SYMBIOSIS INSTITUTE OF BUSNIESS MANAGEMENT HYDERABAD

Assignment
Annual Report Analysis (Ambuja Cement 2014-15)

Submitted to:Prof. Venugopal Rao

Submitted By:Aman Singla

PRN:14021141007

What is an annual report?

An annual report is a comprehensive report on a company's activities throughout the preceding year. Annual
reports are intended to give shareholders and other interested people information about the company's activities
and financial performance. They may be considered as grey literature. Most jurisdictions require companies to
prepare and disclose annual reports, and many require the annual report to be filed at the company's registry.
Companies listed on a stock exchange are also required to report at more frequent intervals.
Things to look out for in an annual report :

General Corporate Information

Accounting policies
Balance sheet
Cash flow statement
Contents: non-audited information
Profit and loss account
Notes to the financial statements
Chairpersons statement
Director's Report
Operating and financial review
Other features
Auditors report

ANNUAL REPORT Ambuja Cements (2014-15)

1) FIRMS PRODUCTS
TYPES OF PRODUCTS

High strength cement

Dynamic Demand

-Domestic cement consumption in India on an uptrend

-To meet the rise in demand, cement companies are expected to add 56 million tonnes (MT) capacity over the next
three years.

Pricing Power

The company does enjoys the pricing power

Pricing depends upon the price / cost structure of competitors like Ultratech and Jk Laxmi.
Substitutes
-

Each and every product has a substitute

Ultratech cements, chettinad, jk luxmi, india cement products are its major substitutes
Price and quality of similar products is almost the same amongst the competitors.

2) Technology
Production Process
A two-step process
Basically, cement is produced in two steps: first, clinker is produced from raw materials. In the second
step cement is produced from cement clinker. The first step can be a dry, wet, semi-dry or semi-wet
process according to the state of the raw material.
Making clinker
The raw materials are delivered in bulk, crushed and homogenised into a mixture which is fed into a
rotary kiln. This is an enormous rotating pipe of 60 to 90 m long and up to 6 m in diameter. This huge kiln
is heated by a 2000C flame inside of it. The kiln is slightly inclined to allow for the materials to slowly
reach the other end, where it is quickly cooled to 100-200C.
Four basic oxides in the correct proportions make cement clinker: calcium oxide (65%), silicon oxide
(20%), alumina oxide (10%) and iron oxide (5%). These elements mixed homogeneously (called raw
meal or slurry) will combine when heated by the flame at a temperature of approximately 1450C. New

compounds are formed: silicates, aluminates and ferrites of calcium. Hydraulic hardening of cement is
due to the hydration of these compounds.
The final product of this phase is called clinker. These solid grains are then stored in huge silos. End of
phase one.
From clinker to cement
The second phase is handled in a cement grinding mill, which may be located in a different place to the
clinker plant. Gypsum (calcium sulphates) and possibly additional cementitious (such as blastfurnace
slag, coal fly ash, natural pozzolanas, etc.) or inert materials (limestone) are added to the clinker. All
constituents are ground leading to a fine and homogenous powder. End of phase two. The cement is then
stored in silos before being dispatched either in bulk or bagged.
Distribution Channel

Cement is largely a regional product manufactured and sold in a region as

transporting it over long distances is not possible (due to the nature of the product).
Transportation is a major cost element for cement companies (around 20-25% of sales),
often a bigger line item than net profits.

Cost structure

Cost of manufacturing cement has risen over the years, thanks to higher costs of fuel and
financing, and high taxes.
Fixed costs in the cement industry are particularly high and significant relative to variable
costs. Fixed costs generally account for more than 50% of the overall production costs.
The fixed costs are usually sunk costs. Once built, a cement plant can serve no other
purpose. As fixed costs are high with respect to the variable costs, the break-even point is
high. With automation, labor costs have decreased, but energy consumption is a more
significant variable cost. Thus, profits in the industry are sensitive to the level of
utilization of the production capacity. Significant cash flows are generated only when
product increases beyond the break-even point, which depends on the efficiency of the
plant.

Supplier network and how the supply chain operates.

Over the years, the industry has become more organized and structured, and average size
of players has increased. Growing scale, coupled with improvement in manufacturing
technology, has led to significant cost efficiencies as well.
Supply side bottlenecks have also intensified.

3) Know the competitive of the industry

a. Concentration in the industry, the number of firms and their sizes.
India is the second largest producer of cement in the world.
The Indian cement industry is dominated by a few companies. The top 20 cement
companies account for almost 70 per cent of the total cement production of the
country. A total of 188 large cement plants together account for 97 per cent of the
total installed capacity in the country, with 365 small plants account for the rest. Of
these large cement plants, 77 are located in the states of Andhra Pradesh, Rajasthan
and Tamil Nadu.
b. Barrier to entry
Since a major percentage of market share is covered by top most cement companies,
barrier for entry is high in this industry.
High Capital required since cost for setting up whole new cement producing plant is
very high.
Limited raw material sources(limestone and gypsum) and touch government
clearance also restrict new competition
c. Competitiveness of suppliers.
Competition is extremely high for Indian Cement Industry.
In Indian Cement industry Supplier has the market power due rapidly increasing
market demand for the product.
d. Capacity in the industry.
India's cement demand is expected to reach 550-600 million tonnes per annum
(MTPA) by 2025.
The housing sector is the biggest demand driver of cement, accounting for about 67
per cent of the total consumption in India.
The other major consumers of cement include infrastructure at 13 per cent,
commercial construction at 11 per cent and industrial construction at nine per cent.
To meet the rise in demand, cement companies are expected to add 56 million tonnes
(MT) capacity over the next three years.
The cement capacity in India may register a growth of eight per cent by next year end
to 395 MT from the current level of 366 MT. It may increase further to 421 MT by
the end of 2017.
The country's per capita consumption stands at around 190 kg.

4) Know the Management

No managers have a propensity to violate the ethical charter under which the firm operates
because the Board periodically reviews Compliance reports of all laws applicable to the Company
and the steps taken by the Company to rectify instances of non-compliances, if any. During the
year, the Company has implemented a web based legal compliance tool called Compliance
Manager developed by Ernst & Young (EY), with a view to foster an improved compliance
reporting and monitoring in the Company. Further, legal risks are mitigated through regular
review of changes in the regulatory framework to ensure compliance with all the applicable
statutes. The Board is also satisfied that plans are in place for orderly succession for appointments
to the Board and to senior management.
a. What is the strength of corporate governance mechanisms?
Corporate Governance is an integral part of values, ethics and best business practices followed by
the Company. The core values of the Company are:
commitment to excellence and customer satisfaction
maximizing long term shareholders value
socially valued enterprise and
caring for people and environment.
The Company has in place a Code of Corporate Ethics and Conduct reiterating its commitment to
maintain the highest standards in its interface with stakeholders and clearly laying down the core
values and corporate ethics to be practiced by its entire management cadre.
5) Know the Political, legal ,regulatory and ethical environment.
a. Taxation for the business
The financial statements are prepared in accordance with the Indian Generally
Accepted Accounting Principles (GAAP). GAAP comprises mandatory
accounting standards specified under section 133 of the Companies Act 2013
(the Act)
read with Rule 7 of the Companies (Accounts) Rule 2014 and the relevant
provisions of the Act.
Current Tax is the amount of tax payable on the estimated taxable income for the
current year as per the provisions of Income Tax Act, 1961.