APEEJAY SCHOOL OF MANAGEMENT AND TECHNOLOGY

A Project Report On: Cost of Capital and Ratio Analysis Of

SHREE CEMENT LTD. (BANGUR NAGAR, BEAWAR, DISTT. AJMER)

UNDER GUIDANCE OF: Mr. N.C. JAIN (A.V.P Finance)

Submitted By: MOHIT RATHI PGDM (IV TRIMESTER)

CERTIFICATE OF APPROVAL
The following Summer Project Report titled "Cost of Capital and Ratio Analysis" is hereby approved as a certified study in management carried out and presented in a manner satisfactory to warrant its acceptance as a prerequisite for the award of Master of Business Administration for which it has been submitted. It is understood that by this approval the undersigned do not necessarily endorse or approve any statement made, opinion expressed or conclusion drawn therein but approve the Summer Project Report only for the purpose it is submitted.

Summer Project Report Examination Committee for evaluation of Summer Project Report:

Name

Signature

1. Faculty Examiner

__________

____________

2. PG Summer Project Co-coordinator

__________

____________

ACKNOWLEDGEMENT
A large number of individual has contributed to this project. I am thankful to all of them for their help and encouragement. Like other reports, this report is also drawn from the work of large number of researchers and author in the field of finance. I would like to express my gratitude to Mr. N.C. Jain A.V.P (finance) for giving me the opportunity and enough of support to undergo training in their organization, SHREE CEMENT LTD, BEAWER (RAJ) I shall like to thanks SHREES finance department for their able guidance, support, supervision and care during the whole training program and to whom words can never express my feeling of gratitude and reverence. I would like to give my sincere thanks to officers, managers and employees of SHREE CEMENT LTD, BEAWER (RAJ) for providing valuable information, reports and data that were require for the study. The successful completion of my project has been carried out under the guidance of Mr. N.C Jain A.V.P (finance). I take upon this opportunity to thank them for encouragement and guidance in completion of project. Their knowledge and expertise was of great help for the project study. Last but not least, I would like to express my deep sense of gratitude to my parents and friends for their unflinching moral support. Their towering presence instilled in me the carving to the work harder and completes this daunting task timely with a sufficient degree of in depth study. I have tried to give credit to all sources form where I have drawn material in this project, still I felt obliged if they are brought to my notice.

Mohit Rathi

INDEX
S.NO. 1. 2. 3. 4. PARTICULARS Preface Focus of the project, Objective of study The Indian Cement Industry Overview Major Cement Players, Region wise Cement Production 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Introduction about SCL: Origin of the Company Cement manufacture Weight average cost of capital Cost of equity Cost of debts Capital structure Analysis of capital structure Factor affecting cost of capital Optimal capital structure Ratio Analysis Inter firm Analysis Intra firm Analysis

PREFACE
About three decade ago, the scope of financial management was confined to the raising of funds, whenever needed and little significance used to be attached to financial decision-making and problem solving. As a consequence, the traditional finance texts were structured around this theme and contained description of the instruments and institutions of raising funds and of the major events, such as promotion, reorganization, readjustment, merger, consolidation etc. In the mid fifties, the emphasis shifted to the judicious utilization of funds. The modern thinking in financial management accords a far greater importance to management decision-making and policy. Today, financial management does not perform the passive role of scorekeepers of financial data and information, and arranging funds, whenever directed to do so. Rather, they occupy the key position in top management areas and play a dynamic role in solving complex management problems. They are now responsible for the fortune of the enterprises and are involved in the most vital management decision of allocation of capital. It is their duty to insure the funds are raised most economically and used in the most efficient and effective manner. Because of this change in emphasis, the descriptive treatment of the subject of financial management is being replaced by growing analytical content and sound theoretical underpinnings.

FOCUS OF THE PROJECT

The project is structured for the purpose of getting good insight of Ratio Analysis, Capital Structure and Cost of Capital, theory and its implication. The Project focuses on different Ratios and its analization, Cost of Different Component of Capital and Optimal Capital Structure for Minimizing the Cost and Risk. It also discusses the different sources of funds, different approaches of cost of capital. The project is being made as a part of summer training and gives good insight of the topic covered under it.

OBJECTIVE OF THE STUDY

1. 2. 3. 4. To get a good insight of the cement industry. To understand the theory of capital and its implication in business structure. To know about the various sources of funds in the company. To find out the cost of various components of capital and how to minimize it.

The Indian Cement Industry

The Indian Cement industry date back to 1914, with first unit was set-up at Porbandar with a capacity of 1000 tones. The Indian cement industry is the second largest producer of quality cement. Indian Cement Industry is engaged in the production of several varieties of cement such as Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement, etc. They are produced strictly as per the Bureau of Indian Standards (BIS) specifications and their quality is comparable with the best in the world. The Indian cement industry is the second largest in the world. It comprises of 140 large and more than 365 mini cement plants. The industry's capacity at the beginning of the year 2009-10 was 217.80 million tons. During 2008-09, total cement consumption in India stood at 178 million tons while exports of cement and clinker amounted to around 3 million tons. The industry occupies an important place in the national economy because of its strong linkages to other sectors such as construction, transportation, coal and power. The cement industry is also one of the major contributors to the exchequer by way of indirect taxes. Cement production during April to January 2009-10 was 130.67 million tones as compared to 115.52 million tons during the same period for the year 2008-09. Dispatches were estimated at 129.97 million tons during April to January 2009-10 whereas during the same period for the year 2008-09,it stood at 115.07 million tones. Over the last few years, the Indian cement industry witnessed strong growth, with demand reporting a compounded annual growth rate (CAGR) of 9.3% and capacity addition a CAGR of 5.6% between 2004-05 and 2008-09. The main factors prompting this growth in demand include the real estate boom during 2004-08, increased investments in infrastructure by both the private sector and Government, and higher Governmental spending under various social programs. With demand growth being buoyant and capacity addition limited, the industry posted capacity utilization levels of around 93% during the last five years. Improved prices in conjunction with volume growth led to the domestic cement industry reporting robust growth in turnover and profitability during the period 2005-09.

Although consolidation has taken place in the Indian cement industry with the top five players controlling almost 50% of the capacity, the remaining 50% of the capacity remains pretty fragmented. Per capita consumption has increased from 28 kg in 198081 to 115 kg in 2005. In relative terms, Indias average consumption is still low and the process of catching up with international averages will drive future growth. Infrastructure spending (particularly on roads, ports and airports), a spurt in housing construction and expansion in corporate production facilities is likely to spur growth in this area. South-East Asia and the Middle East are potential export markets. Low cost technology and extensive restructuring have made some of the Indian cement companies the most efficient across global majors. Despite some consolidation, the industry remains somewhat fragmented and merger and acquisition possibilities are strong. Investment norms including guidelines for foreign direct investment (FDI) are investor-friendly. All these factors present a strong case for investing in the Indian market. The growth trend has been on for some time now. If these trends are anything to go by, it will not be long before the sector will match the demand supply gap. During the Tenth Plan, the industry, which is ranked second in the world in terms of production, is expected to grow at 10 per cent per annum adding a capacity of 40-52 million tons, according to the annual report of the Department of Industrial Policy and Promotion (DIPP). The report reveals that this growth trend is being driven mainly by the expansion of existing plants and using more fly ash in the production of cement.

CEMENT Cements are of two basic types- gray cement and white cement. Grey cement is used only for construction purposes while white cement can be put to a variety of uses. It is used for mosaic and terrazzo flooring and certain cements paints. It is used as a primer for paints besides has a variety of architectural uses. The cost of white cement is approximately three times that of gray cement. White cement is more expensive because its production cost is more and excise duty on white cement is also higher. Shree cement does not manufacture white cement at present.

CEMENT

GREY

WHITE

Portland Pozzolona Cement

(PPC)

Ordinary Portland cement

Pozzolona used in the manufacture of Portland cement is burnt clay of fly ash generated at thermal power plants. PPC is hydraulic cement. PPC differs from OPC on a number of counts. Pozzolona during manufacturing consumes lot of hydration heat and forms cementious gel. Reduced heat of hydration leads to lesser shrinkage cracks. An additional gel formation leads to lesser pores in concrete or mortar. It also minimizes problem of leaching and efflorescence.

Major Cement Plants: Plants : 143 Typical installed capacity Per plant : Above 1.5 mntpa Total installed capacity : 207.26 mntpa Production 08: 177.17 mntpa All India reach through multiple plants Export to Bangladesh, Nepal, Sri Lanka, UAE and Mauritius Strong marketing network, tie-ups with customers, contractors Wide spread distribution network. Sales primarily through the dealer channel

Mini Cement Plants: Nearly 365 plants & Located in Gujarat, Rajasthan, MP mainly Typical capacity < 200 tpd Installed capacity around 11.10mn. Tones Production 2008 : 6.0 mn tones Mini plants were meant to tap scattered limestone reserves. However most set up in AP Most use vertical kiln technology

 Production cost / tone - Rs. 1,000 to 1,400 Presence of these plants limited to the state Infrastructural facilities not the best

Regional division (2009-10) The Indian cement industry has to be viewed in terms of five regions: North (Punjab, Delhi, Haryana, Himachal Pradesh, Rajasthan, Chandigarh, J&K and Uttranchal); West (Maharashtra and Gujarat); South (Tamil Nadu, Andhra Pradesh, Karnataka, Kerala, Pondicherry, Andaman & Nicobar and Goa); East (Bihar, Orissa, West Bengal, Assam, Meghalaya, Jharkhand and Chhattisgarh); and Central (Uttar Pradesh and Madhya Pradesh).

REGIONWISE CEMENT PRODUCTION

EAST (14%) WEST (16%) CENTRAL (14% NORTH (23%) SOUTH (33%)

Major Players in Cement Industry:

Shree Shree Cements Ltd. is a Rajasthan based company, located at Beawer. The company has installed capacity of 9.1 mn tones per annum in Rajasthan. For the last 18 years, it has been consistently producing many notches above the name plate capacity. The company retains its position as north Indias largest single-location manufacturer. Shrees principal cement consuming markets comprise Rajasthan, Delhi, Haryana, Punjab, Uttar Pradesh and Uttranchal. Shree manufactures Ordinary Portland Cement (OPC) and Portland Pozzolana Cement (PPC). Its output is marketed under the Shree Ultra Ordinary Portland Cement and Shree Ultra Red Oxide Jung Rodhak Cement brand names.

Ambuja GACL was set up in 1986 with 0.7 million tones. The capacity has grown 25 times since then to 18.5 million tones. GACL exports as much as 15 percent of its production. Thirty five per cent of the companys products trans ported are by sea which is the cheapest mode. It has earned the reputation of being the lowest cost producer in the cement industry. Ambuja cement one of GACLs well established brands. The company plans to increase capacity by 3-4 million tons in the near future.

ACC Being formed in 1936, ACC has a capacity of 22.40 million (including 0.53 million tons of Damodar Cement and Slag and 0.96 million tons of Bargarh Cement ). ACC Super is one of the companys well established brands. It is planning to expand the capacity of its wholly-owned subsidiary Damodar cement and Slag at Purulia in West Bengal. This is aimed at increasing its presence in the eastern region. As on FY07, ACC was the largest player with a capacity of 22.4 million tons per annum (including 0.525 mn tones per annum of its subsidiary Damodar Cement).

The Aditya Birla Group The Aditya Birla Group is the worlds eighth largest cement producer. The first cement plant of Grasim, the flagship of the Aditya Birla Group, at Jawad in Madhya Pradesh went on Stream in 1985. In total, Grasim has five integrated grey cement plants and six ready-mix concrete plants. The company is Indias largest white cement producer with a capacity of 4 lakh tones. It has one of the worlds largest white cement plant at Kharia Khangar (Raj.) Shree Digvijay Cement, a subsidiary of Grasim, which was acquired in 1998, has its integrated grey cement plant at Sikka (Gujrat). Finally Grasim acquired controlling stake in Ultra Tech Cement Limited (Ultra Tech), the demerged cement business of L&T. Grasim has a total capacity of 31 million tones and eyeing to increase it to 48 MT by FY 09. Grasim has a portfolio of national brands which include Birla Supar, Birla Plus, Birla White and Birla Ready mix and also regional brands like Vikram Cement and Rajshree Cement.

Binani A fierce competitor with a 2.2 MTPA plant is located at Binanigram, Pindwara, a village in Sirohi in the state of Rajasthan. Its a tough nut player which is outside CMA (Cement Manufacturers Association) and is prime reason for driving prices low in market. Offers a good quality product at cheap rates and has very good brand image. Sales are focused in the North India, Gujarat and Rajasthan markets and Holds around 14% of Rajasthan market.

JK An entrenched competitor that has brands across the price spectrum with JK Nembahera leading the pack. Also operates in the white cement market with Birla as its only competitor. It lost significant market when Ambuja came to Rajasthan.

Others Other players like Shriram have insignificant share and are highly localized. Shriram has a small presence and that too largely in southern Rajasthan. There are various mini plants operating too which supply cheap cement which has no ISI certification and does not confirm BIS standards. Quite often they are supplied in other established brands cement bags. L&T is a strong player nationally and regarded as quality product. It has a footprint but not a foothold in Rajasthan market

INTRODUCTION
ABOUT THE ORGANISATION Shree Cement Limited is a Beawar based company, located in Rajasthan. The Company is a part of the Bangur Group and was incorporated on 25th October1979, at Jaipur with a Vision: To register strong consumer surplus through a superior cement quality at affordable price. Commercial production commenced from 1st May1985 with a installed capacity of 6 lacs tones per annum in Beawar dist. Ajmer, the capacity of this plant was upgraded to 7.6 lacs tones per annum during 1994-95 by a modernization and up gradation program. In 1995 - The Company undertook the implementation of new unit of 1.24 MT capacities per annum named "Raj Cement. In 1997 The Company commissioned its second cement plant - Raj Cement with a capacity of 12.4 lacs tones per annum adjacent to its existing plant in order to take full advantage of its existing infrastructure and already developed captive mining lease enough to sustain a new cement plan. The cumulative capacity was enhanced by de-bottlenecking and balancing equipment in December 2001 to 2.6 MTPA. A product called Tuff Cemento has also launched by the company in April 2007. At present company is producing over 100% capacity utilization, it is the largest single location cement producer in north India (sixth in country).

COMPANY PROFILE COMPANY INCORPORATION YEAR REGISTERED OFFICE SHREE CEMENT LTD. 1979 BANGUR NAGAR, BEAWAR, AJMER (RAJASTHAN) 21, STRAND ROAD, KOLKATA CEMENT MANUFACTURING B.G. BANGUR H.M. BANGUR M.K. SINGHI

CORPORATE OFFICE INDUSTRY CHAIRMAN MANAGING DIRECTOR EXECUTIVE DIRECTOR

EQUITY CAPITAL FACE VALUE OF SHARE EQUITY CAPITAL FACE VALUE OF SHARE

34.84 CRORES 10 34.84 CRORES 10

Shree Cement Limited is one of the fastest growing Cement Companies in India. Presently Shree Cement has 9.1 MTPA capacity in three plants (Shree in Beawar 2.6 MTPA, Ras in Pali District 3 MT and Khushkhera capacity is 3.5 MTPA) The organization has performed exceptionally well in the year 2007-08 increasing the PBT by 95% the reasons for this remarkable achievement and key strengths of the company are discussed in the report. For the last 18 years, it has been consistently producing many notches above the nameplate capacity. The company retains its position as north Indias largest single-location manufacturer. Shrees principal cement consuming markets comprise Rajasthan, Delhi, Haryana, Punjab, Uttar Pradesh and Uttranchal. Shree manufactures Ordinary Portland Cement (OPC) and Portland Pozzolana Cement (PPC). It has three brands under its portfolio viz., Shree Ultra Jung Rodhak Cement, Bangur Cement and Tuff Cemento. The Shree Vision To be one of the Indias most respected enterprise through best-in-class performance and leading by low carbon philosophy making it a progressive organization that all stakeholders proud to deal with. The Shree Mission The company continues to be one of the most operationally efficient and energy conserving cements producers in the world. Its mission statement is To harness sustainability through low-carbon philosophy To sustain its reputation as one of the most efficient manufacture globally. To continually have most engaged team. To continually add value to its products and operation meeting expectations of all its stakeholders. To continually build and upgrade skills and competencies of its human resource for growth To be a responsible corporate citizen with total commitment to communities in which it operates and society at large.

Origin of the Company

Promoted by the Bangur Group, Shree Cements is the largest cement producer in Rajasthan. The company has a total installed capacity of 9.1 million tonne .The plants are strategically located in central Rajasthan, from where it can cater to the entire Rajasthan market as well as Delhi and Haryana. The company has about 100 sales offices spread across the states of Rajasthan, Uttar Pradesh, Uttaranchal, Delhi, Haryana, Punjab and Jammu & Kashmir. Its cement is marketed under the brand name of Shree Ultra Cement with different grades like 33, 43 and 53 and sub-brand names like "red oxide cement", "Jung Rodhak Cement", etc. Shree Cement Ltd (SCL) is located at Beawer, Rajasthan, Indias largest cement producing state. It was incorporated in 1979. Commercial production at its 0.6 million tons per annum (mtpa) cement plant in Rajasthan commenced in May 1985. Three companies of the Bangur group promoted SCL. These companies are Shree Digvijay Company Ltd, Graphite India Ltd and Fort Gloster Industries Ltd. Over the years, SCL's capacity rose and touched 2 mtpa by 1997-98. Its current cumulative installed capacity stands at 2.6 mtpa & in 2003-04 the company produced 2.84 million tones of cement making it the largest single location cement Cement making it the largest single location cement producer in north India. It is operating at over 100% capacity utilization. Shree caters to cement demand arising in Rajasthan, Delhi, Haryana, UP and Punjab. What is strategic for SCL is that it is located in central Rajasthan so it can cater to the entire Rajasthan market with the most economic logistics cost. Also, Shree Cement is the closest plant to Delhi and Haryana among all cement manufacturers in its state and proximity to these profitable cement markets renders the company an edge over other cement companies of the company in terms of lower freight costs. Shrees total captive power plant capacity today stands at 101.5 MW. In 2000-01, the company has succeeded in substituting conventional coke with 100 per cent pet coke, a waste from refineries, as primary fuel resulting in lower inventory and input costs. In the past two years the price of coal has gone up. Earlier dependent on good quality imported coal, the company's switch to pet coke could not have come at a better time. The company also replaced indigenous refractory bricks with imported substitutes, reducing its consumption per ton of clinker. The company has one of the most energy efficient plants in the world. The captive plant generates power at a cost of Rs 4.5 per unit (excluding interest and depreciation) as compared to over Rs 5 per unit from the grid. In appreciation of its achievements in Energy sector, the Company has been awarded the prestigious 'National Energy Conservation Award" for the year 1997. Shree is rated best by Whitehopleman, an international agency specializing in the rating of cement plants.

MULTIPLE COMPETITIVE BRANDS

Incisive execution of Shrees multiple competitive brand strategy has been delivering results along anticipated lines. Consistency in brand strategy is helping Shree to sustain its brands having lasting impression among its consumers. The steady growth in Shreee volume especially year-on year in the last two fiscals, testifies to the effectiveness of its multi brand marketing strategy.

SHREE ULTRA Launched in 2002, Shree Ultra was the companys first brand, the first manifestation of Shrees strategic move from commodity to brand marketing. Its generic OPC version has been joined by a variant, Shree Ultra Jung Rodhak, on the functional differentiator of rust prevention. Together the two variance have made Shree Ultra the flagship brand of the company, contributing half of the Shrees total sales. The brand was launched with powerful media and promotional support, the imaginative advertising and the momentum has clearly sustained its growth over time. Today it is present all of Shree Cements market territories. In 07-08 it chalked up its highest volumes in the home market of Rajasthan, and in the NCR, the main focus of the construction boom in north India. Overall, a Shree Ultra volume reflects its acceptance by professional influencers. Which in turn facilities acceptance by domestic consumers. Their support, as well as sustained local promotions, has helped to improve brand recall, and prepared the ground for fresh initiatives in the market place.

BANGUR CEMENT Bangur Cement was launched in 2006 as a premium brand, competitive with best in the market designed to full fill user aspiration for high quality construction; the brand tagline reflects its promise of top-of-market value: Sasta Nahi, Sabse Achcha. Given the premium profile design for it the brand is supported by a matching network of business partners and business associates carefully selected for the track record in selling to high end market segment.

Its early successes are founded on a two tier marketing and distribution programme. At one level Shrees field forts takes the trades in to the confident with transparent terms and tested and proven promotional offerings. On a more exclusive level, it deploys special teams of highly professional technical sales experts t conduct direct, one on one interaction with opinion builders and influencers if high standing among the fraternity of respected construction space list. Bangur Cement has achieved 95% of its total sales in the trade segment. It has made selective penetration in both urban and rural markets. Bangur cement maintained its zero outstandings status in this year as well.

TUFF CEMENTO This is the latest brand offering from Shree Cement, directed at a highly competitive niche market, with aggressive and establish competitors. It has been position as rock strong- on the promise of high performance, able to withstand exceptionally harsh environmental conditions. Launched in the first month of the year under review, Tuff Cemento was able to secure a network of the 1000 dynamic and resourceful dealers in a record time of about four months. The brand is consolidated its position in the market, and the making further highway in Rajasthan, Delhi, Haryana, parts of south Punjab and Western U.P. While its current status would otherwise be regarded as reasonable. Tuff Cemento has an altogether more ambitious agenda: to be aggressively competitive and become a leading brand in the coming months, and to enable Shree Cement to achieve the maximum possible combined market share in its market.

POLICIES
Quality Policy: To provide products conforming to national standards and meeting customers requirements to their total satisfaction. To continually improve performance and effectiveness of quality management system by setting and reviewing quality objectives for: Customer Satisfaction Cost Effectiveness Energy Policy: To reduce to the maximum extent possible the consumption of energy without imparting productivity which should help in: Increase in the profitability of the company Conservation of Energy Reduction in Environmental pollution at energy producing areas Since Energy is Blood of Industry, It is the responsibility of all of us to utilize energy effectively and efficiently Environment Policy: To ensure: Clean, green and healthy environment Efficient use of natural resources, energy, plant and equipment Reduction in emissions, noise, waste and greenhouse gases Continual improvement in environment management Compliance of relevant environmental legislation

Water Policy: To provide sufficient and safe water to people & plant as well as to conserve water, we are committed to efficient water management practices viz, Develop means & methods for water harvesting Treatment of waste discharge water for reuse Educate people for effective utilization and conservation of water Water audit & regular monitoring of water consumption. Health & Safety Policy: To ensure good health and safe environment for all concerned by:

 Promoting awareness on sound health and safe working practices Continually improving health and safety performance by regularly setting and reviewing objectives & Targets Identifying and minimizing injury and health hazards by effective risk control measures Complying with all applicable legislations and regulations Human Resource Policy: We at Shree Cement are committed to Empower People Honor individuality Non discrimination in recruitment process Develop Competency Employees shall be given enough opportunity for betterment None of the person below the age of 18 years shall be engaged to work Incidence of Sexual Harassment shall be viewed seriously Statute enacted shall be honored in letter & spirit & standard Labor Practices shall be followed. Every employee shall be accountable to the law of the land & is expected to follow the same without any deviation Management will appreciate observance of Business ethics & professional code of conduct To follow safety & Health. Quality, Environment, Energy Policy

IT Policy: To provide a robust IT platform suitable to the business processes and integrated management practices of the company, resulting into better speed, efficiency, transparency, internal controls and profitability of business

Trade and Non-Trade Networks

There are two types of Networks: Trade and Non-trade

a) Non-trade Network

Non-trade Network:
Govt. Non-trade Private Non-trade

for govt. infrastructure building - Govt. Housing Projects - Railways - Airports - Cement Roads - Bridges - Dams - Canals These are all bulk requirements -

for Group housing / retail housing Contractors projects on behalf of govt. Any industrial projects taken up by the private sector like bridges, roads etc.

b) Trade Network

Company

Handling Agent

Stockiest

Retailers

Consumers

Advertising Need for Advertising Cement has evolved into a highly commoditized product category. Due to competitive pricing within the industry, there was not much differentiation among the various brands on offer. People too did not pay much attention to this product unless there was a need. Hence people who were currently making their houses or were soon to embark on such a project became the target market. Because of the product being commoditized, there was a need for differentiation for which there was made some changes in the form of the product. Shree Cement ltd. was not advertising its products past few years but looking at the competitive market and opportunities ahead it introduced a new ad campaign which was targeted to differentiate its product from other cement brands. It introduced an ad campaign showing the anti rusting capability of the Red Oxide Cement of the company. But still the presence of the company has not been so intense as other brands have like Ambuja and Grasim etc.

SWOT Analysis for Shree Cements

Strengths Focused strategy. Lowest cost producer of cement in north India. A secure source of raw materials. High penetration in Govt. Projects. Largest single plant capacity in India. Shree power plant, which is producing electricity enough for Ras plant.

Weaknesses Less dealer incentives as compared to its competitors. Color of the cement has not been perceived greatly, green color was preferred the most. Poor advertising and brand promotion.

Opportunities Real estate boom will lead to increased demand. International expansion. Demand from Pakistan side. Reduction in customs duties. Governments thrust on infrastructure and tax incentives on housing loans.

Threats Increased competition from domestic as well as international players. Rising input (oil) prices. Sales highly dependent on monsoons. Growth of counterfeits.

Creating Multiple Brands to Increase Market Share

Company wanted to increase its share in the more remunerative markets. Rajasthan and Haryana are the markets where Shree have high realization. They realized that a single brand has limited potential for faster increase in market share in these markets. This is because there are limits to the volume that a distribution and retail network could handle. Thus there was a requirement for increasing distribution network in these markets. To alleviate this, they studied the brand strategy of a fast moving Consumer Goods Company. This company had multiple brands for soaps. Each brand had a unique products differentiation property. All bands were competing with each other. The marketing teams, distribution channel and logistics were all different for each brand. They found the same model could be applied in cement business as well. They realized that they can also achieve their objective by introducing another brand in the market. The new brand would have its own marketing strategy, distribution network and penetration. It required deployment of almost twice the quantum of resources to sustain two brands in the markets. An altogether new marketing team, additional advertising cost, another set of storage and distribution logistics like godowns and offices, thus all such costs were doubling. Yet, Shree Cement chose to go ahead and launched Bangur Cement in 2006 and Tuff Cemento in 2007.The result, market share in Rajasthan has substantially increased in last three years. In Haryana it rose by almost 50 percent. Encouraged by the success of having two brands, we decided to launch a third brandTuff Cemento. With three brands we have further consolidated our position in the market. Today Shree have three brands in the same market: Shree Ultra, Bangur Cement and Tuff Cemento. Each of these brands has been built on a unique product promise. As a result of multiple brand strategy Companys market shares have shown appreciable growth, as demonstrated below:

Market share in different states STATE RAJASTHAN HARYANA DELHI PUNJAB U.P. UTTARANCHAL 2006-07 20.36% 19.03% 17.94% 7.32% 3.98% 7.96% 2007-08 22.17% 23.91% 17.97% 8.29% 4.86% 10.13% 2008-09 35.40% 22.03% 11.22% 7.56% 14.40% 3.98%

Efforts made to maintain three brands Independent marketing team Separate distribution and retail network Separate storage and logistics supports Higher advertisement cost

Achievements by maintaining three brands Higher Dealer Density Higher market share Better Realization Lower logistics cost

40 35 30 25
2006-07
2007-08 2008-09

20
15 10 5 0 Rajasthan Delhi U.P

SUCCESS DRIVERS AT SHREE

PEOPLE AS PROGRESS DRIVERS Shree believes that what is present in the minds of people is more valuable than the assets on the shop floor. All the companys initiatives are directed to leverage the value of this growing asset.

TEAMWORK Shree leverages effective team working to generate a sustainable improvement.

LEADERS AT EVERY LEVEL Shree believes in creating leaders -not just at the organizational apex but at every level, resulting in a strong sense of emotional ownership.

CULTURE OF INNOVATION Shree believes that what is good can be made better -across the organization.

CUSTOMER FOCUS Shree is committed to deliver a superior quality of cement at attractively affordable prices.

SHAREHOLDER VALUE Shree is focused on the enhancement of value through a number of strategic and business initiatives that generate larger and a better quality of earnings.

COMMUNITY AND ENVIRONMENT Shrees community concern extends from direct assistance to safe and dependable operations for its members and the environment.

LOWEST COST OF PRODUCTION Its cost of production is around Rs.860 per ton, making it the lowest cost cement producer in India.

ENERGY EFFICIENT PRODUCER Shree Cement is one of the most power efficient units in the country with a power consumption of 75 units per ton. The Company sources 100% of power requirement from its captive power plants. The company has existing power plant capacity of 117.5 MW. The company is installing additional power plant of 143MW capacity, which would supply power to its new cement units, thus ensuring self-sufficiency.

ALTERNATE FUEL IN PET COKE The Companys captive power plant as well as cement plants runs on alternate fuel, i.e., pet coke, the first in India to do so. Until recently, it was obtaining pet coke domestically from Reliance Industries Ltd., Jamnagar refinery. Imported pet coke and the future plan to source it from Panipat refinery of IOCL will further bring down costs by around Rs.300 per tones.

INCREASED BLENDING SCL is continuously trying to improve the ratio of sale of blended cement (ROC) to 50:50 very soon. Although cost of production is lower because of addition of cheap fly-ash, it commands higher prices due to rust-retarding properties.

CEMENT MANUFACTURING
Raw Material Preparation Limestone of differing chemical composition is freely available in the quarries. This limestone is carefully blended before being crushed. Red mineral is added to the limestone at the crushing stage to provide consistent chemical composition of the raw materials. Once these materials have been crushed and subjected to online chemical analysis they are blended in a homogenized stockpile. A bucket wheel declaimer is used to recover and further Limestone Extraction blend this raw material mix before transfer to the raw material grinding mills.

Raw Mill Transport belt conveyor transfers the blended raw materials to ball mills where it is ground. The chemical analysis is again checked to ensure excellent quality control of the product. The resulting ground and dried raw meal is sent to a homogenizing and storage silo for further blending before being burnt in the kilns.
Kiln

Fuels The heat required to produce temperatures of 1,800C at the flame is supplied by ground and dried petroleum coke and/or fuel oil. The Petcoke is imported via the companies' internal wharf, stored and then ground in dedicated mills. Careful control of the mills ensures optimum fineness of the Petcock and excellent combustion conditions within the kilns system.

Fin side of Kiln

Burning The raw meal is fed into the top of a pre-heater tower equipped with four cyclone stages. As it falls, the meal is heated up by the rising hot gases and reaches 800C. At this temperature, The meal dehydrates and partially decarbonizes. The meal then enters a sloping rotary kiln, which is heated by a 1,800C flame, which completes the burning process of the meal. The Meal is heated to a temperature of at least 1,450C. At this temperature the chemical changes required to produce cement clinker are achieved. The dry process kiln is shorter than the wet process kiln and is the most fuel-efficient method of cement production available.

Cooler Units The clinker discharging from the kiln is cooled by air to a temperature of 70C above ambient temperature and heat is recovered for the process to improve fuel efficiency. Some of the air from the cooler is de-dusted and supplied to the coal grinding Plant. The remaining air is used as preheated secondary air for the main combustion burner in the kiln. Clinker is analyzed

Cement Plant

to ensure consistent product quality as it leaves the cooler. Metal conveyors transport the clinker to closed storage areas.

Filters Dedicated electrostatic precipitators dedust the air and gases used in the Clinker Production Line Process. In this way, 99.9% of the dust is collected before venting to the atmosphere. All dust collected is returned to the process. Constituents Different types of cement are produced by mixing and weighing proportionally the following constituents: Clinker Gypsum Limestone addition Blast Furnace Slag

Cement manufacturing from the quarrying of limestone to the bagging of cement.

COST OF CAPITAL
The main objective of a business firm is to maximize the wealth of its shareholders in the long-run, the Management Should only invest in those projects which give a return in excess of cost of fund invested in the project of the business. The difficulty will arise in determination of cost of funds, if is raised from different sources and different quantum. The various sources of funds to the company are in the form of equity and debt. The cost of capital is the rate of return the company has to pay to various suppliers of fund in the company. There are main two sources of capital for a company shareholder and lender. The cost of equity and cost of debt are the rate of return that need to be offered to those two groups of suppliers of the capital in order to attract funds from them. The primary function of every financial manager is to arrange adequate capital for the firm. A business firm can raise capital from various sources such as equity and or preference shares, debentures, retain earning etc. This capital is invested in different projects of the firm for generating revenue. On the other hand, it is necessary for the firm to pay a minimum return to each source of capital. Therefore, each project must earn so much of the income that a minimum return can be paid to these sources or supplier of capital. What should be this minimum return? The concept used to determine this minimum return is called Cost of Capital. On the basis of it the management evaluates alternative sources of finance and selects the optimal one. In this chapter, concepts and implications of firms cast of capital, determination of cast of difference sources of capital and overall cost of capital are being discussed.

CONCEPT OF COST OF CAPITAL Cost of capital is the measurement of the sacrifice made by investors in order to invest with a view to get a fair return in future on his investments as a reward for the postponement of his present needs. On the other hand form the point of view of the firm using the capital, cast of capital is the price paid to the investor for the use of capital provided by him. Thus, cost of capital is reward for the use of capital. Author Lutz has called it BORROWING AND LANDING RATES. The borrowing rates means the rate of interest which must be paid to obtained and use the capital. Similarly, landing rate is the rate at which the firm discounts its profits. It may also the opportunity cost of the funds to the firm i.e. what the firm would earn by investing these funds elsewhere. In practice the borrowing rates used indicate the cost of capital in preference to landing rates.

Technically and Operationally, the cost of capital define as the minimum rate of return a firm must earn on its investment in order to satisfy investors and to maintain its market value. I.e. it is the investors required rate of return. Cost of capital also refers to the discount rate which is used while determining the present value of estimated future cash flows. In the other word of John J. Hampton, The cost of capital is the rate of return in the firm requires from investment in order to increase the value of firm in the market place. For example if a firm borrows Rs. 5 crore at an interest of 11% P.A., then the cost of capital is 11%. Hear its the essential for the firm to invest these Rs. 5 Crore in such a way that it earn at least Rs. 55 lacks i.e. rate of return at 11%. If the return less than this, then the rate of dividend which the share holder are receiving till now will go down resulting in a decline in its market value thus the cost of capital is the reward for the use capital. Solomon Ezra, has called It the minimum required rate of return or the cut of rate for capital expenditure.

FEATURES OF COST OF CAPITAL

It is not a cost in reality the cost of capital is not a cost as such, but its rate of return which it requires on the projects. MINIMUM RATE OF RETURN: Cost of capital is the minimum rate of return a firm is required in order to maintain the market value of its equity shares. REWARDS FOR RISKS Cost of capital is the reward for the business and financial risk. Business risks is the measurement of variability in profits due to changes in sales, while financial risks depends on the capital structure i.e. that equity mix of the firm.

SIGNIFICANCE OF CONCEPT OF COST OF CAPITAL The cost of capital is very important concept in the financial decision making. The progressive management always likes to consider the cost of capital while taking financial decisions as its very relevant in the following spheres...

1. Designing the capital structure: the cost of capital is the significant factor in designing a balanced an optimal capital structure of a firm. While designing it, the management has to consider the objective of maximizing the value of the firm and minimizing cost of capita. I comparing the various specific costs of different sources of capital, the financial manager can select the best and the most economical source of finance and can designed a sound and balanced capital structure. 2. Capital budgeting decisions: the cost of capital sources as a very useful tool in the process of making capital budgeting decisions. Acceptance or rejection of any investment proposal depends upon the cost of capital. A proposal shall not be accepted till its rate of return is greater than the cost of capital. In various methods of discounted cash flows of capital budgeting, cost of capital measured the financial performance and determines acceptability of all investment proposals by discounting the cash flows.

3. Comparative study of sources of financing: there are various sources of financing a project. Out of these, which source should be used at a particular point of time is to be decided by comparing cost of different sources of financing. The source which bears the minimum cost of capital would be selected. Although cost of capital is an important factor in such decisions, but equally important are the considerations of retaining control and of avoiding risks.

4. Evaluations of financial performance of top management: cost of capital can be used to evaluate the financial performance of the top executives. Such as evaluations can be done by comparing actual profitability of the project undertaken with the actual cost of capital of funds raise o finance the project. If the actual profitability of the project is more than the actual cost of capital, the performance can be evaluated as satisfactory.

5. Knowledge of firms expected income and inherent risks: investors can know the firms expected income and risks inherent there in by cost of capital. If a firms cost of capital is high, it means the firms present rate of earnings is less, risk is more and capital structure is imbalanced, in such situations, investors expect higher rate of return.

6. Financing and Dividend Decisions: the concept of capital can be conveniently

employed as a tool in making other important financial decisions. On the basis, decisions can be taken regarding dividend policy, capitalization of profits and selections of sources of working capital.

CLASSIFICATION OF COST OF CAPITAL

1. Historical Cost and future Cost Historical Cost represents the cost which has already been incurred for financing a project. It is calculated on the basis of the past data. Future cost refers to the expected cost of funds to be raised for financing a project. Historical costs help in predicting the future costs and provide an evaluation of the past performance when compared with standard costs. In financial decisions future costs are more relevant than historical costs. 2. Specific Costs and Composite Cost Specific costs refer to the cost of a specific source of capital such as equity share. Preference share, debenture, retain earnings etc. Composite cost of capital refers to the combined cost of various sources of finance. In other words, it is a weighted average cost of capita. It is also termed as overall costs of capital. While evaluating a capital expenditure proposal, the composite cost of capital should be as an acceptance/ rejection criterion. When capital from more than one source is employed in the business, it is the composite cost which should be considered for decision-making and not the specific cost. But where capital from only one source is employed in the business, the specific cost of those sources of capital alone must be considered.

3. Average Cost and Marginal Cost Average cost of capital refers to the weighted average cost of capital calculated on the basis of cost of each source of capital and weights are assigned to the ratio of their share to total capital funds. Marginal cost of capital may be defined as the Cost of obtaining another rupee of new capital. When a firm raises additional capital from only one sources (not different sources), than marginal cost is the specific or explicit cost. Marginal cost is considered more important in capital budgeting and financing decisions. Marginal cost tends to increase proportionately as the amount of debt increase.

4. Explicit Cost and Implicit Cost Explicit cost refers to the discount rate which equates the present value of cash outflows or value of investment. Thus, the explicit cost of capital is the internal rate of return which a firm pays for procuring the finances. If a firm takes interest free loan, its explicit cost will be zero percent as no cash outflow in the form of interest are involved. On the other hand, the implicit cost represents the rate of return which can be earned by investing the funds in the alternative investments. In other words, the opportunity cost of the funds is the implicit cost. Port field has defined the implicit cost as the rate of return with the best investment opportunity for the firm and its shareholders that will be forgone if the project presently under consideration by the firm were accepted. Thus implicit cost arises only when funds are invested somewhere, otherwise not. For example, the implicit cost of retained earnings is the rate of return which the shareholder could have earn by investing these funds, if the company would have distributed these earning to them as dividends. Therefore, explicit cost will arise only when funds are raised whereas implicit cost arises when they are used. Assumption of Cost of Capital While computing the cost of capital, the following assumptions are made: The cost can be either explicit or implicit. The financial and business risks are not affected by investing in new investment proposals. The firms capital structure remains unchanged. Cost of each source of capital is determined on an after tax basis. Costs of previously obtained capital are not relevant for computing the cost of capital to be raised from specific source.

Computation of specific costs

A firm can raise funds from different sources such as loan, equity shares, preference shares, retained earnings etc. All these sources are called components of capital. The cost of capital of these different sources is called specific cost of capital. Computation of specific cost of capital helps in determining the overall cost of capital for the firm and in evaluating the decision to raise funds from a particular source. The computation procedure of specific costs is explained in the pages that follow

COST OF DEBT CAPITAL Cost of Debt is the effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; however, because interest expense is deductible, the after-tax cost is seen most often. This is one part of the company's capital structure, which also includes the cost of equity. Much theoretical work characterizes the choice between debt and equity, in a tradeoff context: Firms choose their optimal debt ratio by balancing the benefits and costs. Traditionally, tax savings that occur because interest is deductible while equity payout is not have been modeled as a primary benefit of debt. Large firms with tangible assets and few growth options tend to use a relatively large amount of debt. Firms with high corporate tax rates also tend to have higher debt ratios and use more debt incrementally. A company will use various bonds, loans and other forms of debt, so this measure is useful for giving an idea as to the overall rate being paid by the company to use debt financing. The measure can also give investors an idea as to the riskiness of the company compared to others, because riskier companies generally have a higher cost of debt. Example-: If a company issues 12% debentures worth Rs. 5 lacs of Rs. 100 each at par, then it must be earn at least Rs.60000(12% of Rs. 5 lacs) per year on this investment to maintain the income available to the shareholders unchanged. If the company earnings were less than this interest rate (12%) than the income available to the shareholders will be reduced and the market value of the share will go down. Therefore, the cost of debt capital is the contractual interest rate adjusted further for the tax liability of the firm. But, to know the real cost of debt, the relation of the interest rate is to be established with the actual amount realized or net proceeds from the issue of debentures.

To get the after-tax rate, you simply multiply the before-tax rate by one minus the marginal tax rate. Cost of Debt = (before-tax rate x (1-marginal tax)) The before tax rate of interest can be calculated as below:

Interest Expense of the company = ---------------------------------------- * 100 Total Debt

Net Proceeds: 1. At par 2. At premium 3. At Discount = Par value Floatation cost = Par value + Premium Floatation cost = Par value Discount Floatation cost

COST OF PREFERENCE SHARE CAPITAL Preference share is another source of Capital for a company. Preference Shares are the shares that have a preferential right over the dividends of the company over the common shares. A preference shareholder enjoys priority in terms of repayment vis-vis equity shares in case a company goes into liquidation. Preference shareholders, however, do not have ownership rights in the company. In the companies under observation only India Cement has preference shares issued. Cost of Preference Capital = Preference Dividend/Market Value of Preference Shree Cement has not paid any dividend to the Preference Shareholders. Thus the Cost of Preference Capital is 0 (Zero).

COST OF EQUITY SHARE CAPITAL The computation of cost of equity share capital is relatively difficult because neither the rate of dividend is predetermined nor the payment of dividend is legally binding, therefore, some financial experts hold the opinion the p.s capital does not carry any cost but this is not true. When additional equity shares are issued, the new equity share holders get propionate share in future dividend and undistributed profits of the company. If reduces the earning per shares of existing share holders resulting in a fall in marker price of shares. Therefore, at the time of issue of new equity shares, it is the duty of the management to see that the company must earn at least so much income that the market price of its existing share remains unchanged. This expected minimum rate of return is the cast o equity share capital. Thus, cost of equity share capital may be define as the minimum rate of return that a firm must earn on the equity financed

portion of a investment- project in order to leave unchanged the market price of its shares. The cost of equity can be computed by any of the following method:

1. Dividend yield method: Ke = DPS\mP*100 Ke= cost of equity capital Dps= current cash dividend per share Mp=current market price per share

2. Earning yield method: Ke= EPS\mp*100 Eps= earnings per share

3. Dividend yield plus growth in dividend method: While computing cost of capital under dividend yield (d\p ratio) method, it had been assumed that present rate of dividend will remain the same in future also. But, if the management estimates that companys present dividend will increased continuously for the year to come, then adjustment for this increase is essential to compute the cost of capital. The growth rate in dividend is assumed to be equal to the growth rate in earning per share. For example if the EPS increase at the rate of 10% per year, the DPS and market price per share would show an increase at the rate of 10%. Therefore, under this method, cost of equity capital is computed by adjusting the present rate of dividend on the basis of expected future increase in companys earning. Ke= DPS\MP*100+G G= Growth rate in dividend.

4. Realized yield method: In case where future dividend and market price are uncertain, it is very difficult to estimate the rate of return on investment. In order to overcome this difficulty, the

average rate of return actually realizes in the past few years by the investors is used to determine the cost of capital. Under this method, the realized yield is discounted at the present value factor, and then compare with value of investment this method is based on these assumptions. The companys risk does not change i.e. dividend and growth rate are stable. The alternative investment opportunities, elsewhere for the investor, yield the return which is equal to realized yield in the company, and the market of equity share of the company does not fluctuate widely.

Cost of newly issued equity shares when new equity share are issued by a company, it is not possible to realise the market price per share, because the company has to incur some expenses on new issue, including underwriting commission, brokerage etc. so, the amount of net proceeds is calculated by deducting the issue expenses form the expected market value or issue price. To ascertain the cost of capital, dividend per share or EPS is divided by the amount of net proceeds. Any of the following formulae may be used for this purpose:

Ke= DPS\NP*100 Or Ke= EPS\NP*100 Or Ke=DPS\NP*100+G

COST OF RETAIN EARNINGS OR INTERNAL EQUITY Generally, companies do not distribute the entire profits by way of dividend among their share holders. A part of such profit is retained for future expansion and development. Thus year by year, companies create sufficient fund for the financing through internal sources. But, neither the company pays any cost nor incurs any expenditure for such funds. Therefore, it is assumed to cost free capital that is not true. Though retain earnings like retained earnings like equity funds have no explicit cost

but do have opportunity cost. The opportunity cost of retained earnings is the income forgone by the share holders. It is equal to the income what a share holders could have earns otherwise by investing the same in an alternative investment, If the company would have distributed the earnings by way of dividend instead of retaining in the business. Therefore, every share holders expects from the company that much of income on retained earnings for which he is deprived of the income arising o its alternative investment. Thus, income forgone or sacrificed is the cost of retain earnings which the share holders expects from the company.

WEIGHTED AVERAGE COST OF CAPITAL Once the specific cost of capital of the long-term sources i.e. the debt, the preference share capital, the equity share capital and the retained earnings have been ascertained, the next step is to calculate the overall cost of capital of the firm. The capital raised from various sources is invested in different projects. The profitability of these projects is evaluated by comparing the expected rate of return with overall cost of capital of the firm. The overall cost of capital is the weighted average of the costs of the various sources of the funds, weights being the proportion of each sources of funds in the total capital structure. Thus, weighted average as the name implies, is an average of the cost of specific sources of capital employed in the business properly weighted by the proportion they held in firms capital structure. It is also termed as Composite Cost of Capital or Overall Cost of Capital or Average Cost of Capital.

WEIGHTED AVERAGE, How to calculate? Though, the concept of weighted average cost of capital is very simple. Yet there are many problems in its calculation. Its computation requires:

1. Assignment of Weights : First of all, weights have to be assigned to each source of capital for calculating the weighted average cost of capital. Weight can be either book value weight or market value weight. Book value weights are the relative proportion of various sources of capital to the total capital structure of a firm. The book value weight can be easily calculated by taking the relevant information from the capital structure as given in the balance sheet of the firm. Market value weights may be calculated on the basic on the market value of different sources of capital i.e. the proportion of each source at its

market value. In order to calculate the market value weights, the firm has to find out the current market price of each security in each category. Theoretically, the use of market value weights for calculating the weighted average cost of capital is more appealing due to the following reasons: The market values of securities are closely approximate to the actual amount to be received from the proceeds of such securities. The cost of each specific source of finance is calculated according to the prevailing market price. But, the assignment of the weight on the basic of market value is operationally inconvenient as the market value of securities may frequently fluctuate. Moreover, sometimes, no market value is available for the particular type of security, especially in case of retained earnings can indirectly be estimated by Gitmans method. According to him, retained earnings are treated as equity capital for calculating cost of specific sources of funds. The market value of equity share may be considered as the combined market value of both equity shares and retained earnings or individual market value (equity shares and retained earnings) may also be determined by allocating each of percentage share of the total market value to their respective percentage share of the total values. For example: - the capital structure of a company consists of 40,000 equity shares of Rs. 10 each ad retained earnings of Rs. 1,00,000. if the market price of companys equity share is Rs. 18, than total market value of equity shares and retained earnings would be Rs. 7,20,000 (40,000* 18) which can be allocated between equity capital and retained earnings as followsMarket Value of Equity Capital = 7, 20,000*4, 00,000/5, 00,000 =Rs. 5, 76,000.

Market Value of Retained Earnings= 7, 20,000*1, 00,000/5, 00,000 =Rs. 1, 44,000.

2. Computation of Specific Cost of Each Source : After assigning the weight; specific costs of each source of capital, as explained earlier, are to be calculated. In financial decisions, all costs are after tax costs. Therefore, if any source has before tax cost, it has to be converted in to after tax cost.

3. Computation of Weighted Cost of Capital : After ascertaining the weights and cost of each source of capital, the weighted average cost is calculated by multiplying the cost of each source by its appropriate weights and weighted cost of all the sources is added. This total of weighted costs is the weighted average cost of capital. The following formula may be used for this purpose: Kw = XW/W Here; Kw = Weighted average cost of capital X = after tax cost of different sources of capital W = Weights assigned to a particular source of capital

Example: Following information is available with regard to the capital structure of ABC Limited: Sources of Funds E.S. Capital Retained Earnings P.S. Capital Debentures Amount (Rs.) 3, 50,000 2, 00,000 1, 50,000 3, 00,000 after tax cost of Capital .12 .10 .13 .09

You are required to calculate the weighted average cost of capital.

Computation of Weighted Average Cost of Capital Source Amount Rs. (1) E.S. Capital Retained Earning P.S. Capital Debentures Total (2) 3,50,000 2,00,000 1,50,000 3,00,000 10,00,000 .35 .20 .10 .09 1.00 (3) .12 .10 .13 .09 Weights After tax Cost (4) Weighted Cost (5)= (3) * (4) .0420 .0200 .0195 .0270 .1085 .10850 or 10.85%

Weighted Average Cost of Capital (WACC)

SHREE CEMENT LIMITED BALANCE SHEET AS AT 31ST MARCH, 2010 As at 31.03.2010 Schedul e SOURCES OF FUNDS Shareholders' Funds Share Capital Reserves & Surplus 1 2 3,483.72 179,840.25 183,323.97 Loan Funds Secured Loans Unsecured Loans 3 4 178,853.25 31,770.52 210,623.77 122,050.73 27,564.60 149,615.33 3,483.72 117,517.97 121,001.69 As at 31.03.2009

(Rs.in Lac)

(Rs.in Lac)

Total APPLICATIONS OF FUNDS Fixed Assets Gross Block Less: Depreciation Net Block Capital Work-in-Progress

393,947.74

270,617.02

5 295,086.48 219,891.10 75,195.38 96,741.59 171,936.97 225,591.46 162,905.89 62,685.57 47,888.98 110,574.55

Investments

159,224.04

84,483.47

Deferred Tax Assets (Net)

1,240.38

1,038.98

Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balances Other Current Assets Loans & Advances 8 9 10 11 12 35,813.30 8,241.79 41,637.42 1,127.84 71,397.03 158,217.38 Less: Current Liabilities & Provisions Liabilities Provisions 13 46,684.53 49,986.50 96,671.03 Net Current Assets 61,546.35 29,000.38 39,417.23 68,417.61 74,520.02 15,445.84 5,831.73 47,226.05 755.20 73,678.81 142,937.63

Total Significant Accounting Policies & Notes on Accounts 22

393,947.74

270,617.02

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2010 For the Year ended 31.03.2010 Schedule INCOME Sales Less: Excise Duty Net Sales Other Income 15 14 401,408.60 38,196.30 363,212.30 7,583.79 370,796.09 EXPENDITURE Manufacturing Expenses Captive consumption of Cement [Net of Excise Duty Rs. 165.43 Lac (Previous year Rs. 117.80 Lac)] (Increase) / Decrease in Stock Purchase of Finished Goods Payment to and Provision for Employees Administrative Expenses Freight & Selling Expenses Interest and Financial Expenses (Net) 18 19 20 21 16 131,234.03 (1,019.61) 114,246.30 (438.93) 309,159.96 38,096.87 271,063.09 3,914.91 274,978.00 (Rs. in Lac) For the Year ended 31.03.2009 (Rs. in Lac)

17

(1,965.58) 918.42 15,861.19 4,949.31 62,983.14 7,658.07

962.74 652.47 10,387.43 3,976.39 45,927.70 3,341.11

220,618.97 PROFIT BEFORE DEPRECIATION, EXCEPTIONAL ITEMS & TAX Depreciation & Amortisation Exceptional Items 150,177.12 57,042.98

179,055.21 95,922.79 20,538.70

Provision for Statutory Liabilities of Earlier Years' (Refer Note 7) Assets Constructed at Others' Premises W/off PROFIT BEFORE TAX Provision for Current Tax Prior Period Tax Expense (Net) Provision for Fringe Benefit Tax [Includes excess provision written back pertaining to earlier years Rs. 26.34 lac (Previous Year Rs. Nil)] Provision for Deferred Tax PROFIT AFTER TAX Balance Brought Forward from Previous Year Debenture Redemption Reserve No Longer Required PROFIT AVAILABLE FOR APPROPRIATION Transferred to Debenture Redemption Reserve Transferred to General Reserve Interim Dividend on Equity Shares Corporate Dividend Tax on Interim Dividend Proposed Final Dividend on Equity Shares Corporate Dividend Tax on Final Dividend

4,367.62 1,975.23 86,791.29 20,885.00 (1,476.00) (26.34)

3,093.05 72,291.04 13,475.00 211.98

(201.40) 67,610.03 80,793.18 148,403.21 7,500.00 22,000.00 1,741.86 296.03 2,786.98 462.88 34,787.75

807.12 57,796.94 34,869.59 202.43 92,868.96 8,000.00 1,741.86 296.03 1,741.86 296.03 12,075.78 80,793.18 92,868.96 227.18 165.91

Balance Carried Over to Balance Sheet

113,615.46 148,403.21

Earning Per Equity Share of Rs. 10 each (In Rs.) - Cash - Basic & Diluted Significant Accounting Policies & Notes on Accounts 22

369.77 194.07

Five Years Financial Highlights

Rs. In lacs Particular 2005-06 2006-07 2007-08 2008-09 2009-10

Sales-Gross Other Income Total Income Operating Expenses Operating Profit Interest PBDT Less: Dep. &Amort. Less: Exceptional Items Profit Before Tax Tax (Including FBT) Deferred Tax Profit after Tax

82412.79 330.47 82743.26 60963.58 21779.68 1283.36 20496.32 18520.68 1975.64 286.24 587.35 1102.05

161314.44 2127.33 163441.77 102342.04 61099.73 1037.37 60062.36 43305.33 (2123.73) 18880.76 8451.75 (7271.22) 17700.22

244032.08 7683.91 251715.99 157791.11 93924.88 5329.64 88595.24 47875.86 3888.46 36830.92 12265.32 (1471.60) 26037.20

309716.69 8289.61 318006.30 214640.33 103365.97 7443.18 95922.79 20538.70 3093.05 72291.04 13686.98 807.12 57796.94

401408.60 7583.79 408992.39 251157.20 157835.19 7658.07 150177.12 57042.98 6342.85 86791.29 19382.66 (201.40) 67610.03

CALCULATION OF COST OF CAPITAL OF SHREE CEMENT LTD.

Cost of Debt Capital: For the year 2009-10: Total Debt Capital = Term loan from Banks + Debts = 131570.37+30000 = 161570.37 lacs Total Interest Paid = 7658.07 lacs Tax Rate = 30% Interest Expense of the company Kd (before tax) = -------------------------------------------Total Debt X 100

7658.07 Kd (before tax) = ---------------------161570.37 Kd (after tax) Rate (30 %.) Kd (after tax) = 4.73% - 30% = 3.31 % = Interest Rate Before Tax Tax X 100 = 4.73 %

For the year 2008-09 Total Debt Capital = Term loan from Banks + Debts = 105716.94+000 = 105716.94 lacs Total Interest Paid = 7443.18 lacs Tax Rate = 30% 7443.18 Kd (before tax) = ---------------------105716.94 X 100 = 7.04%

Kd (after tax)

7.04% - 30%

= 4.93%

For the year 2007-08 Total Debt Capital = Term loan from Banks + Debts = 112573.18+800 = 113373.18 lacs Total Interest Paid = 5329.64 lacs Tax Rate = 30% 5329.64 Kd (before tax) = ---------------------- X 113373.18 100 = 4.7%

Kd (after tax)

4.7% - 30%

= 3.3%

COMPARATIVE CALCULATION OF Kd FOR THREE YEAR

Particular

2009-10

2008-09 105716.94

2007-08 112573.18 +800 =113373.1 8 5329.64 4.7% 3.3%

Total Debts (Term loan from 131570.37 Bank+ Debts)

+ 30000 = +000 161570.37 lacs =105716.9 4 7443.18 7.04% 4.93%

Total Interest paid Interest Rate (Before Tax)

7658.07 4.73%

Interest Rate (After Tax) = 3.31% Interest Rate Before Tax Tax Rate 30%.

COST OF EQUITY CAPITAL:

EQUITY SHARE CAPITAL Particular 2009-10 2008-09 348.37 10 710.50 2007-08 348.37 8 1079.40 2006-07 348.73 6 921.85

No. of Shares (In lacs) 348.37 DPS Given 13

Market Price (at the 2300.05 end of March) Earning per equity 194.07

165.91

74.74

50.81

share of Rs. 10(in Rs.) Proposed dividend on final 4528.84 equity 3483.72 2786.98 Not given

share (in lacs) Market Capitalization 801268.4 (in Lacs) 247516.88 376033.01 321146.96

1. Dividend yield plus growth in dividend method:Ke = DPS\mP*100 + G Dps = Current cash dividend per share Mp = Current market price per share G = Growth rate = 13Rs. = 2300.05Rs.

13 Ke = -------------------2300.05 X 100 + 10% = 10.57%

2. Earning yield method:Ke= EPS\mp*100 Eps = earnings per share = 194.07 Rs. Mp = Market prize = 2300.05 Rs. 194.07 Ke = -------------------2300.05 X 100 = 8.43%

3. Dividend per share method:Ke = Proposed final dividend on Equity Share / No. of Equity Share Proposed final dividend on Equity Share = 4528.84 Lacs No. of Equity Share = 348.37 Lacs 4528.84 Ke = -------------------348.37 = 13

COST OF EQUITY SHARE CAPITAL (KE)

Particular Dividend Per share method Earning Yield Method Dividend yield plus growth method

2009-10 13.0 8.43 10.57

WEIGHTED AVERAGE COST OF CAPITAL (WACC)

WACC = (We * Ke) + (Wd * Kd)

Where...

We = Weight of equity Wd = Weight of Debt. Ke = Cost of Equity Share capital Kd = Cost of Debt. Capital

WACC = (0.83 * 10.57) + (0.17 *03.31) = 9.33%

WACC OF SHREE CEMENT LIMITED (2009-2010)

Source

Amount Rs.

Weights

After tax Cost

Weighted Cost (5)= (3) * (4) 8.77 0.56 9.33

(1) E.S. Capital Debentures Total

(2) 801268.42 161570.37 962838.79 .83 .17 1.00

(3)

(4) 10.57 03.31

Weighted Average Cost of Capital (WACC)

9.33%

MERITS OF WEIGHTED AVERAGE COST OF CAPITAL The WACC is widely used approach in determining the required return on a firms investments. It offers a number of advantages including the followings1. Straight forward and logical: It is the straightforward and logical approach to a difficult problem. It depicts the overall cost of capital as the some of the cost of the individual components of the capital structure. It employs a direct and reasonable methodology and is easily calculated and understood. 2. Responsiveness to Changing Condition: Since, it is based upon individual debt and equity components; the weighted average cost of capital reflects each element in the capital structure. Small changes in the capital structure of the firm will be noted by small changes in overall cost of capital of the firm. 3. Accurate when Profits are Normal: During the period of normal profits, the weighted average cost of capital is more accurate as a cut-off rate in selecting the capital budgeting proposals. It is because the weighted average cost recognizes the relatively low debt cost and the need to continue to achieve the higher return on the equity financed assets. 4. Ideal Creation for Capital Expenditure Proposals: With the help of weighted average cost of capital, the finance manager decides the cut-off rate for taking decisions relating to capital expenditure proposals. This cut-off rate determines the minimum limit for accepting an investment proposal. If an investment proposal is accepted below this limit, the firm incur a loss. Therefore, this cut-off rate is always decided above the weighted average cost of capital.

LIMITATION OF WEIGHTED AVERAGE COST OF CAPITAL The weighted Average cost approach also has some weaknesses, important among them are as follows: 1. Unsuitable in case of Excessive Low-cost Debts: Short term loan can represent important sources of fund for firm experiencing financial difficulties. When a firm relies on Zero cost (in the form of payables) or low cost short term debt, the inclusion of such debts in the calculation of cost of capital will result in a low WACC. If the firm accepts low-return projects on the basic of this low WACC, the firm will be in a high financing risk. 2. Unsuitable in Case of Low Profits : If a firm is experiencing a period of low profits, not earning profit as compared to other firms in the industry, WACC will be inaccurate and of limited value. 3. Difficulty in Assigning Weights: The main difficulty in calculating the WACC is to assign weight to different components of capital structure. Normally, there are two type of weights- (i) book value weights and (ii) market value weight. These two type of weights give different results. Hence, the problem is which type of weight should be assigned. Though, market value is more appropriate than book value, but the market value of each component of capital of a company is not readily available. When the securities of the company are unlisted, the problem becomes more intricate. 4. Selection of Capital Structure: The selection of capital structure to be used for determining the WACC is also not easy job. Three types of capital structure are there i.e. current capital structure, marginal capital structure and optimal capital structure. Which of these capital structures is selected? Generally, current capital structure is regarded as the optimal structure, but it is not always correct.

Ratio Analysis
Ratio Analysis is widely used tool of financial analysis. It can be used to compare the risk and return relationship of firm of different sizes. It is defined as the systematic use of ratio to interpret the financial statements so that the strengths and the weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical and quantitative relationship between two variables. The relationship can be expressed as (a) percentage, (b) fraction, (c) proportion of numbers. These alternative methods of expressing items which are related to each other are, for purpose of financial analysis, referred to as Ratio Analysis. It should be noted that computing the ratio does not add any information, what the ratio do is that they reveal the relationship in a more meaningful way so as to enable equity investors, management and lenders make better investment and credit decisions. The rationale of ratio analysis of lies in the fact that it makes related information comparable. A single figure by itself has no meaning but when expressed in terms of a related figure, it yields significant interferences.

Types of RatiosAccounting Ratio may be classified in a number of ways keeping in view the purpose of study. However, for the sake of convenience and simplicity ratios may be classified as follow: 1. Profitability Ratio- Gross Profit Ratio, Net profit Ratio, Operating Ratio, Return on shareholders investment 2. Turnover or activity Ratio-Stock Turnover Ratio, Debtors turnover Ratio, Creditors Turnover Ratio, Working Capital Turnover Ratio. 3. Liquidity Ratio-Current Ratio, Liquid Ratio 4. Long term Solvency Ratio

Type of Ratio Analysis: 1. Inter Firm Ratio Analysis 2. Intra Firm Ratio Analysis

1. Inter firm Ratio Analysis:

Companies 1. 2. 3. 4. 5. Acc Ltd. Shree Cement. Ambuja Cement. JK Lakshmi. Ultratech.

Current Ratio:
Ideal Ratio: - 2:1 Formula: - Current Assets/Current Liabilities Co. Acc Shree Ambuja JK Lakshmi Ultratech year 2008-09 0.7 2.1 1.1 2.4 1.1 2007-08 1.0 2.3 1.6 3.3 1.0 2006-07 0.9 2.7 1.3 2005-06 1.2 1.4 1.4 2004-05 1.1 2.1 1.9

Best Performer: - JK Lakshmi Cement Comments: This ratio shows the ability of a business firm to meet its Current obligations as and when they become due. A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time and when they become due. On the other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties. The above table shows that Shree cement and JK Lakshmi cement have a good current ratio but the other companies like Acc, Ambuja, and Ultratech do not have sufficient current ratio. So the company can improve this ratio by either increase the current assets like cash and bank balances etc. or decrease the current liabilities. The JK Cement is a best performer because this company has more cash and bank balances as compare to debtors and inventory.

Return on shareholders investment:

Formula: - Net Profit after interest and taxes * 100/Share holders fund Co. Acc Shree Ambuja JK Lakshmi Ultratech year 2008-09 27 48 19 22 27 2007-08 25 39 25 34 37 2006-07 35 39 38 44 2005-06 39 4 43 22 2004-05 34 10 22 .28

Best Performer: - Shree Cement Comments: This ratio is also called as Return on net worth Ratio. Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. A business that has a high return on equity is more likely to be one that is capable of generating cash internally. Return on equity (ROE) is one of the most important indicators of a firms profitability and potential growth. Companies that boast a high return on equity with little or no debt are able to grow without large capital expenditures, allowing the owners of the business to withdrawal cash and reinvest it elsewhere. Many investors fail to realize, however, that two companies can have the same return on equity, yet one can be a much better business. Higher the ratio better for the organization from the point of view of its share holders. We can see from the above table that return on shareholders investment is improving in some company like Shree cement and Acc cement but in some company it has gone down. So it is advisable to those companies which have lesser Return on net worth, to increase their net profit. Shree cement have a good position among all the above five companies because it have earned double net profit as compare to the 2008.

Debt-Equity RatioFormula: -Outsides Funds/Shareholders fund Co. Acc Shree Ambuja JK Lakshmi Ultratech year 2008-09 0.09 0.87 0.03 0.85 0.59 2007-08 0.10 1.69 0.05 1.10 0.65 2006-07 0.07 1.87 0.07 0.90 2005-06 0.25 1.03 0.43 1.40 2004-05 0.50 0.80 0.22 1.44

Comments: This ratio is concerned with establishing the relationship between external and internal long-term financing. The use of long-term debt in the capital structure has both advantages and disadvantages. Main advantage of debt is that it provides an opportunity for greater returns to shareholders. On the other hand use of debt is a risky mode because it leads to the following problems (1) a growing risk of bankruptcy; (2) lack of access to the capital markets during times of tight credit. 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. 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. Among the above companies we cannot say about any specific company that it has good debt equity ratio because it depends on the companys policy that how much it wants to take finance from its different sources. There is one thing common among the above companies is that the debt equity ratio have become decrease from the last year.

Basic Earnings per ShareFormula: -Net profit-pref. share dividend/No. of shares issued Co. Acc Shree Ambuja JK Lakshmi Ultratech year 2008-09 85.6 165.9 8.0 29.2 78.5 2007-08 64.6 74.7 9.2 37.0 80.9 2006-07 76.8 50.8 11.6 62.8 2005-06 66.0 5.3 10.1 18.5 2004-05 30.0 8.3 3.5 0.2

Best Performer: - Shree Cement Comments: Basic Earnings per share (Basic EPS) tells an investor how much of the company's profit belongs to each share of stock. It measures the profit available to the equity shareholders on a per share basis that is the amount that they can get on every share held. An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. 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. The above table shows that only Shree cement and Acc cement have improved their earning per share ratio, and between Acc and Shree Cement, the Shree cement has much improved from its previous year. The other companies could not increase their ratio because of the decrement in net profit. Shree cement gives highest earning on every share; this is done because it subscribes a least number of shares to its shareholders among all the five companies. Though the net profit of Shree cement is least after JK Cement but it maintains a high earning per share.

Net Profit Ratio:

Formula: - Net Profit after interest and taxes * 100/Net sales Co. Acc Shree Ambuja JK Lakshmi Ultratech year 2008-09 20.0 19.0 17.2 14.6 15.3 2007-08 16.7 11.0 22.5 20.2 18.3 2006-07 21.0 11.0 31.0 16.0 2005-06 21.0 2.0 24.0 7.0 2004-05 13.0 4.0 18.0 1.0

Best Performer: -Shree Cement Comments: NP ratio is used to measure the overall profitability and hence it is very useful to proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory return on its investment. Higher the ratio the better is the profitability. But while interpreting the ratio it should be kept in minds that the performance of profits also is seen in relation to investments or capital of the firm and not only in relation to sales. As the above table shows that there are only two companies that is Acc and Shree cement which have improved his net profit ratio from the last year. Shree cement is a best performer in net profit ratio though Acc cement has a highest net profit ratio but Shree cement is continuously improving its net profit. Between the periods of 2007-09 the manufacturing expenses have become much increased but Shree cement managed it by increasing the revenues. The other companies like Ambuja, JK Lakshmi, and Ultratech could not manage its net profit with the increment in various expenses. The net profit consist of profit from all the activities like profit from investment

Quick Ratio:
Formula: - Liquid Assets/Current Liabilities Liquid Assets - Current Assets-(Inventory + Prepaid expenses) Co. Acc Shree Ambuja JK Lakshmi Ultratech year 2008-09 0.47 1.86 0.75 2.20 0.50 2007-08 0.67 1.92 0.95 2.90 0.50

Best Performer: - Shree cement Comments: This ratio is very useful in measuring the liquidity position of a firm. It is used as a complementary ratio to the current ratio. Liquid ratio is more rigorous test of liquidity than the current ratio because it eliminates inventories and prepaid expenses as a part of current assets. A high liquid ratio is an indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time and on the other hand a low liquidity ratio represents that the firm's liquidity position is not good. The above table shows that there is a decrement in quick ratio in all the companies and no improvement is occurred ultratech cement. The quick ratio is decreased due to decrement in inventory. The ratio between liquid assets and current liabilities should be 1:1. If the quick ratio is low like the Acc, Ambuja and Ultratech have, it means the company is reliant on inventory to meets its obligations. This reliance upon inventory to meet current obligation is usually a bad situation. So it is advisable to those companies to reduce their inventory and rely on cash and bank balances.

Inventory Turnover (Days):

Formula:-365 * Inventory/Net sales Co. Acc Shree Ambuja JK Lakshmi Ultratech year 2008-09 32.6 18.2 32.3 17.2 35.3 2007-08 35.1 26.4 48.4 17.6 35.4

Best Performer: - JK Lakshmi Cement Comments: By Inventory Turnover days we can estimate how many days worth of inventory is on hand. The lower inventory turnover days are beneficial for the organization. As the above table shows that Acc ,Ambuja and Ultratech cement has too much inventory and too much inventory means paying for storage, possible waste or theft, and the opportunity cost that the time and space used to hold onto inventory that remains unsold could have been used instead to buy products that would sell. Having too little inventory, on the other hand, could lead to shortages and possibly missed sales opportunities. So it is advisable to those companies to have average inventory. Among the above companies Shree and JK Lakshmi cement have good inventory turnover days. Though JK Lakshmi have minimum inventory days but Shree perform better because JK Lakshmi minimize its inventory from 17.6 to 17.4.but Shree cement have come up at18.2 from 26.4. So in order to maintain the inventory turnover days the companies have to decrease their inventory and increase their sale, by that the companies can earn more and more revenue.

Debtors Turnover (Days):

Formula:-365 * Debtors/Net sales Co. Acc Shree Ambuja JK Lakshmi Ultratech year 2008-09 8.3 6.9 2 6.1 9.5 2007-08 13.7 7.4 11.6 5.3 12.6

Best Performer: - JK Lakshmi Cement Comments: Debtors turnover days are also known as average collection period. The average collection period ratio represents the average number of days for which a firm has to wait before its debtors are converted into cash. This ratio measures the quality of debtors. A short collection period implies Consistent payment by debtors. It reduces the chances of bad debts. Similarly, a longer collection period implies too liberal and inefficient credit collection performance. It is difficult to provide a standard collection period of debtors. The debtors turnover days depends upon both sales and debtors amount. From the above table we can conclude that debtors turnover days have decreased in all the companies except JK Lakshmi. The debtors turnover days of JK Lakshmi have increased because of the increment in debtors amount. Shree cement has a good debtors turnover ratio because of the increment in sales and decrement in debtors. For achieving the growth rate as the Shree cement have, other companies have to keep the same or better proportion between sale and debtors. So in order to smooth flow of money in operating cycle, companies have to minimize their debtors as far as possible.

Working Capital Turnover Ratio:

Formula: - Sales/Working Capital Co. Acc Shree Ambuja JK Lakshmi Ultratech year 2008-09 (10.2) 4.2 32.4 3.8 60.2 2007-08 (1352) 4.0 8.2 3.1 248.2

Best Performer: - Ultratech Cement Comments: This ratio indicates the number of times working capital is rotated in the course of a year. The working capital turnover ratio measures the efficiency with which the working capital is being used by a firm. A high ratio indicates efficient utilization of working capital and a low ratio indicates inefficiency. The firm must strategically plan for a targeted range of current assets and plan for their financing The above table shows that Ultratech cement is the company which has a good working capital turnover ratio and Acc cement is the company which has the working capital ratio. The liquidity position of Acc cement is very bad; they even cannot meet the current obligation with their current liabilities the current liability of this company is much more than its current assets. The working capital ratio of Shree cement is 93% lower than the ratio of ultratech because net working capital of Shree cement is 84% more than Acc cement on the other hand the sales of Shree cement is 56% less than Acc cement. So for improving the Working capital ratio Shree cement has to increase his sale and decrease his net working capital.

Operating Ratio:
Formula: - operating cost * 100/Net sales Co. Acc Shree Ambuja JK Lakshmi Ultratech year 2008-09 69.1 76.5 78.4 80.1 80.3 2007-08 76.2 74.0 77.0 76.0 74.5

Best Performer: - Acc Cement Comments: Operating ratio shows the operational efficiency of the business. Lower operating ratio shows higher operating profit and vice versa. An operating ratio ranging between 75% and 80% is generally considered as standard for manufacturing co. In the above table Acc cement has minimum operating ratio because the operating expenses of Acc cement have less increased in proportion to the increment in sales in comparison to the other company. Shree cement has also good operating ratio.

ConclusionBased on above ratio analysis I want to conclude that among all the five companies Shree cement is a best performer because it has improved in the entire ratio from its previous year with great margin like in return on net worth it has improved23%, in basic earnings per share 122% improvement, in net profit ratio 72% improvement and in inventory turnover days 45% improvement. Though in some ratios JK Lakshmi cement has a higher position but it doesnt have continuous improvement in these ratios. The amount of various revenues and expenses is also greater in some companies e.g. the net profit of Ambuja cement is 1218.37crore and Shree cement has only 577.97 crore and the net sale of Ambuja cement is 7076.87crore and Shree cement has 2797.92 crore but the Shree has more net profit ratio than Ambuja cement has. In one ratio one company has better position and in other ratio another company has but Shree cement has good position in the entire ratio. So the performance of Shree cement is better than other companies.

Intra firm Ratio Analysis:

Net Profit Ratio:

Formula: - Net Profit after interest and taxes * 100/Net sales Year Ratio 2009-10 16.8 2008-09 18.7 2007-08 10.7 2006-07 11.0 2005-06 1.3

Comments: NP ratio is used to measure the overall profitability and hence it is very useful to proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory return on its investment. The Net Profit is higher in 08-09 than in 07-08 because of the decrease in depreciation and increase in sales and other income, but in 2009-10 net profit it decreases because of increment in various expenses like depreciation, manufacturing expenses etc. Obviously, higher the ratio the better is the profitability. But while interpreting the ratio it should be kept in minds that the performance of profits also is seen in relation to investments or capital of the firm and not only in relation to sales.

Operating Ratio:
Formula: - operating cost * 100/Net sales Particular Operating Ratio (%) Comments: Operating ratio shows the operational efficiency of the business. Lower operating ratio shows higher operating profit and vice versa. An operating ratio ranging between 75% and 80% is generally considered as standard for manufacturing concerns. The table shows, among the above five years the operating ratio first decreased till 2006-07 which was better for the company but it has increased in 07-08 and 2008-09 due to the increment in various expenses like administration charges, selling and distribution charges etc. though the amount of various expenses has increased but in 2009-10 60.68 2008-09 69.30 2007-08 64.65 2006-07 63.44 2005-06 73.97

2009-10 this ratio has decreased. So for decreasing the operating ratio the company should decrease these expenses.

Gross Profit Ratio:

Formula: - Gross Profit * 100/Net sales Year Ratio Comments: The gross profit ratio shows the adequacy of selling price & efficiency of trading activities. Gross profit ratio may be indicated to what extent the selling prices of goods per unit may be reduced without incurring losses on operations. It reflects efficiency with which a firm produces its products. As the gross profit is found by deducting cost of goods sold from net sales, higher the gross profit better it is. Though the amount of gross profit has increased in 2009 in comparison to 2008 but gross profit rate has gone down from 54.54% to 50.25% due to decrease in manufacturing expenses in 2008. But in 2009-10 it has increased due to increment in gross profit in comparison to sales. So in order to increase this ratio the company should increase more gross profit in proportion to net sale. 2009-10 58.05 2008-09 50.25 2007-08 54.54

Return on shareholders investment:

Formula: - Net Profit after interest and taxes * 100/Share holders fund Year Ratio Comments: This ratio is also called as Return on net worth Ratio. Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. A business that has a high return on equity is more likely to be one that is capable of generating cash internally. Return on equity (ROE) is one of the most important indicators of a firms profitability and potential growth. Companies that boast a high return on equity with little or no debt are able to grow 2009-10 36.8 2008-09 47.8 2007-08 38.8

without large capital expenditures, allowing the owners of the business to withdrawal cash and reinvest it elsewhere. Many investors fail to realize, however, that two companies can have the same return on equity, yet one can be a much better business. Higher the ratio better for the organization from the point of view of its share holders. As from 07-08 to 08-09 the return on net worth or shareholders equity has increased .The ratio has increased due to increase in profit, which is useful for the distribution of dividend to its shareholders. But in 2009-10 this ratio has gone down because of decrement in net profit.

Inventory Turnover (Days):

Formula:-365 * Inventory/Net sales Year Days Comments: By Inventory Turnover days we can estimate how many days worth of inventory is on hand. Too much inventory means paying for storage, possible waste or theft, and the opportunity cost that the time and space used to hold onto inventory that remains unsold could have been used instead to buy products that would sell. Having too little inventory, on the other hand, could lead to shortages and possibly missed sales opportunities. The lower inventory turnover days are beneficial for the organization. From 2005 to 2009 the inventory turnover days has reduced which indicate that the company have good inventory turnover days. In 2009 within 18.2 days there is a requirement of new stock, so with the expansion in days the requirement of new stock comes down. And in the last period that is in 2009-10 the inventory turnover days has increased because the amount of inventory has much more increased in comparison to net sales. 2009-10 32.56 2008-09 18.20 2007-08 26.41 2006-07 35.31 2005-06 50.02

Debtors Turnover (Days):

Formula:-365 * Debtors/Net sales Year Days Comments: Debtors turnover days are also known as average collection period. The average collection period ratio represents the average number of days for which a firm has to wait before its debtors are converted into cash. The above table shows that in 2008-09 the company has lower average collection period but in 2007-08 the average collection period was higher than 2006-07.This indicates that the policies regarding the collection of money from debtors is suitable in 2009. But in 2009-10 the collection period has increased, which indicates that the company need to concentrate on the collection policies. The collection period has increased because of the increment in amount of debtors. This ratio measures the quality of debtors. A short collection period implies Consistent payment by debtors. It reduces the chances of bad debts. Similarly, a longer collection period implies too liberal and inefficient credit collection performance. It is difficult to provide a standard collection period of debtors. 2009-10 7.49 2008-09 6.87 2007-08 7.39 2006-07 5.94 2005-06 8.09

Creditors Turnover (Days):

Formula: - Creditors * 365/credit purchase Year Days Comments: The average payment period represent the average number of days taken by the firm to pay its creditors. Generally lower the period the better is the liquidity position of the firm and higher the period, less liquid position of the firm. The above table shows that the firm is improving its liquidity position, as in 2008-09 it has higher average payment than in 2009-10.Though the firm has increased the amount of credit but the average period has gone down. 2009-10 15.6 2008-09 25.8 2007-08 25.01

Working Capital Turnover Ratio:

Formula: - Sales/Working Capital Year Ratio Comments: This ratio indicates the number of times working capital is rotated in the course of a year. The working capital turnover ratio measures the efficiency with which the working capital is being used by a firm. A high ratio indicates efficient utilization of working capital and a low ratio indicates inefficiency. The working capital turnover ratio of the company has improved continuously as from 2007-08 to 2008-09 it had increased 5% and from 2008-09 to 2009-10 it has increased 56%. The reason is the increment in sale is more than the proportionate increment in working capital. So the company is in good position in rotating the working capital. 2009-10 6.52 2008-09 4.16 2007-08 3.96

Current Ratio:
Formula: - Current Assets/Current Liabilities Ideal Ratio: - 2:1 Year Ratio Comments: This ratio shows the ability of a business firm to meet its Current obligations as and when they become due. A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time and when they become due. On the other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties The above table shows that from 07 to 10 the current ratio is falling though the company had better position in 06-07 but the company does not keep it in 09 and 10.The current ratio has decreased because of increment in current liabilities and various provisions. 2009-10 1.64 2008-09 2.09 2007-08 2.28 2006-07 2.72 2005-06 1.42

Quick Ratio:
Formula: - Liquid Assets/Current Liabilities Liquid Assets - Current Assets-(Inventory + Prepaid expenses) Ideal ratio: - 1:1 Year Ratio Comment: This ratio is very useful in measuring the liquidity position of a firm. It is used as a complementary ratio to the current ratio. Liquid ratio is more rigorous test of liquidity than the current ratio because it eliminates inventories and prepaid expenses as a part of current assets. A high liquid ratio is an indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time and on the other hand a low liquidity ratio represents that the firm's liquidity position is not good. 2009-10 1.27 2008-09 1.86 2007-08 1.92 2006-07 2.17 2005-06 0.69