FA Project 25Aug09V4

Comparative Financial Analysis between India Cements and UltraTech Cement

1 EGMP-IT Batch 3

A Project Report on

Comparative Financial Analysis between

India Cements

and

UltraTech Cement

Submitted By

Anima Prasad - GMPCITC03205

Arun Pydimarri - GMPCITC03206

Bhaskar Vajjhala - GMPCITC03253

Kailash Dattkaya - GMPCITC03216

Srikanth Dirisala -GMPCITC03244

Vivekanandan Thiruparkadal - GMPCITC03256

(All working for Oracle Corporation)

Submitted on 25th

August, 2009

IIM Bangalore


2 EGMP-IT Batch 3

Table of Contents

Table of Contents ............................................................................................................................ 2

Introduction ................................................................................................................................... 3

India Cements .............................................................................................................................. 3

UltraTech Cement ....................................................................................................................... 3

Balance Sheet – Horizontal Trend Analysis ................................................................................... 4

India Cements .............................................................................................................................. 4


Comparison of horizontal trends ................................................................................................. 4

Balance Sheet – Common Size Analysis ........................................................................................ 5

India Cements .............................................................................................................................. 5


Comparison of common size trends ............................................................................................ 5

Profit and loss statement – Horizontal Trend Analysis .................................................................. 6

India Cements .............................................................................................................................. 6


Comparison of common size trends ............................................................................................ 6

Income Statement – Common Size Analysis .................................................................................. 7

Ratio Analysis ................................................................................................................................. 8

Liquidity Ratios ........................................................................................................................... 8

Solvency Ratios ........................................................................................................................... 9

Profitability Ratios .................................................................................................................... 10

Conclusion .................................................................................................................................... 11

Appendix ....................................................................................................................................... 12


3 EGMP-IT Batch 3

Introduction

The Indian cement industry, in terms of

revenue, was worth Rs 54,000 crores in

FY08. The industry produced 131.20

million tonnes cement from April-

December 2008. Ultratech Cement and

India cements are amongst the top

players in the industry with market share

as depicted in this picture. The cement

sector appears to be on a sustainable

growth path, given the robust outlook in

Government infrastructure spending and

domestic housing demand. It is expected

that the industry would grow at an

average of 8% annually.

India Cements

The India Cements Ltd. was established in 1946 and the first plant was setup at Sankarnagar in

Tamilnadu in 1949. The group's principal activity is to manufacture and market cement. It

markets cement under the brand names Coromandel, Coromandel King, Sankar Sakthi and Raasi

Gold. The capacities have increased multifold to 9 million tons per annum.

Strategy: Clarity of vision, continued focus on efficiencies, a readiness to cultivate a global

mindset, effectiveness, harnessing of human resources to enhance job and knowledge skills of

employees, a strong accent on R&D and innovation and a move away from selling to innovative

marketing are some of the key strategies specified by India Cements in its annual report FY09.

UltraTech Cement

UltraTech Cement Limited, a part of the Aditya Birla Group is the 11th largest cement producer

in the world and the seventh largest in Asia with annual production capacity of 23.1 million

tonnes. As of FY09 its net revenues are 6,383 crores an increase of around 16% over the

previous year and net profit of Rs.977 crores. UltraTech is primarily engaged in business of

manufacture and sale of cement and clinker in domestic and international markets. UltraTech is

India's largest exporter of cement clinker. UltraTech's products include Ordinary Portland

cement, Portland Pozzolana cement and Portland blast furnace slag cement. The company's

production facilities are spread across five integrated plants, six grinding units, and three

terminals - two in India and one in Sri Lanka. UltraTech exports over 2.5 million tonnes per

annum, which is about 30 per cent of the country's total exports. The export market comprises of

countries around the Indian Ocean, Africa, Europe and the Middle East.

Strategy: Exports, stabilizing plant performance, optimizing efficiencies, looking for new ways

to preserve the environment and manage resources responsibly are some of the key strategies

specified by UltraTech Cements in its annual report FY09.


4 EGMP-IT Batch 3

Balance Sheet – Horizontal Trend Analysis

(see appendix)

India Cements

Analysis: Following are the highlights of the horizontal analysis of balance sheet from FY05 to

FY09. (Refer Appendix)

• Equity share capital increased from Rs.163.59 Cr. to Rs.282.43 Cr. an increase of around

172%.

• Reserves and Surplus has increased from Rs.1111.71 Cr. to Rs.3348.96 Cr. an increase of

301%, indicating the profit the company has generated over the period analyzed.

• Net worth has increased from Rs.1275.30 Cr. to Rs.3631.39 Cr. an increase of 284%.

• No significant change in the funds generated through loans was observed.

• Fixed assets have increased from Rs.2201 Cr. to Rs.3808 Cr. an increase of 172%. There

has been a surge in capital work in progress from FY07 and stands at Rs.904.Cr. an

increase of about 30235% from the base year. These two figures indicate that there is a

continuous investment into fixed assets from FY07.

• Overall the company has close to doubled its size in these five years.

UltraTech Cement

Analysis: Following are the highlights of the horizontal analysis of balance sheet from FY05 to

FY09. (Refer Appendix)

• Equity share capital has remained constant

• Reserves and Surplus increased from Rs.942.73 Cr. to Rs.3475.93 Cr., an increase of

360% indicating the growth in net profit the company has generated.

• Net worth grew from Rs.1067.13 Cr. to Rs.3602.42 Cr. an increase of 335%.

• Funds from debts increased from Rs.1531.38 Cr. to Rs.2141.63 an increase of 139%,

indicating increase in debt.

• Fixed Assets have increased from Rs.2548.90 Cr. to Rs.4635.69 Cr. an increase of

181.87%. The capital work in progress has increased steadily from Rs.48.18 Cr. and

currently stands at Rs.677.28 Cr. an increase of 1405.73%. These two figures indicate

there has been a continuous investment in fixed assets.

• Over all the company’s size has more than doubled in these five years.

Comparison of horizontal trends

• Equity share capital has remained constant for UltraTech whereas it had increased for

India Cements

• Debt has remained constant for India Cements whereas it has increased for UltraTech

Cements.

• India cements has started late of the blocks for investment into fixed assets as compared

to UltraTech cements.


5 EGMP-IT Batch 3

Balance Sheet – Common Size Analysis

(see appendix)

India Cements

As a part of common size analysis of the balance sheet, the following items have changed as a

proportion to total liabilities in the five years of operations:

• Reserves and surplus have increased from 31% to 49%

• Total share holder funds have increased from 35% to 53%

• Total debt as a proportion to total liabilities has decreased from 55% to 29%.

• Fixed assets have decreased from 61% to 56%. The capital work in progress has gone up

to 13% from less than 1 %.

• Investments have increased from 1% to close to 2%.

• Cash balance has increased from close to 0% to 1%

UltraTech Cement

As a part of common size analysis of the balance sheet, the following items have changed as a

proportion to total liabilities in the five years of operations:

• Reserves and surplus have increased from 31% to 49%

• Total share holder funds have increased from 35% to 51%

• Total debt as a proportion to total liabilities has decreased from 50% to 30%, even while

the company's debt has increased by over 139%.

• Fixed assets have changed from 83% to 66%, indicates that the company has continued to

invest in fixed assets even while the older assets have depreciated.

• Investments have increased from 6% to close to 15%.

• Cash balance has remained steady.

Comparison of common size trends

• Reserves and surplus as a proportion to total liabilities have remained same over the

period for both the companies. However, UltraTech Cements has generated better

numbers.

• India Cements have repaid its borrowings regularly and have managed to keep the debt to

a lower proportion.

• UltraTech Cements has comparatively invested more in fixed assets than India Cements.

• UltraTech Cements has maintained better cash balance.


6 EGMP-IT Batch 3

Profit and loss statement – Horizontal Trend Analysis

(see appendix)

India Cements

Following are highlights of the horizontal analysis of profit & loss statement from FY05 to FY09

• Sales have increased from Rs.1162.14 Cr. to Rs.3538.34 Cr. an increase of 288%. Other

income increased by about 143%

• Expenses increased from Rs.1025.61 Cr. to Rs.2510.07 Cr. an increase of 244%.

• Net profit increased from Rs.4.58 Cr. to Rs.432.18 Cr. an increase of 9436%.

UltraTech Cement

Following are highlights of the horizontal analysis of profit & loss statement from FY05 to FY09

• Sales have increased from Rs.2604.25 Cr. to Rs.6385.50 Cr. an increase of 245%. Other

income increased by 491%.

• Expenses increased from Rs.2330.28 Cr. to Rs.4679.55 Cr. an increase of 200%.

• Net profit increased from Rs.2.85 Cr. to Rs.977.02 Cr. an increase of 34281%.

Comparison of common size trends

• Ultratech cements have registered higher sales and net income.

• India Cements have registered higher expense percentage even while the sales have been

relatively lower.

• Ultratech Cements have registered higher other income from its investments.


7 EGMP-IT Batch 3

Income Statement – Common Size Analysis

As a proportion of Net Sales (see appendix)

• Total Expenses for India Cements and Ultratech has steadily decreased over the years but

a marginal increase was recorded in last one year due to increase in input costs.

• Operating Profit for both companies has also steadily increased over the years and

recorded a marginal decrease due to increase in total expenses.

• Depreciation has steadily decreased for both companies over the years but it may be

noted that there is a slight increase of depreciation for Ultratech in last one year due to

acquisition of new assets in line with their aggressive growth strategy.

Cash Flow Analysis

Net Cash from Operating Activities

Analysis: Net cash from Operating activities

for UltraTech cement has steadily increased

from Rs.337 Cr. to Rs.1457 Cr. which

indicates that it has been able to generate

significant amount of cash from its core

operating activities. In comparision, India

Cements was steady until FY08 and had a

dip in net cash in FY09.

Net Cash from Investing Activities Analysis: Net cash from investing activities

indicates that UltraTech cement had a steady

increase in investment using the generated

profit, the latest investment stands at

Rs.1645 Cr. In comparison India Cements

have had dip in net cash in FY09.

Net Cash from Financing Activities

Analysis: There has been steady increase in

cash flow for financing activities for

UltraTech while India Cements has shown a

mixed trend, indicating repayment of debts.


8 EGMP-IT Batch 3

Ratio Analysis

Following are the financial ratio analysis for India Cements and UltraTech Cement

Liquidity Ratios

Current Ratio

Analysis: India Cements have always

maintained a very healthy current ratio

(Between 1.0 and 2.0). UltraTech Cements,

since FY08, have been close to the lower

boundary of 1.0, indicating an impending

liquidity crunch.

Quick ratio (Acid Test)

Analysis: India Cements have always

maintained a very healthy current ratio

(Between 1.0 and 2.0). UltraTech Cements,

since FY06, have been maintaining an

quick ratio of less than 1.0, indicating an

impending liquidity crunch.


9 EGMP-IT Batch 3

Solvency Ratios

Interest Coverage Ratio

Analysis: The interest coverage ratio has

consistently grown for both the companies

till FY09, after which it has taken a

downward trend.

Debt-Equity Ratio

Analysis: Debt as a ratio to equity

(Shareholders funds) has steadily

decreased over a period of time. India

Cements have increased both their equity

share capital and its reserves and surplus

over the period of time, however for ultra

tech have kept the equity share capital

constant and reserves and surplus have

increased. It indicates that UltraTech

cements have been a stronger performer of

the both in maintaining this ratio.

Activity Ratios

Fixed Asset Turnover Ratio and

Total Asset turnover ratio

Analysis: India Cements have maintained

a constant ratio over the period. Ultratech

cements have steadily increased the ratio

over the period and have also maintained a

higher ratio as compared, indicating a

better utilization of fixed assets.

UltraTech Cements have also maintained a

better total asset turnover ratio over India

cements


10 EGMP-IT Batch 3

Profitability Ratios

Operating Profit Margin

Analysis: Both companies have

maintained similar operating profit margin

indicating similar expense costs. On

comparison with the industry leaders (ACC

& Ambuja), we observed that the operating

profit margins are at a similar level. A dip

in operating profit margin for both

companies indicates increase in operating

expenses as observed in increase in

expense ratio.

Net Profit Margin Ratio

Analysis: Net profit margins have

remained high for India Cements during

FY07 & FY08. During FY09, a substantial

decline was observed due to 60% increase

in depreciation over last year, taxes and

interest. Ultratech has maintained

consistent net operating margin.

Return on Equity (ROE) Ratio

Analysis: UltraTech Cement gave better

return on equity because of lower equity

and higher net profit.

Return on Assets (ROA) Ratio

Analysis: A higher Return on Assets for

UltraTech Cement in comparison to India

Cements is indicative of better utilization

of its fixed assets.


11 EGMP-IT Batch 3

Earnings Per Share

EPS is the ratio of the earnings to the total

number of equity shares.

Analysis: UltraTech Cement has given

better earnings per share to its investors

due to high net profit and less equity

shares.

Price to Earnings Ratio Analysis: UltraTech Cement has a PE ratio of 8.16 & India Cements has a PE ratio of 8.35 in

comparison as on 25th Aug 2009.

Conclusion

The two companies, UltraTech Cement and India Cements, operated in similar economic

environment, and yet one company stands above the other on various parameters. These

companies had similar amount of invested capital at their disposal, India Cements had Rs.5619

Cr. and UltraTech Cement had Rs.5743 Cr. The expenses and operating margins were also

identical as indicated by ratio analysis.

UltraTech Cement outperformed in net sales and net profit. It also maintained healthy reserves

and surplus, even after paying good dividend to its shareholders. In addition to income from

sales, the company had also generated good returns on its investments, adding value to share

holders’ investment.

India Cements has performed well in its own way although lower on numbers. On the hindsight

it has far lesser debt and frequently repaid portion of its debts. The company has very recently

made a huge investment in an IPL franchise expecting to get an obvious benefit of improving its

brand identity.

To conclude we can say that, UltraTech Cement turns out to be a company that is aggressive in

its strategy with a penchant for risk and has been successful so far. India Cements turns out to be

a conservative player with better fiscal discipline.

As an investor and as a creditor UltraTech Cement turns out to be the obvious choice.

At a high level, we compared the performance of these two companies with cement industry

leaders (ACC and Ambuja cements) to arrive at a general trend. We observed that companies

in the industry

o Operate on low margins

o Incur high investment cost on fixed assets and longer gestation periods

o Incur high input cost and expenses

o Sales are vulnerable to fluctuations in demand driven by the economic scenario

o Sales are influenced by regional presence and brand identity.


12 EGMP-IT Batch 3

Appendix

Data Source: www.capitaline.com

Financial Statements –Balance Sheet: India Cements

Financial Statements –Balance Sheet: UltraTech Cement


13 EGMP-IT Batch 3

Financial Statements –Income Statement

Financial Statements – Cash Flow Statement


14 EGMP-IT Batch 3

Balance Sheet – Horizontal Trend Analysis: India Cements


15 EGMP-IT Batch 3

Balance Sheet – Horizontal Trend Analysis: UltraTech Cement


16 EGMP-IT Batch 3

Balance Sheet – Common Size Analysis: India Cements


17 EGMP-IT Batch 3

Balance Sheet – Common Size Analysis: UltraTech Cement


18 EGMP-IT Batch 3

Income Statement – Horizontal Trend Analysis: India Cements

Income Statement – Horizontal Trend Analysis: UltraTech Cement


19 EGMP-IT Batch 3

Income Statement – Common Size Analysis: India Cements

Income Statement – Common Size Analysis: UltraTech Cement

Documents

FA Project 25Aug09V4