FINANCIAL MANAGEMENT

Financing Decisions in the Cement Industry

Submitted by:
Purva Mittal (50521)
Rohan Kundu (50537)
Rohit Verma (50539)
Rudhir Siddham (50541)
Saumya Aggarwal (50546)

Acknowledgement
Our deepest and sincerest feelings of gratitude go to our Financial
Management teacher Ms Garima Gupta. Her indispensible guidance and
constant encouragement have helped us immensely in the successful
completion of the project work.
We are also grateful to our college library for providing us necessary reading
material to carry out our project work.
Purva Mittal
Rohan Kundu
Rohit Verma
Rudhir Siddham
Saumya Aggarwal

Introduction
The Indian cement industry is the 2nd largest market after China accounting
for about 8% of the total global production. It had a total capacity of about 347
m tonnes (MT) as of financial year ended 2012-13. Cement is a cyclical
commodity with a high correlation with GDP. The housing sector is the biggest
demand driver of cement, accounting for about 67% of the total consumption.
The other major consumers of cement include infrastructure (13%),
commercial construction (11%) and industrial construction (9%).
Cement, being a bulk commodity, is a freight intensive industry and
transporting it over long distances can prove to be uneconomical. This has
resulted in cement being largely a regional play with the industry divided into
five main regions viz. north, south, west, east and the central region. The
Southern region of India has the highest installed capacity, accounting for
about one-third of the country's total installed cement capacity.

ACC Cement
ACC Limited (Formerly The Associated Cement Companies Limited) one of the
largest producers of cement in India. Its registered office is called Cement
House. It is located on Maharishi Karve Road, Mumbai. The stock price of
company contributes in calculating BSE Sensex.
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.

Ambuja Cement
Ambuja Cements Limited, formerly known as Gujarat Ambuja Cement Limited,
is a major cement producing company in India. The Group's principal activity is
to manufacture and market cement and clinker for both domestic and export
markets.
Ambuja Cements Ltd (ACL), a part of a global conglomerate Holcim, is one of
Indias leading cement manufacturers and has completed over 25 years of
operations. The company, initially called Gujarat Ambuja Cements Ltd, was

founded by Narotam Sekhsaria in 1983 in partnership with Suresh Neotia.

Global cement major Holcim acquired management control of Ambuja in 2006.
The Company has also made strategic investments in ACC Limited.

India Cements
India Cements Limited is a cement manufacturing company in India. It was
established in 1946 and the first plant was set up at Thalaiyuthu in Tamil
Naduin 1949. It has about seven cement manufacturing plants spread over
Southern India catering to major markets in South India and Maharashtra. The
capacities of its plants are over 9 million tons per annum. India Cements was
founded by S. N. N. Sankaralinga Iyer.
Sankar Cement,Coramandel Cement and Raasi Gold are the brands used by ICL
to market their produce.

JK Cement
JK Cement, member of the JK Organisation is a blue chip cement company
operating in India. Launched in 1982, JK Cement, an ISO9001:2000 company, is
built over an area of about 8 square kilometers at Jakaypuram in the Sirohi
District of Rajasthan. It is a public company listed on the Bombay Stock
Exchange.
As one of the large manufacturers in the Indian cement industry, JK Cement
has acquired the ultra-modern equipment from Fuller International of the
United States of America, and electronic packers from Ventomatic in Italy. The
annual installed plant capacity was 3.4 million tonnes per annum in 2007, but
was being expanded to 5 million tonnes per annum during 2008.

UltraTech Cement
UltraTech Cement Limited is India's biggest cement company and Indias
largest exporter of cement clinker based in Mumbai, India. The company is
division of Grasim Industries. It has an annual capacity of 52 million tonnes.
It manufactures and markets ordinary Portland cement, Portland blast furnace
slag cement, white cement and Portland Pozzolana cement. It also
manufacturesready-mix concrete (RMC) and Autoclaved Aerated Concrete
Blocks(AAC Blocks) with brand name Ultratech Xtralite. The export markets
span countries around the Indian Ocean, Africa, Europe and the Middle East.

Objectives
The objective of the project is to do a comparative analysis of different sources
of finance for Ambuja Cement Ltd, ACC Ltd, JK Cements Ltd, India Cements Ltd
& UltraTech Cement Ltd and to analyse their financial leverage.

Research Methodology
The data for the project work was taken through secondary resources. The
calculations and analysis of the data was done in MS Excel. Some of the
formulae used are:
Operating Leverage= % change in EBIT/% change in Sales
Financial Leverage= % change in EPS/% change in EBIT
Degree of combined leverage= [Operating Leverage] * [Financial Leverage]
Bar charts were used to depict the leverages of the five firms and Pie charts
were used to depict the sources of finance of the five firms. The charts were
also prepared in MS Excel.

Analysis and Findings

Company
Ambuja
ACC
JK
Ultratech
India

Operating Leverage
3.178759
7.703719
0.665841
1.003776
-0.887

Financial Leverage
0.025483807
-0.253926379
3.320647149
0.835445459
5.276026213

Combined Leverage
0.081007
-1.95618
2.211021
0.8386
-4.67982

Ambuja
equity

Secured loan

Unsecured loan

2%
7%

91%

ACC

equity
Secured loan
Unsecured loan

JK

equity
Secured loan
Unsecured loan

Ultratech

equity
Secured loan
Unsecured loan

India Cements

equity
Secured loan
Unsecured loan

Operating Leverage
9
8
7
6
5
4

Operating Leverage

3
2
1
0
-1

Ambuja

ACC

JK

Ultratech

India

-2

Financial Leverage
6
5
4
3
Financial Leverage
2
1
0
Ambuja
-1

ACC

JK

Ultratech

India

Degree of Combined Leverage

3
2
1
0
-1
-2
-3
-4
-5
-6

Ambuja

ACC

JK

Ultratech

India
Degree of Combined
Leverage

Conclusion
Operating leverage affects a firms operating profit while financial leverage
affects profit after tax or the earnings per share. The combined effect of the
two leverages is significant for the earnings available to the ordinary
shareholders.

ACC
For a given change in sales, EBIT will change by 7.7 times.
For a given change in EBIT, EPS will have no consequential change.
For a given change in sales, EPS will have no consequential change.

Ambuja
For a given change in sales, EBIT will change by 3.18 times.
For a given change in EBIT, EPS will change by 0.025 times.
For a given change in sales, EPS will change by 0.08 times.

JK Cement
For a given change in sales, EBIT will change by 0.66 times.
For a given change in EBIT, EPS will change by 3.32 times.
For a given change in sales, EPS will change by 2.2 times.

India Cements
For a given change in sales, EBIT will have no consequential change.
For a given change in EBIT, EPS will change by 5.27 times.
For a given change in sales, EPS will have no consequential change.

UltraTech Cement
For a given change in sales, EBIT will have an almost equal change.
For a given change in EBIT, EPS will change by 0.83 times.
For a given change in sales, EPS will change by 0.83 times.

Bibliography

I M Pandey, Financial Management

Annual General Report 2012-13, ACC Ltd
Annual General Report 2012-13, Ambuja Cements Ltd
Annual General Report 2012-13, JK Cements Ltd
Annual General Report 2012-13, India Cements Ltd
Annual General Report 2012-13, UltraTech Ltd
Website of Bombay Stock Exchange, www.bseindia.com
www.moneycontrol.com