International School of Informatics and Management A Project Report On:

IMPACT OF INVENTORY CONTROL AND RECEIVABLES MANAGEMENT ON CEMENT INDUSTRY PROFITABILITY

Submitted to:TRIPTI BISWA

Submitted by:DILIP METHANI

MBA RTU IV SEM.

TABLE OF CONTENT

1. Acknowledgement 2. Abstract 3. Introduction 4. Industry Profile 5. Company Profile 6. Analysis & Interpretation 7. Findings & Conclusion 8. Bibliography

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 thank 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. 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.

(Dilip Methani)

ABSTRACTThe aim of this study is to analyze the impact of inventory control and receivables management on Shree Cement Ltd profitability. This study will find out statistically significant relationships between profitability and Inventory control and receivables management of Shree Cement Ltd. This study analyzes Shree Cement Ltd under a multiple regression model. Data of Shree Cement Ltd is collected from its last some years annual reports. Inventory control and Receivables management have a great impact on profitability of a company. There are many inventory control techniques like Economic Order Quantity, Just in Time etc. Company can control its inventory turnover ratio and inventory period lower the company profitability because companys working capital is indulged in inventory. There is negative correlation between inventory period and profitability. Another variable is Average Collection Period. It is calculated by dividing 365 days from Debtor turnover Ratio (365/Debtor Turnover Ratio). Average collection period shows that in how many days company recover from its debtors or how many days Credit Company gives to its customer. It also has negative relationship with profitability. Lower the average collection period higher the profitability. This study will cover the inventory control techniques use by the cement industry to lower down the inventory period as well as how the inventory period and average collection period impact the firm profitability.

INTRODUCTION

INTRODUCTION TO THE STUDY

INVENTORY CONTROL Cement industry is a manufacturing industry and inventory control plays a vital role in manufacturing industry. Companies need to maintain sufficient level of inventory so that the production does not stop. Inventory may be in various form like- raw material, consumables and spares, work in progress and finished products. Companies need many items for day to day operation and there is a lead time to procure these materials, so every company need to maintain certain amount of inventory in stock with them. Inventory control is necessary because there should be optimum level of inventory. There is negative correlation between inventory control and profitability. Higher the inventory period lower will be the profitability and vice versa. Many costs are associated with inventory management i.e. ordering cost, inventory carrying cost, cost of capital, stock out cost etc. inventory control comprises inventory control techniques like Economic Order Quantity(EOQ) ABC Analysis Fixation of Inventory levels Value analysis etc.

RECEIVABLES MANAGEMENT-

Receivables management impact directly cash flow. Cash flow can be significantly enhanced if the amounts owing to the business are collected faster. The company should have control over its receivables; if a company is not able to collect its receivables on time then it will impact its cash flow which will indirectly impact its profitability. There should be effective receivables management system in every organization. There is also a negative correlation between receivables management and profitability. Higher the account receivables period lower will be the profitability and vice versa. Receivables management may be concerned with the following aspects: Credit Analysis Credit Terms Financing of Receivables Credit Collection Monitoring of Receivables

OBJECTIVE To find impact of inventory control and receivables management on cement industry profitability.

 To understand the relationship between inventory control and firms profitability. To understand the relationship between receivables management and firms profitability.

RESEARCH METHODOLOGY Type of research- research done is library based research. Data collection- data collection is done through secondary sources like internet, published & unpublished source. Analysis of data- data analysis is done by using inferential statistical tool i.e. regression analysis and correlation analysis. Various charts and graphs are also used. Interpretation and conclusion- on the basis of analysis of data and output, interpretation and conclusion is done.

STEPS IN RESEARCH METHODOLOGY1. Identification of Objectives: Objectives are clearly defined that determined the pathway to find out conclusions.

2. Collection of Data: data are collected from various sources i.e. by Internet, books, journals etc. according to the requirement of the study. 3. Organization of Data: the bulk of data is not useful; it has to be organized in way to conclude significant results.

4. Selection of Suitable Techniques: technique is used according to objectives and availability of data. 5. Implementation / Execution: selected objectives and techniques are implied upon organized data in order to find out better results. 6. Presentation: findings have been presented in tables and graphs with a view to present the same in lucid style.

SCOPE OF STUDYThe research project covers the Shree Cement Ltd. It covers the impact of inventory period and average collection period on net profit margin of company. Data related to Shree Cement Ltd is collected and study is been done.

METHODS OF DATA COLLECTION & ANALYSIS OF DATA

Basically there are two types of data i.e. Primary data & Secondary data. Primary data is collected through observation or through direct communication with respondents in one form or another or through personal interview. Whereas in secondary data the information is collected through past researches, books, Annual reports, balance sheets etc. In this study the analysis & collection was extensively of secondary data through the various Annual reports, Balance sheets & other important documents of Shree Cement Ltd. Only form of primary data that was involved in it was interviews with the higher official of Shree Cement (a sort of Questionnaire was issued to them). Analysis of Collected data was done by using various statistical techniques (like Pie Charts & Bar Diagrams), comparative techniques & analytical research methods.

INDUSTRY PROFILE

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 200405 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 1980-81 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.

THE CEMENT INDUSTRY STRUCTURE

Presently the total installed capacity of Indian cement industry is more than 219MT per annum. Indian cement industry is divided into major cement plants and mini cement plants.

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).

R E GIONW IS EC E ME NT P R OD UC TION
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 transported 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.

COMPANY PROFILE

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). 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.

COMPANY PROFILE COMPANY INCORPORATION YEAR REGISTERED OFFICE CORPORATE OFFICE INDUSTRY CHAIRMAN MANAGING DIRECTOR EXECUTIVE DIRECTOR EQUITY CAPITAL FACE VALUE OF SHARE EQUITY CAPITAL FACE VALUE OF SHARE SHREE CEMENT LTD. 1979 BANGUR NAGAR, BEAWAR, AJMER (RAJASTHAN) 21, STRAND ROAD, KOLKATA CEMENT MANUFACTURING B.G. BANGUR H.M. BANGUR M.K. SINGHI 34.84 CRORES 10 34.84 CRORES 10

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 Shrees 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-ofmarket 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 brand-Tuff 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. UTTARANCHA L 2007-08 20.36% 19.03% 17.94% 7.32% 3.98% 7.96% 2008-09 22.17% 23.91% 17.97% 8.29% 4.86% 10.13% 2009-10 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

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 Limestone Extraction to online chemical analysis they are blended in a homogenized stockpile. A bucket wheel declaimer is used to recover and further 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 Kiln homogenizing and storage silo for further blending before being burnt in the kilns.

Fig 3: 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 Fin side of Kiln optimum fineness of the Petcock and excellent combustion conditions within the kilns system.

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 deCement Plant 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 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.

SHREE CEMENT LIMITED BALANCE SHEET AS AT 31ST MARCH, 2010 As at 31.03.2010 Schedule SOURCES OF FUNDS Shareholders' Funds Share Capital Reserves & Surplus Loan Funds Secured Loans Unsecured Loans (Rs.in Lac) As at 31.03.2009 (Rs.in Lac)

1 2

3,483.72 179,840.25 183,323.97 178,853.25 31,770.52 210,623.77 393,947.74

3,483.72 117,517.97 121,001.69 122,050.73 27,564.60 149,615.33 270,617.02

3 4

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

5 295,086.48 219,891.10 75,195.38 96,741.59 171,936.97 6 7 159,224.04 1,240.38 225,591.46 162,905.89 62,685.57 47,888.98 110,574.55 84,483.47 1,038.98

Investments Deferred Tax Assets (Net) Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balances Other Current Assets Loans & Advances Less: Current Liabilities & Provisions Liabilities Provisions Net Current Assets

8 9 10 11 12 13

35,813.30 8,241.79 41,637.42 1,127.84 71,397.03 158,217.38 46,684.53 49,986.50 96,671.03 61,546.35

15,445.84 5,831.73 47,226.05 755.20 73,678.81 142,937.63 29,000.38 39,417.23 68,417.61 74,520.02

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) (Rs. in Lac)

For the Year ended 31.03.2009 (Rs. in Lac)

309,159.96 38,096.87 271,063.09 3,914.91 274,978.00

114,246.30 (438.93)

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 & Amortization Exceptional Items Provision for Statutory Liabilities of Earlier Years' (Refer Note 7) 150,177.12 57,042.98

179,055.21 95,922.79 20,538.70

4,367.62

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

Analysis & Interpretation

ANALYSIS AND INTERPRETATION

RESEARCH OBJECTIVE

To analyze the impact of inventory control and receivables management on cement industry profitability and what extent it impact profitability through multiple regression analysis. For this analysis preferred mode for data collection is gathering secondary data. As part of the research data related to inventory turnover, debtor turnover and net profit were collected of 5 companies. Calculate inventory period, average collection period on the basis of collected data. For analyzing regression between asset classes initially one should determine if there is any relationship between them. For that purpose correlation analysis is implemented between net profit margin & inventory period and between net profit margin & average collection period. Here net profit margin is taken as dependent variable and inventory period and average collection period are considered as independent.

RESEARCH DESIGN
INVENTORY CONTROL

Inventory management is a vital function to help insure the success of manufacturing companies. The effectiveness of inventory management is directly measurable by how successful a company is in providing high levels of customer service, low inventory investment, maximum throughput and low costs. A truly effective inventory management system can significantly improve bottom line business performance.

From a financial perspective, inventory management is no small matter. Inventory is the largest asset item on a manufacturers balance sheet. There is a lot of management emphasis on keeping inventories down so they do not consume too much cash. The objectives of inventory management reduction and minimization are more easily accomplished with modern inventory management processes.

Many manufacturing companies suffer from lower customer service, higher costs and excessive. Inventory control problems are usually the result of using poor processes and systems.

RECEIVABLES MANAGEMENT-

Receivables management has significant impact on profitability of any business. Cash flow can be significantly enhanced if the amounts owing to the business are collected faster. The company should have control over its receivables. There is negative correlation between average collection period and net profit margin. If average collection period of a company is low than its net profit margin will be high and vice versa.

CORRELATION

A statistical measure of the length of a linear relationship between two variables. The Pearson correlation coefficient measures the degree of linear association between two variables. It varies between -1.00 and +1.00, with 0 representing absolutely no association between two variables. The higher the correlation coefficient, the stronger the level of association. The correlation coefficient can be either positive or negative, depending on the direction of the relationship between two variables.

MULTIPLE REGRESSIONS
Multiple regression analysis is a statistical technique which analyzes the linear relationship between a dependent variable and multiple independent variables by estimating coefficients for the equation for a straight line. Regression coefficient is an indicator of the importance of an independent variable in predicting a dependent variable. Large coefficients are good predictors and small coefficients are weak predictors. The correlation analysis explain the relationship between 2 variables and direction of relationship, whether 2 variables are positively related or negatively related. The regression analysis indicate the amount of change in the dependent variable that is associated with a one-unit change in the independent variables.

SHREE CEMENT LIMITED

Years Sales(Rs in crores) 554.60 397.22 582.43 606.93 723.00 824.10 1613.10 2440.30 3097.10 4014.86 Inventory Period 22.85 28.30 38.97 35.35 36.64 50.02 35.31 26.41 18.20 32.56 Average Collection Period 26.86 20.72 20.52 17.88 12.09 8.09 5.94 7.39 6.90 7.49 Net Profit Net Sales Net Profit Margin 5.45 0.47 1.47 2.76 4.99 2.76 12.94 12.60 21.29 18.61

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

26.12 1.47 6.70 13.04 29.07 18.40 177.00 260.37 577.97 676.10

479.21 315.32 455.75 473.23 582.08 667.69 1367.98 2065.86 2715.02 3632.12

Net P rofit Ma rg in
2 5 2 0 1 5 1 0 5 0 2 0 0 0 - 2 0 0 1 - 2 0 0 2 - 2 0 0 3 - 2 0 0 4 - 2 0 0 5 - 2 0 0 6 - 2 0 0 7 - 2 0 0 8 - 2 0 0 9 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 1 0 Net Profit Ma rg in

Inventory P eriod
60 50 40 30 20 10 0 20 00- 2001 - 200 2- 2 003- 200 4- 2 005- 2006 -2 0 07- 2008- 200 901 0 2 03 0 4 05 06 07 08 0 9 10

Inventory Period

Avera g eC ollection P eriod

30 25 20 15 10 5 0
20 00 20 01 01 20 02 02 20 03 03 20 04 04 20 05 05 20 06 06 -0 20 7 07 20 08 08 20 09 09 -1 0

Averag eC ollection Period

ANALYSIS
SHREE CEMENT LIMITED CORRELATION

Years 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Net Profit Margin 5.45 0.47 1.47 2.76 4.99 2.76 12.94 12.60 21.29 18.61

Inventory Period 22.85 28.30 38.97 35.35 36.64 50.02 35.31 26.41 18.20 32.56

6 0 5 0 4 0 3 0 2 0 1 0 0 2 0 00 - 2 00 1- 2 00 2- 20 0 3 - 2 00 4- 2 0 0 5- 20 06 - 2 00 7- 200 8 - 20 09 0 1 02 03 0 4 05 06 0 7 0 8 09 1 0 NPMarg in Inventory P eriod

By implementing Karl Pearsons method of correlation it can be said that Net Profit Margin and Inventory Period are significantly negatively correlated i.e. rgs = -0.51

CORRELATION BETWEEN NET PROFIT MARGIN & AVERAGE COLLECTION PERIOD

Years 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 NP Margin 5.45 0.47 1.47 2.76 4.99 2.76 12.94 12.60 21.29 18.61 Average Collection Period 26.86 20.72 20.52 17.88 12.09 8.09 5.94 7.39 6.90 7.49

30 25 20 15 10 5 0 20 0001 2 0 010 2 20 0203 20 0 3 04 20 04 05 20 0 506 2 0 0 60 7 20 0708 20 0809 20 09 10 NP Marg in Avg C ollection Period

By implementing Karl Pearsons method of correlation it can be said that Net Profit Margin and average collection Period are significantly negatively correlated i.e. rgs = -0.68

MULTIPLE REGRESSION ANALYSIS

Years 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 NP Margin 5.45 0.47 1.47 2.76 4.99 2.76 12.94 12.60 21.29 18.61 Inventory Period 22.85 28.30 38.97 35.35 36.64 50.02 35.31 26.41 18.20 32.56 Average Collection Period 26.86 20.72 20.52 17.88 12.09 8.09 5.94 7.39 6.90 7.49

Multiple Regression Equation Coefficients Intercept Indep1 Indep2 35.4360 -0.5170 -0.7709 Standard Error 4.99199 0.1270 0.1532

Multiple Regression Equation

Dependent = -0.5170Indep1 -0.7709Indep2 +35.4360 Here, Indep1:- Inventory Period Indep2:- Average Collection Period By multiple regression equation it is found that change in inventory period by 1% net profit margin will be down by 0.52%. Change in average collection period by 1% will result in to net profit margin fall by 0.77% if other factors remain same.

Equation Parameters R Square Adjusted R Square Standard Error 0.8392 0.7932 3.4018

Here by multiple regression model R Square value is 83.92%. It means that 83.92% of the change in Dependent can be explained by the change in the 2 Independent Variables. Here standard error is 3.4018, it means that if repeated sampling done then data can varies by 3.4018. So it can +/- on result of regression equation.

Findings & Conclusions

Findings
After doing the analysis of the impact of Inventory control and Receivables Management on Profitability the following things have been found out-

Correlation between Inventory period & Net profit Margin = -0.51 Correlation between Average Collection Period & Net Profit margin = -0.68 R Square = 83.92%

There is a negative relation between inventory period and net profit margin of Shree cement limited in the last 10 years. There is a negative relation between the average collection period and net profit margin of Shree Cement limited in 10 years.

CONCLUSION
After going through various analyses it can be said that the Shree Cement Ltd should maintain low inventory period and low average collection period to maintain high net profit margin. Shree Cement Ltd should reduce its inventory period by using various effective inventory control tools and also should able to reduce its average collection period by managing its debtor efficiently. It can also be said that there is high correlation between average collection period and net profit margin than inventory period and net profit margin. After applying multiple regression model it is observed that movement of net profit margin is affected by movement in inventory period and average collection period up to 83% in case of Shree cement limited. So it can be said that change in inventory period by 1% net profit margin will be down by .51% and change in average collection period by 1% net profit margin will be down by .77% if other factor remains same.

Bibliography

www.shreecementltd.com Shree Cement annual reports

Profit & Loss account of Shree Cements

------------------- in Rs. Cr. ------------------Jun '12 15 mths Mar '11 12 mths Mar '10 12 mths Mar '09 12 mths

Mar '

12 mt

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 923.04 1,499.87 319.49 68.11 0.00 1,391.55 0.00 4,202.06 Jun '12 15 mths Operating Profit PBDIT Interest 1,645.76 1,796.20 235.36 811.93 912.32 199.14 50.33 659.54 12.63 0.00 2,645.89 Mar '11 12 mths 887.81 958.65 175.35 646.64 610.48 159.21 41.79 670.73 18.88 0.00 2,147.73 Mar '10 12 mths 1,504.05 1,565.77 129.09 502.34 605.81 104.38 36.44 481.40 21.32 0.00 1,751.69 Mar '09 12 mths 953.70 998.92 77.16 6,577.37 710.86 5,866.51 150.44 -18.69 5,998.26 3,937.79 438.90 3,498.89 70.84 34.81 3,604.54 4,014.09 385.89 3,628.20 61.72 23.58 3,713.50 3,097.17 380.70 2,716.47 45.22 -11.08 2,750.61

2,440.

332.

2,108.

32.

-8.

2,132.

376.

367.

74.

22.

380.

14.

0.

1,234.

Mar '

12 mt

865.

897.

52.

PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)

1,560.84 873.09 0.00 687.75 74.75 762.50 144.00 618.50 3,279.02 0.00 69.68 11.30

783.30 675.76 0.00 107.54 61.86 169.40 -40.27 209.70 1,833.95 0.00 48.77 7.99

1,436.68 570.43 0.00 866.25 16.69 882.94 206.84 676.10 1,501.08 0.00 45.29 7.59

921.76 205.39 0.00 716.37 6.53 722.90 144.94 577.97 1,249.35 0.00 34.84 5.92

845.

478.

0.

366.

-14.

352.

92.

260.

858.

0.

27.

4.

348.37 177.54 200.00 784.77

348.37 60.19 140.00 570.13

348.37 194.07 130.00 526.23

348.37 165.91 100.00 347.33

348.

74.

80.

193.