FINANCIAL STATEMENT ANALYSIS

SUBMITTED BY: -
SAURABH KAULAVKAR (0364/54)
YASH CHAUDHARI (0382/54)
PIYUSH DUGAR (0352/54)
VISHNU ANIL (0381/54)
RAHUL ROY (0355/54)

1 Indian Institute of Management, Calcutta

KEY FINDINGS

Company background:
UltraTech is the largest manufacturer of white cement, and one of the largest players in cement industry
globally. It has an installed capacity of 93 million TPA with 18 integrated plants, 1 clinkerisation plant, 25
grinding units and 7 bulk terminals. Its rise as India’s largest cement brand reflects on the company's focus on
cutting edge technology, research and technical services. UltraTech is part of the Aditya Birla Group, which is in
the league of Fortune 500 companies. The Group has topped the Nielsen's Corporate Image Monitor three years
in a row 2012-13, 2013-14 and 2014-15 as the number 1 corporate, the 'Best in Class'.
Industry outlook:
The Indian cement industry is highly fragmented with a presence of few large players and several small
players. The domestic manufacturers can broadly be bucketed into pan-India, regional and standalone players.
Pan-India players are large players like Holcim Group companies - ACC and Ambuja, and Aditya Birla Group
company. UltraTech Cement (including Samruddhi Cement). The top 5 players account for ~40-45% of the
cement industry's capacity as of 2016-17. Total installed cement capacity in India stood at 430 million tonnes,
as of March 2017. Increased government spending on Pradhan Mantri Awas Yojana, grant of infrastructure
status to affordable housing would facilitate easier access to low-cost finance, increased government spending
on infrastructure are expected to augment cement sales.
Key Accounting Policies:
The financial statements are presented under the historical cost convention on accrual basis of accounting in
accordance with the Generally Accepted Accounting Principles in India (Indian GAAP). Fixed Assets held for
disposal are stated at lower of net book value and net realizable value. Long-term investments are carried at
cost after deducting provisions made for diminution in value of investments other than temporary, determined
separately for each individual investment.
Balance Sheet:
Reserves and Surplus have grown at a healthy CAGR of 10.2% with a steady 280-300 crores reserved every year
for the declared dividends. In 2016, non-current section is further diversified by investing 220 Cr in various tax-
free bonds. The exposure to mutual fund schemes is again increased in this fiscal year by nearly 395 Cr.
Income Statement:
Other Operating Revenues show a significant increment in 2015 and a reduction in 2016 primarily due to VAT
refund. Employee benefits expense, finance costs and other expenses increased in 2015 due to various reasons
like increase in WIP inventories, discount, sales promotion etc. Finance costs increased in 2015 due to increase in
interest expense on borrowings and decreased in 2016 due to decrease in interest expense on borrowings.
Cash Flow Statement:
The Net Cash Flow from operations in more than net profits for all 5 years with an average 5% increase
annually depicting good performance. Owing to various reasons, the free cash flow has increased drastically in
the final two years like a significant reduction in the cash outflow from investing activities. There is a significant
increase in the cash outflow from financing activities. The major contribution comes from the repayment of
Borrowings transferred from JCCL, pursuant to Scheme of Arrangement
Ratio Analysis:
Profitability - Gross profit margin has remained stable over the 5 years but the operating margin has decreased
by 4.8 percentage points in 2014 due to increase in operating expenses. The net profit margin has been
decreasing due to increase in the Freight and employee benefit expenses.

2 Indian Institute of Management, Calcutta

Efficiency - The working capital turnover ratio is negative in 2016 due to a 100% increase in the other current
liabilities in 2016 and a 400% increase in short term borrowings in 2015. The net sales increased by only 31%
while the average total assets increased by 83% in the last 5 years.
Liquidity - The current and quick ratios have decreased in the last 2 years which shows that the company’s
liquidity position has worsened. The main reason for the above is the increase in short term borrowings by
around 500% and other current liabilities by around 200%.
Solvency - The interest coverage ratio has reduced from 16 to 7 over the years. There is a notable drop in the
current cash debt coverage which signifies a decline in the liquidity of the firm.
Cash flow ratios - Taking a look at the free cash flow of UltraTech over the years, it can be understood that the
company has gradually reduced its investing.
Du-Pont Analysis - The return on equity has decreased by 10 percentage points in the 5 years due to decrease
in net profit margin by 4 percentage points and in asset turnover ratio by 24%.
Trend and Common Size Analysis:
There is a significant shift in the composition of the liabilities, with a 28% increase in current liabilities in the
past 5 years, mainly attributed to an increase in ‘Other Current Liabilities’ and a decrease in long-term
borrowings. The fall in current assets in 2014-15, as evident from the Trend Analysis, is mainly because of a
decrease in current portion of long-term debt from 2585 crores to 1227 crores. This is more than compensated
by the 5000 crore increase in non-current fixed assets. Except in 2014 where the sales stagnated, the growth in
sales has been relatively stable and grew at 5.38% CAGR. Between 2013 and 2015 there was an 80% increase
in operating income, but because they contributed less than 2% of the total sales, the operating profit still fell
nearly 18%. The decline in PAT though is a combination of many factors including an almost doubling of
interest costs eating away an important 1-2% of net sales with the interest coverage ratio falling from 16 to 7,
as evident from the ratios.
Comparative Analysis:
While it can be observed that Ambuja enjoys highest Net Profit margin for most of the 5 years, despite declining
prices and sales. Its ROE remains behind Ultratech because of the way it is financed. The working capital
turnover of Ultratech and ACC were better than Ambuja's from 2012 to 2014. But in 2015, the working capital
turnover for ACC changed from 23.03 to -41.31 due to increase in trade receivables by 44% in 2016 and
decrease in cash and bank balances by 70% in 2015. The Debt to Equity ratio of Ambuja and ACC have been
very low consistently for the last 5 years because they rely very less on long term and short term borrowings
for raising funds. The short-term borrowings for Ambuja have been 0 for the last 5 years and the long-term
borrowings have been on an average INR 30 Cr per year as compared to UltraTech's average of short-term
liabilities INR 855.4 Cr per year and long-term liabilities INR 3395 Cr. The Free Cash Flow of Ambuja was
negative for 3 years consistently from 2013 to 2015 due to high investment in purchase of fixed assets and high
dividend income paid.
Financial and Operational Position and Performance/Strength and Weakness:
Sales revenue for Ultratech has increased from 18,166.40 cr. in 2012 to 23,841.00 cr. over a 5-year period with
a CAGR of +5.6%. This is perfectly emblematic of the situation the entire industry has been suffering from in the
past few years. Another striking figure in Ultratech’s financials is its poor liquidity when compared to its peers.
With 0.8 as its current ratio against 0.99 and 1.14 for ACC and Ambuja respectively, Ultratech doesn’t quite
possess the same amount of cash required to either expand or fulfil all its obligations. What can be concerning
when a firm suffers from poor liquidity is high short-term liabilities. With an interest coverage ratio of 7 when
others are operating at 12 and 19 Ultratech loses out quite a bit of its operating income to financial costs. By
failing to increase its capacity utilization despite seeing in its fixed assets increase at nearly 12% CAGR, it has
failed to leverage any operational opportunities. Ultratech is spending money on optimising the production
process and raw mix design, which supports the use of low cost fuel. Ultratech aims to raise alternative fuel
usage to the extent of 5% of its total fuel requirement in the next 2-3 years. In 2015-16, the share of alternative
fuels in total fuel consumption was 3%, which is higher by over 50% as compared to the previous year.

3 Indian Institute of Management, Calcutta

COMPANY BACKGROUND AND INDUSTRY ANALYSIS
KEY ACCOUNTING POLICIES OF THE FIRM

Company Background
UltraTech Cement Ltd. is the largest manufacturer of white cement, Ready Mix Concrete (RMC) and grey
cement in India. UltrTech is one of the leading cement producers globally. UltraTech embodies attributes
of 'strength', 'reliability' and 'innovation'. UltraTech has an installed capacity of 93 Million Tonnes Per
Annum (MTPA) of grey cement. The company has 18 integrated plants, 1 clinkerisation plant, 25 grinding
units and 7 bulk terminals. UltraTech has operations across multiple countries including India, UAE,
Bahrain, Bangladesh and Sri Lanka. UltraTech Cement is also India's largest exporter of cement reaching
out to meet the demand in countries around the Indian Ocean and the Middle East. In the white cement
segment, UltraTech operates under the brand name of Birla White. It has a white cement plant with a
capacity of 0.56 MTPA and 2 WallCare putty plants with a combined capacity of 0.8 MTPA. UltraTech is the
largest manufacturer of concrete in India with 100+ Ready Mix Concrete (RMC) plants in 35 cities. Its rise
as India’s largest cement brand reflects on the company's focus on cutting edge technology, research and
technical services. Dakshin Cements Limited, Harish Cement Limited, Gotan Limestone Khauj Udyog
Private Limited, Bhagwati Limestone Company Private Limited, UltraTech Cement Lanka (Pvt.) Ltd.,
UltraTech Cement Middle East Investments Limited, PT UltraTech Mining Indonesia and PT UltraTech
Investments Indonesia are subsidiaries of UltraTech. UltraTech is part of the Aditya Birla Group, which is
in the league of Fortune 500 companies. The Group has topped the Nielsen's Corporate Image Monitor
three years in a row 2012-13, 2013-14 and 2014-15 as the number 1 corporate, the 'Best in Class'.

Industry Outlook
The Indian cement industry is highly fragmented with a presence of few large players and several small
players. However, the top two players - Holcim Group and Aditya Birla Group - account for around 35 per
cent of the total market share. The domestic manufacturers can broadly be bucketed into pan-India,
regional and standalone players. Pan-India players are large players like Holcim Group companies - ACC
and Ambuja, and Aditya Birla Group company - UltraTech Cement (including Samruddhi Cement). The top
5 players account for ~40-45% of the cement industry's capacity as of 2016-17. Total installed cement
capacity in India stood at 430 million tonnes, as of March 2017.
GST to be tax neutral for cement sector as cement sector already attracts different levies which adds up to
28-30% which is equivalent to the peak GST rate fixed for this sector. Lower effective duty on coal and
petcoke is expected to be marginally favorable for the sector.
Increased government spending on Pradhan Mantri Awas Yojana (PMAY) to provide impetus to housing
segment, which has been fairly muted over the last few years. Further, grant of infrastructure status to
affordable housing would facilitate easier access to low-cost finance and thereby support demand. A 9.1%
increase in allocation to Rural Development and 44% rise in PMAY - Gramin is likely to catalyse growth in
cement demand from rural housing, which typically constitutes 35% of overall cement demand. Further,
increased government spending on infrastructure, especially cement intensive sectors such as national
highways (up by 11.1%), metros (15%), and other schemes (e.g., Swachh Bharat up by 27%), to augment
cement sales.
The cement production grew by five per cent during April-October 2016. In spite of this growth, output for
the entire year 2016-17 declined by 1.3 per cent. This was because, in November 2016, government
demonetised Rs.500 and Rs.1,000 currency notes, which took a toll on the demand for cement. There was
a slowdown in execution of real-estate and infrastructural projects due to the liquidity crunch caused by
demonetisation.

4 Indian Institute of Management, Calcutta

ABRIDGED BALANCE SHEET

ULTRATECH AMBUJA ACC

Abridged Balance Sheet 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012
Shareholder's Equity & Liabilities
Shareholder's Equity 20,736 18,858 17,098 15,235 12,860 19,074 10,307 10,104 9,486 8,805 8,661.44 8,443.04 8,235.61 7,824.84 7,382.80
Non-current Liabilities 5,907 7,570 6,930 5,936 5,509 569.70 628.97 659.98 635.85 608.68 689.82 589.02 651.51 1,003.11 1,140.25
Current Liabilities 11,209 8,787 5,727 6,238 4,576 3,610.97 3,226.09 3,137.54 2,843.20 2,899.34 4,086.21 3,808.76 3,784.21 3,265.64 3,403.18
Total 37,852 35,215 29,754 27,409 22,945 23,254.23 14,161.93 13,901.45 12,964.59 12,313.08 13,437.47 12,840.82 12,671.33 12,093.59 11,926.23
Assets
Fixed Assets 23,948 23,021 17,913 16,628 13,531 6,298.67 6,506.15 6,917.28 6,757.41 6,382.49 7,723.20 7,723.20 7,723.20 7,723.20 7,723.20
Non-current Assets 4,713 4,281 2,857 2,965 2,610 12,846.61 1,107.18 988.36 670.14 654.19 1,681.77 1,814.23 1,507.17 1,351.88 924.71
Current Assets 9,191 7,912 8,984 7,816 6,804 4,108.95 6,548.60 5,995.21 5,537.04 5,276.40 4,032.50 3,370.65 3,651.14 4,418.14 4,826.35
Total 37,852 35,215 29,754 27,409 22,945 23,254.23 14,161.93 13,900.85 12,964.59 12,313.08 13,437.47 12,840.82 12,671.33 12,093.59 11,926.23

ABRIDGED DIRECT CASH FLOW STATEMENT

ULTRATECH AMBUJA ACC

Cash Flow Statement 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012
Cash receipts from customers 23,913 22,876 19,938 19,823 17,875 9225.58 9354.44 9815.42 9085.24 9696.22 11,078.56 11,570.32 11,495.46 10,855.48 11,149.10
Less: Cash paid to suppliers -3,258 -3,459 -2,890 -2,941 -2,065 -669.2 -708 -669.42 -650.71 -464.55 -1,402.14 -1,563.54 -1,713.99 -1,754.20 -1,960.77
Less: Cash paid to operating expenses -15,490 -15,185 -13,152 -12,613 -11,633 -6822.28 -7051.34 -7181.9 -6724.15 -6758.31 -7,981.78 -8,316.63 -8,214.39 -7,595.65 -7,405.41
Less: Income tax paid -835 -149 -655 -717 -734 -318.71 -42.19 -288.93 -510.14 -639.87 -271.71 -228.91 -235.38 -449.4 -205.92
Net Cash from Operating Activities (CFO) 4,331 4,083 3,242 3,552 3,443 1415.39 1552.91 1675.17 1200.24 1833.49 1,422.93 1,461.24 1,331.70 1,056.23 1,577.00
Net Cash from Investing Activities (CFI) -1,732 -1,880 -2,210 -4,282 -2,926 -3402.6 -82.92 -460.09 -473.57 -392.92 -539.1 -948.17 -1,436.69 -857.74 -310.65
Net Cash from Financing Activities (CFF) -582 -2,267 -897 683 -474 -682.26 -896.89 -717.14 -625.76 -504.43 -421.17 -681.02 -837.09 -834.47 -1,066.02
Net Change in CCE 2,016 -64 134 -47 43 -2669.47 573.1 497.94 100.91 936.14 462.66 -167.95 -942.08 -635.98 200.33

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MULTI-STEP INCOME STATEMENT

ULTRATECH AMBUJA ACC

Multi-Step Income Statement 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012

Sales Revenue 23,841.00 22,656.50 20,077.90 20,017.90 18,166.40 9,160.40 9,368.30 9,910.70 9,086.84 9,674.94 11,158.34 11,796.83 11,738.21 11,168.94 11,357.96

Less: COGS 8,221.90 8,303.00 7,462.70 7,208.60 6,880.30 2,578.45 2,879.64 3,116.01 2,828.13 2,800.00 3,851.52 4,242.17 4,413.18 4,243.21 4,112.50

Gross Profit 15,619.10 14,353.50 12,615.20 12,809.40 11,286.10 6,581.95 6,488.66 6,794.69 6,258.71 6,874.94 7,306.82 7,554.66 7,325.03 6,925.73 7,245.46

Add: Operating Income 266.3 279.7 201.9 157 146.8 107.42 93.10 67.42 73.51 55.36 - - - - -

Less: Operating Expenses 12,558.40 11,571.30 10,051.40 9,236.30 8,188.00 5,856.81 5,675.95 5,443.30 5,171.46 5,022.55 6,494.98 6,669.55 6,375.35 5,870.89 5,608.76

Operating Profit 3,327.10 3,061.90 2,765.60 3,730.10 3,244.90 832.56 905.81 1,418.81 1,160.76 1,907.75 811.84 885.11 949.68 1,054.84 1,636.70

Add: Non Operating Income 235.2 371.8 329 305 371.9 576.23 358.19 428.98 393.62 348.87 112.71 119.35 268.28 223.79 264.82

EBIT 3,562.30 3,433.70 3,094.70 4,035.10 3,616.70 1,408.79 1,264.00 1,847.79 1,554.38 2,256.62 924.55 1,004.46 1,217.96 1,278.63 1,901.52

Less: Interest Expense 505.3 547.5 319.2 209.7 223.9 71.48 91.79 64.48 65.08 75.66 72.87 67.32 82.76 51.67 114.65

PBT 3,057.00 2,886.30 2,775.50 3,825.40 3,392.90 1,337.31 1,172.21 1,783.31 1,489.30 2,180.96 851.68 937.14 1,135.20 1,226.96 1,786.87

Less: Extraordinary Items - - - - - 0.00 0.00 24.82 -279.13 -24.25 -42.8 -153.17 - - -335.38

Less: Tax Expense 882.3 871.5 631 1,170.00 946.7 367.22 364.65 287.05 219.55 604.77 206.47 192.4 -33.09 131.2 390.3

PAT 2,174.70 2,014.70 2,144.50 2,655.40 2,446.20 970.09 807.56 1,521.08 990.62 1,551.94 602.41 591.57 1,168.29 1,095.76 1,061.19

6 Indian Institute of Management, Calcutta

KEY ACCOUNTING POLICIES OF THE FIRM

 Basis of Accounting and preparation of Financial Statements: The financial statements are
prepared and presented under the historical cost convention on accrual basis of accounting in
accordance with the Generally Accepted Accounting Principles in India (Indian GAAP).
 Fixed Assets: Fixed Assets held for disposal are stated at lower of net book value and net realizable
value and disclosed separately in the financial statements under other current assets.
 Expenditure during construction period: Expenditure / Income, during construction period is
included under Capital Work-in-Progress, and the same is allocated to the respective fixed assets on
the completion of their construction.
 Depreciation and Amortisation: Depreciation is provided on straight-line basis at the rates and in
the manner prescribed in Schedule XIV to the Companies Act, 1956 except for some assets which
are at higher rates consequent to management estimate of the useful life of the same, as stated
under
 Investments: Long-term investments are carried at cost after deducting provisions made, if any,
for diminution in value of investments other than temporary, determined separately for each
individual investment. Current investments are carried at lower of cost and fair value, determined
separately for each individual investment.
 Impairment: An asset is treated as impaired when the carrying cost of the asset exceeds its
recoverable amount. An asset’s recoverable amount is the higher of an assets net selling price and
value in use. Value in use is the present value of estimated future cash flows expected to arise from
the continuing use of an asset and from its disposal at the end of its useful life
 Foreign Currency Transactions:
a) Monetary assets and liabilities denominated in foreign currency at the balance sheet date are
translated at the year-end rates.
b) In respect of forward exchange contracts, premium or discount, being the difference between the
forward exchange rate and the exchange rate at the inception of contract is recognised as
expense or income over the life of the contract.
c) Exchange difference including premium or discount on forward exchange contracts, arising till
the assets are ready for their intended use. Any other exchange difference either on settlement
or translation is recognised in the Statement of Profit and Loss.
 Inventories are valued as follows:
a) Raw material, fuel, stores & spare parts and packing: Valued at lower of cost and net realisable
value (NRV).
b) Work-in- progress (WIP), finished goods, stock-in-trade and trial run inventories: Valued at
lower of cost and NRV. Finished goods and WIP cost includes cost of conversion and other costs
incurred in bringing the inventories to their present location and condition. Cost of inventories is
computed on weighted average basis.
c) Waste / Scrap: Waste / Scrap inventory is valued at NRV.
 Defined Benefit Plan: Obligation is measured at the present value of estimated future cash flows
using a discount rate that is based on the prevailing market yields of Government of India securities
as at the Balance Sheet date for the estimated term of the obligations.
 Research and development expenditure: Revenue expenditure on research and development is
expensed as incurred. Capital expenditure incurred on research and development is capitalised as
fixed assets and depreciated in accordance with the depreciation policy of the Company.
 Operating lease: Leases where significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases and lease rentals thereon are charged to the
Statement of Profit and Loss.
 Revenue Recognition: Export Incentives, insurance, railway and other claims, where quantum of
accruals cannot be ascertained with reasonable certainty, are accounted on acceptance basis.

7 Indian Institute of Management, Calcutta

OVERALL ANALYSIS

Balance Sheet

 Reserves and Surplus have grown at a healthy CAGR of 10.2% with a steady 280-300 crores reserved
every year for the declared dividends (including corporate dividend tax)
 In the year 2015 the debt structure was significantly altered with unsecured loans from banks going
from 595 crores to 1847 crores- more than 200% increase within a span of 1 year
 From 2012-13 there was 75% increase in non-current investments mainly because of 672 million units
bought in debt schemes of various mutual funds inflating the investments in those funds from 810 Cr to
1581 Cr. But in the year 14-15 the company decided to redeem a portion of those units and reduced its
exposure by 440 million units implying a 450 crore fall in investments in mutual funds
 In 2016 the non-current section is further diversified by investing 220 Cr in various tax-free bonds like
NTPC Limited, Rural Electrification Corp. Ltd, National Highway Authority etc. The exposure to mutual
fund schemes is again increased in this fiscal year by nearly 395 Cr

Income Statement

 Other Operating Revenues has increased in 2015 due to increase in fiscal incentives by 66%. This
resulted from a VAT Refund, under State Investment Promotion Scheme of 168.38 Crores (Previous
Year - 102.02 Crores)
 Other Operating Revenues has decreased in 2016 due to decrease in fiscal incentives by 20%. This
resulted from a VAT Refund, under State Investment Promotion Scheme of 135.86 Crores (Previous
Year - 168.38 Crores)
 The Changes in Inventories of Finished Goods, Stock-in-Trade and Work-in-Progress decreased in 2013
due to an increase in WIP inventories by 11% and increase in finished goods by 41%.
 Employee Benefits Expense increased by 20% in 2015 due to an increase in Salaries, Wages and Bonus
from 889.48 Cr to 1052.18 Cr
 Finance costs increased in 2015 due to increase in interest expense on borrowings by 53%. Decreased
in 2016 due to decrease in interest expense on borrowings by 10%
 Depreciation is provided on a straight-line basis over the useful lives as prescribed in Schedule II to the
Companies Act, 2013 and as estimated by the management
 Other expenses increased in 2015 due to increase in Discount, Sales Promotion and Other Selling
Expenses by 13.5%

Cash Flow Statement

 The Net Cash Flow from operations in more than net profits for all 5 years. Cash flow from operations
increases by an average 5% annually which shows good performance and sales.
 Finance costs 2014: Total Borrowing: Increases from 342 to 520. It is mainly due to the increase in the
interest on borrowings, which have increased from 4800 to 6600.
 Increase in Free Cash Flow: The Free cash flow has increased by 100% from 2014 to 2015 and another
100% from 2015 to 2016. This is mainly owing to the increase in Cash Flow from operating activities.
That increase, in turn owes to a significant drop in the direct taxes paid from 654 to 149 Cr.
 There is a significant increase in the cash outflow from financing activities from 897 to 2266 crores. The
major contribution comes from the repayment of Borrowings transferred from JCCL, pursuant to
Scheme of Arrangement which accounts to 3,647.08
 The net cash outflow from the investing activities has drastically reduced by around 50% from 4200
crores and 2200 crores. There are two major reasons for this. The company has purchased fixed assets
worth 3250 crores in 2013 and that has reduced by around 35% to 2220 crores in 2014. The other is,
the company has put 675 crores in non-current investments in 2013 while it has sold non-current
investments worth 450 crores in 2014

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RATIO ANALYSIS

Profitability Ratios
Gross profit margin has
remained stable over the last 5
years but the operating profit
margin has decreased by 4.8
percentage points in 2014 due to
increase in operating expenses
(Freight, other expenses and
depreciation and amortization
expense). Even though the
operating margin remained
almost same between 2014 and
2015 the net profit margin
decreased due to increase in
interest and tax expense. The net profit margin has been decreasing over the period mainly due to the increase
in operating expenses, mainly due to increase in the Freight and employee benefit expenses.

Efficiency Ratios
The working capital turnover
ratio is negative in 2016 as the
working capital for both 2015
and 2016 is less than 0. This is
mainly due to a 100% increase
in the other current liabilities in
2016 and a 400% increase in
short term borrowings in 2015.
Total asset turnover ratio is
very low which indicated the
inefficiency in utilization of
assets. The net sales increased
by only 31% while the average
total assets increased by 83% in
the last 5 years. The high
increase in total assets is due to
a 98% increase in fixed assets.

Liquidity Ratios
The current and quick ratios have decreased in
the last 2 years which shows that the company’s
liquidity position has worsened. The main
reason for the above is the increase in short
term borrowings by around 500% and other
current liabilities by around 200% in 2 years
from 2014 to 2016. The cash conversion cycle
has increased slightly in the last 5 years
indicating a slight problem in cash management.

9 Indian Institute of Management, Calcutta

Solvency Ratios
The interest coverage ratio has
reduced significantly over the
years. It has reduced from 16 to
7. When the ratio goes south of
1.5, it is considered that the
ability of the company to meet
interest expenses may be
questionable. There is a notable
drop in the current cash debt
coverage which signifies a decline
in the liquidity of the firm.

Cash Flow Ratios

High cash flows can underline
the ability of a company to
generate cash and profits.
However, negative free cash flow
is not necessarily bad. It may
essentially mean that the
company is on an investing
spree. Taking a look at the free
cash flow of UltraTech over the years, it can be understood that the company has gradually reduced its
investing.

Du Pont Analysis
The return on equity has
decreased by almost 10
percentage points in the last 5
years. This is mainly due to
decrease in return on total
assets which is driven by a
decrease in net profit margin by
around 4 percentage points and
a decrease in asset turnover
ratio by 24%.

10 Indian Institute of Management, Calcutta

TREND AND COMMON SIZE ANALYSIS

Balance Sheet Trend Analysis Common Size Statement

Particulars 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012
Equity & Liabilities
Shareholder's Fund 161.25 146.64 132.95 118.47 100 54.78% 53.55% 57.46% 55.58% 56.05%
Non-current Liabilities 107.23 137.42 125.79 107.75 100 15.61% 21.50% 23.29% 21.66% 24.01%
Current Liabilities 244.93 192 125.14 136.31 100 29.61% 24.95% 19.25% 22.76% 19.95%
Total 164.97 153.47 129.67 119.45 100 100% 100% 100% 100% 100%
Assets
Fixed Assets 176.99 170.14 132.39 122.89 100 63.27% 65.37% 60.21% 60.67% 58.97%
Non-current Assets 180.56 164.03 109.45 113.59 100 12.45% 12.16% 9.60% 10.82% 11.38%
Current Assets 135.08 116.29 132.03 114.87 100 24.28% 22.47% 30.19% 28.52% 29.65%
Total 164.97 153.47 129.67 119.45 100 100% 100% 100% 100% 100%

 There is a significant shift in the composition of the liabilities, with a 28% increase in current
liabilities in the past 5 years, mainly attributed to an increase in ‘Other Current Liabilities’ and a
decrease in long-term borrowings, particularly from 2015 to 2016 where it has reduced by 46%
because of a 65% decrease (over 1000 crores) in the Unsecured ‘Term Loans’ from banks in foreign
currency.
 Another very interesting change in 2015-16 from 2014-2015 is the composition of short-term
borrowings themselves where the borrowings from unsecured sources increase from 10 crores to a
whopping 1487 crores whereas unsecured loans from banks fall by nearly 50% from 1244 to 605
crores.
 The fall in current assets in 2014-15, as evident from the Trend Analysis, is mainly because of a
decrease in current portion of long-term debt from 2585 crores to 1227 crores. This is more than
compensated by the 5000 crore increase in non-current fixed assets—with almost everything
coming from new equipment (4900 crores) and new land (1036 crores).

Income Statement Trend Analysis Common Size Statement

Particulars 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012
Sales 131.24 124.72 110.52 110.19 100 100% 100% 100% 100% 100%
Less: COGS 119.5 120.68 108.47 104.77 100 34.49% 36.65% 37.17% 36.01% 37.87%
Gross Profit 138.39 127.18 111.78 113.5 100 65.51% 63.35% 62.83% 63.99% 62.13%
Add: Operating Income 181.49 190.59 137.59 106.98 100 1.12% 1.23% 1.01% 0.78% 0.81%
Less: Operating expenses 153.38 141.32 122.76 112.8 100 52.68% 51.07% 50.06% 46.14% 45.07%
Operating profit 102.53 94.36 85.23 114.95 100 13.96% 13.51% 13.77% 18.63% 17.86%
Add: Non Operating Income 63.24 99.98 88.48 82.02 100 0.99% 1.64% 1.64% 1.52% 2.05%
EBIT 98.49 94.94 85.57 111.57 100 14.94% 15.16% 15.41% 20.16% 19.91%
Less: Finance and Interest costs 225.72 244.55 142.58 93.68 100 2.12% 2.42% 1.59% 1.05% 1.23%
EBT 90.1 85.07 81.8 112.75 100 12.82% 12.74% 13.82% 19.11% 18.68%
Less: tax 93.2 92.06 66.66 123.59 100 3.70% 3.85% 3.14% 5.84% 5.21%
EAT 88.9 82.36 87.67 108.55 100 9.12% 8.89% 10.68% 13.27% 13.47%

 Except in 2014 where the sales stagnated, the growth in sales has been relatively stable and grew at
5.38% CAGR. In 2014 though the stagnation in sales coupled with a 9% increase in operating
expenses (50% of the sales in 2014) led to a 25.8% decrease in Operating profit.
 Between 2013 and 2015 there was an 80% increase in operating income, but because they
contributed less than 2% of the total sales, the operating profit still fell nearly 18%. We can also

11 Indian Institute of Management, Calcutta

 see the steady increase in operating expenses outpacing the growth in sales and hence leading to an
abysmal 2.5% growth in 5 years leading to a negligible CAGR of only 0.5% per year.
 The decline in PAT though is a combination of many factors including an almost doubling of interest
costs eating away an important 1-2% of net sales with the interest coverage ratio falling from 16 to
7, as evident from the ratios.

COMPARATIVE ANALYSIS

Profitability
While it can be observed that
Ambuja enjoys highest Net Profit
margin for most of the 5 years,
despite declining prices ans sales.
Its ROE remains behind Ultratech
because of the way its financed.
Ultratech’s consistently higher
ROE, as evidenced in the plot, is
not the best representation of
profitability as its reliance on
debt conceals its low margins.
Return on Equity of UltraTech
decreased from 20% in 2012 to
almost 7% in 2016. Net profit
margin of UltraTech decreased
from 13% in 2012 to almost 9%
in 2016.

Efficiency
The working capital turnover of
Ultratech and ACC were better
than Ambuja's from 2012 to
2014. But in 2015, the working
capital turnover for ACC changed
from 23.03 to -41.31 due to
increase in trade receivables by
44% in 2016 and decrease in
cash and bank balances by 70%
in 2015. In 2016, the working
capital turnover of Ultratech
changed from 19.02 to -16.49 due
to a 100% increase in the other
current liabilities in 2016 and a
400% increase in short term
borrowings in 2015. However,
Ambuja was able to maintain a steady working capital turnover as they relied very less on short term
borrowings and other current liabilities. The operating cycle of all the 3 firms has been increasing for the last 3
years. The operating cycle of ACC has been consistently lowest compared to the other 2 firms which shows that
they are able to collect money faster from the customers then Ambuja and Ultratech.

12 Indian Institute of Management, Calcutta

Solvency
The Debt to Equity ratio of
Ambuja and ACC have been
very low consistently for the
last 5 years because they rely
very less on long term and
short term borrowings for
raising funds. The short-term
borrowings for Ambuja have
been 0 for the last 5 years and
the long-term borrowings
have been on an average INR
30 Cr per year as compared to
UltraTech's average of short-
term liabilities INR 855.4 Cr
per year and long-term
liabilities INR 3395 Cr. The
Free Cash Flow for UltraTech has been increasing for the last 3 years due to increase in cash flow from
operating activities from INR 3241 Cr in 2014 to INR 4330 Cr in 2016 and decrease in purchase of fixed assets
from INR 2228 Cr in 2014 to INR 2053 Cr in 2016. The Free Cash Flow of Ambuja was negative for 3 years
consistently from 2013 to 2015 due to high investment in purchase of fixed assets and high dividend income
paid.

Du-Pont Analysis
The Du-Pont analysis:-
ROE = ROA*FLM; ROA = Net
Profit Margin*Asset Turnover
From the analysis, Ultratech
has a ROE of 10.98% which is
higher than Ambuja (6.6%)
and ACC (7%). It has the
highest Financial Multiplier
1.85 as compared to Ambuja
(1.27) and ACC(1.54) which is
mainly due to higher liability.
The Asset turnover of ACC
(0.85) is higher as compared
to the other 2 firms (Ambuja
0.49 and Ultratech 0.65)but it
has the lowest Net profit
margin (Ultratech 9.12%,
Ambuja 10.59% and ACC 5.4%) among the 3.

13 Indian Institute of Management, Calcutta

FINANCIAL AND OPERATIONAL PERFORMANCE

Sales and Revenue

Sales revenue for Ultratech has increased from 18,166.40 cr. in 2012 to 23,841.00 cr. over a 5-year period
with a CAGR of +5.6%. This is perfectly emblematic of the situation the entire industry has been suffering
from in the past few years. And while the sales growth doesn’t look extremely worrying, when we
juxtapose with the increasing input prices and operating costs, the overall expenses has seen a CAGR of
8.93. Clearly this 8.93 increase in operating expenses is the primary reason behind fall in PAT—11.1%
over the past 5 years. Ultratech, despite lower net profit margin enjoys a higher operating margin than its
main competitors—Ambuja and ACC. Its operating margin of 13.96% in 2016 is considerably higher than
the margins of Ambuja (9.09%) and ACC (7.28%); this trend has only emerged in the last couple of years
which can be attributed an improved efficiency and falling operating expenses.

Liquidity
Another striking figure in Ultratech’s financials is its poor liquidity when compared to its peers. With 0.8 as
its current ratio against 0.99 and 1.14 for ACC and Ambuja respectively, Ultratech doesn’t quite possess the
same amount of cash required to either expand or fulfil all its obligations. Hence it is going for short-term
borrowings, which while working in the short-run, is definitely turning out to be even more exacting on its
liquidity and profitability

Solvency
What can be concerning when a firm suffers from poor liquidity is high short-term liabilities. With an
interest coverage ratio of 7 when others are operating at 12 and 19 Ultratech loses out quite a bit of its
operating income in financial costs. Ultratech, over the past 5 years, has mobilized little long-debt in the
form of non-convertible debentures and rupee-term loans and had repaid long terms of 1000+ crores in
line with the repayment schedule. Because of its operational inefficiencies and stagnant growth, it is
probably finding difficult to get long-term loans and hence is relying on short-term borrowings which have
increased from 160 crores to 2339 crores, a staggering increase of 2121 crores. Unlike other cement
industry companies where the debt/equity ratio is negligible, Ultratech possesses an unnerving ratio of
26% -- this ensures that any operating profit loses a considerable chunk in interest expenses

Capacity
The most important factor in analyzing operational performances of companies in the cement industry
happens to be capacity utilization. And it is this defect that is symptomatic of all the othr operational
ailments Ultratech suffers from. By failing to increase its capacity utilization despite seeing in its fixed
assets increase at nearly 12% CAGR, it has failed to leverage any operational opportunities. From 2012 to
2016 it has observed a steady decline in capacity utilization from 83% to 76%. This is a clear red flag
which needs to be addressed if it wishes to compete with the likes of ACC and Ambuja

Cost Highlights
Falling coal prices all over the world has benefited the cement industry marginally, but these gains have
been negated with an increased freight cost and devaluation of Rupee against the US Dollar. Besides, the
higher domestic coal and petcoke prices coupled with rising railway freight have also impacted the energy
cost thereby adding to the expenses and heavily impacting profit margins. Ultratech is spending money on
optimising the production process and raw mix design, which supports the use of low cost fuel. Another
avenue Ultratech is exploring is environment sustainability, it has undertaken projects that will allow the
consumption of alternative fuels, including hazardous waste, chemical waste, carbon etc. Ultratech aims to
raise alternative fuel usage to the extent of 5% of its total fuel requirement in the next 2-3 years. In 2015-
16, the share of alternative fuels in total fuel consumption was 3%, which is higher by over 50% as
compared to the previous year.

14 Indian Institute of Management, Calcutta