Project Report On ACC Limited - Comparative study of financial statements and ratio analysis

Submitted to, Dr. Pawan Jain

Submitted by, Pankajkumar Nikhare (2012198) Rajender Gulati Rajiv Pani (2012231) (2012232)

Objective of the study:

In this report we will try to discuss various main revenue generating activities major growth drivers of the company. This report also include analysis of financial statements of the ACC Limited for four years from 2008 to 2011 which includes 1. 2. 3. Balance sheet Profit and loss account Cash flow statement

Ratio analysis is also carried out in this report which depicts the financial health of the company and also helpful for managers, lenders, stakeholders etc.

About ACC Limited:

ACC Limited (Formerly The Associated Cement Companies Limited) (BSE: 500410, NSE: ACC) is the largest producer of cement in India based in Mumbai. Its registered office is called Cement House. It is located on Maharishi Karve Road, Mumbai. ACC Limited is Indias foremost cement manufacturer with a countrywide network of factories and marketing offices. Established in 1936, ACC has been a pioneer and trend-setter in cement and concrete technology. Among the first companies in India to include commitment to environment protection as a corporate objective, ACC has won accolades for environment friendly measures taken at its plants and mines, and has also been felicitated for its acts of good corporate citizenship. Major Growth Drivers for the products of the Company: 1. Demand growth in cement sector. 2. Rapid developments in infrastructure and a stable housing sector. To reduce operating and input costs, Company focused on augmenting blended cement production, improving the efficiency of factory equipment and lowering power consumption. The Company also launched an organization wide cost reduction project to improve its competitiveness. Company also focused on various expansion projects for meeting demand of the customers. They are as follows. Major expansion projects; 1. The successful ramp up of expansion projects at Wadi and Chanda during 2011, helped the Company with the much needed volume and took the Companys total sales to 23.73 million tonnes. 2. The largest kiln in the world with a capacity of 12500 tpd was commissioned at Wadi during 2010. 3. The expansion project of the Bargarh Plant was substantially completed during 2009.

Directors Report & Management Discussion And Analysis

The Management Discussion and Analysis has also been incorporated into annual report. This report include analysis and discussion on various aspects of the company. These are follows. 1. Highlights of performance 2. Financial results 3. Dividend 4. Economic scenario and outlook 5. Cement industry outlook and opportunities 6. Cement business performance at a glance 7. Modernization 8. Sustainable development 9. Community development 10. Occupational health & safety 11. Human resources 12. Finance 13. Share capital 14. Fixed deposits 15. Merger of encore cement and additives private limited, lucky minmat limited and national limestone company private limited 16. Subsidiary companies 17. Directors internal control systems and their adequacy 18. Business risk management 19. Awards 20. Enhancing shareholders value 21. Directors responsibility statement 22. Audit 23. Corporate governance 24. Consolidated financial statements 25. Energy technology and foreign exchange 26. Particulars of employees 27. Acknowledgements 28. Cautionary statement

The main revenue generating activities of ACC Limited are

1. 2. 3. 4. Cement, Clinker, Consultancy Services, purchased Cement

These activities form major part of revenue and also erection, fabrication & contracts are some of revenue generating activities carried out by the company.

Areas which are being covered by the Company in its Accounting Policies
Accounting policies are specific policies and procedures used by a company to prepare its financial statements. The Accounting policies have been consistently applied by the Company and are consistent with those used in the previous years. Areas which are being covered by the Company in its Accounting Policies are 1. Fixed assets, 2. Depreciation and Amortization, 3. Intangible Assets, 4. Impairment, 5. Borrowing Costs, 6. Investments, 7. Inventories, 8. Cash and Cash equivalents, 9. Revenue recognition, 10. Sale of Products and Services, 11. Interest and Dividend Income, 12. Accounting of claims, 13. Government Grant and Subsidies, 14. Operating Leases, 15. Research and development, 16. Foreign currency transactions(Derivative Instruments), 17. Retirement and Other employee benefits, 18. Employees Stock Option Scheme, 19. Income taxes, Contingencies / Provisions, 20. Earnings per share, 21. Mines Restoration Expenditure, 22. Segment Reporting Policies.

Major expense heads for the company

Main expense heads for the company are manufacturing cost including power and fuel which form major part of the expenses for manufacturing cement contributing around 40% and 20% respectively of cost and profit as percentage of total income. Also raw material forms 10% to 15%. Depreciation and interest expense contribute approximately 5% and 1% respectively. These expenses generate around 20% to 25% of profit before tax.

Cost & Profit of Total Income (in crore rupees) Year 2011 2010 2009 2008 Manufacturing and other cost 4128 3458 3116 3152 Power and Raw fuel material 2183 1599 1540 1599 1428 1107 892 799 Depreciation 475 393 342 294 Interest expense s 97 57 84 40 Profit before tax 1540 1461 2294 1688

4500 4000 3500 3000 2500 2000 1500 1000 500 0

Rupees (crore)

2011 2010 2009 2008

Expense heads

Manufacturing and other cost increased due to increase in manufacturing expenses like raw material consumed, stores and spare parts consumed, packing material, repairs to machinery, building and other items etc. Power and Fuel cost has increased due to following: Clinker production increased by 18% over the previous years. Steep escalations in the cost of imported and domestic coal. Average imported coal price increased by 21%. Increase in domestic coal prices Increase in power tariff by 13% compared to previous years. The impact of increase in prices of different grades of coal was partially offset by improvement in consumption norms and improved efficiency of equipment. Consumption of Raw Materials has increased due to following: Cement production recorded an increase of 10% to 12% over previous years. Steep escalations in major input cost such as Gypsum and Fly ash as well as increase in freight cost on inter unit clinker transfer. Depreciation and amortization: As assets of the company increased as compared to previous years which leads to increase in depreciation and amortization. Interest Expenses has increased due to decrease in interest capitalization as compared to previous year.

Analysis of financial statements: Income statement:

Table shows highlights of Income statement. Highlights of Income statement (in crore rupees) Year 2011 2010 2009 Net sales 9439 7717 8027 Operating EBITDA 1921 1812 2644 Profit before tax 1540 1461 2294 Profit after tax 1325 1120 1607

2008 7283 1899 1737 1213

Profit after tax in year 2009 is more compared to other years. But net sales are more in 2011. In year 2009 operating profit is greater compared to 2011. The reason behind this is that there is increase in operating expenses like rise in price of raw material, increase in manufacturing expenses of the company which results into decreasing profit.

Profit after tax

Profit After TaxRupees(in crore) 1800 1600 1400 1200 1000 800 600 400 200 0 2011 2010 Year 2009 2008

Profit after tax

Operating EBITDA
3000 Opearting EBITDA 2500 2000 1500 1000 500 0 2011 2010 Year 2009 2008

Operating EBITDA

Analysis of balance sheet:

Highlights of balance sheet are shown below. Highlights of balance sheet (in crore rupees) Year 2011 2010 Net worth 7192 6469 Borrowings 511 524 Net fixed assets 6643 6645 Cash and cash equivalents 2832 2288 Current assets 3618 2753 Current liabilities 3664 3746 Capital employed 8221 7355

2009 6016 567 6315 1876 2256 3114 6932

2008 4928 482 5073 1438 2760 2766 5746

Graph depicting net worth

Net worth
Net worth in rupees(crore) 8000 7000 6000 5000 4000

3000
2000 1000 0 2011 2010 2009 2008

Net worth

Year

Graph shows that from year 2008 to 2011 there is an increase in net worth indicating positive growth of company. Increase in net worth implies increase in equity share capital and reserves and surplus. There is not major change in fixed assets of the company except in year 2009 due to expansion project of the Bargarh Plant. The satellite grinding units which were set up as a part of Wadi expansion programme at Thondebhavi in Chikballapur District and Kudithini in Bellary District in Karnataka were also partly commissioned during the last quarter of 2009. Cash and cash equivalents of the company are increased during period of four years. Current assets and liabilities , capital employed both are showing increasing figures.

Analysis of cash flow statement:

Cash flows from Operating Activities, Financing Activities and Investing Activities is shown in the table. Cash flows from various activities Net cash provided by activity Year 2011 1577.38 (264.24) (768.32) 2010 1950.72 (802.25) (636.73) 511.74 2387.59 2009 2397.94 (2181.22) (454.58) (237.86) 746.38 2008 1708.33 (1170.44) (297.13) 240.76 984.24

Operating activities Investing activities Financial activities Net increase/decrease in cash and cash equivalents 544.82 Cash and cash equivalents at the end of year 2832.41 Cash Flows from Operating Activities

This section shows how much cash comes from sales of the company's goods and services, less the amount of cash needed to make and sell those goods and services. Operating cash flow is showing positive figure which is good sign because company is generating sufficient cash from its main business. But from the data depicts that operating profit is decreasing from year 2009 to 2011 depicting companies operating capability is decreasing to repay loans and make new investments.

cash generated from operating activities

3000 2500 2000 1500 1000 500 0 2011 2010 2009 2008 cash generated from operating activities

Cash Flows from Investing Activities This section largely reflects the amount of cash the company has spent on capital expenditures. Company is investing in various expansion projects which is very much to keep the business going. It also includes acquisitions of other businesses and monetary investments such as money market funds. The main reasons showing negative cash flows from investing activities in years 2009 and 2010 are as follows. 1. In year 2009, the expansion project of the Bargarh Plant was substantially completed. The satellite grinding units which were set up as a part of Wadi expansion programme at Thondebhavi in Chikballapur District and Kudithini in Bellary District in Karnataka were also partly commissioned during the last quarter of 2009. 2. In 2010, the largest kiln in the world with a capacity of 12500 tpd was commissioned at Wadi.

Investing activities
0 -500 -1000 Investing activities -1500 -2000 -2500 2011 2010 2009 2008

Cash flow from financing activities: This section describes the goings-on of cash associated with outside financing activities. Typical sources of cash inflow would be cash raised by selling stock and bonds or by bank borrowings. Likewise, paying back a bank loan would show up as a use of cash flow, as would dividend payments and common stock repurchases.

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Financial activities
0 -200 -400 -600 -800 -1000 2011 2010 2009 2008 Financial activities

Ratio Analysis:
SR. NO. 1 2 3 4 5 6 7 8 10 12 13 14 15 16 17 18 20 21 22 23 24 RATIO RETURN ON ASSET RETURN ON INVESTED CAPITAL RETURN ON NET WORTH TOTAL ASSET TURNOVER RATIO INVESTED CAPITAL TURNOVER RATIO NET WORTH TURNOVER RATIO AVERAGE COLLECTION PERIOD INVENTORY TURNOVER RATIO DAY'S INVENTORY CURRENT RATIO ACID TEST RATIO DEBT EQUITY RATIO DEBT TO TOTAL INVESTED CAPITAL INTEREST COVERAGE RATIO EARNINGS PER SHARE CASH REALIZATION DIVIDEND PAYOUT RATIO PRICE EARNING RATIO GROSS PROFIT RATIO NET PROFIT RATIO OPERATING PROFIT RATIO 2011 16.94 18.08 18.42 1.15 1.23 1.31 10 7.03 51.92 0.99 0.68 0.07 0.06 14.89 70.59 1.5 46.1 16.29 19.79 14.04 17.34 2010 15.76 16.58 17.31 1.05 1.1 1.19 8 6.73 54.23 0.73 0.49 0.08 0.07 24.73 59.66 1.79 59.62 18.04 21.66 14.51 19.67 2009 24.02 25.3 26.71 1.16 1.22 1.33 9 7.12 51.26 0.72 0.48 0.09 0.08 26.21 85.6 1.8 31.43 10.23 30.89 20.01 29.07 2008 21.59 22.93 24.61 1.27 1.35 1.47 15 6.99 52.22 1 0.71 0.1 0.09 41.23 64.63 1.67 36.2 7.39 23.79 16.65 23.72

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Return on Investment ratio:

Return on investement ratio

30 25 Percentage 20 15 10 5 0 RETURN ON INVESTED CAPITAL RETURN ON NET WORTH RETURN ON ASSET

2011

2010
Year

2009

2008

Return on asset shows capital intensity of the company. It increased from 2008 to 2009 but in 2010 it decreased and after that not changed much. In 2008 to2009 it is highest depicting company drawing more profit in fewer assets compared to 2010 and 2011. The same trend is followed for return on invested capital and return on net worth. Activity turnover ratio:

Activity/Turnover ratio
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2011 2010 Year 2009 2008

TOTAL ASSET TURNOVER RATIO INVESTED CAPITAL TURNOVER RATIO NET WORTH TURNOVER RATIO

All the three ratios are not showing so much deflection which means the speed with which assets are being converted or turned over into sales are almost constant.

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Liquidity Ratio:

Liquidity ratio
1.2 1 0.8 0.6 0.4 0.2 0 2011 2010 Year 2009 2008 CURRENT RATIO ACID TEST RATIO

Current ratio from 2009 to 2011 showing increasing trend depicting that companys ability to generate money in emergency situation has improved. At the same time Acid test ratio is also showing positive trend. This is also positive sign for short term lenders. Solvency Ratio:

Solvency ratio
0.12 0.1 0.08 DEBT EQUITY RATIO 0.06 0.04 0.02 0 2011 2010 2009 2008 DEBT TO TOTAL INVESTED CAPITAL

Solvency ratio showing decreasing trend implying that company is less dependent on the loan funds. This is positive sign for lenders and shareholders also.

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INTEREST COVERAGE RATIO

45 40 35 30 25 20 15 10 5 0 2011 2010 2009 2008 INTEREST COVERAGE RATIO

Interest coverage ratio is decreasing which showing decrease in safety net available to the organization for payment of Interest Charges.

Capital Market Ratio:

Capital Market ratio

90 80 70 60 50 40 30 20 10 0 2011 2010 2009 2008 DIVIDEND PAYOUT RATIO PRICE EARNING RATIO EARNINGS PER SHARE

All the three ratios showing same trend. As shareholder one can see that EPS is decreased in 2010 but again it got momentum in 2011. For shareholder it is positive sign for investment. In 2009, Dividend payout ratio is very less as compared to EPS which means company was distributing less dividend to shareholders.

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Profitability Ratio:

Profitability Ratio
35 30 25 20 NET PROFIT RATIO 15 10 5 0 2011 2010 2009 2008 OPERATING PROFIT RATIO GROSS PROFIT RATIO

All profitability ratios are decreasing due to increase in manufacturing cost, power and fuel etc. Due to increase in operating expenses, depreciation and interest expenses profitability of company has been decreased significantly.

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Conclusion:
1. Net sales of the company are increased but due to increase in operating expense, operating profit has been significantly decreased. 2. Company showing increase in its net worth depicting positive growth of the company. 3. Solvency ratio is satisfactory during the study. As shareholder, lender and potential shareholder, company is showing good financial health. 4. Return on Investment Ratio are sufficiently high showing that company is efficiently utilizing its assets, invested capital and net worth for generating higher profit which is good sigh as a manager. 5. Activity turnover ratio are not showing much change which means the speed with which assets are being converted or turned over into sales are almost constant. 6. Inventory turnover ratio is high implies that efficient use of inventory.

References:
1. Annual reports 2008, 2009, 2010 and 2011 from official website of ACC Limited. (www.acclimited.com) 2. Financial accounting for Management by N Ramachandran and Ram Kumar Kakani. 3. Cost and Management Accounting by M. N. Arora.

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