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Analysis of Indian cement Industry & Financial performance of ACC LTD

Presented by, Shivali Kamal Sem-III MBA+PGPM rai business school,Hyd

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Contents:

Introduction To The Study Overview of Indian CEMENT Industry SWOT Analysis ACC Brief History Map of ACC & 5 years performance highlights Plants & capacity Working Capital Management Research methodology Financial Analysis Analysis :-Findings & observations Limitations & Suggestions

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Objective of the study:-

To determine the amount of working capital requirement and to calculate various ratios related to working capital. To analyze the Indian Cement Industry. To evaluate the financial performance of ACC limited using financial tools. To study liquidity position of the company by taking various measurements. To suggest the steps to be taken to increase the efficiency in management of working capital.

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Overview of Indian CEMENT Industry India is the world's second largest producer of cement with total capacity of 219 million tones (MT) at the end of FY 2009, according to the Cement Manufactures Association. Dispatches during 2009-10 were 159.43 million tones (MT) increasing by 12 per cent over 142.23 in 2008-09. Cement production during 2009-10 was 160.31 MT an increase of 12.37 per cent over 142.65 MT in 2008-09. According to ACC -the governments continued thrust on infrastructure will help an annual growth of 9-10 per cent in 2010, In the Union Budget 2010-11, US$ 37.4 billion has been provided for infrastructure development.

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Top ten companies : ACC Limited Gujarat Ambuja Cements Limited Ultratech Grasim India Cements JK Cement Ltd Jaypee Group Century Cement Madras Cement Birla Corp.

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SWOT ANALYSIS:Strengths: Growth momentum Government initiative in the infrastructure Huge potential for export. Capacity utilization: over 90% Opportunities:Substantially low per capita cement consumption (82 kg against 250kgs) Boom in Infrastructure sector For current fiscal year ,the demand-supply Gap is 40 mt. Weaknesses:Highly regionalized industry. High capital & investment cost The complex Excise Duty structure The recent ban on export of cement clinker Threats:The recent moves by the Central Government in making the import of the cement total duty free Recent changes in the Central Excise Duty Increased railway freight, coal priceswww.company.com

ACC company Profile: ACC (ACC Limited) is India's foremost manufacturer of cement and concrete. ACC's operations are spread with 14 modern cement factories, 19 Ready mix concrete plants, 19 sales offices & a workforce of about 9000 persons . ACCs brand name is synonymous with cement and enjoys a high level of equity in the Indian market. It is the only cement company that figures in the list of Consumer Super Brands of India ACC has also extended its services overseas to the Middle East, Africa, and South America ACC was formally established on August 1, 1936. Sadly, F E Din Shaw, the man recognized as the founder of ACC, died in January 1936. Just months before his dream could be realized.www.company.com

The success came as the historic merger of ten companies to form a cement giant. These companies belonged to four prominent business groups Tatas, Khataus, Killick Nixon and F E Din Shaw groups. ACC, with an installed capacity of 22.63 MTPA (with 13 plants), enjoys an 11% market share in India, which with its total installed capacity of 207 MTPA . A new association was formed between ACC and The Holcim group of Switzerland in 2005 Vision:-To be one of the most respected companies in India; recognized for challenging conventions and delivering on our promises Mission includes Leadership, Profitability , Growth , Quality , Equity , Pioneering & Responsibility.www.company.com

Map of ACC & 5 years performance highlights: Corporate office:-Mumbai Subsidiaries: Bulk Cement Corporation India Ltd (BCCL) ACC Machinery Company Ltd (AMCL) ACC Nihon Casting Ltd (ANCL) Regional marketing offices :Bangaluru , Bhopal, Chandigarh , Coimbatore , Kanpur, Kolkata, Mumbai, Pune , Secunderabad ,New Delhi & Patna.

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Achievements: 1955:-ACC Sindri uses waste material - calcium carbonate sludge -from fertilizer factory to make cement 2001:-Commissioning of the new Wadi plant of 2.6 MTPA capacity in Karnataka, the largest in India, and among the largest sized kilns in the World. Sword of Honour - by British Safety Council, United Kingdom for excellence in safety performance. FICCI Award --- for innovative measures for control of pollution, waste management & conservation of mineral resources in mines and plant. Indira Gandhi Memorial National Award Excellence in Management of Health, Safety and Environment by CMA..

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Working Capital Management :Working capital means the part of the total assets of the business that change from one form to another form in the ordinary course of business operations. Two different concepts of working capital :a) Balance sheet or Traditional & b) Operating cycle concept. SIGNIFICANCE OF WORKING CAPITAL: INCREASE DEBT CAPACITY INCREASE IN FIXED ASSETS INCREASE EFFECIENCY EASY LOAN FROM BANKS PAYMENT TO SUPPLIERS DIVIDEND DISTRIBUTION

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CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL

Difficult for the enterprise to undertake profitable projects. Cash-crisis Optimum capacity utilization may not be achieved , The firm may be compelled to buy raw materials on credit and sell finished goods on cash Non-availability of stocks CONSEQUENCES OF OVER ASSESSMENT OF WORKING CAPITAL:-

unnecessary accumulation of inventories. Too liberal credit terms to buyers and very poor recovery system and cash management. Over-investment in working capital makes capital less productive and may reduce return on investment.www.company.com

Working Capital Cycle

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If we....... Collect receivables (debtors) faster Collect receivables (debtors) slower Get better credit (in terms of duration or amount) from suppliers Shift inventory (stocks) faster Move inventory (stocks) slower

Then...... We release cash from the cycle Our receivables soak up cash We increase our cash resources We free up cash We consume more cash

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Handling Receivables (Debtors) Late payments erode profits and can lead to bad debts. Managing Payables (Creditors) if we can buy well then we can sell well. Management of cash Management of Inventory Financing Working Capital : Suppliers Credit Bank Loan for Working Capital Promoters Fund

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Research MethodologyData Collection Primary data is unstructured interview with managers to get information regarding all variables for working capital management. Secondary data is collected from annual reports, relevant records of ACC ltd & CMA , journals & articles. Scope: The study has got a wide & fast scope. It tries to find out the players in the industry & focuses on the upcoming trends. It also tries to show the financial performance of the major player of the industry (ACC).

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Financial Analysis & findings , using different tools as: Common size statement ( Vertical Analysis) Trend Analysis (Horizontal) Working capital Analysis using changes in:a) b) c) d) Inventory Sundry Debtors Cash & Bank Bal, Loans & adv Current liabilities & Provision

Ratio Analysis using:a) Liquidity Ratio b) Solvency Ratio c) Activity/mgmt efficiency Ratio d) Profitability & Investment turnover Ratio

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Common Size statement:-

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Interpretation Of Common size statement There is a significant increase in shareholders fund & decrease in loan funds continuously over a period of time. There is also a significant increase in the amount invested by the company for the purpose of future growth. There is a significant decrease in current asset over a period of time.

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Trend Analysis:-

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Interpretation of trend analysis :-

Over a period of years ,there is an increasing trend in all the Balance sheet items other than Investment & Current assets.

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Interpretation of working capital:-

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Inventory AnalysisIt indicates that the company is growing rapidly in cement sector. A company uses inventory when they have demand in market

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SUNDRY DEBTORS ANALYSIS: Debtors will arise only when credit sales are made. The above graph depicts that there is continuous rise in the debtors of ACC Ltd in the successive years other than 2009.. It represents an extension of credit to customers. The reason for increasing credit is competition and company liberal credit policy.

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Cash & Bank Bal, Loans & adv ANALYSIS: Significant increase in Cash & bank balance, which shows the financial strengths of the company. Though there is a slight fall in the FY 2009 . The pattern of loans & advance is not static in nature. It shows upwards & downwards movement as the requirements influence it.

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CURRENT LIABILITIES & PROVISIONS ANALYSIS: An increased current liabilities indicates that company is using its credit facilities to the maximum extent for operating purpose. The huge amount is being kept as provisions to pay the taxes, interest & other facilities or benefits to the employee.

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WORKING CAPITAL RATIOS AND ITS INTERPRETATION:-

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Activity ratios:-

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Profitability & Investment turnover Ratio:30 25 20 ro sp fit ratio s ro 15 10 5 0 2005 2006 2007 2008 2009 et p fit ratio ro iv en p sare i er

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Observations: Position of the stock is increasing per year that is good sign to sustain as the leader ahead. Lack of advertisement can be said as weak point of the ACC. ACCs investment policies are very much reliable. The additional capacity of cement production at New Wadi plant will create new milestones for the ACC. Overall all ratios of the company are good and company need to work with more efficiency. There is a significant amount of increase in Basic earnings per share ,Capital employed ,PAT( profit after tax) ,Operating Profit & Net Sales.www.company.com

Limitations: The study has taken the data for a limited period of 5years i.e., Dec.2005 to Dec.2009 performance of the company. The data collected were mostly secondary in nature. This study in conducted within a short period. During the limited period, the study may not be retailed, full fledged and utilization in all aspects. Financial accounting does not take into account the price level changes.

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Suggestions: It is suggested that the company has to increase its current assets to meet its short-term obligations. Company has to improve debtors collection period continuously so that effective receivable management will possible. Reserves should be utilized for the growth of the company. While forecasting cash flow, the management should take into account the impact of unforeseen events, market cycles and actions by competitors. The effect of unforeseen demands of working capital should be factored in. Collaborating with the customers & suppliers instead of being focused only on own operations will also yield good results. If feasible, helping them to plan their inventory requirements efficiently to match their production with their consumption will help reduce inventory levels.

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