Ultratech Cements

8/3/2019 Ultratech Cements

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The Aditya Birla Group is the 11th largest cement producer inthe world and the seventh largest in Asia.

Incorporated on 24 August 2000 as L&T Cement Limited.

Cement business of Larsen & Toubro Limited demerged and

vested in company in 2004. Grasim acquired management control in July 2004.

Together with Grasim, one of the largest cement producers inIndia.

Name changed to UltraTech Cement Limited with effect from14 October 2004.

Narmada Cement Company Limited amalgamated withUltraTech in May 2006.


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To deliver superior value to ourcustomers, shareholders,

employees andsociety at large.


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Ordinary Portland cement Clinker 90.50% Gypsum 4.00% Fly ash 5.50%

Portland blast furnace slag cement Clinker 70%

Gypsum 6% Slag (Blast Furnace) 24%


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Portland Pozzolana cement Clinker 66% Gypsum 4% Fly ash 30%


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To be a premium global conglomerate witha clear focus on each business.

CustomerizationQuality consistencyProduct rangeCost competitiveness

Employee empowerment


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STRATEGIES

Cost efficiency Customer retention Business redefinition Innovation strategies Financial strategy

ORGANISATIONAL

STRUCTURE


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Finance DepartmentMarketing DepartmentHuman Resource Department Research & Development DepartmentSupply Chain Department


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2009 2010 Change (%)

Profit After Tax 977.02 1093.24 11.90

Gross Profit1361.49 1588.16 16.65

Net Sales 6383.08 7049.68 10.44

EPS 78.48 87.82 11.90

Current Assets

1400.35 1513.43 8.08

Current Liability 1120.92 1138.08 1.53

Equity 124.49 124.49 0.00

Debt 2142.87 1607.07 -25.00


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1] To identify aspects of a businesses performance to aid

decision making 2] Quantitative process may need to be supplemented by

qualitative Factors to get a complete picture. 5 main areas:-

Liquidity the ability of the firm to pay its way Investment/shareholders information to enable decisions

to be made on the extent of the risk and the earningpotential of a business investment

Gearing

information on the relationship between theexposure of the business to loans as opposed to sharecapital

Profitability how effective the firm is at generating profitsgiven sales and or its capital assets

Financial

the rate at which the company sells its stockand the efficiency with which it uses its assets

Cl ifi ti f


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Classification ofRatio

Profitability

Gross Profit Rattio

Net Profit Ratio

Return on CapitalEmployed Ratio

Return on

Shareholders Fund

Return on EquityRatio

Operating Ratio

Expenses Ratio

Earning Per Share Ratio

Dividend Per Ratio

Prise Earning Ratio

Liqudity Ratio

Currentratio

LiquidRatio

Leverage Ratio

DebtEquity

Ratio

Profitability Ratio

Capital GearingRatio

Long Term Funds

to Fixed Assets

Activity Ratio

Stock Turn OverRatio

Total Assets TurnOver Ratio

Debtors Ratio

Creditors

Ratio

Book Value PerShare

Working CapitalTurn Over Ratio

Coverage Ratio

Debentures ServiceCoverage Ratio

InterestCoverage Ratio


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Current Ratio

Ultratech Cement JK Cement Binani Cement

Current Assets 1472.00 684.79 721.35

Current Liab. 1299.00 357.69 569.89Ratio 1.13 1.91 1.27

Quick Ratio


Quick Assets 650.69 447.17 551.37

Current Liab. 1299.00 357.69 569.89

Ratio 0.50 1.25 0.97


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Ultratech has its current ratio to 1.13:1 to maintainadequate liquidity.

As compared to the ideal ratio (2:1), The current ratios

computed above are lower than the ideal ratio. Itshows that the company is not sufficient to meet itsshort term obligations / creditors. It shows that the firmis very risky for the creditors. One reason for lowerratio method of accounting inventories, but they areusing average costing method which give higher value

of inventory than LIFO. So they are really poor at theircurrent ratio. Though it may be because the industryaverage is such due to government interference in thisindustry.


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It is a very good sign to have liquid rationear to one in case of any emergency thecompany will have liquid funds to finance

the expenses. Though Ultratech cements have quick

ratio of 0.50:1 which is less than ideal ratiowhich proves Ultratech is in not so betterposition to fund any contingency expenseas they dont have enough liquidity.


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INVENTORY TURNOVER RATIO


COGS (Crs. Rs.) 5199 1432 1359

AVG INVENTORY (Crs. Rs.) 253 42 73RATIO (Times) 20.54 34.09 18.61

DEBTORS TURNOVER RATIO

Ultratech Cement JK Cement Binani cement

NET SALES (Crs. Rs.) 7175 1827 1872

DEBTORS + B/R'S (Crs. Rs.) 215.83 81.87 104.76

RATIO (Times) 33.24 22.31 17.86


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TOTAL ASSETS TURNOVER RATIO


NET SALES (Crs. Rs.) 7175 1827 1872

TOTAL ASSETS (Crs. Rs.) 7044 2970.96 1873.73

RATIO (Times) 1.01 0.61 0.99

FIXED ASSET TURNOVER RATIO


NET SALES (Crs. Rs.) 7175 1827 1872

FIXED ASSETS (Crs. Rs.) 4942 2044.88 1347.69

RATIO (Times) 1.45 0.89 1.38


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All the Companies are showing more or less stable performance withalmost a subtle change in the figures of ultratech cement andbinani(20.5& 18 respectively). But the turnover ratio of JK cement isalmost 2 times that of Binani Cements making it a better performer.

The Fixed Asset Turnover ratio of all the companies is low with JKhaving very low figures showing that the investments in fixed assets ismore than that is actually required. However the performance for othertwo is quite constant with a marginal difference in the numbers.

The above ratios are desirable by any firm. Higher values of debtorsturnover indicate more efficient management of credit. But sometimeshigher ratio would result into higher working capital requirement andalso high risk of bad debts. In this ratio clearly Binani & JK cements hasamazing debtors turnover but they may be lagging behind in buildingstrong customer relations as they offer less credit period and henceinventory cycle is very quick. Ultratech has Debtors turnover of 33.24days which is not at all bad sign


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Gross Profit RatioUltratech Cement JK Cement Binani Cement

Gross profit 3963.96 1085.61 1738.28

Net Sales 7175.07 1826.78 2259.78

Ratio 0.55 0.59 0.77

Net Profit RatioUltratech Cement JK Cement Binani Cement

Net profit 1096.84 226.00 281.92

Net Sales 7175.07 1826.78 2259.78

Ratio 0.153 0.124 0.125

ROAUltratech Cement JK Cement Binani Cement

Profit after Tax 1096.84 226.00 281.92

Avg. Total Assets 6779.10 2232.16 2406.49

Ratio 0.162 0.101 0.117


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Earning Power


PBIT 1597.81 458.40 591.78

Avg. Total Assets 6779.10 2232.16 2406.49

Ratio 0.236 0.205 0.246

Return On Capital Employed


PBIT(1-Tax rate) 1118.467 320.88014 414.246

Avg. Total Assets 6779.10 2232.16 2406.49

Ratio 0.165 0.144 0.172


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As it can be seen from the otherprofitability ratios also Ultratech is bettereven in the Return on Capital employed

ratio with lower rate of decrease ascompared with the figures of JK and BinaniCements. Thus Ultratech is better in the

profitability.


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Price-Earning Ratio


Market Price 920.550 156.800 77.600

EPS 87.820 32.110 13.880Ratio 10.482 4.883 5.591


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The ratio computed above of Ultratech is which shows that the

EPS of the company is covered 10.48 times by the marketprice of the share of the company. The ratio in 2010 by all thecompanies which shows efficient work and good performance

of the company to generate profit. Investors look at the P/E ratio as future market expectations of

a companys growth prospects in terms of profitability. If theP/E of a company is on the higher side when compared to itsindustry averages, it means the market is expecting some

positive events from the company as far as earnings areconcerned. In both companies case is the same; it is attractingmore investors by increasing their P/E ratio.


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STRENGTHS: Double digit growth rate

Cement demand has grown in tandem with strongeconomic growth; derived from: -Growth in housing sector (over 30%) key demand driver; -Infrastructure projects like ports, airports, power

projects, dam and irrigation projects -National Highway Development Program -Bharat Nirman Yojana for rural infrastructure -Rise in industrial projects -Export potential also demand driver Capacity utilization over 90%

WEAKNESS: Low value commodity Cement Industry is highly fragmented Industry is also highly regionalized Low value commodity makes transportation over long

distances un-economical


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OPPORTUNITIES: Demandsupply gap

Substantially lower per capita cement consumption ascompared to developing countries (1/3 rd of worldaverage) Per capita cement consumption in India is 82 kgs

against a global average of 255 kgs and Asian average of 200kgs.

Additional capacity of 20 million tons per annum will berequired to match the demand

Limited green field capacity addition in pipeline for next twoyears, leading to favorable demand supply scenario

THREATS: Rising input costs

Government intervention to adjust cement prices

Possibility of over bunching of capacities in the long term as

some of the players have already announced new capacities Transportation cost is scaling high; bottleneck due to loading

restrictions

Coal prices climbing up; industry players say current shortageof coal in the country is estimated to be over 10 million tones.


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Ultratech Cements holds a larger market value in terms of sales,PBDIT, PAT and is clearly way ahead of India cements

Ultratech does not have very good debt equity ratio which provesthat the company is not using the ability to trade on debt

The overall financial position of Ultratech is very good and prospectsare seen for it to be improved in 2010.

In Ultratech cements the bifurcation of inventory is not given it isadded to current assets so it is studied from the management reportin order to calculate Debtors turnover Ratio

P/E ratio has increased in 2010 to 13.49 proving the efficient workand good performance of the company to generate profit. Investorslook at the P/E ratio as future market expectations of a companysgrowth prospects in terms of profitability. If the P/E of a company ison the higher side when compared to its industry averages, it meansthe market is expecting some positive events from the company asfar as earnings are concerned. In both companies case is the same;it is attracting more investors by increasing their P/E ratio.


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Sources of Information www.moneypore.com www.moneycontrol.com

wwwUltratech.com www.indiacements.com

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Ultratech Cements

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