Financial Report CP0611
Transcript of Financial Report CP0611
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2011
RICHA DUAMTech-CPM
11/16/2011
ANALYSIS OF FINANCIAL STATEMENT,
ULTRATECH CEMENT LTD. KOVAYA
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CONTENTS
Sr.No TITLE
1 CONSTRUCTION INDUSTRY IN GLOBAL SCENARIO
2 CONSTRUCTION INDUSTRY IN INDIAN SCENARIO
3 COMPARISON OF
CONSTRUCTION IND WITH
OTHER INDUSTRIES
4EXECUTIVE SUMMARY
5OBJECTIVE OF THE STUDY
6COMPANY PROFILE
7 RATIO CALCULATIONS
8TREND ANALYSIS
9 COMPARISON OF ULTRATECH CEMENT WITH AMBUJA CEMENT
10 MERGER AND ACQUISTION
11 CONCLUSION
12 REFERENCE
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Chapter:1 Construction & Infrastructure Scenario In
Global
Introduction
Government policies around the globe and the worlds capital markets are currently more enthusiastic about
emerging markets infrastructure. This renewed enthusiasm has attracted new sources of funding and driven
infrastructure development. In particular, more governments are placing greater emphasis on the
development of infrastructure projects and, in recognition of the unprecedented level of capital needed to
meet growth objectives; there is greater interest in private sector involvement and public-private
partnerships (PPPs). Yet, from the private sector perspective, the flow of PPP deals is inconsistent and, in
many markets, is constrained by politics, making it difficult to build long-term businesses around the hope
that this opportunity will materialize. At the same time, some emerging market host countries (such as China,
India and Qatar) are ramping up aggressively as project sponsors. In particular, Chinese investors and the
Government of China are taking a growing role in infrastructure investment in Africa and other parts of theemerging world.
Growth in private infrastructure investment funds has been driven by robust capital market activity and low
interest rates. However, the sheer number of new funds has led to intense competition for assets, rising
prices and talk of a bubble. At the same time, new sources of funding are becoming available from public
financial institutions in emerging countries, particularly the export-import banks of Brazil, the Russian
Federation, India and China (the BRIC countries). Traditional multilateral agencies are undergoing a period of
soul searching as they try to re-establish their relevance and role in the midst of competition from young
new financial institutions in the emerging markets. In addition, the availability of local currency financing in
many of the emerging markets is at an all time high.
The rise of new sources and sponsors of funds
There are four current trends in emerging markets infrastructure.
After full privatization stalled in many emerging markets, there has been an increase in the importance of
dual firms; these are quasi-government, quasi-private firms that have grown out of stalled reform processes
and that own and operate infrastructure (Woodhouse, 2005). In several markets, dual firms have been able
to acquire assets at low prices after international investors have lost money and pulled out.
The second trend involves the rise in the importance ofSouth-South investors; that is, infrastructure investors
from within developing countries who are investing in local and regional projects. This has resulted in an
increase in local currency financing (Yanosek et al.,2007). A third trend has to do with the rise ofBRIC country
export import banks. This refers to public financial institutions situated in the BRIC countries that are rapidly
expanding their trade and investmentpromotion functions (Caspary, 2007). The fourth trend is the rise of
petrodollars: as a result of supply-demand imbalances, national oil companies and sovereign wealth funds
have become key investors inenergy infrastructure and ancillary infrastructure along the extractionsupply
chain.
Private infrastructure funds
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The 1990s witnessed significant growth in private investment in both developed and emerging country
infrastructure, accompanied by the rise of several pioneering private infrastructure funds. Some of these
firms include Emerging Markets Partnership, the Hastings Fund, Barclays Private Equity and Macquarie.
Today, Macquarie has almost $22 billion under management, which demonstrates the growth potential of
infrastructure funds.
Local and regional sponsors from emerging markets
Project sponsors shape speculative project concepts into functioning assets that generate financial returns. A
World Bank analysis (Ettinger et al., 2005; Schur et al., 2006) of the involvement of local and regional
sponsors from emerging markets in infrastructure projects noted that the exodus of international investors
from Asia and Latin America following the 1997-1998 economic crises may have benefited local and regional
investors. These investors were able to fill the void left by foreign investors, buying distressed projects and
acting as catalysts in the development of local capital markets, and new projects.
The data suggest that overseas investment by emerging country investors is about one-third of overall
investment volumes (that is, 13 out of the 42% mentioned). This sub-group tends to favour ventures in
regions neighbouring their own, enjoying a cultural advantage over foreign competitors.
Across industries, in the period 1998-2004, local and regional sponsors accounted for a large portion of
private investment in transportation (56%) and telecoms (46%), but much less in energy (27%) and water
(19%). Across types of projects, they were responsible for almost half of all investment in concessions (54%)
and Greenfield projects (44%), but significantly less for management contracts, lease contracts or divestitures
(30%). In terms of location, investments accounted for by emerging market sponsors were not divided evenly
across regions. South Asia, East Asia and the Pacific regions stand out with larger than 50% shares, while
other regions lag behind.
Growth of project finance from the capital markets
There are several key trends in the evolution of project finance from the capital markets. In terms of regional
activity for rated project finance transactions, approximately half of rated transactions between 1994 and
2006 took place in the United States, although the use of this type of instrument is growing in Europe, Latin
America and the Middle East. Most project ratings tend to fall in the lowest investment grade category (Baa3)
with a persistent spike at the highest (AAA) level. These transactions involve a monoline insurance guarantee.
Ratings methodologies for target sectors are gradually evolving. Initially, rated deals were mostly for power
projects, but today toll roads are also being financed via the international capital markets.
Chapter 2: Construction & Infrastructure Scenario in India
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Indian real estate industry has also improved substantially in terms of quality of development. The
construction sector in India is the second highest employer after agriculture, and provides direct or indirect
employment to about 32 million people. Indias real estate sector is undoubtedly on a high growth path and
recognized as global investors choice. India is holding ninth position among retail markets in the world with
organized retailing and growing at the rate of 30 percent per annum. India has played up to its image of being
one of the most attractive FDI destinations.Key Facts
The construction industry in India is the second largest contributor to the national economy. The Indian construction industry is the second largest employment generation avenue in the country. The Planning Commission of India published the 11th
Economic Plan in 2007, and set aside $492bn as
investment outlay for infrastructure development.
The country may have joined the group of top 21 elite
countries in the world and maybe the third largest economy in the
world in terms of PPP GDP and the 12th largest in terms of GDP,
but infrastructure in India continues to be an impoverished sight(US $906bn). When compared to China, it lies way behind in terms
of infrastructure. Chinese investment in infrastructure
amounted to $100bn last year, while that of Indias was a mere
$ 20bn. In short, a huge opportunity lies ahead for India and to
sustain growth, basic infrastructure has to be improved.
The Indian middle class is emerging strongly. The lower middle class has grown at a CAGR of 7.9%, which
again is expected to grow by 49% in the coming four years. Similarly, the upper middle class has grown with a
CAGR of 19% and is expected to grow by 116% over the next four years. Another forecast is that the number
of million plus cities which is now 35, will reach 70. This will further accelerate the demand from the housingsector. All this points at just one thing the huge potential lying ahead for the Indian retail market.
The 11th five year plan has proposed an investment of $320 bn in infrastructure. At present infrastructure
contributes to 4.5% of GDP. However, to sustain the growth rate of 9%, it is important that the government
strive for a contribution of around 7-8%.
According to a committee report on infrastructure headed by the Prime Minister, the required sector wise
investment is as follows:
Highways : Rs.2,20,000 crores
Railways : Rs. 3,00,000 croresUrban infrastructure : Rs. 1,97,000 crores
Power generation : Rs. 4,10,000 crores
Energy : Rs. 2,12,000 crores
Airports : Rs. 40,000 crores
Ports : Rs. 50,000 crores
The institute of international finance (IIF) expects FDI in India to rise to $8 billion in 2008 from $6.5 billion in
the last year Foreign direct investment is encouraged and permitted, in the following real estate sectors in
India:
Hotel development Tourism Hospitality Township development
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Chapter 3: Comparison of Construction Industry
with Other Industries
Houses, apartments, factories, offices, schools, roads, and bridges are only some of the products of the
construction industry. This industrys activities include the building of new structures, including sitepreparation, as well as additions and modifications to existing ones. The industry also includes maintenance,
repair, and improvements on these structures.
From the financial point of view, it can be said that, projects in construction industry are having quite higher
risk & at same time may also have a mouth-watering chance of earning good profits. Unlike other industries,
which are generally are less risky, in terms of returns. Apart from that, also construction industries have
larger gestation periods, & that too of a huge investment. So the investors need to keep patience & trust on
project.
Also, in other industries, it is comparatively easy to get equity capital for investment, whereas, in constructionindustries, large portion of investment is either through debt, or through internal accruals, or through own
personal contribution, & a mere or nil part consists of equity.
There are remarkable chances of the construction project getting blocked in midway, which may be due to
number of reasons, like:
Environment factors. Any technical fault ( Faulty structural design) Blockage of funds Natural calamities Breakdown of Equipment/ machineries Due to occurrence of some accidents causing death of workers etc
However, such issues hardly occur in any other industries, & thus making them less risky.
Similarity
Both industries exist to make products. Manufacturing tends to make the same product over andover, while construction makes a unique product, one at a time. This making of products provides
opportunities for sharing experiences, research results, empirical evidence, etc., between these two
industries.
Both industries are part of the larger business community, seeking to survive, and striving to make aprofit. Today, it is commonly accepted that profitability and survivability are driven by "customer
satisfaction." While not a new theme, to be sure, for either industry, "customer satisfaction" is now
the dominant, most important consideration for setting company direction and assuring profitability
in both industries.
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Differences
Quality in Manufacturing
The development of a quality attitude and capability within both current employees and those planning
to enter manufacturing is regarded as a high priority. Technology-based programs focused onmanufacturing at colleges and universities often include significant study of quality control. Many
institutions offer either a targeted option or a degree in quality. These areas of study usually relate to
quality in the manufacturing environment, but are increasingly including other business sectors, such as
the general business community and service industries.
Quality in Construction
Quality functions in construction are as diverse as the construction industry itself, which is commonly
divided into residential, commercial, industrial, heavy, and highway. For most of the construction
industry, quality requirements are established by several different stakeholders (owner, legal buildingrequirements and codes, architect/engineer, international/national specifications, manufacturers,
suppliers, etc.), but, the final arbiter is the owner (within legal bounds) who must balance among the
competing interests of a project's price, time, quality, and scope. However, the following paragraphs
focus on quality management processes within the direct control of the constructor, not the owner,
architect/engineer, supplier, materials' manufacturer, or code writer. Nonetheless, the constructors'
quality initiatives may be, in part, dictated by the owner, as found in the contract (specifications).
Of the many inputs to the construction process, the constructor wields direct control over four distinct
processes: work schedules, work procedures, equipment, and overhead operations; and indirect control
over two distinct processes: materials and labourers. Traditional monitoring techniques tend toward"hard" measures (cost and schedule), which are now used by most construction companies to evaluate
performance on projects. Traditional techniques also include using formally trained and qualified skills
(labor), following acceptance sampling, visual inspections, and testing processes.
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CHAPTER 4 :EXECUTIVE SUMMARY
Project Title: Financial Statement Analysis
Company Name: UltraTech Cement Limited
The training at UltraTech Cement Limited involved the day to day working at corporate accounts
departments with the senior & junior managers and research department in the company. This project
helped me to get the deeper understanding of the process of Financial Statement Analysis and how
decisions are taken to strengthen the financial position.
For this study five years comparative Income Statement & Balance Sheet have been taken for
calculating ratio analysis. Main objective in undertaking this project is to supplement academic
knowledge with absolute practical exposure to day to day functions of the sector.
Financial analysis which is the topic of this project refers to an assessment of the viability, stability
and profitability of a business. This important analysis is performed usually by finance professionals in order
to prepare financial or annual reports. These financial reports are made with using the information
taken from financial statements of the company and it is based on the significant tool of Ratio Analysis.
These reports are usually presented to top management as one of their basis in making crucial business
decisions.
During the summer training period at UltraTech Cement Limited, I had close connection with
preparation of financial statements and also their analysis which was made by professionals in
the accounting team of the company. This experience was an emphasis on the importance of these Ratios
which could be the roots of decisions made by management that can make or break the company. So,
I was influenced to allocate the aim of this project to study the details about these ratios and their
possible effects
on the decisions made by not only people inside the company but also the outsiders such as investors.
http://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Financial_statements -
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CHAPTER 5: OBJECTIVE OF THE STUDY
There have been various objectives for this study, the first of which is a detailed analysis of
the financial statements that is the balance sheet and the income statement of UltraTech Cement Ltd.
The second objective, however the most important one or in other word the principle aim of this project
is the understanding and assessment of financial ratios based on the statements of the company.
The next aim of the project is to recognize the position of the company through those ratios and data
available. This recognition is a leading factor in changes of each and every company and the base and root
oflots of management decisions.
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CHAPTER 6 : COMPANY PROFILE
ADITYA BIRLA GROUP:
BUSINESS OVERVIEW & BENCHMARKS:
A US $28 billion premium conglomerate, the Aditya Birla Group is in the league of Fortune 500. It is
anchored by an extraordinary force of 100,000 employees, belonging to 25 different nationalities. In
India, the Group has been adjudged The Best Employer in India and among the top 20 in Asia by theHewitt Economic Times and Wall Street Journal Study 2007. Over 50 percent of its revenues flow from its
overseas operations.
The group operates in 25 countries India, UK, Germany, Hungary, Brazil, Italy, France, Luxemburg,
Switzerland, Australia, USA, Canada, Egypt, China, Thailand, Laos, Indonesia, Philippines, Dubai,
Singapore, Myanmar, Bangladesh, Vietnam, Malasia and Korea.
Globally the Aditya Birla Group is:
A metals powerhouse, among the worlds most cost-efficient aluminium and copper producers.
Hindalco-Novelis is the largest aluminium rolling company. It is one of the 3 biggest producers of
primary aluminium in Asia, with the largest single location copper smelter.
No. 1 in Viscose staple fibre.
The 4th
largest producer of insulators.
The 4th
largest producer of carbon black.
The 11th
largest cement producer.
Among the worlds top BPO companies and among Indias top 4.
Among the best energy efficient fertilizer plants.
In India
A premier branded garment player.
The 2nd
largest player in viscose filament yarn.
The 2
nd
largest in the Chlor-alkali sector.Among the top 5 mobile telephony companies.
A leading player in Life Insurance and Asset Management.
Among the top 3 super-market chains in the Retail Business.
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Rock solid in fundamentals, The Aditya Birla Group nurtures a culture where success does
not come in the way of the need to keep learning afresh to keep experimenting.
Beyond Business The Aditya Birla Group is:
Working in 3700 villages.
Reaching out to 7 million people annually through the Aditya Birla Centre for Community
Initiatives and Rural Development, spearheaded by Mrs. Rajshree Birla.
Focusing on: health care, education, sustainable livelihood, infrastructure and espousing social
causes.
Running 41 Schools and 18 Hospitals.
VISION:
To be a premium global conglomerate with a clear focus on each business.
MISSION:
To deliver superior value to our customers, shareholders, employees and society at large.
VALUES:
Integrity
Commitment
Passion
Seamlessness
Speed
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ADITYA BIRLA GROUP- MAJOR PRESENCE
Businesses of ABG
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FINANCIAL OVERVIEW OF ULTRATECHCEMENT LIMITED
BALANCE SHEET
As On 31-03-2005 31-03-2006 31-032007 31-03-2008 31-03-2009
Fixed Assets Rs. Cr. Rs. Cr. Rs. Cr. Rs. Cr. Rs. Cr.
Gross Block 4304.29 4605.38 4784.7 4972.60 7,401.02
Net Block 2548.9 2537.21 2517.28 2500.46 4,635.69
Capital WIP 48.18 141.03 696.95 2283.15 677.28
Investment 184.79 172.39 483.45 170.90 1,034.80
Current Assets
Inventories 283.71 379.57 433.58 609.76 691.97
Debtors 171.95 172.55 183.50 216.61 186.18
Other Current Assets 381.99 220.4 343.09 477.52 483.46
Balance Sheet Total 3619.52 3623.11 4657.85 6258.40 7709.38
Liabilities Rs. Cr. Rs. Cr. Rs. Cr. Rs. Cr. Rs. Cr.
Shareholders Funds
Equity Share Capital 124.40 124.40 124.49 124.49 124.49
Share Capital Suspense - 0.09 - - -
Employees Stock Option0.77 1.68Outstanding
Reserves and Surplus 942.73 913.78 1639.29 2571.73 3475.93
Loan Funds 1531.38 1451.83 1578.63 1740.50 2141.63
Deferred Tax Liabilities 581.71 576.96 560.26 542.35 722.93
Current Liabilities
Creditors 224.67 318.13 463.99 776.79 723.09
Other Current Liab./Prov. 214.63 237.92 291.19 501.77 519.63
Balance Sheet Total 3619.52 3623.11 4657.85 6258.40 7709.38
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SUMMARISED P&L ACCOUNT
As On 31-Mar-05 31-Mar-06 31-Mar-07 31-Mar-08 31-Mar-09
Net Sales 2,681.05 3,299.45 4,910.83 5,509.22 6,383.08
Operating profit
(PBIDT) 272.81 554.26 1,417.81 1,720.06 1,760.29PBIT 51.03 338.23 1191.56 1482.83 1437.29
Gross profit (PBDT) 188.18 501.62 1392.44 1744.24 1684.46
PBT 43.24 285.59 1166.19 1507.01 1361.46
PAT( net profit) 2.85 229.76 782.28 1,007.61 977.02
323.00 237.23 226.25 216.03 221.78
DIVIDEND
As On 31-Mar-05 31-Mar-06 31-Mar-07 31-Mar-08 31-Mar-09
Equity dividend 9.33 21.79 49.79 62.24 62.24
Preference dividend - - - - -
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Chapter: 7 Ratio Of Ultra-tech Cement Limited
LIQUIDITY RATIOS:
The two liquidity ratios, the current ratio and the acid test ratio, are the most important ratios in almostthe whole of ratio analysis and they are also the simplest to use. Liquidity ratios provide information
about a firms ability to meet its short- term financial obligations. They are of particular interest to those
extending short term credit to the firm. Two frequently-used liquidity ratios are current and quick ratio.
While liquidity ratios are most helpful for short-term creditors/suppliers and bankers, they are also
important to financial managers who must meet obligations to suppliers of credit and various government
agencies. A company's ability to turn short-term assets into cash to cover debts is of the utmost
importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators
frequently use the liquidity ratios to determine whether a company will be able to continue as a going
concern. A complete liquidity ratio analysis can help uncover weaknesses in the financial position of the
business. Generally, the higher the value of the ratio, the larger the margin of safety that the company
possesses to cover short-term debts.
1. CURRENT RATIO:
Current Ratio =
Current Asset
Current Liabilities
2005 2006 2007 2008 2009
Current
Asset837.65 772.52 960.17 1303.89 1361.61
Current
Liabilities439.30 556.05 755.18 1278.56 1242.72
Current
Ratio1.91 1.39 1.27 1.02 1.10
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Comments:
The ratio is mainly used to give an idea of the company s ability to pay back its short- term liabilities
(debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio,
the more capable the company is of paying its obligations. A ratio in each year suggests that
the company would be able to pay off its obligations if they came due at that point, but the company hasshown constant decreasing trend in its financial health in subsequent years, Since low current ratio
does not necessarily mean that the firm will go bankrupt, but it is definitely is not a good sign. Short
term creditors prefer a high current ratio since it reduce their risk.
2. Quick or Acid-Test Ratio
The essence of this ratio is a test that indicates whether a firm has enough short-term assets to cover
its immediate liabilities without selling inventory. So it is the backing available to liabilities that must be
paid almost immediately. There are two terms of liquid asset and liquid liabilities in this formula, Liquid
asset is all current assets except the inventories and prepaid expenses, because prepaid expenses cannot
be converted to cash. The liquid liabilities include all current liabilities except bank overdraft and cash
credit since they are not required to be paid off immediately.
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Liquid Asset
Quick Ratio= Liquid Liabilities
2005 2006 2007 2008 2009
Liquid Asset 553.94 392.95 526.59 694.13 669.64
Liquid Liabilities 439.30 556.05 755.18 1278.56 1242.72
Quick Ratio 1.26 0.70 0.70 0.54 0.54
Comments:
The acid-test ratio is far more forceful than the current ratio, primarily because the current ratio
includes inventory assets which might not be able to turn to cash immediately. Companies with ratios of
less than 1 cannot pay their current liabilities and should be looked at with extreme caution. Furthermore,
if the acid-test
ratio is much lower than the current ratio, it means current assets are highly dependent oninventory.
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TURN OVER RATIOS
Accounting ratios that measure a firm's ability to convert different accounts within their balance sheets
into cash or sales. Companies will typically try to turn their production into cash or sales as fast as
possible because this will generally lead to higher revenues.
Such ratios are frequently used when performing fundamental analysis on differentcompanies.
1. FIXED ASSETS TURN OVER RATIO:
It shows how the company uses its fixed assets to achieve sales. The formula is as follows:
Fixed Asset Turn Over Ratio=Net Sales
Fixed Assets
2005 2006 2007 2008 2009
NET SALES 2681.06 3299.45 4910.83 5508.78 6,383.08
FIXED ASSETS 2597.08 2678.24 3214.23 4783.61 5312.97
FIXED ASSETS
TURN OVER
RATIO:
1.032 1.23 1.53 1.15 1.20
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Comments:
A High fixed asset turnover ratio indicates the capability of the firm to earn maximum sales with the
minimum investing in fixed assets. So it shows that the company is using its assets more efficiently. As it is
shown in above the Company is using its assets specially fixed assets more efficiently each year although it
had a light decrease in efficiency in 2008 and 2009 compared to 2007.
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2. WORKING CAPITAL TURN OVER RATIO:
As its name suggests it is the relationship between turnover and working capital. It is a measurement
comparing the depletion of working capital to the generation of sales over a given period. This provides
some useful information as to how effectively a company is using its working capital to generate sales.
A company uses working capital to fund operations and purchase inventory. These operations and
inventory are then converted into sales revenue for the company. The working capital turnover ratio is
used to analyze the relationship between the money used to fund operations and the sales generated from
these operations.
The formula related is:
Working Capital Turn Over Ratio =
Net Sales
Working Capital
2005 2006 2007 2008 2009
NET SALES 2681.06 3299.45 4910.83 5508.78 6,383.08
WORKING
CAPITAL
398.35 216.47 204.99 25.33 118.89
WORKING
CAPITAL
TURN OVERRATIO
6.73 15.24 23.96 217.48 53.69
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Comments:
The term working capital is a measure of both a company's efficiency and its short-term financial health.
The working capital ratio is calculated as:
Working Capital = Current Asset Current Liabilities
Positive working capital means that the company is able to pay off its short-
term liabilities. Negative working capital means that a company currently is unable to meet its
short-term liabilities with its current assets.
In a general sense, the higher the working capital turnover, the better because it means that the
company is generating a lot of sales compared to the money it uses to fund the sales..
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FINANCE STRUCTURE RATIOS:
Gearing is concerned with the relationship between the long terms liabilities that a business has and its
capital employed. The idea is that this relationship ought to be in balance. It is a general term describing
a financial ratio that compares some form of owner's equity (or capital) to borrowed funds. Theshareholders and lenders of long term loans may be interested in this ratio.
1. Debt Equity ratio:
This ratio reflects the relative claims of creditors and share holders against the assets of the firm, debtequity 39 ratios establishment relationship between borrowed funds and owner capital to measure thelong term financial solvency of the firm. The ratio indicates the relative proportions of debt and equity infinancing the assets of the firm.
It is calculated as
debt equity ratio=
debt
shareholders fund
The debts side consist of all long term liabilities of the firm. The shareholders fund is the share capital plus
reserve and
surpluses.
The lower the debt equity ratio the higher the degree of protection enjoyed by the
creditors.
The debt equity ratio defined by the controller of capital issue, debt is defined as long term debt plus
preference capital which is redeemable before 12 years and shareholders fund is defined as paid up
equity capital plus preference capital which is redeemable after 12 years plus reserves & surpluses.
The general norm for this ratio is 2:1. on case of capital intensive industries as norms of 4:1 is used for
fertilizer and cement industry and a norms of 6:1 is used for shipping units.
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2005 2006 2007 2008 2009
DEBT 1531.38 1451.83 1578.63 1740.50 2141.63
SHAREHOLDERS
FUND1067.13 1038.27 1763.78 2696.99 3602.1
DEBT EQUITY
RATIO
1.43 1.40 0.90 0.65 0.59
Comments:
In this ratio shareholders fund is the share capital plus reserve and surpluses. In case of high debt equity
it would be obvious that the investment of creditors is more than owners. And if it is so high then it brings
the firm in a risky position. Or if it is too low it might indicate that the organization has not utilized its
capacity of borrowing which must be utilized and that is because the borrowing from outsiders is a goodsource of fund for business with lower returns in compare to equity. The UltraTech Cement Ltd. is trying
to lower its debt equity ratio by lowering its liabilities and increasing its equity. So it wants to improve its
position since,
a relatively lower ratio is favorable.
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PROFITABILITY RATIO
As the name itself suggests, this ratio is calculated to determine profitability of the firm. The basic
objective of almost every business is to earn profit which is essential for survival of the business.
A business needs profits not only for its existence but also for its expansion and diversification. The
investors want an adequate return on their investments, workers want higher wages, creditors want
higher security for interest and loan and the list could continue.
It is a class of financial metrics that are used to assess a business's ability to generate earnings ascompared to its expenses and other relevant costs incurred during a specific period of time. For most of
these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous
period is indicative that the company is doing well.
1. GROSS PROFIT RATIO:
The gross profit margin ratio tells us the profit a business makes on its cost of sales. It is a very simple idea
and it tells us how much gross profit our business is earning. Gross profit is the profit we earn before we
take off any administration costs, selling costs and so on. So we should have a much higher gross profit
margin than net profit margin.
High ratios are favorable in this, since it indicates the business is earning a good return on the sale of
its merchandise.
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Gross Profit Ratio =
Gross Profit
X 100
Net Sales
2005 2006 2007 2008 2009
NET SALES 2681.06 3299.45 4910.83 5508.78 6,383.08
GROSS PROFIT 265.02 501.62 1392.44 1507.01 1684.46
GROSS PROFIT
RATIO9.88 15.20 28.35 27.36 26.40
Comments:
This ratio indicates the relation between production cost and sales and the efficiency with which goods
are produced or purchased. If it has a very high gross profit ratio it may indicate that the organization is
able to produce or purchase at a relatively lower cost. Gross profit is the profit we earn before we take
off any administration costs, selling costs and so on. Here company has achieved very good efficiency
in 2007
compared to other financialyears.
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2. NET PROFIT RATIO:
This shows the portion of sales available to owners after all expenses. A high profit ratio is higher
profitability of the firm. This ratio shows the earning left for shareholder as percentage of Net sales.
Net Margin Ratio measures the overall efficiency of production, Administration selling, financing, pricing
and Taste Management.
Net Profit Ratio =
Net Profit After Tax
X 100
Net Sales
2005 2006 2007 2008 2009
NET SALES 2681.06 3299.45 4910.83 5508.78 6,383.08
NET PROFIT 2.85 229.76 782.28 1007.61 977.02
NET PROFIT
RATIO0.11 6.96 15.93 18.29 15.30
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Comments:
It is depicted from the above diagram that company has been trying to improve its profitability year by
year except for 2009 because of environmental instability which includes the economic meltdown in the
country and whole world.
3. OPERATING NET PROFIT RATIO:
This ratio establishes the relation between the net sales and the operating net profit. The concept of
operating net profit is different from the concept of net profit operating net profit is the profit arising out of
business operations only. This is calculated as follows:
Operating net profit = Net Profit + Non operating expenses non operating income.
Alternatively, this profit can also be calculated by deducting only operating expenses from the gross
profit. This ratio is calculated with help of the following formula.
operating n.p. ratio =
Operating Net Profit
X 100
Net sales
2005 2006 2007 2008 2009
NET SALES 2681.06 3299.45 4910.83 5508.78 6,383.08
OPERATING NET
PROFIT272.81 554.26 1,417.81 1,720.06 1,760.29
OPERATING NET
PROFIT RATIO10.18 16.80 28.87 31.22 27.57
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OVERALL PROFITABILITY OR ROR RATIOS:
The ROI is perhaps the most important ratio of all. It is the percentage of return on funds invested in
the business by its owners. In short, this ratio tells the owner whether or not all the effort put into the
business has been worthwhile. If the ROI is less than the rate of return on an alternative, the owner may
be wiser to sell the company, put the money in risk-free investment such as a bank savings account, , and
avoid the daily struggles of small business management.
These Liquidity, Leverage, Profitability, and Management Ratios allow the business owner to identify trends
in a business and to compare its progress with the performance of others through data published by
varioussources. The owner may thus determine the business's relative strengths andweaknesses.
1. RETURN ON EQUITY:
This ratio also known as return on shareholders funds or return on proprietors funds or return on net
worth, indicates the percentage of net profit available for equity shareholders to equity shareholders
funds and not on total capital employed.
It is calculated as:
N.P.A.T. - Preference DividendROE Ratio =
Equity Share Holders Fund
X 10
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Note: Here Equity Share Holders Fund = Equity Capital + Reserves and Surplus
2005 2006 2007 2008 2009
N.P.A.T
PREF.DIVIDEND2.85 229.76 782.28 1007.61 977.02
Equity Share
Holders Fund1067.13 1038.27 1763.78 2696.99 3602.1
ROE RATIO 0.26 22.13 44.35 37.36 27.12
Comments:
This ratio indicates the productivity of the owned funds employed in the firm. However, in judging the
profitability of a firm, it should not be overlooked that during inflationary periods, the ratio may show
an upward trend because the numerator of the ratio represents current values whereas denominator
represents
historical values.
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VALUATION RATIOS
1. EARNINGS PER SHARE:
EPS measures the profit earned per share. The higher EPS will attract more investors to acquire shares in
the company as it indicates that the business is more profitable enough to pay the dividends in time. So it
is of utmost importance to investors in order to decide the prospects.
It is calculated as:
N.P.A.T. - Preference Dividend
EPS =
Number of equity shares Outstanding
2005 2006 2007 2008 2009
EPS 0.22 18.47 62.84 80.94 78.5
Comments:
As mentioned above, EPS is one of the important criteria for measuring the performance of a company.
If EPS increases, the possibility of a higher dividend per share also increases. However, the dividend
payment depends on the policy of the company. Market price of shares of a company may also show an
upward trend
if the EPS is showing a rising trend.
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SUMMARY OF RATIOS
Table of Financial Ratios of ULTRATECH CEMENT LTD. for last Five Years
2005 2006 2007 2008 2009
Current Ratio 1.91 1.39 1.27 1.02 1.10
Quick Ratio 1.26 0.70 0.70 0.54 0.54
Fixed Asset Turn Over Ratio 1.032 1.23 1.53 1.15 1.20
Working Capital Turnover Ratio 6.73 15.24 23.96 217.48 53.69
Debt Equity ratio 1.43 1.40 0.90 0.65 0.59
G.P. Ratio 9.88 15.20 28.35 27.36 26.40
N.P. Ratio 0.11 6.96 15.93 18.29 15.30
Operating N.P. Ratio 10.18 16.80 28.87 31.22 27.57
ROE Ratio 0.26 22.13 44.35 37.36 27.12
EPS 0.22 18.47 62.84 80.94 78.5
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Observation and Findings
Based on the ratios and calculations made on my project we can analyze as follows:
The year 2007 could be called the peak on the business during last five year which almost divides
the ratios into two parts, before 2004 and after that.
Liquidity ratios shows that the firm has been facing some problems regarding paying short term
liabilities for 3 years, but it is trying to improve the situation.
The usage ratio of the company had followed a comparable pattern. The overall efficiency of the
company to use its assets, capital or the working capital had increased from 2005 to 2007. However
in the later years, it is declining and falling to a lower level of efficiency, for which we can blame
the environmental conditions of the country, and that involves the economical and political
challenges of India and the world.
The Company fails to increase its profitability in the last year, though it should be mentioned that
we see a noticeable net profit point in the 2008. It also fails to give satisfactory rate of return in the
two years compared to 2007.
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CONCLUSION
Ratios make the related information comparable. A single figure by itself has no meaning, but when
expressed in terms of a related figure, it yields significant interferences. Thus, ratios are relative figures
reflecting the relationship between related variables. Their use as tools of financial analysis involves
their comparison as single ratios, like absolute figures, are not of much use.
Ratio analysis has a major significance in analysing the financial performance of a company over a
period of time. Decisions affecting product prices, per unit costs, volume or efficiency have an impact
on the profit margin or turnover ratios of a company.
Financial ratios are essentially concerned with the identification of significant accounting data
relationships, which give the decision-maker insights into the financial performance of a
company.
The analysis of financial statements is a process of evaluating the relationship between component
parts of financial statements to obtain a better understanding of the firms position and
performance.
The first task of financial analyst is to select the information relevant to the decision under
consideration from the total information contained in the financial statements. The second step is to
arrange the information in a way to highlight significant relationships. The final step is interpretation
and drawing of inferences and conclusions. In brief, financial analysis is the process of selection,
relation and evaluation.
Ratio analysis in view of its several limitations should be considered only as a tool for analysis rather
than as an end in itself. The reliability and significance attached to ratios will largely hinge upon the
quality of data on which they are based. They are as good or as bad as the data itself. Nevertheless,
they are an important tool of financial analysis.
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Chapter: 8 TREND ANALYSIS
SALES & PROFIT
SALES NET PROFIT YEAR
2681.5 2.85 2005
3299.45 229.76 2006
4910.83 782.28 2007
5509.22 1007.61 2008
6383.08 977.02 2009
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NP & DPS
NET PROFIT DIVIDEND PER SHARE YEAR
2.85 0.75 2005
229.76 1.75 2006
782.28 4 2007
1007.61 5 2008
977.02 5 2009
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FA & TA
FIXED ASSESTS TOTAL ASSESTS YEAR
2597.08 3619.52 2005
2678.24 3623.11 2006
3214.23 4657.85 2007
4783.61 6258.4 2008
5312.97 7709.38 2009
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EQUITY & RESERVES
EQUITY RESERVES YEAR
124.4 942.73 2005
124.4 913.78 2006
124.49 1639.29 2007
124.49 2571.73 2008
124.49 3475.93 2009
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MV & BV
MARKET VALUE BOOK VALUE YEAR
0.02 301.22 2005
0.02 1396.47 2006
0.01 1953.41 2007
0.01 1652.62 2008
1.44 2054.12 2009
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NWC & TA
NET WORKING CAPITAL TOTAL ASSESTS YEAR
398.35 3619.52 2005
216.47 3623.11 2006
204.99 4657.85 2007
25.33 6258.4 2008
118.89 7709.38 2009
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EPS & MP
EARNING PER SHARE MARKET PRICE YEAR
0.22 0.02 2005
18.47 0.02 2006
62.84 0.01 2007
80.94 0.01 2008
78.5 1.44 2009
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CHAPTER 9: COMPARISON OF AMBUJA CEMENT &
ULTRATECH CEMENT
AMBUJA CEMENT
Ambuja Cements (previously known as Gujarat Ambuja) has a cement capacity of 22 m tonnes (MT). The
company, which pioneered the concept of transport of cement by sea, is particularly strong in the northernand western markets. Holcim Mauritius, an indirect wholly owned subsidiary of Holcim (Europe), over a
period of time has acquired close to 46% stake in the company.
ULTRATECH CEMENT
UltraTech, an Aditya Birla Group Company and a 51% subsidiary of Grasim, has a capacity of 23.1 MT at the
end of FY10. However, once the merger with Samruddhi Cement culminates Ultratech will catapult to being
the number one cement company with an aggregate capacity of 49 MT. The company has presence in the
western, eastern and southern regions. It also manufactures ready mix concrete (RMC) and is the largest
exporter of cement clinker. Its export markets span out around the Indian Ocean, Africa, Europe and theMiddle East.
AMBUJA CEMENT ULTRATECH
CEMENT
AMBUJA CEMENT ULTRATECH
CEMENT
31/12/2010 31/3/2011
High Rs 167 1,175 14.2%
Low Rs 95 820 11.6%
Sales per share Rs 48.3 499.6 9.7%
Earnings per share Rs 8.3 49.9 16.5%
Cash flow per share Rs 10.8 79.6 13.6%
Dividends per share Rs 2.60 6.00 43.3%
Dividend yield (eoy) % 2.0 0.6 330.0%
Book value per share Rs 47.9 388.3 12.3%
Shares outstanding (eoy) m 1,529.86 274.04 558.3%
Bonus/Rights/Conversions ESOS GDR -Price / Sales ratio x 2.7 2.0 135.8%
Avg P/E ratio x 15.9 20.0 79.4%
P/CF ratio (eoy) x 12.1 12.5 96.9%
Price / Book Value ratio x 2.7 2.6 106.5%
Dividend payout % 31.5 12.0 261.9%
Avg Mkt Cap Rs m 200,412 273,355 73.3%
No. of employees `000 0 12 0.0%
Total wages/salary Rs m 3,437 6,990 49.2%
Avg. sales/employee Rs Th 20.0 11,896.0 0.2%
Avg. wages/employee Rs Th 21.0 607.4 3.5%
Avg. net profit/employee Rs Th 22.0 1,188.0 1.9%
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INCOME DATA
Net Sales Rs m 73,902 136,911 54.0%
Other income Rs m 2,476 2,896 85.5%
Total revenues Rs m 76,378 139,807 54.6%
Gross profit Rs m 18,230 25,621 71.2%
Depreciation Rs m 3,872 8,130 47.6%
Interest Rs m 487 2,911 16.7%
Profit before tax Rs m 16,347 17,476 93.5%
Minority Interest Rs m 0 63 0.0%
Prior Period Items Rs m 371 1,255 29.6%
Extraordinary Inc (Exp) Rs m 265 0 -
Tax Rs m 4,354 5,121 85.0%Profit after tax Rs m 12,629 13,673 92.4%
Gross profit margin % 24.7 18.7 131.8%
Effective tax rate % 26.6 29.3 90.9%
Net profit margin % 17.1 10.0 171.1%
BALANCE SHEET DATA
Current assets Rs m 31,353 41,359 75.8%
Current liabilities Rs m 23,971 36,432 65.8%
Networking cap to sales % 10.0 3.6 277.6%
Current ratio x 1.3 1.1 115.2%
Inventory Turnover Days 45 56 79.8%
Debtors Turnover Days 6 22 28.8%
Net fixed assets Rs m 65,627 135,052 48.6%
Share capital Rs m 3,060 2,740 111.7%
"Free" reserves Rs m 68,819 101,465 67.8%
Net worth Rs m 73,261 106,418 68.8%
Long term debt Rs m 497 46,820 1.1%
Total assets Rs m 103,191 216,263 47.7%
Interest coverage x 34.6 7.0 493.6%
Debt to equity ratio x 0.0 0.4 1.5%
Sales to assets ratio x 0.7 0.6 113.1%
Return on assets % 12.7 7.7 165.7%
Return on equity % 17.2 12.8 134.2%
Return on capital % 23.7 14.2 167.2%
Exports to sales % 1.3 2.8 46.3%
Imports to sales % 7.0 8.1 86.6%
Net fx Rs m -6,113 -7,876 77.6%
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CHAPTER 10: MERGER AND ACQUISTION
HISTORY OF THE TAKEOVER BATTLE
The story of the takeover battle between Grasim and L&T had its roots in another takeover battle in early
nineties. In the late 1980s, Reliance Industries Limited (RIL) had acquired 10.05 percent stake in L&T. Armed
with this, RIL was aspiring to acquire L&T as a whole, and not just its cement business. Established in 1923,
L&T had been (and even today is) a truly professionally managed company with core competence in turnkey
engineering projects. Acquiring L&T very well fitted in RILs plan that was setting up mega projects one after
another.
For L&T management, however, it was a life and death issue for had RIL taken over L&T, the top management
of L&T would have certainly lost their freedom and control over the company and in all probability their jobs
too. So L&T management fought back tooth and nail and managed to successfully ward of RIL attack.
The story of that battle is quite thrilling but not the subject matter of this case. It may be sufficient to say that
RIL could not manage to get support from the government, public at large and financial institutions. At that
the time, the largest shareholders of L&T were financial institutions which collectively held 40 percent stake
in L&T. LIC and UTI held approx. 27 percent and the rest was held by other FIs. FIs backed L&T management
and RIL had to step back.
MAIN STORY
Finally, on November 18, 2001 RIL sold its entire 10.05 percent stake (25000000 equity shares) to Grasim, an
A.V. Birla group company for Rs. 766.5 crore, The price of Rs. 306.6 that Grasim paid was approx. 46 percent
higher than the then prevailing market price of around Rs. 208 210 per share.
Thereafter, an investment company that was a subsidiary of Grasim acquired another 4.48% stake (1.112
crore equity shares) at an average price of Rs. 176.75 per share taking Grasims stake to 14.53 percent.
Thereafter on October 13, 2002 Grasim made a public announcement of open offer to acquire 20% stake
(4.973 crore shares) in L&T at Rs. 190/- per share. While Grasim had paid Rs. 306.6 per share to RIL, it had
waited for more than six months to make an open offer. The highest price paid by Grasim for L&Ts shares intwenty six weeks prior to October 13, 2002 was only 188. 15 and the average of twenty six weeks and two
weeks was 174.93 and 170.08 respectively. Grasim filed the draft letter of offer with the SEBI on October 24,
2002.
On November 8, 2002 the SEBI asked the merchant bankers JM Morgan Stanley (JMMS) not to proceed with
the open offer since it (i.e. the SEBI) wanted to investigate the matter of an alleged violation of Takeover
Regulations in regard to Grasims acquisition of 10.05 percent stake from RIL. Grasim, ON November 18, 2002,
preferred an appeal the Securities Appellate Tribunal (SAT) against the SEBI order and gave a public notice to
that effect on November 20, 2002. Thereafter the investigation by the SEBI went on till almost third week of
April 2003.
Meanwhile in December 2002, L&T management tried to outsmart Grasim by mooting a proposal to carve out
its cement business into a subsidiary wherein L&T would have retained around 75 percent stake and the
shareholders of have got balance 25 percent or so. This would have brought down Grasims direct stake in the
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cement business to about 3.75 percent as against its 14.53 percent stake in L&T. Grasim managed to get a
stay from the court on this proposed de-merger.
Further, on January 27, 2003 Grasim made a counter proposal of vertical de-merger of cement business to
L&T board, Grasim valued L&Ts cement business at Rs. 130/- per share and engineering and other businesses
at Rs. 162.5 per share thereby valuing L&T as a whole at Rs. 292.5 per share. Grasim also proposed that upon
de-merger it would like to make an open offer to acquire control the cement business / company.
By April 2003, the SEBI came to conclusion that Grasim had not violated Takeover Code, and that its offer was
valid subject to making some additional disclosures. The SEBI then offered its comments to the draft letter of
offer of Grasim on April 22, 2003. Finally Grasims open offer for L&Ts 20 percent stake opened on May 7,
2003 and closed on June 5, 2003. Grasim, accordingly, withdrew its appeal before SAT.
The offer failed miserably and Grasim could get only 9.44 lac shares or 0.38% stake in the open offer.
However, post announcement of open offer, Grasim, through its subsidiary, had purchased another 20.56 lac
shares or 0.83% stake from the open market thereby taking its total holding to 15.73 percent of L&Ts equity
capital. This paved way for Grasim to make creeping acquisition without making an open offer as also to get
board seats on L&Ts board.
Thereafter, in June 2003 itself the L&T management and Birlas hammered out a deal to carry out a structured
de-merger of cement business of L&T and about further terms and conditions of Grasims takeover of contr ol
of the resultant cement company.
THE DE-MERGER DEAL
With effect from April 1, 2003, the cement business of L&T was vested in a separate company (UltraTech
Cement Limited). It was decided that post de-merger, Grasim will acquire the control of the resultant cement
company. However, L&T managed to retain certain key assets like L&T brand, ready mix cement (RMC)
business, the gas power plant in Andhra Pradesh, and the entire residential and office property of the cement
division.
As a part of the scheme of de-merger / arrangement, L&Ts equity capital of Rs, 248.67 crore, consisting of
approx. 24.88 crore shares of Rs. 10/- each was reduced. L&Ts paid up capital was brought down to Rs. 24.88
crores consisting of 12.44 crore shares of Rs. 2 each. Accordingly shareholders of L&T received one share of
Rs. 2/- face value of new L&T for every two shares of Rs. 10/- face value of old L&T.
UltraTechs paid up capital was fixed at Rs. 124.91 crores consisting of approx. 12.49 crore shares of Rs. 10/-
face value. L&T was allotted 20 percent of UlraTechs equity. The remaining 80 per cent was allotted to shareholders of L&T in the same proportion as the stake held by
them i.e. for every five shares held in L&T shareholders got two shares of UltraTech. With this Grasim would
receive approx. 12.5 percent stake in UltraTech against its 15.73 percent stake in L&T.
It was decided that out of L&T's 20 percent stake in Ultra Tech, L&T will sell 8.5 percent stake to Grasim at a
price of Rs. 171.30 per share as against the earlier offer of Grasim at Rs. 130/- per share. With this, Grasim will
hold approx. 21 per cent in UltraTech. Grasim would then make an open offer for 30 percent of the
UltraTechs equity at the same price and would take its stake to 51 per cent.
The open offer by Grasim was meant for not only taking control of UltraTech, but to give a chance to FIs to
bring down their stake, in the process making hefty capital gains. In subsequent developments, Grasim bought L&Ts stake actually at Rs. 342.60 per share and made an open
offer at the same price. Grasim, thus, had to shell out Rs. 362 crores to L&T and Rs. 1298 crores in the open
offer.
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It was also decided that the residual stake of L&T in UltraTech of approx. 11.5 percent would be liquidated by
L&T in small trenches and to non cement entities by 2009, if Birlas do exercise their right of first refusal in
negative.
In turn, Grasim sold approx. 14.93 percent of its 15.73 per cent stake in L&T to an employee's trust of L&T
at Rs 120/- per pre de-merger share or Rs. 240/-per post de-merger share. The remaining approx. 0.8 percent
would be sold when the employee trust would dilute its stake by 1 percent or so.
BIRLAS MOTIVE
Why were Birlas so desperate to acquire L&T?
As on 31st
March 2003, the total cement capacity in India was approx. 135 mn tonnes. There were over 400
plants in the country consisting of 120 or so large plants and the rest mini cement plants. In terms of company
wise capacity, L&T had the largest capacity of 18mn tonnes, followed by ACC at 15 nm tonnes, Grasim at 13
mn tonnes and Gujrat Ambuja at 12.5 mn tonnes. In acquiring L&Ts cement business, Birlas had a simple
motive of growth through acquisition. After acquisition the combined capacity of Grasim and UltraTech went
up to 31 mn tonnes, making Grasim the largest producer in India and the eighth largest in the world.
L&T was also considered as a premium brand and used to fetch higher price. Though this brand would not be
available to Grasim in the long run, L&T allowed Grasim to use it for more than a year post acquisition. Later
on, through an ad blitzkrieg Grasim managed to transfer brand equity of L&T cement to UltraTech cement.
While Grasim was strong in the Southern markets, L&T was strong in the rest of India. L&Ts strong
distribution network was very vital to Grasim to push its own brands also.
Last but not the least, around 2002-03, the economy had just started coming out of woods. Stock markets
were still bearish and valuations low. A look at Exhibit 1 tells us that in 2003-04, the first post de-merger year,
on the gross turnover of Rs. 2700 crore, UltraTech posted a PBT of just Rs. 49.20 crore. In fact, considering
that other businesses of L&T grew by 32 percent in 2003-04, engineering division turnover in 2002-03 would
have been around Rs. 7500 crore and that of cement division around Rs. 2000-2100 crore. Cement division
must have made losses in 2002-03. However, Birlas were aware that in the next immediate 4 to 5 years
cement business would turn highly profitable and valuations would skyrocket. So they were in a hurry to
acquire while they could still get it cheap.
WHY L&T SURRENDERED
The first and foremost reason was survival. At the time RIL tried to takeover L&T, FIs had backed L&T
management to control over L&T. However, this time around the situation was a bit different. It is believed
that while the open offer for L&T was going on, Birlas had succeeded in convincing FIs about the structured
vertical de-merger and about FIs selling their shares in the resultant cement company either directly or
through open offer. It is also believed that, if L&T management had continued to be adamant about not
agreeing to vertical de-merger, FIs were willing to sell their stake in L&T to Birlas provided the price was
right. Also, now Birlas could up their stake in L&T through either creeping acquisition or through anotheropen offer. So in order to keep their control over L&T, which by then was a ten thousand crore empire even
sans cement, L&T management had no choice but to agree to give away the cement business.
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However, having accepted this fate accompli, L&T management did a very good job of negotiating. They
managed to retain ready mix cement business and other key assets of the cement division as stated earlier.
They also managed to allot to L&T 20 percent of the new companys equity and sold 8.5 percent stake at a
whopping Rs. 362 crore. Considering that the first offer of Birlas was for Rs. 130/- per share of cement
company (including RMC business and all assets), the price of Rs. 346.60 per share was extremely good at that
time. They also got for themselves time upto 2009 to sell the balance 11.5 percent. Considering that during
October 2007, UltraTech share crossed Rs. 1100/-, this was a very good negotiation on behalf of L&T
management. Also they made Birlas sell approx. 14.95 percent stake at Rs. 120/- per share to employeeswelfare trust, in the process achieving two things getting Birlas off their backs permanently and increasing
their own stake without having to shell out any money from their own pockets.
L&T management also used de-merger to strengthen L&T balance sheet. (See Exhibit 2).
In de-merger, L&Ts paid up capital was reduced to 10 percent of what it was prior to de-merger. The number
of equity shares was reduced to half and face value to one fifth. This resulted into EPS shooting up.
In de-merger, while L&T had to transfer reserves worth approx. Rs. 790 crore to UltraTech, and L&T also
suffered loss of paid up capital of Rs. 225 crore, debts amounting to Rs. 1900 to 2000 crore got transferred to
UltraTech, due to the formula of splitting common loans specified under section 2 (19AA) of the Income Tax
Act, 1961 which is mandatory if the de-merger has to be tax neutral. Due to this L&Ts Debt: Equity ratio
sharply improved to 0.5: 1.
All in all the deal had a lot of positives for L&T and its management. However, a look at the performance of
UltraTech for the year 2007-08 (see Exhibit 1) will show that the real winners were Birlas and not L&T.
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CHAPTER 11: CONCLUSION
From the above analysis it is held that overall performance of the company is satisfactory.
Based on the ratios and calculations made we can analyze as follows:-
The year 2007 could be called the peak on the business during last five year which almost divides the ratios
into two parts, before 2004 and after that.
Liquidity ratios shows that the firm has been facing some problems regarding paying short term liabilities
for 3 years, but it is trying to improve the situation.
The usage ratio of the company had followed a comparable pattern. The overall efficiency of the company
to use its assets, capital or the working capital had increased from 2006 to 2007. However in the later years, it
is declining and falling to a lower level of efficiency, for which we can blame the environmental conditions of
the country, and that, involves the economical and political challenges of India and the world.
The Company fails to increase its profitability in the last year, though it should be mentioned that we see a
noticeable net profit point in the 2008. It also fails to give satisfactory rate of return in the two years
compared to 2007
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Chapter 12: REFERENCES
www.wikipedia .com www.ultratechcement.com
www.adityabirla.com
www.studyfinance.com
www.bussinessline.com
www.infoline.com
Induction manual, GCW.
www.ktec.com
www.investopedia.com
www.moneycontrol.com