A Study on Trends and Determinants of Outward Foreign Direct Investment and I...
Financial Performance of 2 companies in Cement industry
1. i
COVER PAGE
Title : Financial Performance of 2 companies in
Cement Industry
Subject : FFBD
Level / Semester : I / Feb 2010
Programme : MBA-FULL TIME
Subject Tutor : Mr. L. Augustine
Name of Student : Vivekanandan M
Student’s Registration Number : GPBL-B/F10/15
Date of Submission : Apr 09, 2010
Word Count : 1850 words
Word Limit : 2000 words
2. ii
Checklist
Students Name Vivekanandan M
Registration Number GPBL-B/F10/15
Date of submission of the Assignment
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3. iii
TABLE OF CONTENTS PAGE No.
List of Tables iv
List of Figures v
Introduction 1
Company Analysis for the period 2007 – 2009 3
Breakeven Volume Analysis 12
Conclusion 16
Bibliography 17
4. iv
LIST OF TABLES PAGE No.
Table 1 - Financial performance of ACC Ltd 1
Table 2 - Financial performance of JK Cement 2
Table – 3 - Computation of Cost of goods sold for ACC Ltd 4
Table 4: Cost of goods sold computation for JK Cement 6
Table 5: Production capacity and production volume for ACC Ltd
and JK Cement
7
Table 6: Computation of market price of cement (per 100 kg) 8
Table 7: Volume produced by top 7 cement companies in India
9
Table 8: Computation of average market price for cement (per
100kg)
10
Table 9: Computation of volume produced by the cement industry
11
Table 10: Breakeven Volume computation for ACC Ltd
13
Table 11: Breakeven Volume computation for JK Cement
15
5. v
LIST OF FIGURES PAGE No.
Figure 1: Sales Volume and Growth 2
Figure 2: Profit before Tax and Profit after Tax 2
Figure 3: Trend in cost of finished goods for ACC Ltd 4
Figure 4: Trend in cost of finished goods for JK Cement 6
Figure 5: Comparison between volume produced and production
capacity for ACC Ltd
7
Figure 6: Comparison between volume produced and production
capacity for JK Cement
8
Figure 7: Comparison between ACC Ltd selling price and average
market price
10
Figure 8: Comparison between JK Cement selling price and average
market price
11
6. 1
Introduction
Indian economy is expected to grow at 7 to 8% during the fiscal year 2010. This growth is fueled
by growth in housing sector and infrastructure sector. The demand for housing sector and
infrastructure sector has fueled cement industry’s growth. Cement industry is growing at 13%,
which looks attractive to investors.
Following 2 companies are selected for the analysis,
a. ACC Ltd
b. JK Cements
ACC Ltd is the market leader in cement industry and JK Cements is the second largest producer
of white cement. These 2 companies are selected to analyze the growth of cement industry with
respect to the volume and the average market price.
ACC Ltd have reported 20% growth (Y-O-Y) in net profit during second half of the FY 2009
and JK cements have reported 140% growth (Y-O-Y) in net profit during second half of the FY
2009.
a) Analyst view on ACC Ltd
ACC Ltd is the largest cement producer in India, with the market share of 12%. The
company has added 1.1 MT per annum capacity at Bargarh. The company will add 3MT
per annum capacity by Q1 2010 by increasing the griding facilities at Wadi, Thondebhavi
and Kudithini.
FY 2009 (in Lac) FY 2008 (in Lac) Change (%)
Sales 91719.6 86336.6 6
PBDIT 27081.9 19853.3 36
PBIT 23350.6 16648 40
PBT 22507 16248.2 38
PAT 15639.1 10996.5 42
EPS 79.31 55.13 43
Dividend 23 20 15
Table 1: Financial performance of ACC Ltd
Currently the stock is trading at 11 times its earnings (CMP = 957.30). With the addition
of the new facilities, the company will increase the production capacity by 14%.
7. 2
Figure 1: Sales Volume and Growth (Source: ACC Ltd Balance Sheet 2009)
Figure 2: Profit before Tax and Profit after Tax (Source: ACC Ltd Balance Sheet 2009)
b) Performance analysis of JK Cement
JK Cement is the second largest producer of white cement. Global economic slowdown
and the domestic demand have affected the company’s performance during the year
2009. With the growth of infrastructure and housing sector in this financial year, the
company is also expected to grow with the increase in demand for cements.
FY 2009 (in Lac) FY 2008 (in Lac) Change (%)
Sales 16644.2 15955.7 4
PBDIT 3401.6 4388.5 -22
PBIT 2877.3 3977.8 -27
PBT 2330.6 3465.7 -32
PAT 1414.4 2651.7 -46
EPS 20.36 37.94 -47
Table 2: Financial performance of JK Cement
8. 3
Company Analysis for the period 2007 - 2009
a. Analysis of price of finished goods for the period 2007 - 2009
Items 2009 2008 2007
(Rs. Cr) (Rs. Cr) (Rs. Cr)
ACC Ltd
Manufacturing expenses
Purchase of Cement 93.16 87.36 93.31
Raw materials consumed 891.51 799.12 767.73
Stores and spare parts consumed 10.03 13.86 20.78
Packing material consumed 238.72 280.14 230.01
Power and fuel 1539.65 1598.96 1243.63
Repairs to building 14.14 14.72 9.57
Repairs to Machinery 323.3 276.21 264.34
Repairs to Other Items 67.87 70.92 75.5
Royalties 98.39 86.69 84.95
Excise Duties 84.54 117.08 110.02
Payment To and Provision for employees
Salaries, wages, dearness allowance and bonus 318.27 311.23 268.76
Contribution / Provision to and for Provident and Other
funds 18 63.53 31.48
Workmen and staff welfare expenses 31.44 41.56 53.03
Administrative, Selling and Other Expenses
Rent 32.59 33.22 34.14
Rates and Taxes 101.45 98.75 112.2
Insurance 17.6 17.86 18.3
Loading, Transportation and othercharges 169.69 176.98 163.91
Discounts,rebates and allowances 93.49 105.2 114.08
Commission on sales 23.12 20.24 15.5
Other Expenses (loss on sale / write off of fixed assert) 270.48 286.55 253.35
Provision for bad and doubtfuldebt 31.26 0.71 26.33
Advertisement 53.16 47.56 41.77
Outward freight charges on cement 1054.41 1001.58 944.22
(Increase) / Decrease in stocks in trade and work-in-
progress
Closing Stock
9. 4
Finished Goods 88.08 78.86 81.26
Work-in-progress 168.96 149.44 146.71
Opening Stock
Finished Goods 78.86 81.26 63.98
Work-in-progress 149.44 146.71 157.06
Cost of Goods Sold 5547.53 5549.7 4969.98
Sales Volume (Million Tonnes) 21.52 21.01 19.97
Price of finished goods (per 100 Kg) 257 264 248
Table 3: Computation of Cost of goods sold for ACC Ltd
Figure 3: Trend in cost of finished goods for ACC Ltd
For the period 2007-2008, the cost of finished goods has been increased by Rs: 14. 4%
increase in raw materials cost, 28% increase in power and fuel cost, 16% increase in
salaries, 100% increase in PF contribution and 6% increase in freight charges has led to
increase of 5% in the manufacturing cost.
For the period 2008-2009, the cost of finished goods has been decreased by Rs: 7. 15%
reduction in packaging materials cost, 27% reduction in excise duty, 71% reduction in PF
contribution and 11% reduction in discount/rebates has lead to the reduction in the
manufacturing cost by 2%.
240
245
250
255
260
265
270
2006-2007 2007-2008 2008-2009
Cost of finished goods (per 100 kg)
Cost of finished goods
(100 kg)
10. 5
Company Items 2009 2008 2007
(Rs. Cr) (Rs. Cr) (Rs. Cr)
JK Cement
Manufacturing expenses
Purchase of Trading goods 0.48 0.31 0.45
Raw materials consumed 162.96 140.59 122.3
Stores and spare consumed 30.75 36.72 28.45
Packing material consumed 64.8 57.43 55.25
Power and fuel 376.14 329.69 309.7
Repairs to building 4.43 3.18 3.21
Repairs to Machinery 21.08 16.89 13.75
Repairs to Other Items 0.21 0.38 0.36
Insurance 2.59 2.66 3.11
Excise Duties 1.08 -1.05 1.06
Payment To and Provision for employees
Salaries, wages and bonus 64.06 50.18 35.19
Contribution to Provident fund and Other funds 10.3 7.95 5.5
Welfare expenses 9.41 9.5 8.13
Administrative and Other Expenses
Rent 3.53 2.62 2.14
Lease Rent 0 0.36 0.39
Rates and Taxes 11.08 2.18 2.08
Travelling and Conveyance Expenses 8.93 7.61 6.68
Provision for doubtful debts and advances 0.16 3.99 4.52
Debts written off 1.59 0 0.59
Loss on sale / impairment of fixed assert (net) 0.3 0.46 0.56
Expenses relating to previous year 0.1 0.08 0
Misc. Expenses 40.45 33.11 27.57
Selling and Distribution Expenses
Advertisement and Publicity 14.72 11.95 10.57
Commission, brokerage and incentives 22.04 13.46 11.99
Selling expenses 14.86 7.789 7.99
Freight and handling outward 311.9 287.17 244.35
(Increase) / Decrease in stocks in trade and work-in-
progress
Closing Stock
Finished Goods 11.33 10.13 15.1
11. 6
Work-in-progress 14.93 10.9 23.2
Opening Stock
Finished Goods 10.13 15.1 11.94
Work-in-progress 10.9 23.2 24.52
Cost of Goods Sold 809.2 722.11 629.15
Sales Volume (Million Tonnes) 3.79 3.76 3.77
Price of finished goods (per 100 Kg) 213 192 166
Table 4: Cost of goods sold computation for JK Cement
Figure 4: Trend in cost of finished goods for JK Cement
For the period 2007-2008, the cost of finished goods has been increased by Rs: 26. 15% increase
in raw material cost, 6% increase in power and fuel, 42% increase in salaries and 17% increase
in freight has led to increase in cement price by 15%.
For the period 2008-2009, the cost of finished goods has been increased by Rs: 21. 15% increase
in raw materials cost, 12% increase in packaging materials cost, 28% increase in salaries, 450%
increase in taxes, 21% increase in miscellaneous expenses, 22% increase in advertisement
expenditure has lead to the increase in cement price by 10%.
0
50
100
150
200
250
2006-2007 2007-2008 2008-2009
Cost of finished goods (per 100 kg)
Cost of finished goods
(100 kg)
12. 7
b. Analysis of volume produced by 2 companies for the period 2007 - 2009
Volume Produced (in Million
Tonne)
Installed Capacity (in Million
Tonne)
Company/Ye
ar 2009 2008 2007 2009 2008 2007
ACC Ltd 21.52 21.01 19.97 26 22.62 22.4
JK Cement 3.79 3.76 3.77 4.47 4 4
Table 5: Production capacity and production volume for ACC Ltd
and JK Cement
Figure 5: Comparison between volume produced and production capacity for ACC Ltd
For the period 2007-2008, ACC LTd, has increased the production volume by 5% and the
company’s production capacity was increased by 1%. At the beginning of the year 2007, the
capacity utilization was 90%, which was increased to 93% by the end of 2008.
For the period 2008-2009, ACC LTd, has increased the production volume by 2% and the
company’s production capacity was increased by 15%. At the beginning of the year 2008, the
capacity utilization was 93%, which got decreased to 83% by the end of 2009.
0
5
10
15
20
25
30
2006-2007 2007-2008 2008-2009
ACC Ltd Volume
Produced (Million
Tonne)
ACC Ltd Installed
Capacity (Million
Tonne)
13. 8
Figure 6: Comparison between volume produced and production capacity for JK Cement
For the period 2007-2008, JK Cement, has marginally decreased the production volume. At the
beginning of the year 2007, the capacity utilization was 94.25%, which got marginally decreased
by the end of 2008.
For the period 2008-2009, JK Cement, has marginally increased the production volume and the
company’s production capacity was increased by 17%. At the beginning of the year 2008, the
capacity utilization was 94%, which got decreased to 85% by the end of 2009.
The capacity utilization of JK cement is consistently higher when compared with ACC cement
for the period 2007 to 2009.
c. Analysis of market price of 2 companies for the period 2007 - 2009
Volume Sold (in Million Tonne) Sales Turnover (Rs. Cr)
Average Market Price (Rs/100
kg)
Company/Year 2009 2008 2007 2009 2008 2007 2009 2008 2007
ACC Ltd 21.52 21.01 19.97 8724.24 8234.02 7848.32 405 391 393
JK Cement 3.79 3.76 3.77 1876.45 1812.84 1458.25 495 482 386
Table 6: Computation of market price of cement (per 100 kg)
3.4
3.6
3.8
4
4.2
4.4
4.6
2006-2007 2007-2008 2008-2009
JK Cement Volume
Produced (Million
Tonne)
JK Cement Installed
Capacity (Million
Tonne)
14. 9
During the period 2007-2008, ACC Ltd selling price (of 100kg cement) was marginally
decreased and the sales was increased by 4% to maintain the same operating margin. During the
same period, JK Cement selling price was increased by 25% and the sales was increased by 3%.
During this period, inflation touched 16%, which increased the cost of funds, which has lead to
the increase in cement price by some companies.
During 2008-2009, ACC Ltd selling price was increased by 3% and sales was increased to 6% to
maintain the same operating margin. JK Cement selling price was also increased by 3% and sales
was increased by 4%.
d. Analysis of total volume produced by the market for the period 2007 - 2009
Volume Produced (in Million
Tonne)
Company/Year 2009 2008 2007
ACC Ltd 21 20.83 19.92
JK Cement 3.79 3.76 3.64
Ultratech Cement 15.8 15.06 14.63
Grasim 16.31 15.36 14.41
India Cements 9.11 9.23 8.42
Madras Cements 6.52 5.84 5.66
Birla Corp. 5.28 5.27 5.25
Total 77.81 75.35 71.93
Table 7: Volume produced by top 7 cement companies in India
During the period 2007-2008, the market has grown by 5%, wherelse ACC Ltd has grown by 4%
and JK Cement has grown by 3%. The growth for ACC Ltd has come through the production
capacity expansion. Although JK Cement has not increased the capacity, with their strong
distribution network, they increased their sales by 3%.
During 2008-2009 periods, the market has grown by 3% and ACC Ltd has grown marginally
(below 1%) and JK Cement has also grown marginally.
15. 10
e. Analysis of price change of 2 companies with price movement for the period 2007 –
2009.
Volume Sold (in Million Tonne) Sales Turnover (Rs. Cr)
Average Market Price (Rs/100
kg)
Company/Year 2009 2008 2007 2009 2008 2007 2009 2008 2007
ACC Ltd 21.52 21.01 19.97 8724.24 8234.02 7848.32 405 391 393
JK Cement 3.79 3.76 3.77 1876.45 1812.84 1458.25 495 482 386
Ambhuja Cement 0 17.75 16.77 0 7075.51 6454.75 0 398 384
Ultratech Cement 15.8 15.01 15.16 5396.02 4838.88 4459.37 341 322 294
Grasim 16.31 15.12 14.84 6371.66 5721.46 5026.68 390 378 338
India Cements 9.11 9.21 8.41 3757.96 3535.16 2599.83 412 383 309
Madras Cements 6.47 5.72 5.62 2300.63 1898.64 1511.32 355 331 268
Birla Corp. 5.29 5.26 5.23 1866.02 1841.76 1647.5 352 350 315
Average = 392 379 335
Table 8: Computation of average market price for cement (per 100kg)
Figure 7: Comparison between ACC Ltd selling price and average market price
0
50
100
150
200
250
300
350
400
450
2006-2007 2007-2008 2008-2009
ACC Ltd Selling cost
(per 100 kg)
Avg. Market Price (per
100kg)
16. 11
Figure 8: Comparison between JK Cement selling price and average market price
During 2007-2008, the average market price was increased by 13%, ACC Ltd selling
price was decreased marginally and JK Cement selling price was increased by 25%.
During 2008-2009, the average market price was increased by 3% and ACC Ltd has also
increased the price by 3% and JK Cement also increased the price by 3%.
f. Analysis of volume produced by these 2 companies with the total volume produced by
the market for the period 2007 - 2009
Volume Produced (in Million
Tonne)
Company/Year 2009 2008 2007
ACC Ltd 21 20.83 19.92
JK Cement 3.79 3.76 3.64
Ultratech Cement 15.8 15.06 14.63
Grasim 16.31 15.36 14.41
India Cements 9.11 9.23 8.42
Madras Cements 6.52 5.84 5.66
Birla Corp. 5.28 5.27 5.25
Total 77.81 75.35 71.93
Table 9: Computation of volume produced by the cement industry
0
100
200
300
400
500
600
2006-2007 2007-2008 2008-2009
JK Cement Selling cost
(per 100 kg)
Avg. Market Price (per
100kg)
17. 12
During the year 2007, ACC Ltd market share was 27% and JK Cement market share was 5%. In
the year 2008, ACC Ltd market share was increased to 28% and JK Cement market share
remained at 5%. In the year 2009, ACC Ltd market share decreased to 27% and JK cement
market share fell below 5%.
Break Even Volume Analysis
Company Items 2009 2008 2007
Variable
Cost
Fixed
Cost
Variable
Cost
Fixed
Cost
Variable
Cost
Fixed
Cost
ACC Ltd
Manufacturing expenses
Purchase of Cement 93.16 87.36 93.31
Raw materials consumed 891.51 799.12 767.73
Stores and spare parts consumed 10.03 13.86 20.78
Packing material consumed 238.72 280.14 230.01
Power and fuel 1539.65 1598.96 1243.63
Repairs to building 14.14 14.72 9.57
Repairs to Machinery 323.3 276.21 264.34
Repairs to Other Items 67.87 70.92 75.5
Royalties 98.39 86.69 84.95
Excise Duties 84.54 117.08 110.02
Payment To and Provision for
employees
Salaries, wages, dearness allowance
and bonus 318.27 311.23 268.76
Contribution / Provision to and for
Provident and Other funds 18 63.53 31.48
Workmen and staff welfare
expenses 31.44 41.56 53.03
Administrative, Selling and Other
Expenses
Rent 32.59 33.22 34.14
Rates and Taxes 101.45 98.75 112.2
Insurance 17.6 17.86 18.3
Loading, Transportation and other
charges 169.69 176.98 163.91
Discounts,rebates and allowances 93.49 105.2 114.08
Commission on sales 23.12 20.24 15.5
Other Expenses (loss on sale / write
off of fixed assert) 270.48 286.55 253.35
Provision for bad and doubtfuldebt 31.26 0.71 26.33
Advertisement 53.16 47.56 41.77
Outward freight charges on cement 1054.41 1001.58 944.22
18. 13
(Increase) / Decrease in stocks in
trade and work-in-progress
Closing Stock
Finished Goods 88.08 78.86 81.26
Work-in-progress 168.96 149.44 146.71
Opening Stock
Finished Goods 78.86 81.26 63.98
Work-in-progress 149.44 146.71 157.06
Total 5068.36 479.17 5016.2 533.5 4487.27 482.71
Sales Volume (Million Tonnes) 21 21 20.83 20.83 19.92 19.92
Cost (per 100 Kg) 241 22 240 25 225 24
2009 2008 2007
Break Even Volume Analysis
Total Fixed Cost 479.17 533.5 482.71
Sales per 100kg 405 391 393
Variable cost per 100kg 241 240 225
Break Even Volume (lac Tonne) 2.00 3.00 2.00
Net Profit 2294.39 1687.74 1717.18
Sales 21.52 21.01 19.97
Break Even Volume 29 31 27
Profit per 100 kg 117 93 95
Market Price 405 391 393
Cost of Goods sold 257 264 248
Profit per 100kg 148 127 145
Table 10: Breakeven Volume computation for ACC Ltd
19. 14
Company Items 2009 2008 2007
Variable
Cost
Fixed
Cost
Variable
Cost
Fixed
Cost
Variable
Cost
Fixed
Cost
JK
Cement
Manufacturing expenses
Purchaseof Tradinggoods 0.48 0.31 0.45
Raw materials consumed 162.96 140.59 122.3
Stores and spareconsumed 30.75 36.72 28.45
Packingmaterial consumed 64.8 57.43 55.25
Power and fuel 376.14 329.69 309.7
Repairs to building 4.43 3.18 3.21
Repairs to Machinery 21.08 16.89 13.75
Repairs to Other Items 0.21 0.38 0.36
Insurance 2.59 2.66 3.11
ExciseDuties 1.08 -1.05 1.06
Payment To and Provision for employees
Salaries,wages and bonus 64.06 50.18 35.19
Contribution to Provident fund and Other
funds 10.3 7.95 5.5
Welfareexpenses 9.41 9.5 8.13
Administrative and Other Expenses
Rent 3.53 2.62 2.14
Lease Rent 0 0.36 0.39
Rates and Taxes 11.08 2.18 2.08
Travellingand Conveyance Expenses 8.93 7.61 6.68
Provision for doubtful debts and
advances 0.16 3.99 4.52
Debts written off 1.59 0 0.59
Loss on sale/ impairmentof fixed assert
(net) 0.3 0.46 0.56
Expenses relatingto previous year 0.1 0.08 0
Misc.Expenses 40.45 33.11 27.57
Selling and Distribution Expenses
Advertisement and Publicity 14.72 11.95 10.57
Commission,brokerage and incentives 22.04 13.46 11.99
Sellingexpenses 14.86 7.789 7.99
Freight and handlingoutward 311.9 287.17 244.35
(Increase) / Decrease in stocks in trade
and work-in-progress
Closing Stock
Finished Goods 11.33 10.13 15.1
Work-in-progress 14.93 10.9 23.2
Opening Stock
Finished Goods 10.13 15.1 11.94
20. 15
Work-in-progress 10.9 23.2 24.52
Total 712.27 87.3 626.801 70.25 572.04 50.96
Sales Volume (Million Tonnes) 3.79 3.79 3.76 3.76 3.77 3.77
Cost (per 100 Kg) 187 23 166 18 151 13
2009 2008 2007
Break Even Volume Analysis
Total Fixed Cost 23 18 13
Sales per 100kg 495 482 386
Variable cost per 100kg 187 166 151
Break Even Volume (Million kg) 74.67 56.96 55.31
Table 11: Breakeven Volume computation for JK Cement
In the above breakeven volume computation for ACC Ltd and JK Cement, some costs are
classified as variable cost and some costs are classified as fixed cost.
Fixed costs are the cost, which does not depend on the volume of production. Eg. Rent,
employee salaries, PF, bonus is fixed cost.
Variable costs are the cost, which depend on the volume of the production. Eg. Raw materials
(directly depend on the volume of production), stores and spares (number of spares used,
depends on the wear and tear of the machinery), packaging material (depends on the volume
produced), power and fuel (depends on the volume of produced), repairs, insurance (to insure the
finished goods against natural damages – this depends on the volume produced), advertisement
(this depends on the volume produced), selling expenses (directly depends on the volume
produced).
For the period 2007-2008, the fixed cost for ACC Ltd has increased by 10%, which has lead to
increase in breakeven volume by 15%. During the same period, JK Cements fixed cost was
increased by 37%, which has lead to the increase in breakeven volume by 3%.
During 2008-2009, ACC Ltd fixed cost was decreased by 10%, which has lead to decrease in
breakeven volume by 6%. During the same period, JK Cement fixed cost was increased by 27%,
which has lead to increase in breakeven volume by 31%.
Companies which has less breakeven volume, has the potential to make more profits, than the
companies which has high breakeven volume, assuming both the companies will have same sales
volume.
21. 16
Conclusion
a. During 2007-2008, ACC Ltd has marginally decreased the selling price, when compared
to 25% increase in the selling price by JK Cement.
During 2008-2009, ACC Ltd has increased the selling price by 3% and JK Cement has
also increased the selling price by 3%.
b. The market share of ACC Ltd is 27% and the market share of JK Cement is 5%.
