SML

401




[FINANCIAL ANALYSIS OF
CHLOR-ALKALI INDUSTRY]

Term Paper

on
Submitted by:
Aakash Sharma
2009CH10051
Ajitesh Abhishek
2009CH10770
2

Content

1. Statement of the Problem3
2. Research Methodology....3
3. Industries Scenario..4
4. Company Profile..6
5. Ratio Analysis and Interpretation....10
6. Du Pont Analysis.26
7. Recent Events and its Impact on Chlor-Alkali Sector.........................................28
8. Conclusion...31
9. Future Aspect...33
3

STATEMENT OF THE PROBLEM

The Chlor-Alkali industry occupies a very important position in the country. Being an important
sector of Chemical Industries, Chlor-Alkali Industry has a vital role to play in the manufacturing of
essential commodity for the entire population. Its progress and development is of great concern to
everyone.
Thus we have taken four big firms of this sector:
1. Aditya Birla Chemicals India Ltd.
2. Lords Chloro Alkali Ltd.
3. Sree Rayalaseema Alkali and Allied Chemicals
4. Gujarat Alkalies and Chemicals Ltd.
Hence an attempt of financial statement analysis has been undertaken in a view of that it may pave
way of prosperity.

OBJECTIVE OF THE STUDY:

1. PRIMARY OBJECTIVE:
The primary objective of the study is to analyze the financial performance of the chosen
sector and its important companies.

2. SECONDARY OBJECTIVES:
To estimate the earning capacity of the firm.
To analyze the financial statements of the company by using financial tools.
To evaluate the financial position of the company in terms of solvency, profitability,
activity, and earnings ratios.
To analyze the working capital changes.
To determine the debt capacity of the firm.
To know the progress of the firm.
To measure the efficiency of operations.

RESEARCH METHODOLOGY

RESEARCH DESIGN
The research is exploratory in nature.

TYPES OF DATA
The methodology used in the study involves the collection of primary data as well as secondary
data. Majority of the data was collected with the help of the annual reports provided by the
company.

SOURCE OF DATA
Secondary data were obtained from the internal records of the company i.e., from the published
annual reports, website of the company, journals and magazines and also other books related to the
analysis of financial performance.
4


PERIOD OF STUDY
A nine year period, from 2002 to 2011, has been taken for the study.

TOOLS OF DATA ANALYSIS
Ratio analysis
Trend analysis

REPRESENTATION
Tables, figures and chart are used for the representation of the data.

INDUSTRY SCENARIO

CHEMICAL INDUSTRIES
Nowadays the world is full of competition. The chemical industries on whole have been growing at
a very high pace. They play a vital role in the production of many vital manufactured goods. The
industry provides a tremendous variety of materials to other manufacturers. They also produce
chemical products that benefits people directly.
Major products of these industries include detergents, drugs, fertilizers, food preservatives flavoring
and paper products etc. Major chemicals produced are basic chemicals used in many countries. It is
used to produce fertilizer and other chemicals. Other basic chemicals include chlorine, alkali like
lime and sodium hydroxide and these chemicals are used in plastics.
Production of chemicals has become increasingly concentrated in Multinational Corporations,
which have plants and offices in a number of countries. To reduce costs, most of the multinational
companies locate their factories in countries where raw materials and cheap skilled labour are
readily available. So many basic chemicals are produced in developing countries by units of
multinational firms. But chemicals requiring advanced production methods are mainly made in
industrialized countries.

Chlor-Alkali Industry
Chlor-Alkali is one of the important sector of the Chemical Industries

World Scenario
Increased production of paper, aluminium, soaps, and detergents at the international level has led to
increased requirement of caustic soda. But the Green Peace movement is seeking the phasing out of
chlorine usage; especially the CFC compounds have resulted in closing down of some of the Chlor-
alkali industries in Europe and restricted production in other European and North American Plants.
With the drop in international production, the international price of caustic soda rose steadily. The
caustic soda which was selling for $50/tonne has grown up to $300/ton now. The international
markets operates in the context of demand and supply conditions prevailing from time to time, So
price of caustic soda became highly volatile. Predatory pricing has become common and drop in
import duty often led to steep drop in price of the chemical. Though demand for chlorine is growing
fast the demand for caustic soda is not so promising. Hence the units in the gulf and western
countries are selling caustic soda at a cheaper price.
5

Major Countries Producing Caustic Soda: U.S.A, France, China, Russia, Japan, Canada, Germany,
India.

INDIAN SCENARIO
The Indian chemical industry is an integral part of the Indian economy, contributing around 6.7% to
the Indian GDP. It touches our lives in many different ways. Whether it is thermoplastic furniture
we use, or a synthetic garment we wear, or drug we consume. The industry is a vital part of the
agricultural and industrial development in India has key linkages with several other downstream
industries such as automotive, consumer durables, engineering, food processing, etc. The chemical
industry in India has the potential to grow around USD 100 billion by 2010 (according to KPMGs
analysis based on a survey of the industry). This would imply an annual growth rate of 15.5%. For
the industry to achieve this size, specialty and knowledge chemical segments would need to grow
16.4 % (current growth rate is 7.9%) and 27 %( current growth rate is 12.3%) respectively. The
basic chemicals segment would need to sustain its current growth rate of 7.7% to match the profile
of the chemical industry in global markets.

At the industry level, the Indian Chemical industry is characterized by:
High domestic demand potential, as Indian markets develop and per capita consumption
level increase
High degree of fragmentation and small scale operations
Limited emphasis on exports due to domestic market focus and smaller scale of operation.
Low competitiveness as compared to other countries due to higher cost of power, import
duties, taxes and cost of capital.
Low focus on R&D despite initiatives to innovate processes to synthesis products cost
effectively.
In spite of the disadvantages, a few proactive Indian companies have created sizeable international
operations to become significant players in the global market place. The ability of chemical
companies in India to perform better than global companies has already been reflected by a
comparatively better performance of the Indian operations of some global companies. Operating
profit margins of these Indian subsidiaries range from 8 % to 13 % as compared to the global
operating margins range less than 1 % to 6%. Several chemical industries in medium and small
scale sectors have been forced to suspend operations due to their inability to adhere to the
environmental standards in view of their technological and investment constraints. While the
country has lost production capacity and economic opportunity to some extent due to such closures,
it appears that the country, by and large has not regretted about the closure of such units.
The chemical industries have now realized and have made environmental issues as an essential part
of activity in project design and they provide as much importance to environmental factors as they
do to marketing and financial aspects. It is necessary that the social activists should recognize this
positive mindset amongst the management of chemical industries and refrain from launching
negative and hate campaign.
Indian chemical industries have now have a great opportunity in the field of research and
development, in view of its large manpower of reasonably good talent and R&D facilities already
created and operating. With the WTO regime in force, Indian industries should be able to protect
their newly developed technologies and emerge competitive in the global market.


6

COMPANY PROFILE

Aditya Birla Chemicals (India) Ltd

Aditya Birla Chemicals India Ltd (formerly known as Bihar Caustic & Chemicals Ltd) is a unit of
Aditya Birla Group and one of the leading Chlor Alkali Company in India. The company is
engaged in Chlor Alkali Chemicals segment. Their products include caustic soda, liquid chlorine,
hydrochloric acid, sodium hypo chlorite, compressed hydrogen, aluminium chloride granular,
aluminium chloride powder, stable bleaching powder and electricity.
The company is having their manufacturing plant located at Palamau in Jharkahand. The
manufacturing process of the plant is latest energy efficient and environment friendly state-of-art
Membrane Cell Technology. They are having a state-of-art 30 MW Captive Power Plant to meet the
requirement of uninterrupted power supply.
History:
The Company was incorporated in the year 1976 as a joint venture between the Aditya Birla Group
and the Bihar State Industrial Development Corporation. In the year 1984, the company
commissioned the Palamau plant in Jharkhand with an initial caustic soda capacity of 33,000 TPA.
The company has since grown to become the leading caustic soda producer in the eastern region of
the country. In April 2011, the company acquired the Chloro Chemical Division of Kanoria
Chemicals and Industries for Rs 830 crore. The chemical division comprises manufacturing facility
for Chlor-alkalis, chlorine derivatives and water treatment at Renukoot in Uttar Pradesh and Salt
Works in Gujarat.
Future-Plans:
The company plans to invest Rs 1,000 crore in two years for setting up Greenfield projects for
producing caustic soda of 150,000 TPA at Vilayat and another 75,000-90,000 TPA at Patalganaga
in Gujarat.

7

Lords Chloro Alkali Ltd

The products of the company include caustic soda, liquid chlorine, hydrochloric acid, bleach
liquor, bleaching powder, TCE and sodium hypo. The company sells its products to bulk
consumers. The company has a technical collaboration with Asahi Chemicals Japan, for know-how
of the membrane cell technology to manufacture caustic soda. The company exports to Nepal,
Bangladesh, South Africa, UK, Australia, etc.
Company has modernized the existing Mercury Cell Plant of 200 TPD into Membrane Cell Plant.
History
Lords Chloro Alkali Ltd. (LCAL) was incorporated in 1979, for producing and exporting a wide
range of chemicals, which commanded the market in North India. The Company was promoted by
Modi Industrial House including Modi Industries Ltd., Modi Rubber Ltd., Modi Spng. & Wvg.
Mills Ltd. & Modipon Ltd. It manufactures Caustic Soda, liquid chlorine, hydrochloric acid, and
stable bleaching powder.
The company is strategically located in the heart of North India where the demand is always more
than the supply. Modi Alkalies & Chemicals Ltd name has changed its name to Lords Chloro Alkali
Ltd and the same has been approved by the Shareholders of the Company as well as Central
Government with effect from October 01, 2003.
Future-Plans
The company is producing another DG set which is expected to be commenced very soon which
will take the production up to 70 MT.











8

Sree Rayalaseema Alkalies & Allied Chemicals Ltd



Sree Rayalaseema Alkali and Allied Chemicals, the flagship company of TGV Group, manufactures
caustic soda, liquid chlorine, hydrochloric acid, hydrogen and barium sulphate.
History
The company started commercial production in Aug.'88 with an initial installed capacity of 22,440
tpa of caustic soda. Presently the company has the capacity to produce 69500 TPA of caustic soda
The company uses Bipolar Membrane Cell Technology, the latest one in the world for the
manufacture of caustic soda and allied products. Since Chlor Alkali industry is power intensive the
company is taking necessary steps to increase its captive power generation. Initially it has installed
two D G sets with a total capacity of 12.4 MW for optimum utilization of installed capacity. The
company has also produces 3MW of power from its Wind power farm set up at a cost of Rs.11.20
part financed by IREDA to the tune of 8.37 Crore. The company has set up a power plant at Bellary
with a capacity to produce 37.8 MW of power for commercial. The Bellary plant started
commercial operation in Oct 2000.
Future-Plans
It has implemented its modernization and diversification of the castor oil derivative plant. It is
embarking on certain cost-effective and plant upgradation programmes like installing flaker facility
to convert the caustic soda lye to value-added flakes, which will also increase flexibilities in
production and storage. The company plans to set up a Rs 105-cr PVC plant in Kakinada with
financial assistance from IFCI and other financial institutions. The Company has diversified further
into the manufacture of Fatty Acids and other Derivatives not only from Castor oil but also from
other non-edible oil like Rice Bran Oil.




9

Gujarat Alkalies & Chemicals Ltd

Gujarat Alkalies and Chemicals Ltd is the single largest producer of Caustic Soda in India. The
company is a multi-product company manufacturing 26 products. The company manufactures
sodium cyanide, sodium ferrocyanide, chloromethanes, hydrochloric acid, caustic potash, potassium
carbonate, phosphoric acid (85%) and hydrogen peroxide. The company has two units located at
Vadodara (Baroda) and Dahej, both in the State of Gujarat.
The company is associated with various industries viz. Textiles, Pulp & Paper, Soaps &
Detergents, Alumina, Water Treatment, Petroleum, Fertilizers Pharmaceuticals, Agrochemicals,
Dyes & Dyes Intermediates, etc through their products. Also, they made their felt across the globe
even against stiff competition by exporting products to USA, Europe, Australia, Africa, Far &
Middle East Countries, China and South Asian Markets.
History:
Gujarat Alkalies and Chemicals Ltd was incorporated in the year 1973 in Gujarat and was
promoted by Gujarat Industrial Investment Corporation Ltd, a wholly owned company of Govt. of
Gujarat, as a core promoter. The company commenced their operations in the year 1976, with
37,425 MTPA capacity of caustic soda at their plant in Vadodara.
Future-Plans:
The company has the plan to commission the projects, namely Sulphate Removal System,
additional 100 TPD Flaker Unit, and additional 39 MW Wind Power Project in Kutch during the
financial year 2008-09. The company is having a plan to expand caustic soda plant at Dahej by 50
TPD through Debottlenecking. Also, some of the projects, namely 90 MW captive power project,
600 TPD caustic soda project, hydrazine project, hydrogen peroxide, polyols project are under
implementation.



10

RATIO ANALYSIS AND INTERPRETATION
DEBT-EQUITY RATIO
The relationship between borrowed funds and owners capital is a popular measure of the long-term
financial solvency of a firm. This relationship is shown by the debt-equity ratio. This ratio indicates
the relative proportion of debt and equity in financing the assets of a firm. An acceptable norm for
this ratio is considered 2:1. This ratio is computed by dividing the total by dividing the total debt of
the firm by its net worth.



0
1
2
3
4
5
2000 2002 2004 2006 2008 2010 2012
D
e
b
t
-
E
q
u
i
t
y


R
a
t
i
o

Year
Aditya Birla Chemials(India) Limited
0
1
2
3
4
2000 2002 2004 2006 2008 2010 2012
D
e
b
t
-
E
q
u
i
t
y


R
a
t
i
o

Year
Gujrat Alkalies & Chemicals Limited
-0.05
0
0.05
0.1
0.15
0.2
0.25
2000 2002 2004 2006 2008 2010 2012
D
e
b
t
-
E
q
u
i
t
y

R
a
t
i
o

year
Lords Chloro Alkali Ltd
11




Interpretation:
An acceptable norm for this ratio is considered 2:1. A high ratio shows that the claims of creditors
are greater than those of owners. A very high ratio is unfavorable from the point of view of the
firm. A high debt company is able to borrow funds on very restrictive term and conditions. A low
debt-equity ratio implies a greater claim of owners than creditors. From the point of view of
creditors, it represents a satisfactory capital structure of the business. This ratio is on a decrease for
all the companies. So from creditors point of view, there is a satisfactory capital structure of the
business. In 2011, Debt-Equity ratio was highest for Sree Rayalaseema Alkali and Allied Chemicals
and lowest for Aditya Birla Chemials(India) Limited . All three except Sree Rayalaseema Alkali
and Allied Chemicals has ratio below sector average. While for Aditya Birla Chemials(India)
Limited and Gujrat Alkalies & Chemicals Limited ratio is always on decline but for Sree
Rayalaseema Alkali and Allied Chemicals its close to 3 in 2004 while it has been always low for
Lords Chloro Alkali Ltd . So Lords Chloro Alkali Ltd is not making full use of capital structure.

0
1
2
3
4
2000 2002 2004 2006 2008 2010 2012
D
e
b
t
-
E
q
u
i
t
y

R
a
t
i
o


Year
Sree Rayalaseema Alkali and Allied
Chemicals
0
1
2
3
4
2002 2004 2006 2008 2010 2012
D
e
b
t
-
E
q
u
i
t
y


R
a
t
i
o


Year
Industry average for Chlor Alkali
sector
12

CURRENT RATIO
Current Ratio is the most common ratio for measuring liquidity. It represents as :
Current ratio = Current Assets/ Current Liabilities
It is also called Working Capital Ratio. In a sound business, a current ratio of 2:1 is considered as
an ideal one. The current ratio of a firm measures its short term solvency, i.e., its ability to meet
short-term obligations.



0
0.5
1
1.5
2
2000 2002 2004 2006 2008 2010 2012
C
u
r
r
e
n
t

R
a
t
i
o

Year
Aditya Birla Chemials(India) Limited
0
0.5
1
1.5
2000 2002 2004 2006 2008 2010 2012
C
u
r
r
e
n
t

R
a
t
i
o


Year
Gujrat Alkalies & Chemicals Limited
0
0.5
1
1.5
2000 2002 2004 2006 2008 2010 2012
C
u
r
r
e
n
t

R
a
t
i
o


year
Lords Chloro Alkali Ltd
13




Interpretation and Significance:
The current ratio of firm measures its short-term solvency, i.e, its ability to meet short-term
obligations. In a sound business, a current ratio of 2:1 is considered as an ideal one. It provides a
margin of safety to the creditors. It is an index of the firms financial stability. The current ratio
must not only be equal to current liabilities but should leave a comfortable margin of working
capital after paying of the current liabilities. A high ratio indicates sound solvency position and a
low ratio indicates inadequate working capital.
Aditya Birla Chemicals(India) Limited maintains current ratio of 1.8 which is quite high as
compared to sector average and its current ratio is also on increase which is good situation for
creditor. Sree Rayalaseema Alkali and Allied Chemicals has lowest current ratio, which is even
below sector average, indicating an inadequate working capital. Even its current ratio is also on
decrease. The main reason for the decrease in current ratio is that, the current liabilities of the
company are more than the current assets. The company should try to increase their current asset, so
that they can easily meet their short -term obligations. While Lords Chloro Alkali Ltd had very low
current ration around 2006 even below sector average at that time showing its inadequate working
0
0.5
1
1.5
2
2000 2002 2004 2006 2008 2010 2012
C
u
r
r
e
n
t

R
a
t
i
o


year
Sree Rayalaseema Alkali and Allied
Chemicals
0.8
0.85
0.9
0.95
1
2002 2004 2006 2008 2010 2012
C
u
r
r
e
n
t

R
a
t
i
o

Year
Industry average for Chlor Alkali sector
14

capital that time but it has improved significantly with present current ratio above 1, which is more
than sector average. Sector average current ratio is also on rise but is still below 1. Gujrat Alkali has
maintained the ratio above industry average since 2006.

FIXED ASSETS TURNOVER RATIO
This ratio indicates the extent to which the investments in fixed assets contribute towards sales. On
being compared with the previous year, it indicates whether the investment in fixed assets has been
judicious or not. . It is calculated by using the following formula:
Sales or Cost of Goods Sold
Fixed Assets Turnover Ratio = ---------------------------------------------
Fixed Assets (less depreciation)



0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2000 2002 2004 2006 2008 2010 2012
F
i
x
e
d

A
s
s
e
t

R
a
t
i
o

Year
Aditya Birla Chemicals(India) Limited
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2000 2002 2004 2006 2008 2010 2012
F
i
x
e
d

A
s
s
e
t

R
a
t
i
o

Year
Gujrat Alkalies & Chemicals Limited
15





0
0.2
0.4
0.6
0.8
1
2000 2002 2004 2006 2008 2010 2012
F
i
x
e
d

A
s
s
e
t
s

R
a
t
i
o


year
Lords Chloro Alkali Ltd
0
0.2
0.4
0.6
0.8
1
1.2
2000 2002 2004 2006 2008 2010 2012
F
i
x
e
d

A
s
s
e
t
s

R
a
t
i
o


year
Sree Rayalaseema Alkali and Allied Chemicals
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
F
i
x
e
d

A
s
s
e
t
s

R
a
t
i
o

Year
Industry average for Chlor Alkali sector
16

Interpretation:
Here for most of cases fixed asset ratio is less than 1. Thus sales is less than fixed asset. Also for
this sector, increase or decrease in fixed assets does not leads to increase or decrease in the sales.
For Lords Chloro Alkali Ltd, this ratio is on rise and in recent years is above industry average.
Investment in fixed asset has seemed most judicious for this company. But still its ratio is less than
1. For Aditya Birla Chemials(India) Limited and Gujrat Alkalies & Chemicals Limited its always
between 0.5 to 0.7, which is close to industry average but in recent times is slightly below it. For
Sree Rayalaseema Alkali and Allied Chemicals, ratio is above 1 in 2011 after its increase from
2010, while it had peak in the year of 2009 with ratio of 1.15 which is quite above industry average.

DEBTORS TURNOVER RATIO:
The purpose of this ratio is to discuss the credit collection power and policy of the firm. For this
ratio, a relationship is established between accounts receivables and net credit sales of the period.


0
5
10
15
20
2000 2002 2004 2006 2008 2010 2012
D
e
b
t
o
r
s

R
a
t
i
o

Year
Aditya Birla Chemicals(India) Limited
0
1
2
3
4
5
6
7
8
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
D
e
b
t
o
r
s

R
a
t
i
o

Year
Gujrat Alkalies & Chemicals Limited
17




0
5
10
15
20
25
30
2000 2002 2004 2006 2008 2010 2012
D
e
b
t
o
r
s

R
a
t
i
o


Year
Lords Chloro Alkali Ltd
0
2
4
6
8
10
12
14
16
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
D
e
b
t
o
r
s

R
a
t
i
o


Year
Sree Rayalaseema Alkali and Allied Chemicals
0
2
4
6
8
10
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
D
e
b
t
o
r
s

R
a
t
i
o

Year
Industry average for Chlor Alkali sector
18

Interpretation and Significance:
Debtors turnover ratio indicates the efficiency of the staff entrusted with collection of book debts.
The higher the ratio is, the better it is as it would indicate that debts are being collected promptly.
Aditya Birla Chemicals(India) Limited has high ratio of about 15 in 2002 but it is ona decrease, but
then also still above industry average which shows its efficiency. For Gujrat Alkalies & Chemicals
Limited ratio is below sector average most of time since 2001 which shows the inefficiency of staff
entrusted with collection of book debts. Lords Chloro Alkali Ltd has a peak around 2006 with ratio
of 25 but its on decline in recent years but is still above sector average ratio. We can interpret that
company should improve their debt collection program so that the company gets more money for
use.

INVENTORY TURNOVER RATIO:
This ratio indicates whether investment in inventory is efficiently used or not. It, therefore,
explains whether investments in inventories are within proper limits or not. It also measures the
effectiveness of the firms sales efforts. The ratio is calculated as follows:
Inventory Turnover Ratio = (cost of goods sold)/ (Average stock)
Where, Cost of goods sold = Sales Gross profit or
Cost of goods sold = (opening stock +purchases + direct expenses) - closing stock
Average stock = (opening stock + closing stock)/2
The inventory turnover ratio signifies the liquidity of the inventory. A high inventory turnover
ratio indicates brisk sales. The ratio is a measure to discover the possible trouble in the form of over
stocking. A low inventory turnover ratio results in blocking of funds in inventory. There is no
standard ratio for the inventory turnover.
Higher ratio indicates
Stock is sold out fast
Same volume of sales from less stock or more sales from same stocks
Too high ratio shows stock outs or over trading
Less working capital requirement
Lower ratio reveals
Stock is sold at a slow speed
Same volume of sales from more stocks or less sales from same stocks
More working capital requirement
Too low ratios show obsolete stocks or under trading
19




0
2
4
6
8
10
12
14
16
2000 2002 2004 2006 2008 2010 2012
I
n
v
e
n
t
o
r
y

R
a
t
i
o


Year
Lords Chloro Alkali Ltd
0
5
10
15
20
2000 2002 2004 2006 2008 2010 2012
I
n
v
e
n
t
o
r
y

R
a
t
i
o


year
Sree Rayalaseema Alkali and Allied
Chemicals
0
5
10
15
20
25
30
35
2000 2002 2004 2006 2008 2010 2012
I
n
v
e
n
t
o
r
y

R
a
t
i
o

Year
Aditya Birla Chemicals(India) Limited
20



Interpretation and Significance:
Businesses who carry inventory need to analyze their inventory balance on a regular basis. The inventory
turnover ratio provides information regarding the risk of potential shortages. A higher inventory turnover
ratio indicates a higher level of sales. As the company experiences higher sales, it runs the risk of selling out
of inventory before replacing it. Once can also say that higher the ratio, the more frequently the company
records sales.
All companies inventory ratios went down after FY 2006 due to the global economic meltdown leading to
decrement in sales.
Lord Chloro Alkali Ltd. Inventory ratio has been increasing since the starting period of examination with
some dips in between. This indicates the companys sales have been increasing over given inventory over
time indicating the expansion & growth of the company. Since inventory ratio for the company has been
increasing and the sectors is decreasing, it indicates that the company is growing at much faster rate than the
chlor-alkali sector.
Sree Rayalaseema Alkali and Allied Chemicals inventory ratio has been stable and high in the initial
period of observance. But after a while it decreased and now it is alternatively increasing and decreasing.
0
5
10
15
20
2000 2002 2004 2006 2008 2010 2012
I
n
v
e
n
t
o
o
r
y

R
a
t
i
o

Year
Gujrat Alkalies & Chemicals Limited
0
2
4
6
8
10
12
14
16
18
2002 2004 2006 2008 2010 2012
I
n
v
e
n
t
o
r
y

R
a
t
i
o

Ratio
Industry average for Chlor Alkali sector
21

This may be happening as the company initially had a high inventory ratio due to over selling. This meant
that the company was using its inventory to maxima as they were not able to meet the demand of the market.
Thus the over-selling lead to fall of company as when they were out of inventory people preferred their
competitors.
Aditya Birla Chemicals(India) Ltd. inventory ratios show that she was badly hit by the 2006-07 recession.
After absorbing the hit, it tried being stable but then again it is suffering from loss in sales.
Gujarat Alkalies and Chemicals Ltd inventory ratio shows that the Government owned giant was undergoing
sales loss since 2005 till the FY 2010. After that its inventory ratio increased meaning that the sales have
gone up for the company over the stocks.
Chlor-Alkali Sector Inventory ratio curve shows that there has been steady slow decrement in the inventory
ratio. This is because some of the big companies are undergoing huge losses, which are not fully covered by
the profit making companies.


Net Profit Ratio
The net profit percentage is the ratio of after-tax profits to net sales. It reveals the remaining profit
after all costs of production and administration has been deducted from sales, and income
taxes recognized. As such, it is one of the best measures of the overall results of a firm, especially
when combined with an evaluation of how well it is using its working capital.


0
0.05
0.1
0.15
0.2
0.25
0.3
0 2 4 6 8 10 12
N
e
t

p
r
o
f
i
t

r
a
t
i
o

year
Aditya Birla Chemicals (India) Ltd
22




-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
2000 2002 2004 2006 2008 2010 2012
N
e
t

p
r
o
f
i
t

r
a
t
i
o

year
Gujarat Alkalies & Chemicals Ltd
-4
-3
-2
-1
0
1
2
2000 2002 2004 2006 2008 2010 2012
N
e
t

p
r
o
f
i
t

r
a
t
i
o

year
Lords Chloro Alkali Ltd
-0.02
-0.01
0
0.01
0.02
0.03
0.04
0.05
0.06
2000 2002 2004 2006 2008 2010 2012
N
e
t

p
r
o
f
i
t

r
a
t
i
o

year
Sree Rayalaseema Alkalies & Allied
Chemicals Ltd
23

Interpretation:
For Aditya Birla Chemicals (India) Ltd net profit ratio is always positive and in recent years has
increasing trend. It has never gone into loss in all the data available. For Gujarat Alkalies &
Chemicals Ltd after loss in 2002 it has maintained a positive figure with highest net-profit ratio in
2006 but has decreasing trend after that. Lords Chloro Alkali Ltd has low net-profit ratio and has
recovered from a loss recovered after 2008 but declined then after. Sree Rayalaseema Alkalies &
Allied Chemicals Ltd is on decreasing trend in net-profit ratio in recent years while being is positive
,but has negative ratio in 2003 while has a peak ratio in year 2008.


RETURN ON CAPITAL EMPLOYED (ROCE(%))
This ratio is also known as return on investment. The primary objective of making investment in
any business is to obtain satisfactory return on capital invested. It indicates the return on capital
employed in the business and it can be used to show the efficiency of the business as a whole. The
higher the ratio, the more efficient use of capital employed.
Return on capital employed = (Net profit before interest, tax and dividend) / (Net capital
employed) *100
The term net capital employed refers to long-term funds supplied by the creditors and owners of the
firm. Alternately, it is equivalent to net working capital plus fixed assets.
Return on Capital Employed = Assets Turnover * Profit Margin
= (PBIT)/ (Capital Employed)*100

-12
-10
-8
-6
-4
-2
0
2
4
6
8
2000 2002 2004 2006 2008 2010 2012
R
O
C
E

(
%
)


Year
Lords Chloro Alkali Ltd
24




0
5
10
15
20
25
2000 2002 2004 2006 2008 2010 2012
R
O
C
E

(
%
)


year
Sree Rayalaseema Alkali and Allied
Chemicals
0
5
10
15
20
25
30
35
2000 2002 2004 2006 2008 2010 2012
R
O
C
E

(
%
)


Year
Aditya Birla Chemicals
0
5
10
15
20
25
30
35
2000 2002 2004 2006 2008 2010 2012
R
O
C
E
(
%
)

Year
Gujrat Alkalies and Chemicals Ltd
25



Interpretation and Significance:
Since profit is the overall objective of a business enterprise, this ratio is a barometer of the overall
performance of the enterprise. It measures how efficiently the capital employed in the business is
being used. In other words, it is also a measure how efficiently the capital employed in the business.
Even the performance of two dissimilar firms may be compared with the help of this ratio.
Furthermore, the ratio can be used to judge the borrowing policy of the enterprise.
Lord ChloroAlkali Ltd. has been undergoing huge changes in performance terms. Magnitude of the
ROCE is very low compared to other companies. From negative ROCE to a high positive value and
then again a sharp dip followed by a steep increase. Thus the company is not consistent in terms of
performance. Its efficiency is very low and it keeps on varying with time.
Sree Rayalaseema Alkali and Allied Chemicals has gone an increasing path in performance until
finding a tipping point of ROCE as 20 and then stabilizing. The company has been performing with
the moderate ROCE of 15 maintained for last two years. Its ROCE is higher than the sectors.
Aditya Birla Chemicals(India) Ltd., even with some variations, has been working with a high
ROCE than the Chlor-Alkali Sector. But the latest trend in ROCE shows a decrement in the
performance of the company.
Gujarat Alkalies and Chemicals Ltd has worked to an epic 30% ROCE in 2005 but now is highly
under-performing in terms of utilization of capital employed for profit making. Being the biggest
player in the Chlor-Alkali Sector, its under-performance is directly visible in the sectors decline.
The ROCE has stabilized in the last two year but at very low performance value.




0
5
10
15
20
25
2002 2004 2006 2008 2010 2012
R
O
C
E
(
%
)

Year
Industry average for Chlor Alkali sector
26

Du Pont Analysis
Dupont Model
ROE = (Profit margin)*(Asset turnover)*(Equity multiplier)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit/Equity)

Aditya Birla Chemicals (India) Ltd
Sample Calculation-
For FY 2011: Profit Margin = Net profit/Sales = 0.265
Asset Turnover=Sales/Net Assets = 0.69
Equity Multiplier=Net Assets/Equity= 1.07
Therefore ROE
2011
= 0.265*0.69*1.07 = 19.55 (%)
Similarly Calculating, ROE (%) variation over years comes out to be:


Gujrat Alkalies and Chemicals Limited
Sample Calculation
For FY 2011: Profit Margin = Net profit/Sales = 0.080
Asset Turnover=Sales/Net Assets = 0.84
Equity Multiplier=Net Assets/Equity= 1.26
Therefore ROE
2011
= 0.080* 0.84*1.26= 7.96 (%)
0
20
40
60
2000 2002 2004 2006 2008 2010 2012
R
O
E
(
%
)

Year
Aditya Birla - ROE(%)
27

Similarly Calculating, ROE (%) variation over years comes out to be:


Lords Chloro Alkalies Ltd.
On Calculation, as done above, we found the ROE variation with time to be:


Sree Rayalaseema Alkali and Allied Chemicals
On Calculation, as done above, we found the ROE variation with time to be:

-20
-10
0
10
20
30
40
2000 2002 2004 2006 2008 2010 2012
R
O
E
(
%
)

Year
Gujrat Alkalies - ROE(%)
-80
-60
-40
-20
0
20
2000 2002 2004 2006 2008 2010 2012

R
O
E
(
%
)


Year
Lords Chloro - ROE(%)
-5
0
5
10
15
20
2000 2002 2004 2006 2008 2010 2012

R
O
E
(
%
)


Year
Sree Rayalaseema Alkali - ROE(%)
28

Recent events and its impact on Chlor-Alkali sector
Removal of customs duty on coal to benefit some players
Power constitutes to a major cost for Chlor alkali industry. In order to bring down the cost of
power, import duty on power plants and spares should be made nil from current 7.5%.The
government should allocate coal blocks to caustic soda and soda ash industry on a priority basis so
that the coal is available to the industry on a timely manner at a reasonable cost. Abolish customs
duty on FO currently at 5% to make power intensive Chlor Alkali industry competitive.
Government should allow duty free import of the spare parts. 95% of the Caustic Soda Industry
today is operating on Membrane Cell technology. While duty on new plants including membrane &
parts is 2.5% the spare parts of the existing plants are subject to customs duty of 10% + CVD +
ACVD. This makes the maintenance of the plants more expensive. Equal status in various free trade
agreements is not accorded to India. Exports of Caustic Soda and Soda Ash to Pakistan are still in
banned list whereas Pakistan is exporting these products to India. Expects reduction of Central
Sales Tax (CST) from 2% to 1%. Expects exemption of excise duty and sales tax on cement for
manufacture of flyash bricks by the coal-based power plant itself at its site. The Government should
further promote the chlorination of drinking water as a precautionary measure to check water-borne
diseases. The Government's local bodies should be insisted to chlorinate the water effectively. Such
a measure would help the Chlor-alkali industries for effective use of chlorine. Expects abolition of
restriction of 50% Cenvat availment on capital goods. At present the Cenvat credit rules restricts
manufacturer to avail only 50% of the credit in a financial year and the balance 50% is to be availed
in the subsequent financial year
Budget Impact
Exemption of custom duty on coal would help Chlor Alkali companies to lower their power cost
wherever they have captive power generation based on coal.Higher excise duty at 12% would have
only marginally negative impact, considering the fact that chlor alkali is an intermediate item, and
CENVAT credit would be available.
Global Melt Down
Due to the global melt down in year 2008 and dumping of material at low price, the caustic soda
sector in India was affected largely in terms of production and price realization. The average caustic
soda realization (Rs per tonne) that surged up 28% in FY2006, but the growth moderated to mere
7% in FY2006-07. Finally, the sector settled down for 4% fall in realizations in FY2007-08. But
with recovery in global markets, and relatively better demand, the sector recorded impressive 25%
rise in average realizations in FY 2008-09, but gave up most of the gains with 23% fall in
realization in FY 2009-10.
The Calendar Year 2010 had witnessed some improvement in the global economy but recovery in
the chlor-alkali industry remains slow. The international caustic prices during FY 2010-11 was
generally stable, however the prices have picked up since February 2011, The calamity in Japan had
resulted supply imbalance leading to further jump in price, since Japan is a net exporter of Caustic
Soda. The retail prices of caustic soda (Flakes) increased by about 22% to Rs 23.73 per kg in May
29

2011 from Rs 19.5 per kg in the month of April 2010. On the other side the retail prices of caustic
soda (lye) surged by 39% to Rs 24.5 per kg in May 2011 from Rs 17.63 per kg in the month of
April 2010. Caustic Soda production increased by 3.5% (by 73898 tonnes) to 21.67 lakh tonne in
FY 2010-11. When we glance through the Year-on-Year (YoY) caustic soda production in the
country, it had increased by 3.25% in January 2011, 6.15% in February 2011 and 3.62% in March
2011. The Caustic Soda prices have been on upswing globally and it is expected that the first half of
2011-12 will witness buoyant Caustic Soda realizations. From second half of the FY there could be
softening of prices. On an overall basis, it is expected that the current fiscal would be better in terms
of product realizations and will see further improved capacity utilization levels. There are
indications that by 2013 United States would experience 23% decline in the net exports of Caustic
Soda. Exports from the Middle East are expected to increase by 2013 due to new chlor-alkali
capacity in Iran and Saudi Arabia, according to Merchant Research & Consulting Ltd. India is
embracing the new energy efficient and environmental friendly membrane cell technology,
currently its about 96% . Even the rest 4%, which is on Mercury Cell, are likely to be phased out
completely by 2012, as per Alkali Manufacturers Association of India. Aditya Birla Group is the
market leader in Indian chlor alkali sector, though company wise, Gujarat Alkalies & Chemicals
remains the market leader. GACL has 429000 Metric tonne (MT) of Caustic Soda and has about
18% share in the domestic Chlor-Alkali market in India. Moreover caustic soda business segment
alone constitutes around 60% of its sales and profit.
2005: Retain import duty at 20%
No major industry specific changes for chlor alkali industry. In view of the rise in global and
domestic demand, and surge in global and domestic prices, the players reported remarkable surge
in profits in the quarter ending March 2005. In the long term, players with captive power plant and
using membrane cell technology are better placed.
On the flipside, if the peak customs duty is brought down from 20%, it can lead to lower landed
cost for caustic soda, chlorine etc, which will force the domestic players to bring down the domestic
prices.
2003: Railway Budget
The reduction in soda ash freight charges, by 6.7% to Rs 57.88, benefitted producers like Tata
Chemicals, Gujarat Heavy Chemicals and Tuticorin alkali chemicals & fertilizers.
Future Outlook
Today the capacity of Caustic Soda & Soda Ash all over the world is increasing and these countries
are exporting Caustic Soda & Soda Ash to India. In India, the industry has to take the shelter of
Anti Dumping & Safeguard duty, which again is not helpful sometimes. However marginal benefit
for Chlor Alkali companies came in for exempt of custom duty on coal. Exemption of custom duty
on coal would help Chlor Alkali companies to lower their power cost wherever they have captive
power generation based on coal.
30

Soda Ash with the Chemical Name Sodium Carbonate is a basic inorganic chemical and is used for
the production of detergents (42%), glass (23%), chemicals (17%), sodium silicate, pulp & paper
and water treatment. Total installed capacity in India is only 3 million MT with all the major
industry players located in the state of Gujarat due to the closeness and ready availability of the
main mother earth materials namely limestone and salt. It plays crucial role in meeting the daily
needs of the common man and also contributes significantly to the industrial and economic growth
of the nation. Soda ash is available in four standard forms as light, medium, dense and granular
according to the bulk density to suit various industrial requirements.
Soda ash accounts for 39% of total alkali chemical production of FY2011, which is the highest in
the segment, followed by caustic soda which accounts for 36%. The production of soda ash
increased by 12% to 22.98 lakh tonne in FY 2011. The last seven-year trend (from FY05 to FY11)
of soda ash production indicates that the production had dipped continuously in three years. i.e.
FY07 (by 10%) , FY08 (by 3%) and FY09 (by 0.82%). Thereafter it started to improve due to the
pick up in demand.
















31

CONCLUSION
The present business world is becoming more complex because of its dynamic nature. The chemical
industry provides an assured market for manufacture of pulp, textiles, soaps, and detergents,
pesticides, aluminum, petrochemicals, drugs& pharmaceuticals, oil refining, etc. The industry had
to be rejuvenated and diversified to produce chemicals viz. caustic soda lye and flakes, liquid
chlorine, hydrochloric acid and sodium hypochlorite.
Aditya Birla Chemicals (India) Ltd
Conclusion
For this company debt-equity ratio is on decline so creditor so favorable from point of view of creditor. But
this in 2011 this company had this ratio even smaller than sector average so its not utilizing the capital
structure to full extent. The current ratio of this industry is above sector average show a lot capability of
this company to invest. Its a good sign because of high current ratio and low debt-equity ratio this
company can go for investment in asset base. But in recent times its fixed asset turnover ratio is below
sector average so its better for this company to not go for asset base. For Aditya Birla Chemicals (India) Ltd
net profit ratio is always positive but in recent years has decreasing trend. It has never gone into loss in all
the data available. Aditya Birla Chemials(India) Limited has Debt turnover ratio of about 15 in 2002
but its on decrease but is still above industry average which shows its efficiency which shows the
efficiency of company in debt collection. Inventory ratios is quite close to sector average which is quite
good as they produce enough to meet demand so that ratio is not too high while gets sold quickly so that not
low. In the recent years company is working on ROCE better than sector average but is on decreasing trend.
Suggestions
Company should focus on increasing its fixed asset turnover as it has very low debt equity ratio and high
current ratio, it will not be difficult to shift fund to fixed assets. This will increase its fixed asset turnover,
which is low right now.

Lords Chloro Alkali Ltd
Conclusion
Debt equity ratio has been always low for Lords Chloro Alkali Ltd . So Lords Chloro Alkali Ltd is not
making full use of capital structure. While Lords Chloro Alkali Ltd had very low current ratio around
2006 even below sector average at that time showing its inadequate working capital that time but
it has improved significantly with present current ratio above 1, which is more than sector average
. For Lords Chloro Alkali Ltd, fixed asset turnover ratio is on rise and in recent years is above
industry average. Investment in fixed asset has seemed most judicious for this company. Lords
Chloro Alkali Ltd has a peak around 2006 with ratio of 25 but its on decline in recent years but is
still above sector average ratio. We can interpret that company should improve their debt
collection program so that the company gets more money for use. Lord Chloro Alkali Ltd.
Inventory ratio has been increasing since the starting period of examination with some dips in
between. This indicates the companys sales have been increasing over given inventory over time
32

indicating the expansion & growth of the company. Lord ChloroAlkali Ltd. has been undergoing
huge changes in performance terms. Magnitude of the ROCE is very low compared to other
companies. From negative ROCE to a high positive value and then again a sharp dip followed by a
steep increase. Thus the company is not consistent in terms of performance . Lords Chloro Alkali
Ltd has low net-profit ratio and has recovered from loss after 2008 but declined then after.
Suggestions
It need to increase its current ratio and inventory turnover ratio. Current ratio can be increased by
investing in current asset.

Sree Rayalaseema Alkalies & Allied Chemicals Ltd
Conclusions
In 2011, Debt-Equity ratio was highest for Sree Rayalaseema Alkali and Allied Chemicals which
shows event after decreasing trend in recent years it has so much debt part. Sree Rayalaseema
Alkali and Allied Chemicals has lowest current ratio, which is even below sector average, indicating
an inadequate working capital. Even its current ratio is also on decrease. The main reason for the
decrease in current ratio is that, the current liabilities of the company are more than the current
assets. The company should try to increase their current asset, so that they can easily meet their
short -term obligations. For Sree Rayalaseema Alkali and Allied Chemicals,fixed asset turnover
ratio is above 1 in 2011 after its increase from 2010, while it had peak in the year of 2009 with
ratio of 1.15 which is quite above industry average. Debtors turnover ratio of this company is close
to industry average . Sree Rayalaseema Alkali and Allied Chemicals inventory ratio has been stable
and high in the initial period of observance. But after a while it decreased and now it is
alternatively increasing and decreasing. This may be happening as the company initially had a high
inventory ratio due to over selling. This meant that the company was using its inventory to
maxima as they were not able to meet the demand of the market. Sree Rayalaseema Alkalies &
Allied Chemicals Ltd is on decreasing trend in net-profit ratio in recent years while being is positive
,but has negative ratio in 2003 while has a peak ratio in year 2008. Sree Rayalaseema Alkali and
Allied Chemicals has gone an increasing path in performance until finding a tipping point of ROCE
as 20 and then stabilizing. The company has been performing with the moderate ROCE of 15
maintained for last two years.
Suggestions
This Company need to increase its current ratio and increase its debtors turnover ratio which is
just close to industry average.

Gujarat Alkalies & Chemicals Limited
Conclusion
Gujarat Alkali has maintained a low debt-equit ratio as compared to industry average which is also
in decreasing trending which in favorable to the creditor. Its current ratio is close to industry
33

average which is good. Fixed asset turnover of Gujrat Alkalies & Chemicals Limited is always
between 0.5 to 0.7, which is close to industry average but in recent times is slightly below it.This
show company invest little in fixed asset but is also having low current asset. For Gujrat Alkalies &
Chemicals Limited debtor turnover ratio is below sector average most of time since 2001 which
shows the inefficiency of staff entrusted with collection of book debts. Gujarat Alkalies and
Chemicals Ltd inventory ratio shows that the Government owned giant was undergoing sales loss
since 2005 till the FY 2010. After that its inventory ratio increased meaning that the sales have
gone up for the company over the stocks. . For Gujarat Alkalies & Chemicals Ltd after loss in 2002
it has maintained a positive figure with highest net-profit ratio in 2006 but has decreasing trend
after that. Gujarat Alkalies and Chemicals Ltd has worked to an epic 30% ROCE in 2005 but now is
highly under-performing in terms of utilization of capital employed for profit making. Being the
biggest player in the Chlor-Alkali Sector, its under-performance is directly visible in the sectors
decline.
Suggestions
Company should work to increase its debt turnover ratio to have money for working capital
management which needs increasing efficiency of staff.

Future Aspect
The capacity of the industry is under-utilized. However, with improvement in the GDP growth
rate, which is closely linked with the growth of the manufacturing sector the demand for the
Chloro-Alkali sector is continuously growing by 8-10%.
With the Government of India agreeing to lower import tariffs there will be an increased risk of
cheap imports and further erosion of realizations. In order to enable the industry to compete,
Government should allow modvat/cenvat of several duties, taxes, cess etc. levied both at the
Central and State levels on the inputs to reduce some of the burden, and also reduce duties on
coal and furnace oil required for power generation. The China Government has withdrawn the
benefit of VAT Taxes from the Export of Caustic, which may give better realization on the sale
of caustic soda in the domestic market.
There has been continuous pressure on ECU realizabons due to softening of Caustic Soda Prices
internationally and dumping resorted to by large low energy-cost manufacturers. The Chlorine
demand is likely to increase by 3%-4% against caustic soda demand by 8%-10% therefore, due to
mismatch in demand; the industries may regulate the production of caustic.

Regarding Publication
We are highly interested in working further in order to get a publication.

Contact Details
Aakash Sharma 9911847325
Ajitesh Abhishek - 9891428224