio 1.71 4.24 Lower

Cash Coverage Ratio 9.19 6.14 Better Aramit cement debt ratio is quit high that means they have huge long term debt against their long term asset. Their debt is high that means interest also high. As a result TIE ratio goes down. They have huge debt that means they also get the tax benefit.

Profitability Ratio Items Aramit Industry Comparison with industry

Profit Margin Ratio .01 0.06 Poor

Basic Earning Power .08 0.10 Not good

Return On Asset .01 0.07 poor

Return Of Equity .35 0.20 Better

Pay Out Ratio .14 0.23 Lower

Plough Back Ratio 1.14 1.20 good

Growth Rate .41 0.24 Higher

If we look at the profitability ratio that aramit cement performance is very poor. Their profit margin , basic earning , return on asset , pay out ratio all of them are poor compare to

Efficiency Ratios Items Aramit Industry Comparison with industry

Inventory Turnover Ratio 10.22 17.60 More efficient

Inventory Turnover Period (days) 39.25 41.01 AVERAGE

Receivable Turnover Ratio 10.23 33.77 Less efficient

Daily Credit Sales (taka) 1778903.33 7328249.75 LOW

Days Sales Outstanding (days) 35.35 26.30 Less efficient

Payable Deferral Ratio 6.72 11.49 More efficient

Payables Deferral Period (days) 54.94 52.65 Average

Fixed Asset Turnover Ratio 1.95 2.07 More efficient

Fixed Asset Turnover Period (days) 185.99 177.45 Better

Total Asset Turnover Ratio 1.18 1.12 More efficient

Total Asset Turnover Period (days) 306.55 324.97 Good

FIN 440.7 Group 07 Spring 2010 ID #:072 172 030, 072 209 030

Date of Submission: 11/04/2010 072 210 030, 081 065 030

Group Final Report: Cement Industry Analysis

6

industry. As a result in the long run the company face lot of problem, which is not good for the company.

Market Value Ratio Item Aramit Industry Comparison with industry

EPS (taka) 5.57 38.57 Lower

Book Value Per Share (taka) 40.19 285.57 Lower

Market To Book Value Ratio 4.67 1.39 Wealth maximization seen

P/E Ratio 4.26 15.62 Lower

Dividend Yield 7% 30% Lower

EPS of the company is not so good compare to the industry. Though M/B ratio is lower than industry, market value > Book value. Price earning ratio is lower than the industry dividend yield is lower also because the company emphasize on retaining the income. So value addition higher and new investors, creditors are willingly invest in the company. Risk Analysis: Aramit cement net working capital ratio is negative that means they can not meet

their current liabilities with the current asset. If they do not meet the current liabilities , they might be face bankruptcy.

Z-score of the Aramit cement is .65 which is lower than 3 where industry average is 2.38; it is in against of Aramit that is lead to bankruptcy

Aramit has a beta of .24 which is indicate that their stock is less volatile as the overall market . If the overall market risk increases by 1 unit the company’s risk will rise by 0.24 units. Again, the Standard Deviation of Aramit cement is 4.27% which is risky for the investors compare to market SD of 1.23%. If stock price decline they will severely suffer.

The Economic value added for the company was positive in 2006-2008. The net operating profits were higher than the product of WACC & previous years invested capital for 2006-08. In other words, NOPAT of Aramit is covering the investments. It is maximizing its risk.

Average WACC of Aramit is 3.70% whereas the WACC of Industry average is 10.425%. Therefore, the cost of capital is lower than the competitors. Aramit is reducing its debt financing by using less costly capital that’s why high retention ratio.

The average market return is 8% where the Aramit is (2%).

Forcasted IS & BS: If look at the forcasted IS & BS we find that Net income and forecasted Total Asset will increase at their positive constant growth rate until 2011 , but net working capital will be negative . So it is problem for the company.

Stock Price Evaluation: Aramit’s firm value in 2008 was BDT 14,281,328,578. Value of Debt was BDT 1,056,991,364. Value of Equity was 13,224,337,214 and number of Shares outstanding 1,400,000. So the Intrinsic Price/ share is taka 9445.95. The stock price at the 31 December 2008 was BDT 177. Therefore, this is overvalued stock in terms of my analysis not market determinants.

FIN 440.7 Group 07 Spring 2010 ID #:072 172 030, 072 209 030

Date of Submission: 11/04/2010 072 210 030, 081 065 030

Group Final Report: Cement Industry Analysis

7

Confidence Cement Ltd. Company overview Confidence Cement Limited (CCL) is the first private sector cement manufacturing company in Bangladesh established in early 90's with having 4,80,000 M/T annual production capacity at Chittagong, 16 K.M away from Chittagong port, besides Dhaka Chittagong highway. CCL is the first ISO-9002 certified cement manufacturing in Bangladesh. The shares of the company are both traded in DSE and CSE. Leverage Analysis:

Year

2006 2007 2008

Confidence Industry Confidence Industry Confidence Industry

DOL 1.37 1.18 1.35 1.16 -1.38 0.47

DFL 0.29 0.73 0.26 0.45 -0.66 1.51

DCL 0.40 0.77 0.35 0.48 1.19 1.98

The CCL has a larger amount of operating risk than the industry throughout the three years & in 2008 it becomes larger than previous several years because DOL follows that the higher the fixed operating costs; the higher the company’s operating leverage and its operating risk It looks bad than others though their revenue also rises during this period. The DFL of CCL went down because they don’t have any new long term debt. The company had a negative EBIT in 2008, which lead to Negative DFL indicating that the company earned less on the assets, purchased with the funds, than fixed cost of their use. CCL had to keep the DFL lower because it has higher average than the industry in DOL & the management is efficient and effective enough to maintain lower DFL because of higher DOL. As the DOL of the company fluctuated over time, the DCL also fluctuated over the times. However the CCL’s Degree of risk is lower than the industry.

Market Share:

Items Heidelberg Industry Market Share

Sales Tk 1,229,887,420 Tk 12,580,842,550 9.78%

Total Assets Tk 1,154,131,746 Tk 10,595,109,552 10.89%

The company have much lower market shares in the cement industry compared to its competitors and have not been able to capture majority of the market share. Therefore it can be considered as the follower of the industry.

Ratio Analysis:

Liquidity Ratios Items Confidence Industry Comparison with industry

Current Ratio 1.091 0.95 Higher

Quick Ratio 0.99.61 0.72 Higher

Cash Liquidity Ratio 46.65 33.53 Higher

Cash Conversion Cycle (days) 21.20 16.74 Higher

The CCL had enough current assets to meet their current liabilities and the position is very tight in terms of liquidity though it is slightly higher than the industry. Their quick ratio became higher than the industry. The company had more sales than previous period but cost of inventories was high because of political unrest, worldwide economic recession etc that affect various construction and real estate company’s business who are the major client

FIN 440.7 Group 07 Spring 2010 ID #:072 172 030, 072 209 030

Date of Submission: 11/04/2010 072 210 030, 081 065 030

Group Final Report: Cement Industry Analysis

8

of the company. The company had much higher CCC than the average industry that shows supplier’s lack of trustworthiness to them in the industry.

In the efficiency analysis, CCL has shown diversity in playing role among various parts of the market. The company had both higher CCC and DSO than the industry. Therefore, the company used the NWC in efficient and effective way. Overall efficiency ratio shows that management should be aware about inventory management, collect receivables as early as possible and increase the FATO & TATO through generating huge amount of sales by utilizing assets.

Debt Mgt Ratios Items Heidelberg Industry Comparison with industry

Debt Ratio 0.39 0.65 Lower

Long Term Debt Ratio 0.00 0.11 Better

Debt to Equity Ratio 0.66 8.62 Lower

TIE Ratio 2.86 4.24 Lower

Cash Coverage Ratio 2.86 6.14 Lower

CCL now is in almost optimum debt equity position, so it creates larger wealth than the industry within very short term. Again the company is much more equity financed then the debt, so there is a chance to incur more opportunity cost of the company. Besides that, CCL had no LTD in 2008 that leads to less interest payment then industry but their TIE ratio didn’t go up that much it was expected.

Profitability Ratio Items Confidence Industry Comparison with industry

Profit Margin Ratio 0.06 0.06 Same

Basic Earning Power 0.05 0.10 Lower

Return On Asset 0.06 0.07 Lower

Return Of Equity 0.09 0.20 Lower

Pay Out Ratio 0.00 0.23 Lower

Plough Back Ratio 1.00 1.20 Better

Growth Rate 0.09 0.24 Lower

The profitability ratio shows CCL just maintaining their position in cement industry. Their profit margin is same as industry rate but BEP, ROA , ROE are lower than industry average. Payout ratio is zero is because no dividend was declared in 2008. They emphasize more on internal fund for investing or expanding projects. Though this does not make the investors happy, the value addition may result a large amount of capital gain. In Bangladesh perspective, capital gain from publicly held company is nontaxable but dividend is taxable.

Efficiency Ratios Items Confidence Industry Comparison with industry

Inventory Turnover Ratio 7.10 17.60 Less efficient

Receivable Turnover Ratio 102.88 33.77 Highly efficient

Daily Credit Sales (taka) 3,039,635.00 7,328,249.75 Low

Days Sales Outstanding (days) 3.56 26.30 Highly efficient

Fixed Asset Turnover Ratio 1.89 2.07 Almost Same

Total Asset Turnover Ratio 1.01 1.12 Almost Same

FIN 440.7 Group 07 Spring 2010 ID #:072 172 030, 072 209 030

Date of Submission: 11/04/2010 072 210 030, 081 065 030

Group Final Report: Cement Industry Analysis

9

As a result some investors can feel wealthy because the retention ratio is high enough but not more than industry.

Market Value Ratio Item Confidence Industry Comparison with industry

EPS (taka) 5.33 38.57 Lower than competitors

Book Value Per Share (taka) 346.42 285.57 Higher than competitors

Market To Book Value Ratio 0.29 1.39 Wealth minimization seen

P/E Ratio 53.33 15.62 Higher than competitors

Dividend Yield 21% 30% Lower than competitors

EPS of the company is much lower than the industry. Though M/B ratio is lower than industry, market value > Book value. Price earning ratio is higher than the industry, dividend yield is lower al because the company emphasize on retaining the income. So value addition higher and new investors, creditors are willingly to invest in the company. Risk Analysis: CCL is financing more with the non-interest bearing current liabilities from 2002. Z-score of CCL is 3.87, which is higher than 3.0, where industry average is 2.38; it is in

favor of CCL that is helpful to reduce the P( bankruptcy). So, higher rate is expected. CCL has a Beta (β) of -0.01 which indicate that their stock is negatively related as the

overall market almost. It also shows the company has sufficient and efficient management running the business when the overall market goes down. If the overall market risk increases by 1 unit the company’s risk will rise by 0.85 units. Again, the Standard Deviation of CCL is 4.45% which is risky for the investors compare to market SD of 1.23%. If stock price decline they will severely suffer.

The Economic value added for the company was negative in 2006-2008. WACC of CCL gradually decreased & average WACC of CCL is 26.23% whereas the WACC

of Industry average is 10.425%. Therefore, the cost of capital is lower than the competitors. CCL is reducing its debt financing by using less costly capital

The average market return is 0.08% where the CCL has 0.22%.

Stock Price Evaluation: CCL’s firm value in 2008 was BDT 1,763,102,639 & Value of Equity was 10,911,619,680 and number of Shares outstanding 1,900,000. So the Intrinsic Price/ share is taka 5742.957726. The intrinsic stock price 5742.90 at the 31 December 2008 & market value was BDT 2,795. Therefore, this is overvalued stock in terms of my perspective.

Forecasted IS & BS: From forecasted IS & BS we notice that the forecasted Net income is negative but Total Asset will increase at their positive constant growth rate until 2011 when the constant operating income will increase to maintain the daily needs of NWC. Therefore we can say that it is a growing firm, so any investors can invest with following proper diversification process.

FIN 440.7 Group 07 Spring 2010 ID #:072 172 030, 072 209 030

Date of Submission: 11/04/2010 072 210 030, 081 065 030

Group Final Report: Cement Industry Analysis

10

Meghna Cement Bangladesh Ltd. Company overview Meghna Cement Bangladesh Ltd is a sister concern of Bashundhara Group. It has brought regional manufacturing whose history stretches back to the very beginning of commercial cement production in Bangladesh. MEGHNA is also a listed company since 1989 and its shares are being traded at both DSE and CSE. Leverage Analysis:

Year

2006 2007 2008

Meghna Industry Meghna Industry Meghna Industry

DOL 1.00 1.18 1.00 1.16 1.00 0.47

DFL 1.03 0.73 0.59 0.45 1.10 1.51

DCL 1.03 0.77 0.59 0.48 1.10 1.98 DOL depends on that is logically follows that the higher the fixed operating costs, the

higher the company’s operating leverage and its operating risk. The MEGHNA has a larger amount of operating risk than the industry throughout the three years. It looks bad than others though their revenue also rises during this period. The DFL of Meghna Cements went down because they don’t have any new long term debt. Meghna Cements have all positive EBIT, which lead to positive DFL indicating that the company earned more on the assets, purchased with the funds, than fixed cost of their use. As the DOL of the company fluctuated over time, the DCL also fluctuated over the times. However the Meghna Cements Degree of risk is lower than the industry.

Market Share:

Items Meghna Cement’s Industry Market Share

Sales Tk 3,367,396,868 Tk 12,580,842,550 26.76%

Total Assets Tk 2,380,021,002 Tk 10,595,109,552 22.46%

The company has shown less dominance in the cement industry compared to its competitors and has managed to capture majority of the market share. Therefore it can be considered as the corporate leader of the industry. Ratio Analysis:

Liquidity Ratios Items Meghna Cement’s Industry Comparison with industry

Current Ratio 1.16 .95 Not good

Quick Ratio 0.93 0.72 better

Net WCT Ratio 9.00 8.57 better

Time To Ruin (days) 54.23 55.52 Lower

Cash Liquidity Ratio 50.13 33.53 better

Cash Conversion Cycle (days) 20.63 16.74 better

The Meghna Cement have enough current assets to meet their current liabilities and the position is very healthy in terms of liquidity. They have to depend on their fixed

FIN 440.7 Group 07 Spring 2010 ID #:072 172 030, 072 209 030

Date of Submission: 11/04/2010 072 210 030, 081 065 030

Group Final Report: Cement Industry Analysis

11

assets and higher sales to meet CL. Their position in terms to other liquidity ratio is almost same as the industry.

In the efficiency position, Meghna Cements position is in a fairly riskier position compared to the average industry. The company has a lower inventory turnover & higher A/R turnover. Their Average collection period is high compare to their Payable deferral period. So currently, they are in a risky position in terms of efficiency.

Debt Ratios Items Meghna Cement’s Industry Comparison with industry

Debt Ratio 0.79 0.65 Almost the same

Long Term Debt Ratio 0.26 0.11 Lower

Debt to Equity Ratio 3.78 8.62

TIE Ratio 2.02 4.24 Better

Cash Coverage Ratio 2.32 6.14 Lower The Meghna Cement’s Debt portion is Lower than the average industry. They are

financing more with the debt. It may be the reason for their high debt to equity ratio. If we look at their LTD ratio, which is quite higher than the others. They are financing their debt portion with the more costly long term debt. Previously in the liquidity part we noticed in current ratio that their CL is high. The reason is they have no new LTD at this moment.

Profitability Ratio Items Meghna Cement’s Industry Comparison with industry

Profit Margin Ratio 0.03 0.06 Better

Basic Earning Power 0.08 0.10 Lower

Return On Asset 0.07 0.07 Same as Industry

Return Of Equity 0.16 0.20 Better

Pay Out Ratio 0.64 0.23 Better

Plough Back Ratio 1.75 1.20 Lower

Growth Rate 0.27 0.24 Better

Efficiency Ratios Items Meghna Cement’s Industry Comparison with industry

Inventory Turnover Ratio 47.63 17.60 More efficient

Inventory Turnover Period (days) 08.40 41.01 More efficient

Receivable Turnover Ratio 11.86 33.77 Less efficient

Daily Credit Sales (taka) 8758162.67 7328249.75 High

Days Sales Outstanding (days) 30.60 26.30 Less efficient

Payable Deferral Ratio 18.56 11.49 More efficient

Payables Deferral Period (days) 20.94 52.65 Less efficient

Fixed Asset Turnover Ratio 2.42 2.07 More efficient

Fixed Asset Turnover Period (days) 149.85 177.45 Less efficient

Total Asset Turnover Ratio 1.17 1.12 More efficient

Total Asset Turnover Period (days) 314.77 324.97 Better

FIN 440.7 Group 07 Spring 2010 ID #:072 172 030, 072 209 030

Date of Submission: 11/04/2010 072 210 030, 081 065 030

Group Final Report: Cement Industry Analysis

12

Meghna Cement’s has better profitability. Their operating income, net income & BEP are lower than the industry. However, they are paying a higher portion of dividend to the shareholders which is good to keep investors happy.

Market Value Ratio Item

Meghna Cement’s Industry Comparison with industry

EPS (taka) 40.88 38.57 Higher than competitors

Book Value Per Share (taka) 255.08 285.57 Lower than competitors

Market To Book Value Ratio 0.39 1.39 Wealth minimization seen

P/E Ratio .02 15.62 Lower than competitors

Dividend Yield 60% 30% Better than competitors Their market value is quite low compared to BV. Apparently, when we focus on P/E

ratio & Dividend yield, the company seems to be moving towards a risky future, which may insist investors on reducing their investment in the company. Risk Analysis: As the Z-score of Meghna Cement is 1.29, which is lower than 2.38, it has actually no

chance to go for bankruptcy. The WACC of Meghna Cement’s gradually decreased & average WACC of Meghna

Cement’s is 32.87% whereas the WACC of Industry average is 8.37%. Therefore, the cost of capital is lower than the competitors. Meghna Cements is reducing its debt financing by using less costly capital.

Every year Meghna Cement’s has positive EVA. The net operating profits were higher than the product of WACC & previous years invested capital. In other words, NOPAT of Meghna Cement’s actually covered the investments. Therefore, it minimized their risk to some extent.

As Meghna Cement’s is financing more with the short-term debt and non-interest bearing current liabilities from 2006. So the firm value of the Company was much higher than the invested capital from 2006 to 2008.

The Meghna Cement’s has a Beta (β) of 0.09 which indicate that their stock is less volatile than the overall market. If the overall market risk increases by 1 unit the company’s risk will rise by 0.09 units. Again, the Standard Deviation of Meghna Cement’s is 5.02% which may be risky for the investors because if stock price decline they will severely suffer.

The average market return is 15% where the Meghna Cement’s has -0.07%. Forecasted IS & BS: From the forecasted IS & BS we see that the Meghna Cements’s profitability is going to increase whereas the total asset will decrease. In future their Estimated Free flow will grow at a constant rate.

Stock Price Evaluation: Meghna’s firm value in 2008 was BDT 3, 524, 565, 1597. Value of Debt was BDT 26,817,618,944. Value of Equity was 8,428,032,653and number of Shares outstanding 5650000. So the Intrinsic Price/ share is taka 1491. The stock price at the 31 December 2008 was BDT 386. Therefore, this is overvalued stock in terms of my analysis not market determinants.