CHAPTER-I

INTRODUCTION

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1.1 INTRODUCTION
CAPITAL STRUCTURE:
The capital structure decision can affect the value of the firm either by changing the
expected earnings or the cost of capital or both.

The objective of the firm should be directed towards the maximization of the value of the
firm capital structure, or average, decision should be examined from the point of view of
its impact on the value of the firm

If the value of the firm can be affected by capital structure or financing decision a firm
would like to have a capital structure which maximizes the market value of the firm. The
capital structure decision can affect the value of the firm either by changing the expected
earnings or the cost of capital or both.

A mix of company’s longterm debt, a specific short-term debt, common equity and
preferred equity. The capital structure is how a firm finances its overall operations and
growth by using different souces of funds.

Debts comes in the forn of bond issues or long-term notes payable, while equity is
classified as common stock, preferred stock or retained earnings. Short-term debt such as
working capital requirements is also considered to be part of the capital structure.

The phrase “capital structure” can mean different things to different people. At its
simplest, capital structure reflects the equity and debt of the company. A privately held
company that plans to share equity with employees and raise outside capital generally as
atleast two classes of stock; common for founders and employees, and preferred for
investors. A company has a finite amount of equity to exchange for the financial and
talent resources necessary to execute your plan successfully. Great care should be taken
when planning the allocation of equity.

The assets of a company can be financed either by increasing the owners claim or
the creditors claim. The owners claims increase when the form raises funds by issuing
ordinary shares or by retaining the earnings, the creditors’ claims increase by borrowing.

2
The various means of financing represents the “financial structure” of an enterprise .The
financial structure of an enterprise is shown by the left hand side (liabilities plus equity)
of the balance sheet. Traditionally, short-term borrowings are excluded from the list of
methods of financing the firm’s capital expenditure, and therefore, the long term claims
are said to form the capital structure of the enterprise .The capital structure is used to
represent the proportionate relationship between debt and equity .Equity includes paid-up
share capital, share premium and reserves and surplus.

The financing or capital structure decision is a significant managerial decision .It

influences the shareholders returns and risk consequently; the market value of share may
be affected by the capital structure decision. The company will have to plan its capital
structure initially at the time of its promotion.

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1.2 NEED AND IMPORTANCE OF CAPITAL STRUCTURE:
The value of the firm depends upon its expected earnings stream and the rate used
to discount this stream. The rate used to discount earnings stream it’s the firm’s required
rate of return or the cost of capital. Thus, the capital structure decision can affect the
value of the firm either by changing the expected earnings of the firm, but it can affect
the reside earnings of the shareholders. The effect of leverage on the cost of capital is not
very clear. Conflicting opinions have been expressed on this issue. In fact, this issue is
one of the most continuous areas in the theory of finance, and perhaps more theoretical
and empirical work has been done on this subject than any other.
If leverage affects the cost of capital and the value of the firm, an optimum
capital structure would be obtained at that combination of debt and equity that maximizes
the total value of the firm or minimizes the weighted average cost of capital. The question
of the existence of optimum use of leverage has been put very succinctly by Ezra
Solomon in the following words.
Given that a firm has certain structure of assets, which offers net operating
earnings of given size and quality, and given a certain structure of rates in the capital
markets, is there some specific degree of financial leverage at which the market value of
the firm’s securities will be higher than at other degrees of leverage?

The existence of an optimum capital structure is not accepted by all. These exist
two extreme views and middle position. David Durand identified the two extreme views
the net income and net operating approaches.

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 1.3 SCOPE OF THE STUDY:

A study of the capital structure involves an examination of long term as well as

short term sources that a company taps in order to meet its requirements of finance. The
scope of the study is confined to the sources that ULTRATECH CEMENT LTD tapped
over the years under study i.e. 2018-2022.

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 1.4 OBJECTIVES OF THE STUDY:

The project is an attempt to seek an insight into the aspects that are involved in the capital
structuring and financial decisions of the company. This project endeavors to achieve the
following objectives.

1. To Study the capital structure of ULTRATECH CEMENT LTD through EBIT-EPS

analysis
2. To Study the effectiveness of financing decision on EPS and EBIT of the firm.
3. To examining the leverage analysis of ULTRATECH CEMENT LTD.
4.To examining the financing trends in the ULTRATECH CEMENT LTD. For the
period of . 2018-2022.
5. To study debt/equity ratio of ULTRATECH CEMENT LTD will be estimatedfor .
2018-2022.

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1.5 RESEARCH METHODOLOGY AND RESEARCH DESIGN:

Data relating to ULTRATECH CEMENT LTD. Has been collected through

SECONDARY SOURCES:
 Drawn from the annual reports of the company during the period of . 2018-2022

 Detailed discussion with vice-president

 Discussions with the finance manager and other members of the finance department

RESEARCH DESIGN :
The collected data has been processed using the tools of
 Ratio analysis:
1. Debt ratio : the ratio of debt to total capital, i.e.,

Where, D is value of debt, S is value of equity and V is value of total

capital D and S may be measured in terms of book value or market value. The book value
of equity is called not worth.
2. Debt-equity ratio: The ratio of debt to equity, i.e.,

3. Interest coverage: the ratio of net operating income (or EBIT) to interest charges, i.e.,

 Graphical Analysis :
1. Bar charts : A Bar chart displays the frequency on one axis and the values of the
values of the categorical variable on the other axis .

15
10 Series 3
5 Series 2
Series 1
0
Category Category Category Category
1 2 3 4

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2. Pie charts : A pie chart is a graphical representation technique that displays data in

Sales
1st Qtr 2nd Qtr
3rd Qtr 4th Qtr

a circular-shaped graph.
3, Scatter diagram : Scatter diagram is a type of plot or mathematical diagram using
carestesian coordinates to display values for typically two variables for a set of data.

Y-Values
4
3 Y-Values
2
1
0
0.5 1 1.5 2 2.5 3

 Year –Year Analysis : A Comparision used to determine how a business is

performing in a certain category based on the difference from the previous year.
Year-year analysis is also called as Year over Year analysis.

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LIMITATION :

1.EPS is one of the mostly widely used measures of the company’s performance in
practice.
2.As a result of this, in choosing between debt and equity in practice, sometimes too
much attention is paid on EPS, which however, has serious limitations as a financing-
decision criterion.
3.The major short coming of the EPS as a financing-decision criterion is that it does not
consider risk; it ignores variability about the expected value of EPS.
4. The belief that investors would be just concerned with the expected EPS is not well
founded.
5. Investors in valuing the shares of the company consider both expected value and
variability.

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 CHAPTER-II
REVIEW OF LITERATURE

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 THEORETICAL FRAMEWORK

FINANCIAL LEVERAGE AND THE SHAREHOLDERS RISK

Financial leverage magnifies the shareholders earnings we also find that the

variability of EBIT causes EPS to fluctuate within wider ranges with debt in the capital

structure that is with more debt EPS raises and falls faster than the rise and fall in EBIT.

Thus financial leverage not only magnifies EPS but also increases its variability.

The variability of EBIT and EPs distinguish between two types of risk-

operating risk and financial risk. The distinction between operating and financial risk was

long ago recognized by Marshall in the following words.

OPERATING RISK: -

Operating risk can be defined as the variability of EBIT (or return on total assets).

The environment internal and external in which a firm operates determines the variability

of EBIT. So long as the environment is given to the firm, operating risk is an unavoidable

risk. A firm is better placed to face such risk if it can predict it with a fair degree of

accuracy

THE VARIABILITY OF EBIT HAS TWO COMPONENT

1. Variability of sales

2. Variability of expenses
1. VARIABILITY OF SALES:

The variability of sales revenue is in fact a major determinant of operating

risk. Sales of a company may fluctuate because of three reasons. First the changes in
general economic conditions may affect the level of business activity. Business cycle is
an economic phenomenon, which affects sales of all companies. Second certain events
affect sales of company belongings to a particular industry for example the general

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economic condition may be good but a particular industry may be hit by recession, other
factors may include the availability of raw materials, technological changes, action of
competitors, industrial relations, shifts in consumer preferences and so on. Third sales
may also be affected by the factors, which are internal to the company. The change in
management the product market decision of the company and its investment policy or
strike in the company has a great influence on the company’s sales.
2. VARIABILITY OF EXPENSES: -
Given the variability of sales the variability of EBIT is further affected by the
composition of fixed and variable expenses. Higher the proportion of fixed expenses
relative to variable expenses, higher the degree of operating leverage. The operating
leverage affects EBIT. High operating leverage leads to faster increase in EBIT when
sales are rising. In bad times when sales are falling high operating leverage becomes a
nuisance; EBIT declines at a greater rate than fall in sales. Operating leverage causes
wide fluctuations in EBIT with varying sales. Operating expenses may also vary on
account of changes in input prices and may also contribute to the variability of EBIT.
FINANCIAL RISK: -
For a given degree of variability of EBIT the variability of EPS and ROE
increases with more financial leverage. The variability of EPS caused by the use of
financial leverage is called “financial risk”. Firms exposed to same degree of operating
risk can differ with respect to financial risk when they finance their assets differently. A
totally equity financed firm will have no financial risk. But when debt is used the firm
adds financial risk. Financial risk is this avoidable risk if the firm decides not to use any
debt in its capital structure.

MEASURES OF FINANCIAL LEVERAGE: -

The most commonly used measured of financial leverage are:

1. Debt ratio: the ratio of debt to total capital, i.e.,

Where, D is value of debt, S is value of equity and V is value of total

capital D and S may be measured in terms of book value or market value. The book value
of equity is called not worth.

2. Debt-equity ratio: The ratio of debt to equity, i.e.,

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3. Interest coverage: the ration of net operating income (or EBIT) to interest charges,
i.e.,

The first two measures of financial leverage can be expressed in terms of book or
market values. The market value to financial leverage is the erotically more appropriate
because market values reflect the current altitude of investors. But, it is difficult to get
reliable information on market values in practice. The market values of securities
fluctuate quite frequently.

There is no difference between the first two measures of financial leverage in

operational terms. They are related to each other in the following manner.

These relationships indicate that both these measures of financial leverage will
rank companies in the same order. However, the first measure (i.e., D/V) is more specific
as its value ranges between zeros to one. The value of the second measure (i.e., D/S) may
vary from zero to any large number. The debt-equity ratio, as a measure of financial
leverage, is more popular in practice. There is usually an accepted industry standard to
which the company’s debt-equity ratio is compared. The company will be considered
risky if its debt-equity ratio exceeds the industry-standard. Financial institutions and
banks in India also focus on debt-equity ratio in their lending decisions.

The first two measures of financial leverage are also measures of capital gearing.
They are static in nature as they show the borrowing position of the company at a point of
time. These measures thus fail to reflect the level of financial risk, which inherent in the
possible failure of the company to pay interest repay debt.

The third measure of financial leverage, commonly known as coverage ratio, indicates
the capacity of the company to meet fixed financial charges. The reciprocal of interest

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coverage that is interest divided by EBIT is a measure of the firm’s incoming gearing.
Again by comparing the company’s coverage ratio with an accepted industry standard,
the investors, can get an idea of financial risk .however, this measure suffers from certain
limitations. First, to determine the company’s ability to meet fixed financial obligations,
it is the cash flow information, which is relevant, not the reported earnings. During
recessional economic conditions, there can be wide disparity between the earnings and
the net cash flows generated from operations. Second, this ratio, when calculated on past
earnings, does not provide any guide regarding the future risky ness of the company.
Third, it is only a measure of short-term liquidity than of leverage.

FINANCIAL LEVERAGE AND THE SHARE HOLDER’S RETURN:

The primary motive of a company in using financial leverage is to magnify the
shareholder’s return under favorable economic conditions. The role of financial leverage
in magnifying the return of the shareholders is based under assumption that the fixed
charges funds (such as the loan from financial institutions and other sources or
debentures) can be obtained at a cost lower than the firm’s rate of return on net assets.
Thus, when the difference between the earnings generalized by assets financed by the
fixed charges funds and cost of these funds is distributed to the shareholders, the earnings
per share (EPS) or return on equity increase. However, EPS or ROE will fall if the
company obtains the fixed charges funds at a cost higher than the rate of return on the
firm’s assets. It should, therefore, be clear that EPS, ROE and ROI are the important
figures for analyzing the impact of financial leverage.

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 COMBINED EFFECT OF OPERATING AND FINANCIAL
LEVERAGES

Operating and financial leverages together cause wide fluctuations in EPS

for a given change in sales. If a company employs a high level of operating and financial
leverage, even a small change in the level of sales will have dramatic effect on EPS. A
company with cyclical sales will have a fluctuating EPS; but the swings in EPS will be
more pronounced if the company also uses a high amount of operating and financial
leverage.

The degree of operating and financial leverage can be combined to see the
effect of total leverage on EPS associated with a given change in sales. The degree of
combined leverage (DCL) is given by the following equation:

Yet another way of expressing the degree of combined leverage is as

follows:

Since Q (S-V) is contribution and Q (S-V)-F-INT is the profit after

interest but before taxes, Equation 2 can also be written as follows:

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CAPITAL STRUCTURE DEFINED:

The assets of a company can be financed either by increasing the owners claim or
the creditors claim. The owners claims increase when the form raises funds by issuing
ordinary shares or by retaining the earnings, the creditors’ claims increase by
borrowing .The various means of financing represents the “financial structure” of an
enterprise .The financial structure of an enterprise is shown by the left hand side
(liabilities plus equity) of the balance sheet. Traditionally, short-term borrowings are
excluded from the list of methods of financing the firm’s capital expenditure, and
therefore, the long term claims are said to form the capital structure of the enterprise .The
capital structure is used to represent the proportionate relationship between debt and
equity .Equity includes paid-up share capital, share premium and reserves and surplus.

The financing or capital structure decision is a significant managerial decision .It

influences the shareholders returns and risk consequently; the market value of share may
be affected by the capital structure decision. The company will have to plan its capital
structure initially at the time of its promotion.

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 FACTORS AFFECTING THE CAPITAL STRUCTURE:

 LEVERAGE: The use of fixed charges of funds such as preference shares, debentures
and term-loans along with equity capital structure is described as financial leverage or
trading on. Equity. The term trading on equity is used because for raising debt.

DEBT /EQUITY RATIO-Financial institutions while sanctioning long-term

loans insists that companies should generally have a debt –equity ratio of 2:1
for medium and large scale industries and 3:1 indicates that for every unit of
equity the company has, it can raise 2 units of debt. The debt-equity ratio
indicates the relative proportions of capital contribution by creditors and
shareholders.
 EBIT-EPS ANALYSIS-In our research for an appropriate capital structure we need to
understand how sensitive is EPS (earnings per share) to change in EBIT (earnings before
interest and taxes) under different financing alternatives.

The other factors that should be considered whenever a capital structure decision
is taken are
 Cost of capital
 Cash flow projections of the company
 Size of the company
 Dilution of control
 Floatation costs

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 FEATURES OF AN OPTIMAL CAPITAL STRUCTURE:

An optimal capital structure should have the following features,

1. PROFITABILITY: - The Company should make maximum use of leverages at a
minimum cost.
2. FLEXIBILITY: - The capital structure should be flexible to be able to meet the
changing conditions .The company should be able to raise funds whenever the need arises
and costly to continue with particular sources.
3. CONTROL: - The capital structure should involve minimum dilution of control of
the company.
4. SOLVENCY: - The use of excessive debt threatens the solvency of the company.
In a high interest rate environment, Indian companies are beginning to realize the
advantage of low debt.

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 CAPITAL STRUCTURE AND FIRM VALUE:

Since the objective of financial management is to maximize shareholders wealth,

the key issue is: what is the relationship between capital structure and firm value?
Alternatively, what is the relationship between capital structure and cost of capital?
Remember that valuation and cost of capital are inversely related. Given a certain level of
earnings, the value of the firm is maximized when the cost of capital is minimized and
vice versa.
There are different views on how capital structure influences value. Some argue
that there is no relationship what so ever between capital structure and firm value; other
believe that financial leverage (i.e., the use of debt capital) has a positive effect on firm
value up to a point and negative effect thereafter; still others contend that, other things
being equal, greater the leverage, greater the value of the firm.

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 CHART 1-CAPITAL STRUCTURE DIAGRAM

The Capital Structure Decision Process

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 CAPITAL STRUCTURE AND PLANNING:

Capital structure refers to the mix of long-term sources of funds. Such as

debentures, long-term debt, preference share capital including reserves and surplus (i.e.,
retained earnings) The board of directors or the chief financial officer (CEO) of a
company should develop an appropriate capital structure, which are most factors to the
company. This can be done only when all those factors which are relevant to the
company’s capital structure decision are properly analyzed and balanced. The capital
structure should be planned generally keeping in view the interests of the equity
shareholders, being the owners of the company and the providers of risk capital (equity)
would be concerned about the ways of financing a company’s operations. However, the
interests of other groups, such as employees, customers, creditors, society and
government, should also be given reasonable consideration. When the company lays
down its objective in terms of the shareholder’s wealth maximization (SWM), it is
generally compatible with the interests of other groups. Thus while developing an
appropriate capital structure for its company, the financial manager should inter alia aim
at maximizing the long-term market price per share. Theoretically, there may be a precise
point or range within an industry there may be a range of an appropriate capital structure
with in which there would not be great differences in the market value per share. One
way to get an idea of this range is to observe the capital structure patterns of companies’
vis-à-vis their market prices of shares. It may be found empirically that there are not
significant differences in the share values within a given range. The management of a
company may fix its capital structure near the top of this range in order to make
maximum use of favorable leverage, subject to other requirements such as flexibility,
solvency, control and norms set by the financial institutions, the security exchange Board
of India (SEBI) and stock exchanges.

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 FEATURES OF AN APPROPRIATE CAPITAL STRUCTURE: -

The board of Director or the chief financial officer (CEO) of a company should
develop an appropriate capital structure, which is most advantageous to the company.
This can be done only when all those factors, which are relevant to the company’s capital
structure decision, are properly analyzed and balanced. The capital structure should be
planned generally keeping in view the interest of the equity shareholders and financial
requirements of the company. The equity shareholders being the shareholders of the
company and the providers of the risk capital (equity) would be concerned about the
ways of financing a company’s operation. However, the interests of the other groups,
such as employees, customer, creditors, and government, should also be given reasonable
consideration. When the company lay down its objectives in terms of the shareholders
wealth maximizing (SWM), it is generally compatible with the interest of the other
groups. Thus, while developing an appropriate capital structure for it company, the
financial manager should inter alia aim at maximizing the long-term market price per
share. Theoretically there may be a precise point of range with in which the market value
per share is maximum. In practice for most companies with in an industry there may be a
range of appropriate capital structure with in which there would not be great differences
in the market value per share. One way to get an idea of this range is to observe the
capital structure patterns of companies’ Vis-a Vis their market prices of shares. It may be
found empirically that there is no significance in the differences in the share value within
a given range. The management of the company may fit its capital structure near the top
of its range in order to make of maximum use of favorable leverage, subject to other
requirement (SEBI) and stock exchanges.

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 A SOUND OR APPROPRIATE CAPITAL STRUCTURE SHOULD
HAVE THE FOLLOWING FEATURES

1) RETURN: the capital structure of the company should be most advantageous, subject to
the other considerations; it should generate maximum returns to the shareholders without
adding additional cost to them.
2) RISK: the use of excessive debt threatens the solvency of the company. To the point debt
does not add significant risk it should be used other wise it uses should be avoided.
3) FLEXIBILITY: the capital structure should be flexibility. It should be possible to the
company adopt its capital structure and cost and delay, if warranted by a changed
situation. It should also be possible for a company to provide funds whenever needed to
finance its profitable activities.
4) CAPACITY: -The capital structure should be determined within the debt capacity of the
company and this capacity should not be exceeded. The debt capacity of the company
depends on its ability to generate future cash flows. It should have enough cash flows to
pay creditors, fixed charges and principal sum.
5) CONTROL: The capital structure should involve minimum risk of loss of control of the
company. The owner of the closely held company’s of particularly concerned about
dilution of the control.

APPROACHES TO ESTABLISH APPROPRIATE CAPITAL

STRUCTURE:
The capital structure will be planned initially when a company is incorporated .The
initial capital structure should be designed very carefully. The management of the company
should set a target capital structure and the subsequent financing decision should be made
with the a view to achieve the target capital structure .The financial manager has also to
deal with an existing capital structure .The company needs funds to finance its activities
continuously. Every time when fund shave to be procured, the financial manager weighs
the pros and cons of various sources of finance and selects the most advantageous sources
keeping in the view the target capital structure. Thus, the capital structure decision is a
continues one and has to be taken whenever a firm needs additional Finances.

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 The following are the three most important approaches to decide about a firm’s
capital structure.

 EBIT-EPS approach for analyzing the impact of debt on EPS.

 Valuation approach for determining the impact of debt on the shareholder’s value.

 Cash flow approached for analyzing the firm’s ability to service debt.

In addition to these approaches governing the capital structure decisions, many other
factors such as control, flexibility, or marketability are also considered in practice.

EBIT-EPS APPROACH:

We shall emphasize some of the main conclusions here .The use of fixed cost
sources of finance, such as debt and preference share capital to finance the assets of the
company, is know as financial leverage or trading on equity. If the assets financed with the
use of debt yield a return greater than the cost of debt, the earnings per share also increases
without an increase in the owner’s investment.

The earnings per share also increase when the preference share capital is used to acquire
the assets. But the leverage impact is more pronounced in case of debt because

1. The cost of debt is usually lower than the cost of performance share capital and

2. The interest paired on debt is tax deductible.

Because of its effect on the earnings per share, financial leverage is an

important consideration in planning the capital structure of a company. The companies
with high level of the earnings before interest and taxes (EBIT) can make profitable use of
the high degree of leverage to increase return on the shareholder’s equity. One common
method of examining the impact of leverage is to analyze the relationship between EPS and
various possible levels of EBIT under alternative methods of financing.

The EBIT-EPS analysis is an important tool in the hands of financial manager to get an
insight into the firm’s capital structure management .He can considered the possible
fluctuations in EBIT and examine their impact on EPS under different financial plans of the
probability of earning a rate of return on the firm’s assets less than the cost of debt is
insignificant, a large amount of debt can be used by the firm to increase the earning for
share. This may have a favorable effect on the market value per share. On the other hand, if
24
the probability of earning a rate of return on the firm’s assets less than the cost of debt is
very high, the firm should refrain from employing debt capital .it may, thus, be concluded
that the greater the level of EBIT and lower the probability of down word fluctuation, the
more beneficial it is to employ debt in the capital structure However, it should be realized
that the EBIT EPS is a first step in deciding about a firm’s capital structure .It suffers from
certain limitations and doesn’t provide unambiguous guide in determining the capital
structure of a firm in practice.

RATIO ANALYSIS: -

The primary user of financial statements are evaluating part performance and
predicting future performance and both of these are facilitated by comparison. Therefore
the focus of financial analysis is always on the crucial information contained in the
financial statements. This depends on the objectives and purpose of such analysis. The
purpose of evaluating such financial statement is different form person to person
depending on its relationship. In other words even though the business unit itself and
shareholders, debenture holders, investors etc. all under take the financial analysis differs.
For example, trade creditors may be interested primarily in the liquidity of a firm because
the ability of the business unit to play their claims is best judged by means of a through
analysis of its l9iquidity. The shareholders and the potential investors may be interested
in the present and the future earnings per share, the stability of such earnings and
comparison of these earnings with other units in thee industry. Similarly the debenture
holders and financial institutions lending long-term loans maybe concerned with the cash
flow ability of the business unit to pay back the debts in the long run. The management of
business unit, it contrast, looks to the financial statements from various angles. These
statements are required not only for the management’s own evaluation and decision
making but also for internal control and overall performance of the firm. Thus the scope
extent and means of any financial analysis vary as per the specific needs of the analyst.
Financial statement analysis is a part of the larger information processing system, which
forms the very basis of any “decision making” process.
The financial analyst always needs certain yardsticks to evaluate the
efficiency and performance of business unit. The one of the most frequently used
yardsticks is ratio analysis. Ratio analysis involves the use of various methods for
calculating and interpreting financial ratios to assess the performance and status of the
business unit.
25
It is a tool of financial analysis, which studies the numerical or quantitative relationship
between with other variable and such ratio value is compared with standard or norms in
order to highlight the deviations made from those standards/norms. In other words, ratios
are relative figures reflecting the relationship between variables and enable the analysts to
draw conclusions regarding the financial operations.
However, it must be noted that ratio analysis merely highlights the potential areas
of concern or areas needing immediate attention but it does not come out with the
conclusion as regards causes of such deviations from the norms. For instance, ABC Ltd.
Introduced the concept of ratio analysis by calculating the variety of ratios and comparing
the same with norms based on industry averages. While comparing the inventory ratio
was 22.6 as compared to industry average turnover ratio of 11.2. However on closer sell
tiny due to large variation from the norms, it was found that the business unit’s inventory
level during the year was kept at extremely low level. This resulted in numerous
production held sales and lower profits. In other words, what was initially looking like an
extremely efficient inventory management, turned out to be a problem area with the help
of ratio analysis? As a matter of caution, it must however be added that a single ration or
two cannot generally provide that necessary details so as to analyze the overall
performance of the business unit.
In order to arrive at the reasonable conclusion regarding overall performance of
the business unit, an analysis of the entire group of ratio is required. However, ration
analysis should not be considered as ultimate objective test but it may be carried further
based on the out come and revelations about the causes of variations. Sometimes large
variations are due to unreliability of financial data or inaccuracies contained therein
therefore before taking any decision the basis of ration analysis, their reliability must be
ensured.

Similarly, while doing the inter-firm comparison, the variations may be due to
different technologies or degree of risk in those units or items to be examined are in fact
the comparable only. It must be mentioned here that if ratios are used to evaluate
operating performance, these should exclude extra ordinary items because there are
regarded as non-recurring items that do not reflect normal performance.

Ratio analysis is the systematic process of determining and interpreting the

numerical relationship various pairs of items derived from the financial statements of a

26
business. Absolute figures do not convey much tangible meaning and is not meaningful
while comparing the performance of one business with the other.

It is very important that the base (or denominator) selected for each ratio is
relevant with the numerator. The two must be such that one is closely connected and is
influenced by the other

CAPITAL STRUCTURE RATIOS

Capital structure or leverage ratios are used to analyze the long-term solvency or
stability of a particular business unit. The short-term creditors are interested in current
financial position and use liquidity ratios. The long-term creditors world judge the
soundness of a business on the basis of the long-term financial strength measured in
terms of its ability to pay the interest regularly as well as repay the installment on due
dates. This long-term solvency can be judged by using leverage or structural ratios.
There are two aspects of the long-term solvency of a firm:-
1. Ability to repay the principal when due, and
2. Regular payment of interest, there are thus two different but mutually dependent and
interrelated types of leverage ratio such as:

THE CAPITAL STRUCTURE CONTROVERSY:

The value of the firm depends upon its expected earnings stream and the rate used
to discount this stream. The rate used to discount earnings stream it’s the firm’s required
rate of return or the cost of capital. Thus, the capital structure decision can affect the
value of the firm either by changing the expected earnings of the firm, but it can affect
the reside earnings of the shareholders. The effect of leverage on the cost of capital is not
very clear. Conflicting opinions have been expressed on this issue. In fact, this issue is
one of the most continuous areas in the theory of finance, and perhaps more theoretical
and empirical work has been done on this subject than any other.

If leverage affects the cost of capital and the value of the firm, an optimum capital
structure would be obtained at that combination of debt and equity that maximizes the
total value of the firm or minimizes the weighted average cost of capital. The question of
the existence of optimum use of leverage has been put very succinctly by Ezra Solomon
in the following words.

27
 Given that a firm has certain structure of assets, which offers net operating
earnings of given size and quality, and given a certain structure of rates in the capital
markets, is there some specific degree of financial leverage at which the market value of
the firm’s securities will be higher than at other degrees of leverage?
The existence of an optimum capital structure is not accepted by all. These exist
two extreme views and middle position. David Durand identified the two extreme views
the net income and net operating approaches.

1. Net Income Approach:

Under the net income approach (NI), the cost of debt and cost of equity are
assumed to be independent to the capital structure. The weighted average cost of capital
declines and the total value of the firm rise with increased use of leverage.

2. Net Operating Income Approach:

Under the net operating income (NOI) approach, the cost of equity is assumed to
increase linearly with average. As a result, the weighted average cost of capital remains
constant and the total value of the firm also remains constant as leverage is changed.

3. Traditional Approach:
According to this approach, the cost of capital declines and the value of
the firm increases with leverage up to a prudent debt level and after reaching the
optimum point, coverage cause the cost of capital to increase and the value of the firm to
decline.

Thus, if NI approach is valid, leverage is significant variable and financing

decisions have an important effect on the value of the firm. On the other hand, if the NOI
approach is correct then the financing decisions should not be a great concern to the
financing manager, as it does not matter in the valuation of the firm.

Modigliani and Miller (MM) support the NOI approach by providing

logically consistent behavioral justifications in its favor. They deny the existence of an
optimum capital structure between the two extreme views; we have the middle position
or intermediate version advocated by the traditional writers.

28
Thus these exists an optimum capital structure at which the cost of capital is minimum.
The logic of this view is not very sound. The MM position changes when corporate taxes
are assumed. The interest tax shield resulting from the use of debt adds to the value of the
firm. This advantage reduces the when personal income taxes are considered.

Capital Structure Matters: The Net Income Approach:

The essence of the net income (NI) approach is that the firm can increase its value or
lower the overall cost of capital by increasing the proportion of debt in the capital
structure. The crucial assumptions of this approach are:

1.The use of debt does not change the risk perception of investors; as a result, the equity
capitalization rate, kc and the debt capitalization rate, kd, remain constant with changes in
leverage.
2.The debt capitalization rate is less than the equity capitalization rate (i.e. kd<ke)
3.The corporate income taxes do not exist.

The first assumption implies that, if k e and kd are constant increased use by debt by
magnifying the shareholders earnings will result in higher value of the firm via higher
value of equity consequently the overall or the weighted average cost of capital k o, will
decrease. The overall cost of capital is measured by equation: (1)

It is obvious from equation 1 that, with constant annual net operating income (NOI), the
overall cost of capital would decrease as the value of the firm v increases. The overall
cost of capital ko can also be measured by
KO = Ke - (Ke - Kd) D/V

As per the assumptions of the NI approach Ke and Kd are constant and Kd

is less than Ke. Therefore, Ko will decrease as D/V increases. Equation 2 also implies that
the overall cost of capital Ko will be equal to Ke if the form does not employ any debt (i.e.
D/V =0), and that Ko will approach Kd as D/V approaches one.

NET OPERATING INCOME APPROACH

29
According to the met operating income approach the overall capitalization rate and the
cost of debt remain constant for all degree of leverage.

rA and rD are constant for all degree of leverage. Given this, the cost of equity can be
expressed as.

The critical premise of this approach is that the market capitalizes the firm as a
whole at discount rate, which is independent of the firm’s debt-equity ratio. As a
consequence, the decision between debt and equity is irrelevant. An increase in the use of
debt funds which are ‘apparently cheaper’ or offset by an increase in the equity
capitalization rate. This happens because equity investors seek higher compensation as
they are exposed to greater risk arising from increase in the degree of leverages. They
raise the capitalization rate rE (lower the price earnings ratio, as the degree of leverage
increases.

The net operating income position has been \advocated eloquently by

David Durand. He argued that the market value of a firm depends on its net operating
income and business risk. The change in the financial leverage employed by a firm
cannot change these underlying factors. It merely changes the distribution of income and
risk between debt and equity, without affecting the total income and risk which influence
the market value (or equivalently the average cost of capital) of the firm. Arguing in a
similar vein, Modigliani and Miller, in a seminal contribution made in 2058, forcefully
advanced the proposition that the cost of capital of a firm is independent of its capital
structure.

30
 COST OF CAPITAL AND VALUATION APPROACH

The cost of a source of finance is the minimum return expected by its

suppliers. The expected return depends on the degree of risk assumed by investors. A
high degree of risk is assumed by shareholders than debt-holders. In the case of debt-
holders, the rate of interest is fixed and the company is legally bound to pay dividends
even if the profits are made by the company. The loan of debt-holders is returned within a
prescribed period, while shareholders will have to share the residue only when the
company is wound up.

This leads one to conclude that debt is cheaper source of funds than equity. This is
generally the case even when taxes are not considered. The tax deductibility of interest
charges further reduces the cost of debt. The preference share capital is also cheaper than
equity capital, but not as cheap as debt. Thus, using the component, or specific, cost of
capital as criterion for financing decisions and ignoring risk, a firm would always like to
employ debt since it is the cheapest source of funds.
CASH FLOW APPROACH:

One of the features of a sound capital structure is conservatism does not mean
employing no debt or small amount of debt. Conservatism is related to the fixed charges
created by the use of debt or preference capital in the capital structure and the firm’s
ability to generate cash to meet these fixed charges. In practice, the question of the
optimum (appropriate) debt –equity mix boils down to the fir’s ability to service debt
without any threat of insolvency and operating inflexibility. A firm is considered
prudently financed if it is able to service its fixed charges under any reasonably
predictable adverse conditions.

The fixed charges of a company include payment of interest, preference

dividend and principal, and they depend on both the amount of loan securities and the
terms of payment. The amount of fixed charges will be high if the company employs a
large amount of debt or preference capital with short-term maturity. Whenever a
company thinks of raising additional debt, it should analyze its expected future cash
flows to meet the fixed charges. It is mandatory to pay interest and return the principal
amount of debt of a company not able to generate enough cash to meet its fixed
31
obligation; it may have to face financial insolvency. The companies expecting larger and
stable cash inflows in to employ fixed charge sources of finance by those companies
whose cash inflows are unstable and unpredictable.

It is possible for high growth, profitable company to suffer from cash shortage if the
liquidity (working capital) management is poor. We have examples of companies like
BHEL, NTPC, etc., whose debtors are very sticky and they continuously face liquidity
problem in spite of being profitability servicing debt is very burdensome for them.

One important ratio which should be examined at the time of planning the
capital structure is the ration of net cash inflows to fixed changes (debt saving ratio). It
indicates the number of times the fixed financial obligation are covered by the net cash
inflows generated by the company.

EPS VARIABILITY AND FINANCIAL RISK: -

The EPS variability resulting from the use of leverage is called financial risk.
Financial risk is added with the use of debt because of

(a) The increased variability in the shareholders earnings and

(b) The threat of insolvency. A firm can avid financial risk altogether if it does
not employ any debt in its capital structure. But then the shareholders will be deprived of

32
 the benefit of the financial risk perceived by the shareholders, which does not exceed the
benefit of increase EPS. As we have seen, if a company increase its debt beyond a point
the expected EPS will continue to increase but the value of the company increases its
debt beyond a point, the expected EPS will continue to increase, but the value of the
company will fall because of the greater exposure of shareholders to financial risk in the
form of financial distress. The EPS criterion does not consider the long-term perspectives
of financing decisions. It fails to deal with the risk return trade-off. A long term view of
the effects of the financing decisions, will lead one to a criterion of the wealth
maximization rather that EPS maximization. The EPS criterion is an important
performance measure but not a decision criterion.

Given limitations, should the EPS criterion be ignored in making financing

decision? Remember that it is an important index of the firm’s performance and that
investors rely heavily on it for their investment decisions. Investors do not have
information in the projected earnings and cash flows and base their evaluation and
historical data. In choosing between alternative financial plans, management should start
with the evaluation of the impact of each alternative on near-term EPS. But
management’s ultimate decision making should be guided by the best interests of
shareholders.

Therefore, a long-term view of the effect of the alternative financial plans on the value of
the shares should be taken, o management opts for a financial plan which will maximize
value in the long run but has an adverse impact in near-term EPS, and the reasons must
be communicated to investors. A careful communication to market will be helpful in
reducing the misunderstanding between management and Investors.

COMPOSITION AND OBSERVATION

The sources tapped by ULTRATECH CEMENT LTDIndustries Ltd. Can be classified

into:

 Shareholders’ funds resources

 Loan fund resources
SHAREHOLDER FUND RESOURCES:
33
 Shareholder’s fund consists of equity capital and retained earnings.
EQUITY CAPITAL BUILD-UP
1.From 2095, the Authorized capital is Rs.450 lacs of equity shares at Rs.10 each. The
issued equity capital is RS.1922.93 lacs at Rs.10 each for the period 2002-2019 and
subscribed and paid-up capital is Rs. 1922.93 lacs at Rs.10 each for the period of 2004-
2019.
3.There is an increase of 1.38% in the equity from 2005-2021.
RETAINED EARNINGS COMPOSITION
This includes…
 Capital Reserve
 Share Premium Account
 General Reserve
 Contingency Reserve
 Debentures Redemption Reserve
 Investment Allowance Reserve
 Profit & Loss Account

1. The profit levels, company dividend policy and growth plans determined. The amounts
transferred from P&L A/c to General Reserve. Contingency Reserve and Investment
Allowance Reserve.

2. The Investment Allowance Reserve is created for replacement of long term leased assets
and this reserve was removed from books because assets pertaining to such reserves
ceased to exist. The account was transferred to investment allowance utilized.

Capital structure describes how a corporation has organized its capital—how it obtains
the financial resources with which it operates its business. Businesses adopt various
capital structures to meet both internal needs for capital and external requirements for
returns on shareholders investments. As shown on its balance sheet, a company's
capitalization is constructed from three basic blocks:

1 Long-term debt. By standard accounting definition, long-term debt includes

obligations that are not due to be repaid within the next 12 months. Such debt

34
 consists mostly of bonds or similar obligations, including a great variety of notes,
capital lease obligations, and mortgage issues.

2 Preferred stock. This represents an equity (ownership) interest in the corporation, but
one with claims ahead of the common stock, and normally with no rights to share in
the increased worth of a company if it grows.

3 Common stockholders' equity. This represents the underlying ownership. On the

corporation's books, it is made up of: (I) the nominal par or stated value assigned to
the shares of outstanding stock; (2) the capital surplus or the amount above par value
paid the company whenever it issues stock; and (3) the earned surplus (also called
retained earnings), which consists of the portion of earnings a company retains after
paying out dividends and similar distributions. Put another way, common stock
equity is the net worth after all the liabilities (including long-term debt), as well as
any preferred stock, are deducted from the total assets shown on the balance sheet.
For investment analysis purposes, security analysts may use the company's market
capitalization—the current market price times the number of common shares.

2.2 ARTICLES:

Article : 1

Title : capital Structure Ownership Structure

Authors : Boodhoo Roshan

Source :The journal of online education, new work January-2009

Abstract : There have always be controversies among finance scholars when it

comes to the subject of the capital structure. So far, researches have not at reached a
35
consensus in the optimal structure of firms by simultaneously dealing with the
agency problem.

Article : 2

Title :Dynamic capital structure. A comparative analysis between ICT and NON ICT
firms

Authors : Dany Aoun And Junseok Hwang

Source :ICFAI journals of industrial economic may-2007

Abstract :This paper develops a model of dynamic capital structure based on a

simple of NASDAQ listed firms and estimated the unobservable optimal capital
structure using a wide range of observable determinants.

36
Article : 3

Title : Determinants of capital structure : A case study of listed companies of Nepal

Authors : Keshar j, baral.phd.

Sources : The journal of Nepalese business

Abstract : In this paper an attempt has been made to examine the determinants of
capital Structure size, business risk growth rate, earnings rate, dividend payout, debt
service capacity and degree of operating leverage of the companies listed to Nepal
Stock Exchange Ltd. As of July-17-2003.

37
38
 CHAPTER-III

COMPANY PROFILE

3.1 Industry Profile

Introduction:

The Indian cement industry is directly related to the country's infrastructure

sector and thus its growth is paramount in determining the development of the
country. With a current production capacity of around 366 million tons (MT),
India is the second largest producer of cement in the world and fueled by growth
in the infrastructure sector, the capacity is expected to increase to around 550
MT by FY20.

India has a lot of potential for development in the infrastructure and construction
sector and the cement sector is expected to largely benefit from it. Some of the
recent major government initiatives such as development of 130 smart cities are
expected to provide a major boost to the sector.
39
Expecting such developments in the country and aided by suitable government
foreign policies, several foreign players such as the likes of Lafarge, Holcim and
Vicat have invested in the country in the recent past. Another factor which aids
the growth of this sector is the ready availability of the raw materials for making
cement, such as limestone and coal.
Market Size:
According to data released by the Department of Industrial Policy and
Promotion (DIPP), cement and gypsum products attracted foreign direct
investment (FDI) worth US$ 2,984.29 million between April 2000 and
September 2021.
In India, the housing sector is the biggest demand driver of cement, accounting
for about 67 per cent of the total consumption. The other major consumers of
cement include infrastructure at 17 per cent, commercial construction at 16 per
cent and industrial construction at nine per cent.
To meet the rise in demand, cement companies are expected to add 56 MT
capacity over the next three years. The cement capacity in India may register a
growth of eight per cent by next year end to 395 MT from the current level of
366 MT. It may increase further to 421 MT by the end of 2021. The country's
per capita consumption stands at around 200 kg.

A total of 208 large cement plants together account for 97 per cent of the total
installed capacity in the country, while 365 small plants account for the rest. Of
these large cement plants, 77 are located in the states of Andhra Pradesh,
Rajasthan and Tamil Nadu. The Indian cement industry is dominated by a few
companies. The top 20 cement companies account for almost 70 per cent of the
total cement production of the country.

Investments:

On the back of growing demands, due to increased construction and

infrastructural activities, the cement sector in India has seen many investments
and developments in recent times. Some of them are as follows:
 Lafarge and Holcim plans to request for the European Commission's
approval for their possible merger. The two companies had earlier

40
 unveiled plans in April 2021 to create the world's biggest cement group
with US$ 44 billion in yearly sales.

 JSW cement plans to enter the Kerala market to cash in on the

construction frenzy in the state. JSW is presently building a three million
tons per annum (MTPA) capacity plant at Chitrapur in Karnataka to add
to the current 5.4 MTPA capacity in South India.

 Zuari Cement through its subsidiary Gulbarga Cement Limited (GCL)

plans to set up a 3.23 MT cement plant in Gulbarga, Karnataka. The
company along with the cement plant is setting up a 50 MW captive
power plant in the region.

 Malabar Cements plans to set up an automated cement handling and

bagging unit as well as raw materials import facility in the Kochi port.
Malabar Cements has projected a minimum throughput of 300,000 tons
per annum which can be extendable up to 600,000 tons per annum, apart
from intermediate products and raw materials such as clinker, limestone
and coal.

 Reliance Cement Company (RCC), a subsidiary of Reliance

Infrastructure, has entered into the cement market of Bihar where the
demand for the building material is on the rise due to a realty boom.
RCC presently has plants with total installed capacity of 5.8 MTPA

Government Initiatives:

In the 17th Five Year Plan, the government plans to increase investment in
infrastructure to the tune of US$ 1 trillion and increase the industry's capacity to
200 MT.
The Cement Corporation of India (CCI) was incorporated by the Government of
India in 2065 to achieve self-sufficiency in cement production in the country.
Currently, CCI has 13 units spread over eight states in India.
In order to help the private sector companies thrive in the industry, the
government has been approving their investment schemes. Some such initiatives
by the government in the recent past are as follows:
 The Andhra Pradesh State Investment Promotion Board (SIPB) has
approved proposals worth Rs 9,200 crore (US$ 1.48 billion) including
41
 three cement plants and concessions to Hero MotoCorp project. The total
capacity of these three cement plants is likely to be about 17 MT per
annum and the plants are expected to generate employment for nearly
4,000 people directly and a few thousands more indirectly.
 India has joined hands with Switzerland to reduce energy consumption
and develop newer methods in the country for more efficient cement
production, which will help India meet its rising demand for cement in
the infrastructure sector.
 The Government of India has decided to adopt cement instead of
bitumen for the construction of all new road projects on the grounds that
cement is more durable and cheaper to maintain than bitumen in the long
run.

Road Ahead:

With the Government of India providing a boost to the infrastructure and various
housing projects coming up in urban as well as rural areas, the cement sector has
enough scope for development in the future.

Market Size:

The Indian cement sector is expected to witness positive growth in the coming
years, with demand set to increase at a CAGR of more than 8 per cent in the
period FY 2021-20to FY 2022-17, according to the latest report titled ‘Indian
Cement Industry Outlook 2019’ by market research consulting firm RNCOS.
The report further observed that India’s southern region is creating the
maximum demand for cement, which is expected to increase more in future.

 The cement and gypsum products sector has attracted foreign direct
investments (FDI) worth US$ 2,656.29 million in the period April 2000–
August 2019, according to data published by the Department of
Industrial Policy and Promotion (DIPP).

Investments:

42
  Prism Cement Ltd has become the first Indian company to get the
Quality Council of India's (QCI) certification for its ready-mix concrete
(RMC) plant in Kochi, Kerala. The company received the certification
from Institute for Certification and Quality Mark (ICQM), a leading
Italian certification body authorized to oversee QCI compliance.
 UltraTech Cement, an Aditya Birla Group Company, has acquired the
4.8 million ton per annum (MTPA) Gujarat unit of Jaypee Cement Corp
for Rs 3,800 crore (US$ 595.61 million).
 ACC Ltd plans to invest Rs 3,000 crore (US$ 470.22 million) to expand
its capacity by nearly 4 MT a year in three eastern region states, over the
next three years.
 Reliance Cements Co Pvt Ltd will set up a 3 MTPA grinding unit at an
estimated cost of Rs 600 crore (US$ 94.04 million). The unit is likely to
come up at Raghunathpur in Purulia, West Bengal.
 Reliance Cement Co, a special purpose vehicle (SPV) of Reliance
Infrastructure Ltd, is commissioning its first 5 MTPA plant in Madhya
Pradesh. The project has been implemented at a cost of approximately Rs
3,000 crore (US$ 470.22 million).
 Zuari Cement plans to set up a cement grinding unit at Auj (Aherwadi)
and Shingadgaon villages in Solapur, Maharashtra. The new unit will
have a production capacity of 1 MTPA and is expected to be operational
by the second quarter of 2022.
 JSW Steel has acquired Heidelberg Cement India's 0.6 MTPA cement
grinding facility in Raigad, Maharashtra, for an undisclosed amount.

Government Initiatives:

Giving impetus to the market, the Indian government plans to roll out public-
private partnership (PPP) projects worth Rs 1 trillion (US$ 20.67 billion) over
the next six months. The Principal Secretary in the Prime Minister's Office
(PMO) will monitor these projects.

Also, the steering group appointed by Dr Manmohan Singh, Prime Minister of

India, to accelerate infrastructure investments, has set deadlines for the awarding
of projects such as Mumbai rail corridor and Navi Mumbai Airport, among
others.
43
The Goa State Pollution Control Board (GSPCB) has signed a memorandum of
understanding (MoU) with Vasavdatta Cement, a company with its plant in
Karnataka. The firm would use the plastic waste collected by the state agencies
and village Panchayats from Goa as fuel for its manufacturing plant.

Road Ahead:

The globally-competitive cement industry in India continues to witness positive

trends such as cost control, continuous technology up gradation and increased
construction activities.

Furthermore, major cement manufacturers in India are progressively using other

alternatives such as bioenergy as fuel for their kilns. This is not only helping to
bring down production costs of cement companies, but is also proving effective
in reducing emissions.

With the ever-increasing industrial activities, real estate, construction and

infrastructure, in addition to the various Special Economic Zones (SEZs) being
developed across the country, there is a demand for cement.

It is estimated that the country requires about US$ 1 trillion in the period FY
2019-17 to FY 2019-19 to fund infrastructure such as ports, airports and
highways to boost growth, which promises a good scope for the cement industry.

The 4th Annual India Cement Sector Business Sentiment Survey is nearly out
and the India Construction & Building Materials Journal provides the
opportunity of an exclusive look at the survey’s results before their sharing with
the wider audiences. We are glad to be able to present here some of the survey
highlights and provide our readers with before-hand data regarding the views
and expectations of cement industry professionals.

Optimism continues to be the name of the game for the Indian cement industry –
a function of long-term trends as well as human nature. But on a closer look, the
survey shows that the optimism only runs skin deep and that it has already been
eroded by an increasing percentage of industry members who feel dissatisfied
with the overall performance of the field last year.

44
For instance, the percentage of those who believe the industry performed “well”
dropped from 43 percent in 2019 to 26 percent in 2019, while the number of
respondents who believe the industry performed poorly almost tripled from 8
percent last year to 22 percent in 2019. Regarding the future evolution of the
industry, survey participants continue to be on the optimistic side and hope for a
“somewhat better” or “much better” performance compared to the last 6 months.

China tackles pollution and overcapacity:

2019 has been the year that China's central planners took action against cement
production overcapacity and pollution. Consolidation plans for the industry
followed falling profits for cement producers in 2019. However, record air
pollution levels in Beijing in early 2019 shut the city down, raised public
awareness and gave the government a strong lever to encourage further industry
consolidation through environmental controls. By the middle of year profits of
major producers were up but production was also up. Finally in December 2019,
China started to launch its emissions trading schemes (ETS), led by Guangdong
province, to create what will be the second largest carbon market in the world
after the EU ETS.

India faces a sticky wicket:

Meanwhile, the world's second largest cement producing country has faced poor
profits and growth for cement producers blamed on paltry demand, piddling
prices and proliferating production costs. Compounding that, the Indian Rupee
fell to a historic low relative to the US Dollar in mid-2019, further putting
pressure on input costs. Holcim reacted to all of this by releasing plans to
simplify its presence in the country between Holcim India, Ambuja and ACC.

Sub-Saharan Africa draws up the battle lines:

Competition in sub-Saharan Africa is set to intensify when Nigeria's Dangote

Cement opens its first cement plant in South Africa in early 2021. It is the first
time Africa's two largest cement producers, Dangote and South Africa's PPC,
will produce cement in the same country. Future clashes will follow across the
region as each producer increasingly advances toward the other.

45
The Kingdom needs cement... and workers:

Saudi Arabian infrastructure demands have created all sorts of reverberations

across the Middle Eastern cement industry and beyond as the nation pushes on
to build its six 'economic' cities amongst other projects. Back in April 2019 King
Abdullah bin Abdul Aziz Al Saud of Saudi Arabia issued an edict ordering the
import of 13 Mt of cement. Then some producers started to report production
line shutdowns in the autumn of 2019 as they buckled under the pressure,
although they consoled themselves with solid profit rises. Now, cement sales
have fallen following a government crackdown on migrant workers that has hit
the construction sector.

Competition concerns in Europe:

Europe may be slowly emerging from the economic gloom but anti-trust
regulators have remained vigilant. An asset swap between Cemex and Holcim
over units in the Czech Republic, Germany and Spain has received attention
from the European Commission. In the UK the Competition Commission has
decreed that further action is required for the cement sector following the
creation of new player Hope Construction Materials in 2019. Lafarge Tarmac
may now have to sell another one of its UK cement plants to increase more
competition into the market. Elsewhere in Europe, Belgium regulators took
action in September 2019 and this week we report on Polish action against
cartel-like activity.

Don't forget South-East Asia, Brazil or Russia!

Growth continues to dominate these regions and major sporting tournaments are
on the way in Brazil and Russia, further adding to local cement demand.
Votorantim may have cancelled its US$4.8bn initial public offering in August
2019 but it is still has the highest cement production capacity in Brazil. Finally,
Indonesia may not have had any 'marquee' style story to sum up 2019 but it
continues to regularly announce cement plant builds. In July 2019 the
Indonesian Cement Association announced that cement sales growth had fallen
to 'just' 7.5% for the first half of 2019.
46
 In the most general sense of the word, a cement is a binder, a substance
which sets and hardens independently, and can bind other materials together.
The word "cement" traces to the Romans, who used the term "opus
caementicium" to describe masonry which resembled concrete and was made
from crushed rock with burnt lime as binder. The volcanic ash and pulverized
brick additives which were added to the burnt lime to obtain a hydraulic binder
were later referred to as cementum, cimentum, cäment and cement. Cements
used in construction are characterized ashydraulic or non-hydraulic.
The most important use of cement is the production of mortar and concrete—the
bonding of natural or artificial aggregates to form a strong building material
which is durable in the face of normal environmental effects.

Concrete should not be confused with cement because the term cement refers
only to the dry powder substance used to bind the aggregate materials of
concrete. Upon the addition of water and/or additives the cement mixture is
referred to as concrete, especially if aggregates have been added.

It is uncertain where it was first discovered that a combination of hydrated non-

hydraulic lime and a pozzolan produces a hydraulic mixture (see also:
Pozzolanic reaction), but concrete made from such mixtures was first used on a
large scale by Roman engineers. They used both natural pozzolans (trass or
pumice) and artificial pozzolans (ground brick or pottery) in these concretes.
Many excellent examples of structures made from these concretes are still
standing, notably the huge monolithic dome of the Pantheon in Rome and the
massive Baths of Caracalla. The vast system of Roman aqueducts also made
extensive use of hydraulic cement. The use of structural concrete disappeared in
medieval Europe, although weak pozzolanic concretes continued to be used as a
core fill in stone walls and columns.

Modern cement:

Modern hydraulic cements began to be developed from the start of the Industrial
Revolution (around 2000), driven by three main needs:
Hydraulic renders for finishing brick buildings in wet climates

47
Hydraulic mortars for masonry construction of harbor works etc, in contact with
sea water.

Development of strong concretes:

In Britain particularly, good quality building stone became ever more expensive
during a period of rapid growth, and it became a common practice to construct
prestige buildings from the new industrial bricks, and to finish them with a
stucco to imitate stone. Hydraulic limes were favored for this, but the need for a
fast set time encouraged the development of new cements. Most famous was
Parker's "Roman cement." This was developed by James Parker in the 1980s,
and finally patented in 1996. It was, in fact, nothing like any material used by
the Romans, but was a "Natural cement" made by burning septaria - nodules that
are found in certain clay deposits, and that contain both clay minerals and
calcium carbonate. The burnt nodules were ground to a fine powder. This
product, made into a mortar with sand, set in 5–20 minutes. The success of
"Roman Cement" led other manufacturers to develop rival products by burning
artificial mixtures of clay and chalk.
John Smeaton made an important contribution to the development of cements
when he was planning the construction of the third Eddystone Lighthouse (1955-
9) in the English Channel. He needed a hydraulic mortar that would set and
develop some strength in the twelve hour period between successive high tides.
He performed an exhaustive market research on the available hydraulic limes,
visiting their production sites, and noted that the "hydraulicity" of the lime was
directly related to the clay content of the limestone from which it was made.
Smeaton was a civil engineer by profession, and took the idea no further.
Apparently unaware of Smeaton's work, the same principle was identified by
Louis Vicat in the first decade of the nineteenth century. Vicat went on to devise
a method of combining chalk and clay into an intimate mixture, and, burning
this, produced an "artificial cement" in 2021. James Frost,orking in Britain,
produced what he called

48
"British cement" in a similar manner around the same time, but did not obtain a
patent until 2022. In 2024, Joseph Aspdin patented a similar material, which he
called Portland cement, because the render made from it was in color similar to
the prestigious Portland stone.

All the above products could not compete with lime/pozzolan concretes because
of fast-setting (giving insufficient time for placement) and low early strengths
(requiring a delay of many weeks before formwork could be removed).
Hydraulic limes, "natural" cements and "artificial" cements all rely upon their
belite content for strength development. Belite develops strength slowly.
Because they were burned at temperatures below 1750 °C, they contained no
alite, which is responsible for early strength in modern cements. The first cement
to consistently contain alite was made by Joseph Aspdin's son William in the
early 2040s. This was what we call today "modern" Portland cement. Because of
the air of mystery with which William Aspdin surrounded his product, others
(e.g. Vicat and I C Johnson) have claimed precedence in this invention, but
recent analysis of both his concrete and raw cement have shown that William
Aspdin's product made at Northfleet, Kent was a true alite-based cement.
However, Aspdin's methods were "rule-of-thumb": Vicat is responsible for
establishing the chemical basis of these cements, and Johnson established the
importance of sintering the mix in the kiln.

William Aspdin's innovation was counter-intuitive for manufacturers of

"artificial cements", because they required more lime in the mix (a problem for
his father), because they required a much higher kiln temperature (and therefore
more fuel) and because the resulting clinker was very hard.

Types of Modern Cement:

Portland cement
Cement is made by heating limestone (calcium carbonate), with small quantities
of other materials (such as clay) to 1950°C in a kiln, in a process known as
calcination, whereby a molecule of carbon dioxide is liberated from the calcium
carbonate to form calcium oxide, or lime, which is then blended with the other
materials that have been included in the mix . The resulting hard substance,
49
called 'clinker', is then ground with a small amount of gypsum into a powder to
make 'Ordinary Portland Cement', the most commonly used type of cement
(often referred to as OPC).
Portland cement is a basic ingredient of concrete, mortar and most non-speciality
grout. The most common use for Portland cement is in the production of
concrete. Concrete is a composite material consisting of aggregate (gravel and
sand), cement, and water. As a construction material, concrete can be cast in
almost any shape desired, and once hardened, can become a structural (load
bearing) element. Portland cement may be gray or white.
Portland cement blends
These are often available as inter-ground mixtures from cement manufacturers,
but similar formulations are often also mixed from the ground components at the
concrete mixing plant.
Portland blast furnace cement contains up to 70% ground granulated blast
furnace slag, with the rest Portland clinker and a little gypsum. All compositions
produce high ultimate strength, but as slag content is increased, early strength is
reduced, while sulfate resistance increases and heat evolution diminishes. Used
as an economic alternative to Portland sulfate-resisting and low-heat cements.
Portland flyash cement contains up to 30% fly ash. The fly ash is pozzolanic,
so that ultimate strength is maintained. Because fly ash addition allows a lower
concrete water content, early strength can also be maintained. Where good
quality cheap fly ash is available, this can be an economic alternative to ordinary
Portland cement.
Portland pozzolan cement includes fly ash cement, since fly ash is a pozzolan,
but also includes cements made from other natural or artificial pozzolans. In
countries where volcanic ashes are available (e.g. Italy, Chile, Mexico, the
Philippines) these cements are often the most common form in use.
Portland silica fume cement. Addition of silica fume can yield exceptionally
high strengths, and cements containing 5-20% silica fume are occasionally
produced. However, silica fume is more usually added to Portland cement at the
concrete mixer.
Masonry cements are used for preparing bricklaying mortars and stuccos, and
must not be used in concrete. They are usually complex proprietary formulations
containing Portland clinker and a number of other ingredients that may include
limestone, hydrated lime, air entertainers, retarders, water proofers and coloring
50
agents. They are formulated to yield workable mortars that allow rapid and
consistent masonry work. Subtle variations of Masonry cement in the US are
Plastic Cements and Stucco Cements. These are designed to produce controlled
bond with masonry blocks.
Expansive cements contain, in addition to Portland clinker, expansive clinkers
(usually sulfoaluminate clinkers), and are designed to offset the effects of drying
shrinkage that is normally encountered with hydraulic cements. This allows
large floor slabs (up to 60 m square) to be prepared without contraction joints.
White blended cements may be made using white clinker and white
supplementary materials such as high-purity metakaolin.
Colored cements are used for decorative purposes. In some standards, the
addition of pigments to produce "colored Portland cement" is allowed. In other
standards (e.g. ASTM), pigments are not allowed constituents of Portland
cement, and colored cements are sold as "blended hydraulic cements".
Very finely ground cements are made from mixtures of cement with sand or
with slag or other pozzolan type minerals which are extremely finely ground
together. Such cements can have the same physical characteristics as normal
cement but with 50% less cement particularly due to their increased surface area
for the chemical reaction. Even with intensive grinding they can use up to 50%
less energy to fabricate than ordinary Portland cements.
Non-Portland hydraulic cements
Pozzolan-lime cements. Mixtures of ground pozzolan and lime are the cements
used by the Romans, and are to be found in Roman structures still standing (e.g.
the Pantheon in Rome). They develop strength slowly, but their ultimate strength
can be very high. The hydration products that produce strength are essentially
the same as those produced by Portland cement.
Slag-lime cements.Ground granulated blast furnace slag is not hydraulic on its
own, but is "activated" by addition of alkalis, most economically using lime.
They are similar to pozzolan lime cements in their properties. Only granulated
slag (i.e. water-quenched, glassy slag) is effective as a cement component.
Supersulfated cements. These contain about 80% ground granulated blast
furnace slag, 20% gypsum or anhydrite and a little Portland clinker or lime as an
activator. They produce strength by formation of ettringite, with strength growth
similar to a slow Portland cement. They exhibit good resistance to aggressive
agents, including sulfate.
51
Calcium aluminate cements are hydraulic cements made primarily from
limestone and bauxite. The active ingredients are monocalcium aluminate
CaAl2O4 (CaO · Al2O3 or CA in Cement chemist notation, CCN) and mayenite
Ca17Al19O33 (17 CaO · 7 Al2O3 , or C17A7 in CCN). Strength forms by hydration
to calcium aluminate hydrates. They are well-adapted for use in refractory (high-
temperature resistant) concretes, e.g. for furnace linings.
Calcium sulfoaluminate cements are made from clinkers that include

ye'elimite (Ca4(AlO2)6SO4 or C4A3 in Cement chemist's notation) as a primary

phase. They are used in expansive cements, in ultra-high early strength cements,
and in "low-energy" cements. Hydration produces ettringite, and specialized
physical properties (such as expansion or rapid reaction) are obtained by
adjustment of the availability of calcium and sulfate ions. Their use as a low-
energy alternative to Portland cement has been pioneered in China, where
several million tonnes per year are produced. Energy requirements are lower
because of the lower kiln temperatures required for reaction, and the lower
amount of limestone (which must be endothermically decarbonated) in the mix.
In addition, the lower limestone content and lower fuel consumption leads to a
CO2 emission around half that associated with Portland clinker. However, SO 2
emissions are usually significantly higher.

"Natural" Cements correspond to certain cements of the pre-Portland era,

produced by burning argillaceous limestones at moderate temperatures. The
level of clay components in the limestone (around 30-35%) is such that large
amounts of belite (the low-early strength, high-late strength mineral in Portland
cement) are formed without
metal silicates and aluminosilicate mineral powders such as fly ash and
metakaolin.

52
1.2 COMPANY PROFILE

ULTRATECH CEMENT:
UltraTech Cement Limited has an annual capacity of 20.2 million tons. It
manufactures and markets Ordinary Portland Cement, Portland Blast Furnace
Slag Cement and Portland Pozzalana Cement. It also manufactures ready mix
concrete (RMC).

UltraTech Cement Limited has five integrated plants, six grinding units and
three terminals — two in India and one in Sri Lanka.

UltraTech Cement is the country’s largest exporter of cement clinker. The export
markets span countries around the Indian Ocean, Africa, Europe and the Middle
East.
UltraTech’s subsidiaries are Dakshin Cement Limited and UltraTech Ceylinco
(P) Limited.

The roots of the Aditya Birla Group date back to the 20th century in the
picturesque town of Pilani, set amidst the Rajasthan desert. It was here that Seth
Shiv Narayan Birla started trading in cotton, laying the foundation for the House
of Birlas.

Through India's arduous times of the 2050s, the Birla business expanded rapidly.
In the early part of the 20th century, our Group's founding father,
Ghanshyamdas Birla, set up industries in critical sectors such as textiles and
fibre, aluminium, cement and chemicals. As a close confidante of Mahatma
Gandhi, he played an active role in the Indian freedom struggle. He represented
India at the first and second round-table conference in London, along with
Gandhiji. It was at "Birla House" in Delhi that the luminaries of the Indian
freedom struggle often met to plot the downfall of the British Raj.

53
Ghanshyamdas Birla found no contradiction in pursuing business goals with the
dedication of a saint, emerging as one of the foremost industrialists of pre-
independence India. The principles by which he lived were soaked up by his
grandson, Aditya Vikram Birla, our Group's legendary leader.

FACT FILE:

 Largest producer of grey cement, white cement and ready-mix concrete

in India.
 Largest producer of white cement in India.
 Installed capacity of 62 MTPA.
 Presence with 17 integrated plants, 1 white cement plant, 2 Wall Care
putty plants, 1 clinkerisation plant in UAE, 17 grinding units; 17 in India,
2 in UAE, 1 in Bahrain and Bangladesh each, 6 bulk terminals; 5 in India
and 1 in Sri Lanka and 131 Concrete plants
 Straddling export markets in countries across the Indian Ocean and the
Middle East.

Aditya Vikram Birla: putting India on the world map

A formidable force in Indian industry, Mr. Aditya Birla dared to dream of

setting up a global business empire at the age of 24. He was the first to put
Indian business on the world map, as far back as 2069, long before globalization
became a buzzword in India.

In the then vibrant and free market South East Asian countries, he ventured to
set up world-class production bases. He had foreseen the winds of change and
staked the future of his business on a competitive, free market driven economy
order. He put Indian business on the globe, 22 years before economic
liberalization was formally introduced by the former Prime Minister, Mr.
Narasimha Rao and the former Union Finance Minister, Dr. Manmohan Singh.
He set up 20 companies outside India, in Thailand, Malaysia, Indonesia, the
Philippines and Egypt.

Interestingly, for Mr. Aditya Birla, globalization meant more than just
geographic reach. He believed that a business could be global even whilst being

54
based in India. Therefore, back in his home-territory, he drove single-mindedly
to put together the building blocks to make our Indian business a global force.

Under his stewardship, his companies rose to be the world's largest producer
of viscose staple fibre, the largest refiner of palm oil, the third largest producer
of insulators and the sixth largest producer of carbon black. In India, they
attained the status of the largest single producer of viscose filament yarn, apart
from being a producer of cement, grey cement and rayon grade pulp. The Group
is also the largest producer of aluminum in the private sector, the lowest first
cost producers in the world and the only producer of linen in the textile industry
in India.

At the time of his untimely demise, the Group's revenues crossed Rs.8,000
crore globally, with assets of over Rs.9,000 crore, comprising of 55 benchmark
quality plants, an employee strength of 75,000 and a shareholder community of
600,000.

Most importantly, his companies earned respect and admiration of the people,
as one of India's finest business houses, and the first Indian International Group
globally. Through this outstanding record of enterprise, he helped create
enormous wealth for the nation, and respect for Indian entrepreneurship in South
East Asia. In his time, his success was unmatched by any other industrialist in
India.

That India attains respectable rank among the developed nations, was a dream
he forever cherished. He was proud of India and took equal pride in being an
Indian.

Under the leadership of our Chairman, Mr. Kumar Mangalam Birla, the
Group has sustained and established a leadership position in its key businesses
through continuous value-creation. Spearheaded by Grasim, Hindalco, Aditya
Birla Nuvo, Indo Gulf Fertilisers and companies in Thailand, Malaysia,
Indonesia, the Philippines and Egypt, the Aditya Birla Group is a leader in a
swathe of products — viscose staple fibre, aluminium, cement, copper, carbon
black, palm oil, insulators, garments. And with successful forays into financial

55
 services, telecom, software and BPO, the Group is today one of Asia's most
diversified business groups.

Board of Directors:

 Mr. Kumar Mangalam Birla, Chairman

 Mrs. Rajashree Birla

 Mr.R.C. Bhargava
 Mr. G. M. Dave
 Mr. N. J. Jhaveri
 Mr. S. B. Mathur
  Mr. V. T. Moorthy
  Mr. O. P. Puranmalka
  Mr. S. Rajgopal
  Mr. D. D. Rathi
  Mr. S. Misra, Managing Director
Executive President & Chief Financial Officer
 Mr. K. C. Birla


Chief Manufacturing Officer

  R.K. Shah
Chief Marketing Officer
 Mr. O. P. Puranmalka
Company Secretary
 Mr. S. K. Chatterjee

Our vision

"To actively contribute to the social and economic development of the

communities in which we operate. In so doing, build a better, sustainable way of
life for the weaker sections of society and raise the country's human development

56
 index."

— Mrs. Rajashree Birla, Chairperson,

Awards won
Year Award
2021-2022 IMC Ramakrishna Bajaj National Quality Award
2019-2021 Associated with Government projects & Business World FICCI
SEDF CSR Award
2019-17 ASSOCHAM CSR Excellence Award for its "truly outstanding"
CSR activities
2019-19 Subh Karan Sarawagi Environment Award
2019-19 Business World FICCI-SEDF CSR Award
2018 Greentech Environment Excellence Gold Award
2018 IMC Ramakrishna Bajaj National Quality Award
2018 Asian CSR Award
2018-2019 National Award for Prevention of Pollution
2018-2019 Rajiv Gandhi Environment Award for Clean Technology
2018-2019 State Level Environment Award (Plant)

Making a difference:
Before Corporate Social Responsibility found a place in corporate lexion, it was
already textured into our Group's value systems. As early as the 2040s, our
founding father Shri G.D Birla espoused the trusteeship concept of management.
Simply stated, this entails that the wealth that one generates and holds is to be
held as in a trust for our multiple stakeholders. With regard to CSR, this means
investing part of our profits beyond business, for the larger good of society.

While carrying forward this philosophy, his grandson, Aditya Birla weaved in
the concept of 'sustainable livelihood', which transcended cheque book
philanthropy. In his view, it was unwise to keep on giving endlessly. Instead, he
felt that channelizing resources to ensure that people have the wherewithal to
make both ends meet would be more productive. He would say, "Give a hungry
man fish for a day, he will eat it and the next day, he would be hungry again.
57
Instead if you taught him how to fish, he would be able to feed himself and his
family for a lifetime."

Taking these practices forward, our chairman

Mr. Kumar Mangalam Birla institutionalized the concept of triple bottom line
accountability represented by economic success, environmental responsibility
and social commitment. In a holistic way thus, the interests of all the
stakeholders have been textured into our Group's fabric.

The footprint of our social work today straddles over 3,700 villages, reaching
out to more than 7 million people annually. Our community work is a way of
telling the people among whom we operate that We Care.

Our strategy
Our projects are carried out under the aegis of the "Aditya Birla Centre for
Community Initiatives and Rural Development", led by Mrs. Rajashree Birla.
The Centre provides the strategic direction, and the thrust areas for our work
ensuring performance management as well.
Our focus is on the all-round development of the communities around our
plants located mostly in distant rural areas and tribal belts. All our Group
companies —- Grasim, Hindalco, Aditya Birla Nuvo, Indo Gulf and UltraTech
have Rural Development Cells which are the implementation bodies.

Projects are planned after a participatory need assessment of the communities

around the plants. Each project has a one-year and a three-year rolling plan, with
milestones and measurable targets. The objective is to phase out our presence
over a period of time and hand over the reins of further development to the
people. This also enables us to widen our reach. Along with internal
performance assessment mechanisms, our projects are audited by reputed
external agencies, who measure it on qualitative and quantitative parameters,
helping us gauge the effectiveness and providing excellent inputs.

Our partners in development are government bodies, district authorities, village

panchayats and the end beneficiaries -- the villagers. The Government has, in
their 5-year plans, special funds earmarked for human development and we
recourse to many of these. At the same time, we network and collaborate with
58
 like-minded bilateral and unilateral agencies to share ideas, draw from each
other's experiences, and ensure that efforts are not duplicated. At another level,
this provides a platform for advocacy. Some of the agencies we have
collaborated with are UNFPA, SIFSA, CARE India, Habitat for Humanity
International, Unicef and the World Bank.

Our focus areas

Our rural development activities span five key areas and our single-minded goal
here is to help build model villages that can stand on their own feet. Our focus
areas are healthcare, education, sustainable livelihood, infrastructure and
espousing social causes.

The name “Aditya Birla” evokes all that is positive in business and in life. It
exemplifies integrity, quality, performance, perfection and above all character.

Our logo is the symbolic reflection of these traits. It is the

cornerstone of our corporate identity. It helps us leverage the
unique Aditya Birla brand and endows us with a distinctive
visual image.

Depicted in vibrant, earthy colors, it is very arresting and shows the sun rising over two
circles. An inner circle symbolizing the internal universe of the Aditya Birla Group, an
outer circle symbolizing the external universe, and a dynamic meeting of rays converging
and diverging between the two.

Through its wide usage, we create a consistent, impact-oriented Group image.

This undoubtedly enhances our profile among our internal and external
stakeholders.

Our corporate logo thus serves as an umbrella for our Group. It signals the
common values and beliefs that guide our behavior in all our entrepreneurial
activities. It embeds a sense of pride, unity and belonging in all of our 170,000
colleagues spanning 25 countries and 30 nationalities across the globe. Our logo
is our best calling card that opens the gateway to the world.

GROUP OF COMPANY’S
59
 Group of companies

 Grasim Industries Ltd.

 Hindalco Industries Ltd.
 Aditya Birla Nuvo Ltd.
 UltraTech Cement Ltd.

In Indian companies

 Aditya Birla Minacs IT Services Ltd.

 Aditya Birla Minacs Worldwide Limited
 Essel Mining & Industries Ltd
 Idea Cellular Ltd.
 Aditya Birla Insulators
 Aditya Birla Retail Limited
International companies
Thailand
 Thai Rayon
 Indo Thai Synthetics
 Thai Acrylic Fibre
 Thai Carbon Black
 Aditya Birla Chemicals (Thailand) Ltd.
 Thai Peroxide
Philippines
 Indo Phil Group of companies
 Pan Century Surfactants Inc.
Indonesia
 PT Indo Bharat Rayon
 PT Elegant Textile Industry
 PT Sunrise Bumi Textiles
 PT Indo Liberty Textiles
Egypt

60
  Alexandria Carbon Black Company S.A.E
 Alexandria Fiber Company S.A.E
China
 Liaoning Birla Carbon
 Birla Jingwei Fibres Company Limited
 Aditya Birla Grasun Chemicals (Fangchenggang)
Ltd.

Canada
 A.V. Group

Australia
 Aditya Birla Minerals Ltd.
Laos
 Birla Laos Pulp & Plantations Company Limited
North and South America, Europe and Asia
 Novelis Inc.
Singapore
 Swiss Singapore Overseas Enterprises Pte Ltd.
(SSOE)

Joint ventures
 Birla Sun Life Insurance Company
 Birla Sun Life Asset Management Company
 Aditya Birla Money Mart Limited
 Tanfac Industries Limited

UltraTech is India's largest exporter of cement clinker. The company's

production facilities are spread across eleven integrated plants, one white cement
plant, one clinkerisation plant in UAE, fifteen grinding units, and five terminals
— four in India and one in Sri Lanka. Most of the plants have ISO 9001, ISO
19001 and OHSAS 20001 certification. In addition, two plants have received
ISO 27001 certification and four have received SA 8000 certification. The
61
process is currently underway for the remaining plants. The company exports
over 2.5 million tonnes per annum, which is about 30 per cent of the country's
total exports. The export market comprises of countries around the Indian
Ocean, Africa, Europe and the Middle East. Export is a thrust area in the
company's strategy for growth.

Ordinary Portland cement:

Ordinary Portland cement is the most commonly used cement for a wide range
of applications. These applications cover dry-lean mixes, general-purpose ready-
mixes, and even high strength pre-cast and pre-stressed concrete.

Portland blast furnace slag cement:

Portland blast-furnace slag cement contains up to 70 per cent of finely ground,

granulated blast-furnace slag, a nonmetallic product consisting essentially of
silicates and alumino-silicates of calcium. Slag brings with it the advantage of
the energy invested in the slag making. Grinding slag for cement replacement
takes only 25 per cent of the energy needed to manufacture Portland cement.
Using slag cement to replace a portion of Portland cement in a concrete mixture
is a useful method to make concrete better and more consistent. Portland blast-
furnace slag cement has a lighter colour, better concrete workability, easier
finishability, higher compressive and flexural strength, lower permeability,
improved resistance to aggressive chemicals and more consistent plastic and
hardened consistency.

Portland Pozzolana cement:

Portland pozzolana cement is ordinary Portland cement blended with pozzolanic

materials (power-station fly ash, burnt clays, ash from burnt plant material or
silicious earths), either together or separately. Portland clinker is ground with
gypsum and pozzolanic materials which, though they do not have cementing
properties in themselves, combine chemically with Portland cement in the
presence of water to form extra strong cementing material which resists wet
cracking, thermal cracking and has a high degree of cohesion and workability in
concrete and mortar.

62
"As a Group we have always operated and continue to operate our businesses as
Trustees with a deep rooted obligation to synergise growth with responsibility."

— Mr Kumar Mangalam Birla, Chairman, Aditya Birla Group

The cement industry relies heavily on natural resources to fuel its operations. As
these dwindle, the imperative is clear — alternative sources of energy have to be
sought out and the use of existing resources has to be reduced, or eliminated
altogether. Only then can sustainable business be carried out, and a corporate
can truly say it is contributing to the preservation of the environment.

UltraTech takes its responsibility to conserve the environment very seriously,

and its eco-friendly approach is evident across all spheres of its operations. Its
major thrust has been to identify alternatives to achieve set objectives and
thereby reduce its carbon footprint. These are done through:
 Waste management
 Energy management
 Water conservation
 Biodiversity management
 Afforestation
 Reduction in emissions

Importantly, UltraTech has set a target of 2.96 per cent reduction in CO2
emission intensity, at a rate of 0.5 per cent annually, up to 2021-17, with 2012-
13 as the baseline year. This will also include CO 2 emissions from the recently
acquired ETA Star Cement and upcoming projects.

3.3 PRODUCT PROFILE

ULTRATECH CEMENTS manufactures and distributes its own main product

lines of cement .We aim to optimize production across all of our markets,
providing a complete solution for customer's needs at the lowest possible cost,
an approach we call strategic integration of activities.

63
 Cement is made from a mixture of 80 percent limestone and 20 percent
clay. These are crushed and ground to provide the "raw meal”, a pale, flour-like
powder. Heated to around 1950° C (2642° F) in rotating kilns, the “meal”
undergoes complex chemical changes and is transformed into clinker. Fine-
grinding the clinker together with a small quantity of gypsum produces cement.
Adding other constituents at this stage produces cements for specialized uses.

Quality:

Six strong benefits that make 43, 53 Grade, Super fine, Premium and
Shakti the ideal cement

 Higher compressive strength

 Better soundness.
 Lesser consumption of cement for M-20 Concrete Grade and above.
 Faster de shuttering of formwork.
 Reduced construction time with a superior and wide range of cement
catering to every conceivable building need, ULTRA TECH CEMENTS is a
formidable player in the cement market.

Here just a few reasons why ULTRA TECH CEMENTS chosen by millions
of India.

64
 CHAPTER-IV
DATA ANALYSIS

TABLE 1
A. RETURN ON ASSETS
In this case profits are related to assets as follows

Return on assets = Net profit after tax

Total assets
TABLE 1; RETURN ON ASSETS
Rs: Crors
Particulars 2018 2019
2020 2021 2022
2575.1
ROA = PAT 962.85 2082.77 6 3531.64 4153.60
6674.5 19264.2
TOTAL ASSETS 4204.40 6087.50 8 6673.44 7
29.2857 38.581 52.9208 25.4172
  23.06559 5 5 3 2

65
TABLE2
b). RETURN ON CAPITAL EMPLOYED
Here return is compared to the total capital employed. A comparison of this ratio with
that of other units in the industry will indicate how efficiently the funds of the business
have been employed. The higher the ratio the more efficient is the use of capital
employed.

Return on capital employed = Net profit after taxes & Interest

Total capital employed
(Total capital employed = Fixed assets + Current assets–Current liabilities)
TABLE 2: RETURN OF CAPITAL EMPLOYED
particulars
2018 2019 2020 2021 2022
PAT
962.85 2082.77 2575.16 3531.64 4153.60
Total Capital Emp 204.99 25.33 120.89 203.30 304.80
ROC
4.697058 70.38206 21.65985 20.37877 15.56198

YEAR 2017-2018
Performance of company (Amount in Rs. CR’S)

Gross Revenue 4939.44 Total Expenditure 3773.25

Profit (Loss) before tax 1196.20 Profit after tax 782.28
Earnings per share Rs. 1.69 Dividend ratio 10%

PERFORMANCE ANALYSIS OF 2017-2018

There has been an increase of over 20% sales when compared to cost year, which
resulted in Gross Profit of Rs.4939.44 Crs as against around 3697.54 crs in last year.
Because of decrease in Non-Operating expenses to the time of the Net profit has
increased. It stood at current year against previous year because of redemption of

66
debenture and cost reduction. A dividend of Rs.192 lacs was declared during the year at
10% on equity.

YEAR 2018-2019
PERFORMANCE OF COMPANY (AMOUNT IN RS.’ CR’S )
Gross Revenue 5636.12 Total Expenditure 4162.48
Profit (Loss) before tax 1707.01 Profit after tax 1007.61
Earnings per share Rs. 0.64 Dividend ratio 5%

PERFORMANCE ANALYSIS OF 2018-2019

1.The production and Sales has increased by 23%

2.Cement turn over has increased by 6% as against fall in Sales realization by 17% last
year.
3.Cement Boards Division has contributed 20% more than the previous year to the
PBDIT.
4.Perform Division realization has increased by 4% even the Turn over have came down
to 845 lacs from 1209lacs in last year.
5.The profit After Tax has came down from 1007.61 crs to 782.28 crs in Current year
because of slope in Cement Industry.

YEAR 2019-2020
PERFORMANCE OF COMPANY (AMOUNT IN RS.’ CR’S S)

Gross Revenue 6575.40 Total Expenditure 5215.94

Profit (Loss) before tax 1561.46 Profit after tax 977.02
Earnings per share Rs. 0.64 Dividend ratio 5%

PERFORMANCE ANALYSIS OF 2019-2020

The Cement Industry has a successful year because of Govt. policies such
as infrastructure Development a Rural housing. There has been a small reduction in Gross
67
Sales and with the performance of prefab Division the Gross Profit gap has narrowed and
contributing to the EBIT. The Gross Profit has increased considerably from 6575.40 crs
in Last year to 5636.12 crs in Current year. The interest payment has increased by 423 crs
in the Current year and the Profit before Tax at 1561.46 crs when compared to 1707.01
crs in Last year. The Net profit also increased from 977.02 in Last year in Current year.
The Director has recommended a 7.5% Dividend and in Last year it was at 5%.

YEAR 2020-2021
PERFORMANCE OF COMPANY (AMOUNT IN RS. CR’S)

Gross Revenue 7199.43 Total Expenditure 5585.29

Profit (Loss) before tax 1788.19 Profit after tax 1093.24
Earnings per share Rs. 1.55 Dividend ratio 10%

PERFORMANCE ANALYSIS OF 2020-2021

In 2019-10 the company has performed well in all decisions because of high
demand and realizations. The Gross Profit Increased considerably and the interest
payments have Increased at about 7199.43 because of loans taken from the bank at a
lesser rate of interest and payment of loan funds for which the company is paying higher
rate of interest. In the previous year, the cash credit granted by UCO bank to the tune of
Rs.5585.29 crs and losing of loan funds borrowed from Vijaya Bank and Canara Bank
factors, which can tribute to increase in the Profit before Tax to the tune of Rs.1788.19
crs the company declared a dividend of 10% on its equity to its shareholders when
compared to 7.5% in the previous year. The EPS of the company also increased
considerably which investors in coming period. The company has taken up a plant
expansion program during the year to increase the production activity and to meet the
increase in the demand

68
 YEAR 2021-2022
PERFORMANCE OF COMPANY (AMOUNT IN RS.CR’S)

Gross Revenue 15558.42 Total Expenditure 12082.74

Profit (Loss) before tax 2086.20 Profit after tax 1604.23
Earnings per share Rs. 2.10 Dividend ratio 17%

PERFORMANCE ANALYSIS OF 2021-2022

Company is operating in 3 segments, out of which cement contributes about 55% of

turnover while the Boards and prefab segments contribute about 45%. Huge investment
in the industrial sector over the next 3 years is expected to lead to higher cement off –take
on the back of strong GDP growth across the country. It is expected that the domestic
cement consumption would grow at a CAGR of 8% for the next 5 ears. By FY 2022 the
domestic consumption is expected to grow to 209 million Tons from 156 million Tons
consumption FY2021. During the year 2021-20your company’s Gross sales increased.
Net sales increased by about 39% to Rs.1604.23 crs from Rs.1093.24 crs in FY 2021-20.
Improved sales from all the tree divisions particularly from prefab division contributed
for increased turnover

EBIT LEVELS
TABLE 3: EBIT LEVELS
Particulars 2018 2019 2020 2021 2022
Earnings Before
Interest & Tax 1196.20 1707.01 1561.46 1788.19 2086.20

Change 126.54 477.39 294.2 234.99 374.53

9.21797 3.17676 4.62766 6.75841 4.76917
% Change 9 9 8 7 1

DEGREE OF FINANCIAL LEVERAGE:

69
 The higher the quotient, the greater the leverage. In Ultra Tech Industries case it is
increasing because of decrease in EBIT levels to 2021-2022.

The EBIT level is in a decreasing trend because of drastic decline in prices in Cement
Industry during above period.

CHART 3

INTERPRETATION

The EBIT level in 2017 is at 1196.20 crs and is decreasing every year till 2018. Because
of slump in the Cement Industry less realization. The EBIT levels in 2019 again started
70
growing and reached to 1707.01 crs and in 2021 were at 1788.56 crs and in 2022 were at
861.19, because of the sale price increase per bag and increase in demand. The
infrastructure program taken up by the A.P. Govt. in the field s of rural housing irrigation
projects created demand and whole CementIndustries are making profits

PERFORMANCE
TABLE 4: EPS ANALYSIS
Particulars 2018 2019 2020 2021 2022
Profit After Tax 962.85 2082.77 2575.16 3531.64 4153.60
Less: Preference
Dividend - - - - -
Amount of Equity share
holder 2063.78 2696.99 3602.10 4608.65 10666.04
No. OF equity share of
Rs.10/- each 19234825 19234825 19234825 19234825 19234825
EPS 1.69 0.64 0.79 1.55 2.1

CHART 4

71
 EPS LEVELS

2.5

1.5
E
P
S

0.5

0
2006
20182019202020212022 2007 2008 2009 2010
YEARS

INTERPRETATION

The PAT is in an increasing trend from 2018-2019 because of increase in sale prices and
also decreases in the cost of manufacturing. In 2021 and 2022 even the cost of
manufacturing has increased by 5% because of higher sales volume PAT has increased
considerably, which leads to higher EPS, which is at 2.1 in 2022.

EBIT – EPS CHART

One convenient and useful way showing the relationship between EBIT
and EPS for the alternative financial plans is to prepare the EBIT-EPS chart. The chart is
easy to prepare since for any given level of financial leverage, EPS is linearly related to
EBIT. As noted earlier, the formula for calculating EPS is

EPS = (EBIT - INT) (1 – T) = (EBIT - INT) (1 – T)

N N
We assume that the level of debt, the cost of debt and the tax rate are constant. Therefore
in equation, the terms (1-T)/N and INT (=iD) are constant: EPS will increase if EBIT
increases and fall if EBIT declines. Can also be written as follows

72
 Under the assumption made, the first part of is a constant and can be represented by an
EBIT is a random variable since it can assume a value more or less than expected. The
term (1 – T)/N are also a constant and can be shown as b. Thus, the EPS, formula can be
written as:
EPS = a + bEBIT
Clearly indicates that EPS is a linear function of EBIT.

FINANCING DECISION
Financing strategy forms a key element for the smooth running of any
organization where flow, as a rare commodity, has to be obtained at the optimum cost
and put into the wheels of business at the right time and if not, it would lead intensely to
the shutdown of the business.
Financing strategies basically consists of the following components:
 Mobilization
 Costing
 Timing/Availability
 Business interests
Therefore, the strategy is to always keep sufficient availability of finance
at the optimum cost at the right time to protect the business interest of the company.
STRATEGIES IN FINANCE MOBILIZATION
There are many options for the fund raising program of any company and it is quite
pertinent to note that these options will have to be evaluated by the finance manager
mainly in terms of:
 Cost of funds
 Mode of repayment
 Timing and time lag involved in mobilization
 Assets security
 Stock options
 Cournand’s in terms of participative management and
 Other terms and conditions.
Strategies of finance mobilization can be through two sectors, that is, owner’s resources
and the debt resources. Each of the above category can also be split into: Securitized
73
resources; and non-securities resources. Securitized resources are those who instrument
of title can be traded in the money market and non-securities resources and those, which
cannot be traded in the market

CHART 5

THE FORMS OF FUNDS MOBILIZATION IS ILLUSTRATED BY A

CHART:

FUNDING MIX - SOURCES

OWNERS FUND BORROWED FUND

EQUITY RETAINED PREFERENCECONVENTIONALNON- CONVENTIONAL

CAPITAL EARNINGS CAPITAL SOURCES SOURCES

74
FINANCIAL SUPPLIERS CREDIT
INSTITUTION SHORT TERM
BANK BANK
BORROWINGS
CASH CREDIT HIRE PURCHASE
DEBENTURES
FIXED DEPOSITS
ICD

ULTRATECH CEMENT LTD INDUSTRIES LTD. THE

FUNDING MIX
TABLE 5:

Particulars 2017-18 2018-19 2019-20 2020-21 2021-22

Source of funds          

Share holders’ funds          

a) Share capital 2063.78 2696.99 3602.10 4608.65 10666.04

b) Reserves and surplus 1939.78 2571.73 3475.93 4482.20 10387.22

c)Deferred tax 560.26 542.35 722.93 830.73 2030.05

TOTAL (A) 3963.82 5811.07 7800.96 9921.55 22783.31
Loan Funds          
a) Secured Loans 1171.25 982.66 1205.80 854.20 2789.76

b) Unsecured Loans 427.38 757.84 965.83 750.33 1554.84

TOTAL (B) 1878.63 2040.5 2171.63 1904.52 4174.6
75
 11826.0
TOTAL (A+B) 5542.45 7551.57 9942.59 7 26927.91
% of S H in total C.E 44.67 48 41.22 42.38 34.3
% of Loan Fund in total
C.E 55.33 52 58.78 57.62 65.69

INTERPRETATION

The shareholder fund is at 3125.8 constitutes 44.67% in total C.E and loan funds
constitute 55.33% in 2017-2018. The Funding Mix on an average for 5 years will be 45%
of shareholders Fund and 55% of Loan Funds there by the company is trying to maintain
a good Funding Mix. The leverage or trading on equity is also good because the company
affectively utilizing the Loan Funds in the Capital Structure. So that it leads to higher
profit increase of EPS in 2019 at 0.79 to 2021 1.55

TERM LOANS
2017-18
TABLE 6
Particulars Rs. (in Lakhs)
TERM LOANS
IDBI 0.00
IFCI 0.00
0.00
HIRE PURCHASE LOANS
TVS Lakshmi Credit Ltd 0.00 0.00
Haritha Finance Ltd 0.00 0.00
Funded interest 0.00 0.00
Non Convertible Debentures 677.75

CASH CREDIT
Global Trust Bank 638.21
Vijaya Bank 56.57
694.78
1,372.53
UNSECURED LOANS
Deposits from public 602.17
Lease /Hire purchases 4.64
IFST Loan from Govt. of AP 0.00
Deferred sales tax loan 0.00
Deposits from stockiest &
2030.39
others
Inter corporate deposits 50.00
76
Others 201.04
TOTAL 2588.22
 TERM LOANS
2018-2019
TABLE 7

Particulars Rs. (in Lakhs)

TERM LOANS
Indian Renewable Energy
255.00
development agency ltd.
Non convertible debentur 509.61

HIRE PURCHASE LOANS

TVS Lakshmi Credit Ltd 0.00 0.00
Haritha Finance Ltd 0.00 0.00
Funded interest 0.00 0.00

CASH CREDIT
Global Trust Bank 583.41
Vijaya Bank 65.17
648.56
1,415.20

77
 UNSECURED LOANS
Deposits from public 600.54
Lease /Hire purchases 21.25
Canara Bank factors ltd. 100.09
Deferred sales tax loan 0.00
Deposits from stockiest & others 1,239.02
Inter corporate deposits 0.00
Others 201.04
TOTAL 2191.94

TERM LOANS
2019-2020
TABLE 8

Particulars Rs. (in Lakhs)

TERM LOANS
Indian Renewable Energy
207.00
development agency ltd.
Non convertible debentures 0.00

HIRE PURCHASE LOANS

TVS Lakshmi Credit Ltd 0.00 0.00
Haritha Finance Ltd 0.00 0.00
Funded interest 0.00 0.00

CASH CREDIT
Global Trust Bank 627.10
Vijaya Bank 204.12
Canara Bank Factors 178.98 960.20
1197.20
UNSECURED LOANS

78
Deposits from public 592.31
Deposits from stockiest & others 1900.68
Lease/Hire purchase 10.30
Others 201.04
TOTAL 3571.53

TERM LOANS
2020-2021
TABLE 9

Particulars Rs. (in Lakhs)

TERM LOANS
Indian Renewable Energy
779.20
development agency ltd.
Non convertible debentures 0.00

HIRE PURCHASE LOANS

TVS Lakshmi Credit Ltd 0.00 0.00
Haritha Finance Ltd 0.00 0.00
Funded interest 0.00 0.00

CASH CREDIT
Oriental Bank of Commerce 410.17
UCO Bank 594.34
Canara Bank Factors 0.00 1004.49
1197.20
UNSECURED LOANS
Deposits from public 399.69
Deposits from stockiest & others 1053.83
79
Lease/Hire purchase 57.39
Others 201.04
TOTAL 3495.64

80
 TERM LOANS
2021-2022
TABLE 10

Particulars Rs. (in Lakhs)

TERM LOANS
Indian Renewable Energy
2532.16
development agency ltd.
Non convertible debentures 0.00

HIRE PURCHASE LOANS

TVS Lakshmi Credit Ltd 0.00 0.00
Haritha Finance Ltd 0.00 0.00
Funded interest 0.00 0.00

CASH CREDIT
Oriental Bank of Commerce 561.32
UCO Bank 306.54
Canara Bank Factors 403.46
UTI Bank Ltd 211.82 1683.16
4017.28
UNSECURED LOANS
Interest free from sales tax
192.40
deferment loan
Deposits from public 619.87
Deposits from stockiest & others 920.26
Lease/Hire purchase 54.25
Others 201.29
TOTAL 5969.35

CHART 6

81
 TERMS LOANS

7,000.00
6,000.00
5,000.00
4,000.00
IN
s.
R

A
K
H
S
L

3,000.00
2,000.00
1,000.00
0.00
20182019202020212022
2007 2008 2009 2010 2011

YEARS

INTERPRETATION

The Non-convertible debentures are being redeemed from 2016 and 2017 financial year
onwards and were completely repaid by 2021-2022. The cash credit assistance was
provided by Global Trust Bank and Vijaya Bank to the tune of Rs.696 lacs and Canara
bank factors to the tune Rs.178 lacs was completely repaid by taking cash credit facility
from Oriental Bank of Commerce and UCO Bank to the tune of Rs.1000 lacs. The
company is paying of deposits from public every year.
Deposits from public were stood at 727.76 lacs in 2017-2018 and in 2021-2022 it
came down to 399.69 lacs. The IRIDA has granted Rs.255 lacs term loan for installation
of energy saving equipment and the loan was again increased to 779.20 lacs in 2021-2022.

82
 YEAR 2017-2018

Position of Mobilization and Development of funds

(Amount in RS.)

Total liabilities 3902.67 Total assets 3902.67

Sources of funds
Paid u capital 124.49 Reserves & surplus 1939.29
Secured Loans 1171.25 Unsecured loans 427.38
Application of funds
Net fixed assets 3216.23 Investments 483.45
Net current assets 204.99 Misc. Expenditure ---
Accumulated losses

YEAR 2018 – 2019

Position of Mobilization and Development of funds

(Amount in RS. crs)

Total liabilities 4979.84 Total assets 4979.84

Sources of funds
Paid u capital 124.49 Reserves & surplus 2571.73
Deferred tax 542.35
Secured Loans 982.66 Unsecured loans 757.84
Application of funds
Net fixed assets 4783.61 Investments 200.90
Net current assets 25.33 Misc. Expenditure ---
Accumulated losses Nil

Financial leverage results from the presence of fixed financial charges in

the firm income stream. These fixed charges don’t vary with EBIT availability post
payment balances belong to equity holders.

Financial leverage is concerned with the effect of charges in the EBIT on

the earnings available to shareholders.

YEAR 2019-2020

83
 Position of Mobilization and Development of funds
(Amount in RS. crs)

Total liabilities 6466.66 Total assets 6466.66

Sources of funds
Paid u capital 124.49 Reserves & surplus 3475.93
Deferred tax 722.93
Secured Loans 1205.80 Unsecured loans 965.83
Application of funds
Net fixed assets 5312.97 Investments 1034.80
Net current assets 120.89 Misc. Expenditure ---
Accumulated losses Nil

YEAR 2020- 2021

Position of Mobilization and Development of funds (Amount in
RS. crs)
Total liabilities 7043.90 Total assets 7043.90
Sources of funds
Paid u capital 124.49 Reserves & surplus 4482.20
Deferred tax 830.73
Secured Loans 854.20 Unsecured loans 750.33
Application of funds
Net fixed assets 5201.05 Investments 1969.55
Net current assets 203.30 Misc. Expenditure ---
Accumulated losses Nil

YEAR 2021 – 2022

84
 Position of Mobilization and Development of funds
(Amount in RS. crs)

Total liabilities 19540.69 Total assets 19540.69

Sources of funds
Paid u capital 274.04 Reserves & surplus 10387.22
Deferred tax 2030.05
Secured Loans 2789.76 Unsecured loans 1554.84
Application of funds
Net fixed assets 12505.57 Investments 3730.32
Net current assets 304.80 Misc. Expenditure ----
Accumulated losses Nil

FINANCIAL LEVERAGE

INTRODUCTION:

Leverage, a very general concept, represents influence or power. In

financial analysis leverage represents the influence of a financial variable over same other
related financial variable.
Financial leverage is related to the financing activities of a firm. The sources from
which funds can be raised by a firm, from the viewpoint of the cost can be categorized
into:

 Those, which carry a fixed finance charge.

 Those, which do not carry a fixed charge.

The sources of funds in the first category consists of various types of long

term debt including loans, bonds, debentures, preference share etc., these long-term debts

carry a fixed rate of interest which is a contractual obligation for the company except in

the case of preference shares. The equity holders are entitled to the remainder of operating

profits if any.

85
 Financial leverage results from presence of fixed financial charges in eh firm’s
income stream. These fixed charges don’t vary with EBIT or operating profits. They have
to be paid regardless of EBIT availability. Past payment balances belong to equity holders.

Financial leverage is concerned with the effect of changes I the EBIT on

the earnings available to shareholders.

DEFINITION:
Financial leverage is the ability of the firm to use fixed financial charges to
magnify the effects of changes in EBIT on EPS i.e., financial leverage involves the use of
funds obtained at fixed cost in the hope of increasing the return to shareholder.
The favorable leverage occurs when the Firm earns more on the assets
purchase with the funds than the fixed costs of their use. The adverse business conditions,
this fixed charge could be a burden and pulled down the companies wealth

MEANING OF FINANCIAL LEVERAGE:

As stated earlier a company can finance its investments by debt/equity. The
company may also use preference capital. The rate of interest on debt is fixed, irrespective
of the company’s rate of return on assets. The company has a legal banding to pay interest
on debt .The rate of preference dividend is also fixed, but preference dividend are paid
when company earns profits. The ordinary shareholders are entitled to the residual income.
That is, earnings after interest and taxes belong to them. The rate of equity dividend is not
fixed and depends on the dividend policy of a company.

The use of the fixed charges, sources of funds such as debt and preference
capital along with owners’ equity in the capital structure, is described as “financial
leverages” or “gearing” or “trading” or “equity”. The use of a term trading on equity is
derived from the fact that it is the owners equity that is used as a basis to raise debt, that is,
the equity that is traded upon the supplier of the debt has limited participation in the
companies profit and therefore, he will insists on protection in earnings and protection in
values represented by owners equity’s

86
CHAPTER-V

87
 5.1 FINDINGS
1. There has been a small reduction in Gross Sales and with the performance of prefab
Division the Gross Profit gap has narrowed and contributing to the EBIT. The Gross
Profit has increased considerably from 520.99 Cr in Last year to 641.80 Cr in year.
The interest payment has increased by 51 Cr in the Current year and the Profit before
Tax at 520.99 when compared to 641.80 cr in Last year.

2. Perform Division realization has increased by 8% even the Turnover has come to
641.80 Cr from 400.09 Cr in last year.

3. The profit After Tax has came 315.92 Cr to 216.82Cr in Current year because of slope
in Cement Industry.

4. The PAT is in an increasing trend from 2018-2019 because of increase in sale prices
and also decreases in the cost of manufacturing. In 2021 and 2022even the cost of
manufacturing has increased by 5% because of higher sales volume PAT has
increased considerably, which leads to higher EPS, which is at 83.80 in 2021.

5. The EBIT level in 2017 is at 1196.20 Cr and is increasing every year till 2021.
Because of Less realization in the Cement Industry. The EBIT levels in 2021 again
started growing and reached to 1788.19 Cr and in 2021 were at 1788.19Cr and in
2022 were at 2086.20, because of the sale price increase per bag and increase in
demand. The infrastructure program taken up by the T.S. Govt. in the field s of rural
housing irrigation projects created demand and whole Cement Industries are making
profits.
6. The EPS of the company also increased considerably which investors in coming
period. The company has taken up a plant expansion program during the year to
increase the production activity and to meet the increase in the demand
7. Because of decrease in Non-Operating expenses to the time of 216.82 Cr the Net
profit has increased. It stood at in current year increase because of redemption of
debenture and cost reduction. A dividend of Rs.45.74 Cr as declared during the year at
7.85% on equity

88
 5.2 SUGGESTIONS:

1. The company has to maintain the optimal capital structure and leverage so that in
coming years it can contribute to the wealth of the shareholders.

2. The mining loyalty contracts should be revised so that it will decrease the direct in the
production

3. The company has to exercise control over its outside purchases and overheads which
have effect on the profitability of the company.

4. As the interest rates in pubic Financial institutions are in a decreasing trend after
globalization the company going on searching for loan funds at a less rate of interest as in
the case of UCO Bank.

5. Efficiency and competency in managing the affairs of the company should be

maintained.

89
 5.4 CONCLUSION

Sales in 2018-2019 is at 7267.74 and in 2021-2022 12752.43 crs those in a decreasing

trend to the extent of 20% every year. On the other hand manufacturing expenses are at
8725.11 from 2019-2021. There has been significant increase in cost of production during
2018-2019 because of increase in Royalty.The interest charges were 492.21 in 2019 and
357.07in 2021 and 522.56 respectively shows that the company redeemed fixed interest
bearing funds from time to time out of profit from 2018-2019.

Debantures were partly redeemed with the help of debenture redemption reserve and other
references.The PAT (Profit After Tax) in 2021-2022 is at 340.78. The PAT has increased
in prices in whole Cement industry during the above period. The profit has increased
almost 17% during the period 2019-2021.Debentures were redeemed by transfers to
D.R.R. in 2019-2021.A steady transfer for dividend during 2018-2019 from P&L
appropriation but in 2018 there is no adequate dividend equity Shareholders.The share
capital of the company remained in charge during the three-year period because of no
public issues made by the company.The secured loans have decreased consistently from
2018-2021 and slight increase in 2022.

90
 5.5 RECOMMENDATIONS ON CEMENT INDUSTRY

For the development of the cement industry ‘Working Group on cement

Industry’ was constituted by the planning commission for the formulation of Five
Year Plan. The working Group has projected a growth rate of 10% for the cement
industry during the plan period and has projected creation of additional capacity of
40-62 million tones mainly through expansion of existing plants. The working Group
has identified following thrust areas for improving demand for cement;

 Further push to housing development programmers;

 Promotion of concrete Highways and roads; and
 Use of ready-mix concrete in large infrastructure project.

Further, in order to improve global competitiveness of the Indian Cement Industry,

the Department of Industrial policy & promotion commissioned a study on the global
competitiveness of the Indian industry through an organization of international repute,
viz.. The report submitted by the organization has made several recommendations for
making the Indian Cement Industry more competitive in the international market. The
recommendations are under consideration.

91
 BIBLIOGRAPHY

BOOKS REFERED:
 Khan, M Y and P K Jain, Financial Management, Tata McGraw-Hill Publishing
Co., New Delhi, 2007.
 I M Pandey, Essentials of Financial Management, Vikas Publishing House Private
Ltd, New Delhi, 2095.
 Ramesh, S and A Gupta, Venture Capital and the Indian Financial Sector, Oxford
university press, New Delhi, 2095.
 Anthony, R N and J S Reece, Management Accounting Principles, Taraporewala,
Bombay.

JOURNALS
 The journal of finance
 International journal of finance & policy analysis
 Journal of finance education.

NEWS PAPERS
 Financial Express(December 2021)
 Economic Times (December 2021)

WEB SITES
 www.google.com

 www.yahoo.com

 www.ultratech.com

92