Comparative Financial Analysis between India Cements and UltraTech Cement

A Project Report on
Comparative Financial Analysis between
India Cements
and
UltraTech Cement

Submitted By
Anima Prasad - GMPCITC03205
Arun Pydimarri - GMPCITC03206
Bhaskar Vajjhala - GMPCITC03253
Kailash Dattkaya - GMPCITC03216
Srikanth Dirisala -GMPCITC03244
Vivekanandan Thiruparkadal - GMPCITC03256
(All working for Oracle Corporation)

Submitted on 25th August, 2009

IIM Bangalore

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Comparative Financial Analysis between India Cements and UltraTech Cement

Table of Contents
Table of Contents ............................................................................................................................ 2
Introduction ................................................................................................................................... 3
India Cements .............................................................................................................................. 3
UltraTech Cement ....................................................................................................................... 3
Balance Sheet – Horizontal Trend Analysis ................................................................................... 4
India Cements .............................................................................................................................. 4
UltraTech Cement ....................................................................................................................... 4
Comparison of horizontal trends ................................................................................................. 4
Balance Sheet – Common Size Analysis ........................................................................................ 5
India Cements .............................................................................................................................. 5
UltraTech Cement ....................................................................................................................... 5
Comparison of common size trends ............................................................................................ 5
Profit and loss statement – Horizontal Trend Analysis .................................................................. 6
India Cements .............................................................................................................................. 6
UltraTech Cement ....................................................................................................................... 6
Comparison of common size trends ............................................................................................ 6
Income Statement – Common Size Analysis .................................................................................. 7
Ratio Analysis ................................................................................................................................. 8
Liquidity Ratios ........................................................................................................................... 8
Solvency Ratios ........................................................................................................................... 9
Profitability Ratios .................................................................................................................... 10
Conclusion .................................................................................................................................... 11
Appendix ....................................................................................................................................... 12

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Introduction
The Indian cement industry, in terms of
revenue, was worth Rs 54,000 crores in
FY08. The industry produced 131.20
million tonnes cement from April-
December 2008. Ultratech Cement and
India cements are amongst the top
players in the industry with market share
as depicted in this picture. The cement
sector appears to be on a sustainable
growth path, given the robust outlook in
Government infrastructure spending and
domestic housing demand. It is expected
that the industry would grow at an
average of 8% annually.

India Cements
The India Cements Ltd. was established in 1946 and the first plant was setup at Sankarnagar in
Tamilnadu in 1949. The group's principal activity is to manufacture and market cement. It
markets cement under the brand names Coromandel, Coromandel King, Sankar Sakthi and Raasi
Gold. The capacities have increased multifold to 9 million tons per annum.

Strategy: Clarity of vision, continued focus on efficiencies, a readiness to cultivate a global

mindset, effectiveness, harnessing of human resources to enhance job and knowledge skills of
employees, a strong accent on R&D and innovation and a move away from selling to innovative
marketing are some of the key strategies specified by India Cements in its annual report FY09.

UltraTech Cement
UltraTech Cement Limited, a part of the Aditya Birla Group is the 11th largest cement producer
in the world and the seventh largest in Asia with annual production capacity of 23.1 million
tonnes. As of FY09 its net revenues are 6,383 crores an increase of around 16% over the
previous year and net profit of Rs.977 crores. UltraTech is primarily engaged in business of
manufacture and sale of cement and clinker in domestic and international markets. UltraTech is
India's largest exporter of cement clinker. UltraTech's products include Ordinary Portland
cement, Portland Pozzolana cement and Portland blast furnace slag cement. The company's
production facilities are spread across five integrated plants, six grinding units, and three
terminals - two in India and one in Sri Lanka. UltraTech exports over 2.5 million tonnes per
annum, which is about 30 per cent of the country's total exports. The export market comprises of
countries around the Indian Ocean, Africa, Europe and the Middle East.

Strategy: Exports, stabilizing plant performance, optimizing efficiencies, looking for new ways
to preserve the environment and manage resources responsibly are some of the key strategies
specified by UltraTech Cements in its annual report FY09.

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Comparative Financial Analysis between India Cements and UltraTech Cement

Balance Sheet – Horizontal Trend Analysis

(see appendix)

India Cements

Analysis: Following are the highlights of the horizontal analysis of balance sheet from FY05 to
FY09. (Refer Appendix)

• Equity share capital increased from Rs.163.59 Cr. to Rs.282.43 Cr. an increase of around
172%.
• Reserves and Surplus has increased from Rs.1111.71 Cr. to Rs.3348.96 Cr. an increase of
301%, indicating the profit the company has generated over the period analyzed.
• Net worth has increased from Rs.1275.30 Cr. to Rs.3631.39 Cr. an increase of 284%.
• No significant change in the funds generated through loans was observed.
• Fixed assets have increased from Rs.2201 Cr. to Rs.3808 Cr. an increase of 172%. There
has been a surge in capital work in progress from FY07 and stands at Rs.904.Cr. an
increase of about 30235% from the base year. These two figures indicate that there is a
continuous investment into fixed assets from FY07.
• Overall the company has close to doubled its size in these five years.

UltraTech Cement

Analysis: Following are the highlights of the horizontal analysis of balance sheet from FY05 to
FY09. (Refer Appendix)

• Equity share capital has remained constant

• Reserves and Surplus increased from Rs.942.73 Cr. to Rs.3475.93 Cr., an increase of
360% indicating the growth in net profit the company has generated.
• Net worth grew from Rs.1067.13 Cr. to Rs.3602.42 Cr. an increase of 335%.
• Funds from debts increased from Rs.1531.38 Cr. to Rs.2141.63 an increase of 139%,
indicating increase in debt.
• Fixed Assets have increased from Rs.2548.90 Cr. to Rs.4635.69 Cr. an increase of
181.87%. The capital work in progress has increased steadily from Rs.48.18 Cr. and
currently stands at Rs.677.28 Cr. an increase of 1405.73%. These two figures indicate
there has been a continuous investment in fixed assets.
• Over all the company’s size has more than doubled in these five years.

Comparison of horizontal trends

• Equity share capital has remained constant for UltraTech whereas it had increased for
India Cements
• Debt has remained constant for India Cements whereas it has increased for UltraTech
Cements.
• India cements has started late of the blocks for investment into fixed assets as compared
to UltraTech cements.

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Balance Sheet – Common Size Analysis

(see appendix)

India Cements
As a part of common size analysis of the balance sheet, the following items have changed as a
proportion to total liabilities in the five years of operations:
• Reserves and surplus have increased from 31% to 49%
• Total share holder funds have increased from 35% to 53%
• Total debt as a proportion to total liabilities has decreased from 55% to 29%.
• Fixed assets have decreased from 61% to 56%. The capital work in progress has gone up
to 13% from less than 1 %.
• Investments have increased from 1% to close to 2%.
• Cash balance has increased from close to 0% to 1%

UltraTech Cement
As a part of common size analysis of the balance sheet, the following items have changed as a
proportion to total liabilities in the five years of operations:
• Reserves and surplus have increased from 31% to 49%
• Total share holder funds have increased from 35% to 51%
• Total debt as a proportion to total liabilities has decreased from 50% to 30%, even while
the company's debt has increased by over 139%.
• Fixed assets have changed from 83% to 66%, indicates that the company has continued to
invest in fixed assets even while the older assets have depreciated.
• Investments have increased from 6% to close to 15%.
• Cash balance has remained steady.

Comparison of common size trends

• Reserves and surplus as a proportion to total liabilities have remained same over the
period for both the companies. However, UltraTech Cements has generated better
numbers.
• India Cements have repaid its borrowings regularly and have managed to keep the debt to
a lower proportion.
• UltraTech Cements has comparatively invested more in fixed assets than India Cements.
• UltraTech Cements has maintained better cash balance.

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Profit and loss statement – Horizontal Trend Analysis

(see appendix)

India Cements
Following are highlights of the horizontal analysis of profit & loss statement from FY05 to FY09
• Sales have increased from Rs.1162.14 Cr. to Rs.3538.34 Cr. an increase of 288%. Other
income increased by about 143%
• Expenses increased from Rs.1025.61 Cr. to Rs.2510.07 Cr. an increase of 244%.
• Net profit increased from Rs.4.58 Cr. to Rs.432.18 Cr. an increase of 9436%.

UltraTech Cement
Following are highlights of the horizontal analysis of profit & loss statement from FY05 to FY09
• Sales have increased from Rs.2604.25 Cr. to Rs.6385.50 Cr. an increase of 245%. Other
income increased by 491%.
• Expenses increased from Rs.2330.28 Cr. to Rs.4679.55 Cr. an increase of 200%.
• Net profit increased from Rs.2.85 Cr. to Rs.977.02 Cr. an increase of 34281%.

Comparison of common size trends

• Ultratech cements have registered higher sales and net income.
• India Cements have registered higher expense percentage even while the sales have been
relatively lower.
• Ultratech Cements have registered higher other income from its investments.

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Income Statement – Common Size Analysis

As a proportion of Net Sales (see appendix)

• Total Expenses for India Cements and Ultratech has steadily decreased over the years but
a marginal increase was recorded in last one year due to increase in input costs.
• Operating Profit for both companies has also steadily increased over the years and
recorded a marginal decrease due to increase in total expenses.
• Depreciation has steadily decreased for both companies over the years but it may be
noted that there is a slight increase of depreciation for Ultratech in last one year due to
acquisition of new assets in line with their aggressive growth strategy.

Cash Flow Analysis

Net Cash from Operating Activities

Analysis: Net cash from Operating activities
for UltraTech cement has steadily increased
from Rs.337 Cr. to Rs.1457 Cr. which
indicates that it has been able to generate
significant amount of cash from its core
operating activities. In comparision, India
Cements was steady until FY08 and had a
dip in net cash in FY09.

Net Cash from Investing Activities

Analysis: Net cash from investing activities
indicates that UltraTech cement had a steady
increase in investment using the generated
profit, the latest investment stands at
Rs.1645 Cr. In comparison India Cements
have had dip in net cash in FY09.

Net Cash from Financing Activities

Analysis: There has been steady increase in
cash flow for financing activities for
UltraTech while India Cements has shown a
mixed trend, indicating repayment of debts.

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Ratio Analysis
Following are the financial ratio analysis for India Cements and UltraTech Cement

Liquidity Ratios
Current Ratio
Analysis: India Cements have always
maintained a very healthy current ratio
(Between 1.0 and 2.0). UltraTech Cements,
since FY08, have been close to the lower
boundary of 1.0, indicating an impending
liquidity crunch.

Quick ratio (Acid Test)

Analysis: India Cements have always
maintained a very healthy current ratio
(Between 1.0 and 2.0). UltraTech Cements,
since FY06, have been maintaining an
quick ratio of less than 1.0, indicating an
impending liquidity crunch.

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Solvency Ratios
Interest Coverage Ratio
Analysis: The interest coverage ratio has
consistently grown for both the companies
till FY09, after which it has taken a
downward trend.

Debt-Equity Ratio

Analysis: Debt as a ratio to equity

(Shareholders funds) has steadily
decreased over a period of time. India
Cements have increased both their equity
share capital and its reserves and surplus
over the period of time, however for ultra
tech have kept the equity share capital
constant and reserves and surplus have
increased. It indicates that UltraTech
cements have been a stronger performer of
the both in maintaining this ratio.

Activity Ratios
Fixed Asset Turnover Ratio and
Total Asset turnover ratio
Analysis: India Cements have maintained
a constant ratio over the period. Ultratech
cements have steadily increased the ratio
over the period and have also maintained a
higher ratio as compared, indicating a
better utilization of fixed assets.
UltraTech Cements have also maintained a
better total asset turnover ratio over India
cements

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Profitability Ratios
Operating Profit Margin

Analysis: Both companies have

maintained similar operating profit margin
indicating similar expense costs. On
comparison with the industry leaders (ACC
& Ambuja), we observed that the operating
profit margins are at a similar level. A dip
in operating profit margin for both
companies indicates increase in operating
expenses as observed in increase in
expense ratio.

Net Profit Margin Ratio

Analysis: Net profit margins have

remained high for India Cements during
FY07 & FY08. During FY09, a substantial
decline was observed due to 60% increase
in depreciation over last year, taxes and
interest. Ultratech has maintained
consistent net operating margin.

Return on Equity (ROE) Ratio

Analysis: UltraTech Cement gave better

return on equity because of lower equity
and higher net profit.

Return on Assets (ROA) Ratio

Analysis: A higher Return on Assets for

UltraTech Cement in comparison to India
Cements is indicative of better utilization
of its fixed assets.

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Earnings Per Share

EPS is the ratio of the earnings to the total
number of equity shares.

Analysis: UltraTech Cement has given

better earnings per share to its investors
due to high net profit and less equity
shares.

Price to Earnings Ratio

Analysis: UltraTech Cement has a PE ratio of 8.16 & India Cements has a PE ratio of 8.35 in
comparison as on 25th Aug 2009.

Conclusion
The two companies, UltraTech Cement and India Cements, operated in similar economic
environment, and yet one company stands above the other on various parameters. These
companies had similar amount of invested capital at their disposal, India Cements had Rs.5619
Cr. and UltraTech Cement had Rs.5743 Cr. The expenses and operating margins were also
identical as indicated by ratio analysis.
UltraTech Cement outperformed in net sales and net profit. It also maintained healthy reserves
and surplus, even after paying good dividend to its shareholders. In addition to income from
sales, the company had also generated good returns on its investments, adding value to share
holders’ investment.
India Cements has performed well in its own way although lower on numbers. On the hindsight
it has far lesser debt and frequently repaid portion of its debts. The company has very recently
made a huge investment in an IPL franchise expecting to get an obvious benefit of improving its
brand identity.
To conclude we can say that, UltraTech Cement turns out to be a company that is aggressive in
its strategy with a penchant for risk and has been successful so far. India Cements turns out to be
a conservative player with better fiscal discipline.

As an investor and as a creditor UltraTech Cement turns out to be the obvious choice.
At a high level, we compared the performance of these two companies with cement industry
leaders (ACC and Ambuja cements) to arrive at a general trend. We observed that companies
in the industry
o Operate on low margins
o Incur high investment cost on fixed assets and longer gestation periods
o Incur high input cost and expenses
o Sales are vulnerable to fluctuations in demand driven by the economic scenario
o Sales are influenced by regional presence and brand identity.

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Appendix
Data Source: www.capitaline.com

Financial Statements –Balance Sheet: India Cements

Financial Statements –Balance Sheet: UltraTech Cement

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Financial Statements –Income Statement

Financial Statements – Cash Flow Statement

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Balance Sheet – Horizontal Trend Analysis: India Cements

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Balance Sheet – Horizontal Trend Analysis: UltraTech Cement

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Balance Sheet – Common Size Analysis: India Cements

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Balance Sheet – Common Size Analysis: UltraTech Cement

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Income Statement – Horizontal Trend Analysis: India Cements

Income Statement – Horizontal Trend Analysis: UltraTech Cement

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Income Statement – Common Size Analysis: India Cements

Income Statement – Common Size Analysis: UltraTech Cement

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