Integrated BBA-MBA Programme

Batch: 2023-25
Term: I

Applied Corporate Finance

Topic: Financial Analysis on Ultratech Cement Limited and Arvind

Limited

Submitted To: Prof. Ritesh Kumar Patel

Submitted By: -
Name of Student Roll No.
Anushree Dhoot 23IBM112
Jay Joshi 23IBM132
Keshav Khandelwal 23IBM134
Manthan Trivedi 23IBM142
Pranav Mandlik 23IBM235
 TABLE OF CONTENTS
ULTRATECH CEMENT LIMITED ................................................................................................... 2
1. INDUSTRY OVERVIEW .................................................................................................................. 2
2. ABOUT THE COMPANY ................................................................................................................. 3
3. FINANCIAL ANALYSIS ................................................................................................................... 5
4. VALUATION ................................................................................................................................... 13
4.1. CALCULATION OF WEIGHTED AVERAGE COST OF CAPITAL ........................................... 13
4.2 CALCULATION OF FREE CASH FLOWS .................................................................................. 14
4.3 DCF VALUATION ......................................................................................................................... 15
4.4 CALCULATION OF TERMINAL VALUE ................................................................................... 16
4.5 CALCULATION OF NET CAPITAL EXPENDITURE ................................................................ 16
4.6 CALCULATION OF NET WORKING CAPITAL ........................................................................ 17
4.7 CALCULATION OF NET OPERATING ASSETS........................................................................ 17
4.8 CALCULATION OF NET TOTAL ASSETS ................................................................................. 18
4.9 CALCULATION OF CHANGE IN DEBT .................................................................................... 18
4.10 PE RATIO ANALYSIS ................................................................................................................... 18
4.11 CONCLUSION ............................................................................................................................... 19
ARVIND LIMITED ............................................................................................................................ 20
1. INDUSTRY OVERVIEW ................................................................................................................ 20
2. ABOUT THE COMPANY ............................................................................................................... 21
3. FINANCIAL ANALYSIS ................................................................................................................. 23
4. VALUATION ................................................................................................................................... 30
4.1. CALCULATION OF WEIGHTED AVERAGE COST OF CAPITAL ........................................... 30
4.2. CALCULATION OF FREE CASH FLOWS .................................................................................. 31
4.3. DCF VALUATION ......................................................................................................................... 32
4.4. CALCULATION OF TERMINAL VALUE ................................................................................... 32
4.5. CALCULATION OF NET CAPITAL EXPENDITURE ................................................................ 33
4.6. CALCULATION OF NET WORKING CAPITAL ........................................................................ 33
4.7. CALCULATION OF NET OPERATING ASSETS........................................................................ 33
4.8. CALCULATION OF NET TOTAL ASSETS ................................................................................. 34
4.9. CALCULATION OF CHANGE IN DEBT .................................................................................... 34
4.10. PE RATIO ANALYSIS .............................................................................................................. 34
4.11. CONCLUSION ............................................................................................................................... 35
REFERENCES .................................................................................................................................... 36
ANNEXURE ........................................................................................................................................ 37

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 ULTRATECH CEMENT LIMITED
1. INDUSTRY OVERVIEW
The cement industry in India is one of the country's largest and most important industries.
Cement is an important building material that serves as the foundation for infrastructure
development such as roads, bridges, buildings, and other construction projects. The industry is
critical to driving economic growth and job creation in India.

Historical Evolution:
The Indian cement business has a long history dating back to the early twentieth century. In
1914, the first cement plant in India was founded in Chennai (then Madras). Since then, the
industry has grown significantly, increasing capacity and modernising manufacturing
procedures.

Important Players:
The cement industry in India is highly competitive, with both huge global corporations and
smaller domestic players. Ultratech Cement, ACC Limited, Ambuja Cements, Shree Cement,
and others are among the biggest cement production businesses in India.

Capacity for production and distribution:

Over the years, the cement sector in India has seen significant development in manufacturing
capacity. The country is the world's second-largest cement production, after only China.
Cement facilities are strategically positioned to meet regional demand while also assuring
effective distribution and supply to various construction projects throughout the country.

High-End Household Product:

Cement is an essential material for households, particularly in the context of construction and
remodelling activities. It serves several functions, including:
• Residential Building Construction: Cement is the major binding substance used in the
production of concrete, which serves as the basis and structure of residential homes.
• Flooring & Pavements: Because of their durability and attractiveness, cement-based
products such as cement tiles and interlocking pavers are popular alternatives for
household flooring and outdoor pavements.

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 • Masonry Work: In the home, cement mortar is used for bricklaying, plastering, and
other masonry work.
• Home Improvement Projects: Cement-based products are often utilised in home
improvement projects such as repairs, extensions, and remodelling.

High-End Product for sectors:

India's cement business also serves a diverse range of sectors, contributing to the country's
industrial development in the following ways:
• Infrastructure Projects: Cement is used extensively in the construction of large-scale
infrastructure projects such as roads, highways, bridges, and airports.
• Cement is utilised in the construction of commercial spaces like as offices, retail malls,
hotels, and hospitals.
• Industrial Structures: Cement is used in a variety of industries, including
manufacturing, chemical, and logistics, to construct warehouses, factories, and storage
facilities.
• Government efforts: Government efforts such as "Housing for All" and "Smart Cities"
increase cement demand by constructing affordable housing and contemporary urban
infrastructure.

Conclusion:
India's cement sector is an important pillar of the country's economic development, producing
high-quality goods that meet the demands of both families and industries. Because of its
widespread use in building and infrastructure projects, it is an essential component of India's
growth story, creating a solid foundation for the country's progress.

2. ABOUT THE COMPANY

UltraTech Cement is one of India's top cement
makers and is part of the Aditya Birla Group, one of
the country's largest conglomerates.

UltraTech is India's top producer of ready-mix

concrete (RMC) and gray cement, with a market cap
of USD 7.9 billion. It is among the top companies in India's market for white cement. Taking

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China out of the equation, it is the third-largest cement manufacturer in the world. The only
cement manufacturer in the world (apart from China) with a production capacity of 100 MTPA
or more is UltraTech. The company conducts business in the United Arab Emirates, Bahrain,
Sri Lanka, and India.

UltraTech has a combined gray cement capacity of 136.65 Million Tonnes Per Annum (MTPA).
UltraTech comprises 23 integrated manufacturing units, 29 grinding units, one clinkerisation
unit, and 8 bulk packaging terminals. UltraTech sells white cement under the brand name Birla
White in the Indian market. With a current capacity of 1.98 MTPA, it has one White Cement
plant and three Wall Care putty units. UltraTech is India's largest concrete maker, with 230+
Ready Mix Concrete (RMC) factories across 100+ locations. It also offers a variety of specialty
concrete to fulfill the needs of discriminating consumers. The Building goods industry is an
innovation hotspot that provides a wide range of scientifically engineered goods to meet the
needs of modern constructions.

Corporate Structure: UltraTech Cement is a subsidiary of the Aditya Birla Group, a

conglomerate with diverse business interests in various sectors such as cement, metals, textiles,
chemicals, and financial services. UltraTech Cement operates as an independent entity within
the group, focusing solely on cement manufacturing and related products.

Cement Manufacturing: UltraTech Cement has a number of cutting-edge cement

manufacturing units in India, all of which are strategically placed near important raw material
sources and markets. Among the cements produced by the company are Ordinary Portland
Cement (OPC), Portland Pozzolana Cement (PPC), and Portland Blast Furnace Slag Cement
(PSC).

UltraTech Cement provides a wide variety of cement products to fulfill a variety of construction
demands. Among the important products are:

● Ordinary Portland Cement (OPC): Used for general construction and comes in a
variety of grades.
● Portland Pozzolana Cement (PPC): Excellent for structures exposed to hostile climates
including seawater.
● Portland Blast Furnace Slag Cement (PSC): Ideal for large-scale concrete projects,
marine structures, and foundations.
● Ready-Mix Concrete (RMC): Pre-mixed concrete that is delivered to construction sites
ready for use.

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 Company Background

Incorporation Year 1983

B Wing Ahura Centre 2nd Floor,

Mahakali Caves Road Andheri(E),
Registered Office
Mumbai,
Maharashtra-400093

Telephone 91-22-66917800

Chairman Kumar Mangalam Birla

Managing Director K C Jhanwar

Parent Company Aditya Birla Group

Company Secretary S K Chatterjee

Auditor BSR & Co LLP/Khimji Kunverji & Co

Face Value 10

Listing BSE, Luxembourg, MSEI ,NSE

3. FINANCIAL ANALYSIS

Company Overview

Market Cap 2,39,804 (Cr.)

52 Week high 8,499.00

52 Week low 6,005.00

Book Value 1,747.06

Beta 0.77

Face Value 10

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UltraTech Cement has a market capitalization of 2,39,804 crore, indicating that it is a large and
well-established company. The market capitalization reflects investor confidence in the
company's performance and potential for growth.

The 52-week high and low prices of the stock provide insight into its price volatility over the
past year. The stock price has ranged between $8,499.00 and $6,005.00, demonstrating the
potential price range in which investors have traded the stock.

Book Value: A book value of 1,747.06 per share allows investors to determine whether the stock
is trading at a premium or discount to its net asset value. When determining the stock's
valuation, compare the market price to the book value.

Beta: The firm's beta of 0.77 implies that UltraTech Cement's stock is less prone to market
fluctuations, which may be viewed favourably by risk-averse investors.

Face Value: The face value of 10 is a nominal amount that has no bearing on the market price
or valuation of the stock.

RATIO ANALYSIS

ULTRACEMCO Financial Year

Ratios 2022-23 2021-22 2020-21 2019-20 2018-19

Debt to Equity 0.18 0.2 0.46 0.59 0.89

Liquidity Ratios

Current Ratio 0.88 0.87 1.13 0.86 0.76

Quick Ratio 0.708 0.72 0.983 0.762 0.607

Profitability Ratios

ROCE 13.2 14.86 14.77 11.84 10

RONW 9.7 15.18 12.8 17.08 8.78

Net Profit Margin

(%) 7.09 12.06 11.89 13.55 5.76

PATM(%) 7.1 12.06 11.89 13.55 5.77

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P/E 43.4 25.93 35.58 16.26 47.59

Leverage Ratio 0.89 0.848 1.663 2.325 3.244

PBIDTM(%) 15.56 20.22 27.53 23.33 18.77

EPS 175.41 254.42 189.26 199.4 87.51

As a financial analyst, you may learn more about the health, profitability, efficiency, and
valuation of the firm by looking at the UltraTech Cement financial statistics over the last five
years. Let's analyse the information:

a) Debt to Equity Ratio: The debt to equity ratio displays how much debt, as a percentage
of shareholders' equity, the company utilizes to finance its operations. A trend toward
less debt and greater equity financing, as observed for UltraTech Cement over time
(from 0.89 in 2018–19 to 0.18 in 202–23), points to a potential improvement in capital
structure. This implies a lesser chance of financial difficulty due to less dependence on
debt.

b) Liquidity ratios:
i. Current Ratio: which assesses how well the business can use its current assets
to pay short-term obligations. The current ratio of UltraTech Cement has
remained comparatively steady throughout time, showing that it has maintained
enough liquidity to service short-term liabilities. A ratio that is regularly lower
than 1 may raise red flags, though, as it suggests that current obligations exceed
current assets.
ii. Quick Ratio: The quick ratio separates inventory from current assets to provide
a stricter measure of liquidity. The quick ratio for UltraTech Cement has
remained below 1 and has been largely stable. Despite having some liquid
assets, the company nonetheless uses its inventory to pay short-term obligations.

c) Profitability Ratios:
i. ROCE (Return on Capital Employed): ROCE measures how effectively a
business uses its capital to produce profits. The ROCE of UltraTech Cement has
demonstrated constant returns on invested capital over the years. A ROCE of

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 13% to 14.86% indicates that the company is producing appropriate returns on
capital investments.
ii. RONW (Return on Net Worth): RONW compares profitability to
shareholders' equity. The drop in RONW from 17.08% in 2019-20 to 9.7% in
2022-23 may raise questions about the company's ability to provide shareholder
returns. Further research is required to determine the causes of this drop.- Net
Profit Margin (%): The net profit margin indicates how much profit a
corporation keeps from its revenue. The net profit margin of UltraTech Cement
has fluctuated but appears to be falling. In 2022-23, a net profit margin of 7.09%
indicates that the corporation retains approximately 7.09% of its revenue as
profit.

d) Ratios of valuation:
i. Price/Earnings (P/E) Ratio: The P/E ratio compares the market price of a stock
to its earnings per share (EPS). A high P/E ratio may imply that a stock is
overvalued. The P/E ratio of UltraTech Cement has fluctuated dramatically,
rising from 16.26 in 2019-20 to 43.4 in 2022-23. This indicates that the market
is willing to pay a bigger premium for the prospective earnings of the company.

e) Leverage Ratio: This ratio compares a company's total debt to its total assets. A lower
leverage ratio suggests less financial risk. The falling leverage ratio of UltraTech
Cement over the years (from 3.244 in 2018-19 to 0.89 in 2022-23) implies a reduction
in the company's debt burden, which is a positive indicator for the company's financial
health.

f) PBIDTM (%): - The PBIDTM margin (Profit Before Interest, Depreciation, Tax, and
Exceptional Items) assesses the company's operational efficiency. UltraTech Cement's
PBIDTM margin has fluctuated, reaching 15.56% in 2022-23. This indicates that the
company's operational performance has recently improved.

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 g) Earnings Per Share (EPS): EPS indicates the company's earnings available for each
outstanding share. The EPS of UltraTech Cement has increased significantly during the
last five years, indicating improved profitability and shareholder value.

Overall, the financial statistics reveal that UltraTech Cement has demonstrated financial
stability and operating effectiveness. However, other areas of worry exist, such as a falling net
profit margin and RONW. To acquire a thorough picture of UltraTech Cement's performance
and make informed investment recommendations, financial analysts must delve further into the
company's financial statements, industry trends, competitive stance, and other macroeconomic
factors.

IMPACT OF RUSSIA-UKRAINE WAR - RISK AND CHALLENGES FACED

The cement industry faced challenges from escalating coal and petcoke prices in international
markets, along with increases in crude prices and ocean freight rates. The ongoing uncertainty
around the Russia-Ukraine situation may lead to higher diesel prices in India post assembly
elections, further impacting freight costs.

The impact of rising fuel prices and cost pressures extends beyond the cement industry and
affects the housing sector as well. Property consultant Knight Frank projects a 5% increase in
housing prices in India for 2022. The real estate sector has already faced challenges from
structural reforms and the pandemic, and the surge in raw material costs, including cement and
steel, may lead to a potential price hike of 10-15% in residential properties. Despite these
challenges, the demand for residential properties is expected to continue, driven by
homebuyers' preferences for larger homes, better amenities, and attractive pricing.

UltraTech Cement, as the largest cement manufacturer in India with a production capacity of
114.55 million tonnes per annum, witnessed a sharp YoY rise of 39% in energy costs during
the December quarter. Additionally, logistics costs rose by 4% annually, and raw material
expenses like fly ash and gypsum surged by 7% YoY. These cost escalations coincided with a
slight 3% decline in UltraTech's sales volume, which amounted to 23.13 million tonnes. During
the December quarter, UltraTech Cement experienced a significant YoY rise of 39% in energy
costs, reaching ₹1,327 per tonne.

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The purchase of Russian coal by Ultratech using yuan, handled by HDFC Bank, has gained
notice since it demonstrates Russia's ability to continue exporting goods abroad without relying
on US dollars, despite sanctions imposed as a result of the Ukraine invasion. The invoice, dated
June 5, shows that HDFC Bank assisted Ultratech in acquiring coal from SUEK for 172.7
million yuan. While the US dollar remains the dominating currency for global raw material
transactions, some traders believe the yuan may become more popular for settling payments
related to Russian shipments. According to the invoice, SUEK requested that Ultratech pay the
yuan amount to its account at China Everbright Bank's Shanghai office, with HSBC's Hong
Kong branch acting as the correspondent bank.

However, it is unclear whether the cash was received by China Everbright Bank or whether
other banks were involved in the transfer of funds. HDFC Bank and HSBC both declined to
comment, and Ultratech, SUEK, and China Everbright Bank did not reply to enquiries. The
currencies used for the yuan payment were not specified on the invoice. According to Reuters,
Ultratech purchased 157,000 tonnes of coal from SUEK and agreed to repay the final amount
in yuan currency.

IMPACT OF COVID-19 - RISK AND CHALLENGES FACED

The financial impact of the COVID-19 pandemic on Ultratech Cement. According to the report,
Ultratech Cement's net profit has dropped by 38% as a result of the pandemic's negative impact
on company operations. The company's financial figures for the fiscal quarter ending June 2020
revealed a considerable reduction in profitability. The COVID-19 epidemic has impacted
economic activity around the world, notably the construction and infrastructure sectors, which
consume a lot of cement. The pandemic's lockdowns, limitations, and slowdown in
construction projects have resulted in lower demand for cement materials

As a result, Ultratech Cement, one of India's largest cement makers, encountered difficulties in
sustaining corporate operations and financial stability throughout this period. The decrease in
net profit implies that the company's revenue generation and profit margins were negatively
impacted during the quarter under evaluation.

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However, the story does not go into specifics about the extent of revenue loss or the steps
Ultratech Cement took to alleviate the impact of the epidemic. To deal with the pandemic-
induced issues, it would be beneficial to know if the organization used cost-cutting strategies,
maintained inventory levels, or concentrated on specific market sectors. Overall, the paper
illustrates how the COVID-19 pandemic has impacted Ultratech Cement's financial
performance, as well as the broader impact of the global health issue on the cement business
and the construction sector.

(Image 1: Trendlyne Durability Score is high in its industry)

Durability Score: A company's financial health, long-term performance, and managerial

calibre all factor towards the Durability Score. Scores for durability are graded as good (G) if
they are above 55 and bad (B) if they are below 35. Scores of 35 to 55 are regarded as neutral,
medium, or middle (M). Here the durability score for UltraTech Cement is High in Industry
with 65.0 .

(Chart 1: Performance of stocks of UltraTech Cement with Sensex)

From our study we can evaluate that soon before 2015 UltraTech Cement was underperforming
in market with respect to sensex and Industry overall and saw a gradual increase in its share
and market price, but soon after 2019 it was being closely tracked with Sensex and major reason
could be Pre Covid-19 and pandemic around the nation, but due to the volatility of the market
soon after the 2nd half of 2020 UltraTech Cement started outperforming.

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 (Chart 2: Cash Flow of UltraTech Cement over the years- Source :Trendlyne)

Year 2018: Cash Flow = 14.24 crores

● In 2018, the global economy was experiencing moderate growth, and
construction activities were relatively stable in many regions.
● UltraTech Cement's positive cash flow indicates healthy operations and
performance during this period.
Year 2019: Cash Flow = -295.87 crores
● In 2019, the global economy continued to grow, but there were signs of a
slowdown due to geopolitical tensions, trade disputes, and uncertainties in
various markets.
● UltraTech Cement's negative cash flow in 2019 might have been influenced by
the economic slowdown, affecting construction and infrastructure projects in
certain regions.
Year 2020: Cash Flow = -712.52 crores
● The year 2020 was heavily impacted by the COVID-19 pandemic, leading to
widespread lockdowns, supply chain disruptions, and reduced construction
activities worldwide.
● UltraTech Cement's significant negative cash flow can be attributed to the
adverse effects of the pandemic on its operations and demand for cement.
Year 2021: Cash Flow = -957.68 crores
● In 2021, the global economy started to recover from the pandemic's effects as
vaccination efforts and government stimulus packages were initiated.

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 ● Despite the recovery, UltraTech Cement's cash flow remained negative,
indicating that it was still facing challenges in regaining its pre-pandemic
operational levels.
Year 2022: Cash Flow = 250.44 crores
● In 2022, the global economy experienced a more robust recovery, with increased
infrastructure spending and construction activities in various regions.
● UltraTech Cement's improved cash flow in 2022 suggests that it benefited from
the economic recovery, but it might still be dealing with certain financial
pressures.

BUSINESS RISK

UltraTech Cement faces a number of risk factors that could have an impact on its future
operations and financial performance. The potential slowdown in government spending on
infrastructure projects, which may reduce demand for cement due to its reliance on
government-funded initiatives, is a major source of concern. Furthermore, the company may
face challenges as a result of increased key input costs, specifically fluctuations in pet coke and
diesel prices, which will put pressure on margins and profitability. The potential slowdown in
the housing sector, particularly in affordable housing projects, could have an impact on cement
consumption and overall sales. Furthermore, the company's acquisition strategy poses risks if
it fails to improve capacity utilization and profitability of acquired units, resulting in
inefficiencies and potential losses.

4. VALUATION
4.1. CALCULATION OF WEIGHTED AVERAGE COST OF CAPITAL
A discounting factor is essential for DCF valuation since it aids in deciding the present
value of future cash flows. The Weighted Average Cost of Capital (WACC), which will
serve as the discounting factor for the discounted cash flow-based valuation, has been
decided for this. After deducting taxes, a company's total cost of capital is represented by
the WACC. Simply put, it is the sum that a business anticipates paying for its assets.

The following equation has been used to calculate the WACC:

𝑊𝐴𝐶𝐶 = (𝑊𝑒𝑖𝑔ℎ𝑡 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 × 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦) + (𝑊𝑒𝑖𝑔ℎ𝑡 𝑜𝑓 𝐷𝑒𝑏𝑡 × 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐷𝑒𝑏𝑡)

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 4.1.1. Cost of Equity
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 = 𝑅𝑓 + 𝛽(𝑀)
Where:
Rf = Risk free Rate of Return
β = Beta
M = Market Risk Premium = Market Return – Risk free Rate of Return
Particulars Figure Source
Rf 7.43% https://bit.ly/3YenHr9
Β 0.77 https://bit.ly/3QgNjS8
Market Risk Premium 3.33% https://bit.ly/3Qi4iDD
Cost of Equity 9.99%
4.1.2. Cost of Debt
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐷𝑒𝑏𝑡 = 𝑃𝑟𝑒 𝑇𝑎𝑥 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐷𝑒𝑏𝑡 × (1 − 𝑇𝑎𝑥 𝑅𝑎𝑡𝑒)

Particulars Figure Source

3 Year Effective Interest Rate 14.54% Company Financial Report
(Pre-Tax Cost of Debt)
Tax Rate 20.00% Author’s Calculation
Cost of Debt 11.64%

4.1.3. Cost of WACC

Weighted Average Cost of Capital

Weight of Equity 95.21%
Weight of Debt 4.79%
Cost of Equity 9.99%
Cost of Debt 11.64%
WACC 10.07%

4.2 CALCULATION OF FREE CASH FLOWS

To calculate the DCF valuation of a company we first need to calculate the Free cash flows.
Free Cash Flow is the cash left with company after making the operating expense and
capital expense.

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 We have taken the CAGR rate to forecast the free cash flow for the next five years. The
following table shows the CAGR rate:

We have assumed there will be no exceptional items in the next five years and the tax rate
will be at an average rate of 20%.

Particulars CAGR Rate

EBITDA 7.00%
Depreciation 2.5%
Interest Expenses -14.5%
The following table shows the calculation of FCF and FFCF.
All figures in INR Crore
Actual Estimate
Particulars Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Mar-25 Mar-26 Mar-27 Mar-28
EBITDA 7,575.90 9,378.88 11,769.13 11,548.22 10,620.61 11,364.05 12,159.54 13,010.70 13,921.45 14,895.95
Less: Depreciation 2,321.20 2,454.90 2,434.35 2,456.76 2,619.24 2,684.72 2,751.84 2,820.64 2,891.15 2,963.43
EBIT 5,254.70 6,923.98 9,334.78 9,091.46 8,001.37 8,679.33 9,407.70 10,190.07 11,030.30 11,932.53
Less: Interest 1,648.44 1,704.22 1,274.71 798.37 755.00 645.53 551.92 471.89 403.47 344.97
Exceptional Items (113.88) 0.00 (164.00) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
EBT 3,720.14 5,219.76 8,224.07 8,293.09 7,246.37 8,033.81 8,855.77 9,718.17 10,626.83 11,587.56
Less: Taxes 1,079.93 (235.78) 2,554.00 1,226.55 2,329.49 1,606.76 1,771.15 1,943.63 2,125.37 2,317.51
Net Operating
Profit After Tax
(NOPAT) 2,640.21 5,455.54 5,670.07 7,066.54 4,916.88 6,427.05 7,084.62 7,774.54 8,501.47 9,270.05
Add: Depreciation 2,321.20 2,454.90 2,434.35 2,456.76 2,619.24 2,684.72 2,751.84 2,820.64 2,891.15 2,963.43
Free Cash Flow 4,961.41 7,910.44 8,104.42 9,523.30 7,536.12 9,111.77 9,836.46 10,595.17 11,392.62 12,233.48

4.3 DCF VALUATION

For DCF valuation we have discounted the future free cash flows using WACC as
discounting Rate. The following table shows the calculation.

DF @
Period FCF 10.07% DCF
1 9,111.77 0.909 8,278.16
2 9,836.46 0.825 8,118.97
3 10,595.17 0.750 7,945.13
4 11,392.62 0.681 7,761.53
5 12,233.48 0.619 7,571.90
39,675.70

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 4.4 CALCULATION OF TERMINAL VALUE

𝐹𝐶𝐹 × (1 + 𝑔)
𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 =
𝑑−𝑔
Where:
FCF = free cash flow for the last forecast period
g = Terminal Growth Rate
d = Discount Rate (Taken as WACC)
𝑔 = 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 × (1 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑃𝑎𝑦𝑜𝑢𝑡 𝑅𝑎𝑡𝑖𝑜)
Also,
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑅𝑒𝑡𝑒𝑛𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑖𝑜 = 1 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑃𝑎𝑦𝑜𝑢𝑡 𝑅𝑎𝑡𝑖𝑜
Therefore,
𝑔 = 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 × 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑅𝑒𝑡𝑒𝑛𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑖𝑜

The following section calculates the Terminal VALUE for Ultratech Cement:
Dividend Payout Ratio 22.22%
Earnings Retention Ratio 77.78%
Return on Equity 9.28%

Therefore, g = 7.22%.
Using the equation for terminal value:

Terminal Value of Ultratech Cement = 1,30,253.02 Crore

4.5 CALCULATION OF NET CAPITAL EXPENDITURE

The Net Capex value shows the expenditure made by company on asset acquisition or
upgradation. The following table shows the Capex trend of Ultratech for past five years:

Particulars Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

Beginning value of fixed
assets 63,382.00 66,550.00 67,332.00 70,002.00 76,957.00
Depreciation 6,737.00 9,399.00 11,921.00 14,514.00 17,378.00
End value of fixed assets 66,550.00 67,332.00 70,002.00 76,957.00 -

16 | P a g e
 Net Capex 9,905.00 10,181.00 14,591.00 21,469.00 -

Net Capex = End value of fixed assets – Beginning value of fixed assets + Depreciation

4.6 CALCULATION OF NET WORKING CAPITAL

The Net working capital is the difference between current assets and current liabilities of an
organization. The following table shows the Net Working Capital of Ultratech for past five
years.

Particulars Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

Current Assets 11,861.00 14,115.00 23,054.00 17,480.00 20,725.00
Current Liabilities 15,533.00 16,341.00 20,348.00 20,155.00 23,432.00
Net Working
Capital -3,672.00 -2,226.00 2,706.00 -2,675.00 -2,707.00

4.7 CALCULATION OF NET OPERATING ASSETS

The net operating assets show the difference between operating assets and operating liabilities
of a company. This, eventually, helps in valuing the operating performance of a company
independent of its financial performance.

Net Operating Assets = Operating Assets – Operating Liabilities

Particulars Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

Operating Assets
Inventories 3,585.11 4,183.35 4,017.97 5,595.58 6,611.83
Trade receivables 2,531.43 2,383.22 2,571.73 3,071.61 3,867.02
Cash and cash equivalents 437.24 147.23 177.21 120.54 370.37
Bank balance 269.93 392.68 1,830.34 238.64 779.22
Total 6,823.71 7,106.48 8,597.25 9,026.37 11,628.44
Operating Liabilities
Trade Payable 2,845.55 3,362.89 4,699.28 5,862.83 7,209.30
Total 2,845.55 3,362.89 4,699.28 5,862.83 7,209.30
Net Operating Assets 3,978.16 3,743.59 3,897.97 3,163.54 4,419.14

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 4.8 CALCULATION OF NET TOTAL ASSETS
Net Total Assets means the difference between the total assets and total liabilities of the
company.

Net Total Assets = Total Assets – Total Liabilities

Particulars Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

Total Assets 76,525.00 79,214.00 86,176.00 83,811.00 91,380.00
Total Liabilities 48,460.00 40,495.00 42,334.00 33,714.00 37,424.00
Net Total Assets 28,065.00 38,719.00 43,842.00 50,097.00 53,956.00

4.9 CALCULATION OF CHANGE IN DEBT

The total debt represents all short term and long-term borrowings and obligation of a company.

Particulars Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

Total Debt 25,337.00 23,019.00 20,488.00 10,203.00 9,901.00
% Change - -9.15% -11.00% -50.20% -2.96%

4.10 PE RATIO ANALYSIS

PE Ratio stands for Price-Earnings Ratio. It is the ratio between a company’s share price to its
earnings.

𝑆𝑡𝑜𝑐𝑘 𝑃𝑟𝑖𝑐𝑒
𝑃𝐸 =
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒

The following table shows the calculation for PE ratio of Ultratech Cement:

Stock Price (as of 29th July, 2023) 8,306.75

EPS (TTM) 175.57
PE 47.31

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 For peer analysis we have took PE ratio of top 10 cement manufacturing companies.

S.NO Company PE Ratio

1. Ambuja Cement 43.80
2. Ultratech Cement 47.31
3. Shree Cement 54.44
4. Dalmia Bharat 189.14
5. ACC 50.84
6. JK Cement 44.67
7. Ramco Cement 60.57
8. Nuvoco Vistas Corporation 145.66
9 JK Lakshmi Cement 23.86
10. Heidelberg Cement 39.65

The industry average PE Ratio comes out as 69.994 and industry median PE ratio comes out
as 49.075. Only three out of 10 companies have their PE Ratio above the industry median.
However, the PE of Ultratech is only slightly lower than the industry median, signifying that
the company is optimally valued when compared to its peers.

4.11 CONCLUSION
Ultratech Limited as a stock is overvalued in general but when compared with its peers and
industry in terms of P/E ratio it is found that the stock is slightly overvalued as all cement
stocks are overvalued and there is a very minor and negligible difference in the value found
by us and actual price. As Ultratech was not a utility good and fell under luxury/advanced
good its demand was suffered due to lockdown which decreased construction and less
disposable income with the household to purchase or build houses. Ultratech did grow
during the war period as it was expected that as the war would end there would be need for
development of infrastructure and they would be providing cement for the same in the
coming years.

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 ARVIND LIMITED
1. INDUSTRY OVERVIEW
The textile industry in India is one of the country's oldest and most important industries. India
has been a major player in the world textile trade for thousands of years, with a rich history
extending back thousands of years. The sector includes a wide range of activities, such as the
manufacture of fibres, yarns, textiles, and ready-made clothes, making it an important
contributor to the nation's economic growth and job creation.

History:
India has a long history of textile manufacture, reaching back to ancient civilizations such as
the Indus Valley Civilization, where evidence of cotton farming and weaving has been
discovered. India's textiles gained reputation over the centuries, attracting traders from all over
the world, and became an important component of the country's cultural history.

Diverse and Active Industry:

The Indian textile industry is extremely diverse, supplying a diverse range of textiles with
distinctive designs, patterns, and processes. The sector serves both domestic and foreign
markets, ranging from traditional handlooms to sophisticated, high-tech production facilities.

Major Textile Hubs:

Different locations in India specialise in different sorts of textiles. Surat, for example, is well-
known for its synthetic materials, whereas Varanasi is well-known for its silk industry. Tirupur
is a significant knitted garment manufacturing centre, and Ahmedabad is known for its cotton
textiles.

Basic Household Necessity:

Textiles are an essential aspect of Indian households, serving as essentials for daily living. The
industry is critical to supplying the nation's enormous population's apparel and fabric needs.
Textiles are utilised in a variety of ways in houses, including:
• Clothing: Textiles are turned into a variety of clothes, ranging from traditional sarees,
salwar kameez, and dhotis to modern western wear, to meet people's different fashion
choices.
• Fabrics are used for bedsheets, pillow covers, curtains, and other home furnishings,
which offer comfort and attractiveness to houses.
• Towels and Napkins: Textiles are used for towels, napkins, and other personal and
home hygiene goods.

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 • Traditional & Festive Attire: In India, special occasions and festivals sometimes call
for one-of-a-kind and delicately created textiles that showcase the country's rich
cultural heritage.

Necessity for Industries:

The textile industry is also a significant supplier to numerous industrial sectors, playing an
important role in India's economic landscape. Textiles are utilised in a variety of industries,
including:
• Apparel Industry: The local and international garment and apparel industries rely
largely on India's textile sector for textiles and materials.
• Home Textiles and Furnishings: To meet domestic and global market demands, the
industry provides home textiles such as curtains, bedsheets, and upholstery.
• Textiles are a major export item for India, accounting for a large portion of the country's
foreign exchange profits.
• Employment: The textile sector is a substantial source of employment, particularly in
rural and semi-urban areas where many people work in textile-related industries.

Conclusion:
India's textile sector is historically, culturally, and economically significant. It fulfils a basic
need for homes by supplying garments and other textiles. At the same time, it plays an
important role in supplying various industries, contributing to economic growth, commerce,
and job possibilities. The Indian textile industry, with its varied range of textiles and ongoing
innovation, remains an important element of the nation's socioeconomic fabric.

2. ABOUT THE COMPANY

The was a selected as it has diversified
portfolio of goods and has a widespread
business across the nation. It also has a large
market share in the garment industry.

An important Indian conglomerate with a long history that dates back more than 80 years is
called Arvind Limited. Arvind Limited, which was founded in Ahmedabad, Gujarat, in 1931,
has developed into one of India's leading textile and clothing manufacturers and a major force
in the worldwide textile market.

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The production of denim, shirts, knits and other textile items is the company's main line of
business. Arvind Limited has a reputation for using cutting-edge design and production
techniques, which has given them a competitive advantage in the industry. The business offers
a wide range of products to different consumer sectors, from economical and mass-market
items to premium and luxury options.

Arvind Limited has broadened its market beyond textiles and clothing throughout the years. It
has expanded into industries like engineering, real estate, and sophisticated materials. The
company has been able to develop a more reliable and resilient business model because to this
strategic diversification.

In the textile sector, Arvind Limited has also been at the forefront of ecological and ethical
practices. It has put in place ecologically friendly procedures and made substantial progress in
lowering its carbon footprint. The company has received praise and prizes from numerous
organizations for its dedication to sustainability.

With a global network of clients and business partners, Arvind Limited also has a strong
international presence. Exporting its goods to different nations has helped the corporation
maintain its position as a major force in the global textile industry.

Arvind Limited has consistently demonstrated a dedication to innovation, quality, and client
satisfaction. The company has remained profitable and relevant in the very competitive textile
sector by continually adjusting to shifting market conditions and embracing new technologies.

In conclusion, Arvind Limited is a prominent participant in India's corporate landscape and a

reputable name in the world's textile and apparel industry thanks to its history as a pioneering
textile maker, its diversification into different sectors, and its sustainable practices.

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3. FINANCIAL ANALYSIS

Ratios

Year Mar'19 Mar'20 Mar'21 Mar'22 Mar'23

Current 1 1 1.1 1.1 1.1

Quick 0.6 0.6 0.7 0.5 0.5

Cash Flow from 2358.2 860.5 776.3 594.6 666.1

Operations

Current Liabilities 3407.5 3075 2596.2 3636 2839.9

Operating Profit 716.7 692.4 462.6 788.3 800

Sales 7225.9 7424.2 5124.6 8084.3 8427

Operating Profit 9.92% 9.33% 9.03% 9.75% 9.49%

Margin
Return On Assets 3.08% 1.33% -0.24% 3.09% 5.85%

Return On Equity 8.22% 3.53% -0.60% 8.07% 12.09%

Return On Capital 14.40% 11.17% 5.55% 13.93% 14.52%

Employed

Inventory Turnover 4.5 5.8 4.4 2.6 2.1

Asset Turnover Ratio 0.7 0.9 0.7 1.1 1.1

Accounts Receivable 46 52 79 51 42
Turnover

Cash Flow Per Share 17.9 14.9 9.9 19.7 25.4

a) Current Ratio: A measure of liquidity called the current ratio evaluates a company's
ability to meet short-term or one-year obligations. It shows to investors and analysts
how a company can maximize its current assets on its balance sheet to pay down its
current debt and other payables. Generally, an appropriate current ratio is one which is
similar to or slightly higher than the industry norm. A current ratio that is less than the
industry average could indicate a higher risk of problems or default. Ideal Current Ratio
is 1.2 to 2 and current ratio for Arvind Limited is 1.1 which is slightly less than ideal
current ratio which puts Arvind Limited in an unfavorable position.

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 b) Quick Ratio: The quick ratio assesses a company's capacity to satisfy its short-term
obligations using its most liquid assets and serves as a measure of its short-term
liquidity position. The quick ratio takes into account assets that can quickly be
converted into cash, such as cash, marketable investments, debtors, and accounts
receivable. With a Quick Ratio of 0.517, Arvind Ltd. has a significantly insufficient
balance sheet to meet its obligations in the most recent Quarter ending on June 23.

c) Cash Flow from Operations: The portion of a company's cash flow statement titled
"cash flow from operations" shows how much money the business generates (or spends)
as a result of its ongoing operations over the course of a year. Creating income, covering
expenses, and providing working capital are all examples of operating activities. The
cash flow from operating activities for Arvind Limited has been decreasing year by year
from 2358.2cr in March 2019 to 666.1cr in March 2023. As compared from last year
cash flow from operations has shown a positive increase of 12.02% in March 2023.

d) Return on Assets: An organization's profitability in relation to its total assets is

determined by its return on assets (ROA), a financial metric. Corporate management,
analysts, and investors may use ROA to gauge how successfully a company uses its
resources to generate profits. The figure is frequently expressed as a percentage by
adding the net income and average assets of a business. A higher ROA indicates that a
company is more productive and successful at managing its balance sheet to generate
profits, whereas a lower ROA indicates that there are still some areas that need
improvement. Over 5% ROA is typically regarded as good, and over 20% as great.
Currently, Arvind Limited is having ROA of 5.85% which is good but there is still scope
for improvement.

e) Return on Equity: ROE is used as a gauge of a business' profitability and effectiveness

in turning a profit. The management is more successful at creating income and growth
from equity financing, the higher the ROE. Ideal ROE is around 15-20%. ROE of
Arvind Limited is less than the ideal value which implies that company is not good in
creating income and growth from equity financing.

f) Return on Capital Employed: A financial measure called return on capital employed

(ROCE) can be used to evaluate a company's profitability and capital efficiency. In
24 | P a g e
 other words, this ratio can help determine how effectively a company uses its capital to
make profits. When assessing a company for investment, financial managers,
stakeholders, and potential investors have access to a number of profitability ratios,
including ROCE. A ROCE above 20% shows that company is in a good financial state.
ROCE of Arvind Limited is below 20% which implies that company’s financial position
is not good and their capital efficiency is also less.

g) Inventory Turnover Ratio: The stock turnover ratio, sometimes referred to as the
inventory turnover ratio, measures how efficiently inventory is kept on hand. It
effectively shows how frequently inventory is "turned" or sold over the course of a
specific time frame. If there is too much inventory in relation to sales, it can be
determined using the ratio. Ideal inventory turnover ratio being 5-10 puts Arvind’s
Ratio (2.1) in a bad position.

h) Asset Turnover Ratio: The asset turnover ratio evaluates the relationship between a
company's assets and sales or revenues. How effectively a company utilizes its assets
to generate revenue can be assessed using the asset turnover ratio. A corporation is more
effective at making money from its assets when its asset turnover ratio is higher. A low
asset turnover ratio, on the other hand, suggests that a company is not effectively using
its assets to generate sales. Generally, asset turnover ratio above one is good to prove
that Arvind having asset turnover ratio of 1.1 can generate enough revenue for itself.

i) Accounts Receivable Turnover Ratio: How frequently a company collects its average
amount of accounts receivable is determined by the accounts receivable turnover ratio.
It evaluates how effectively a business manages its line of credit process and collects
past-due client accounts. The accounts receivable turnover ratio of an efficient company
is higher than that of an inefficient company. This indicator is widely used to assess
businesses operating in the same industry to see whether they are on par with their
rivals. Arvind’s accounts receivable turnover ratio is good in comparison with
industry’s ratio of 45.

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SHAREHOLDING PATTERN

(Source – Ticker Finology)

The major shareholding in the company is with the promoters Mr. Sanjay Lalbhai and
his family. Sanjay Lalbhai is the Chairman and Managing Director of Arvind Ltd, a
US$1.5 Billion Indian conglomerate. It was under his leadership that Arvind has
become one of the largest manufacturers of woven textiles in India, and one of the
largest denim fabric manufacturers in the world.

FINANCIAL PERFORMANCE
As per March 2023, Arvind Limited recorded a total sale of 8,427cr which is an increase of
16% as compared to March 2019. Arvind Limited has a market capitalization of 3296.18cr. On
a trailing 12-month basis, Arvind had operating revenue of Rs. 7,883.63 Cr. A 4% yearly sales
increase is not very impressive, a 6% pre-tax margin is acceptable, and a 12% ROE is excellent.
A suitable debt to equity ratio of 11% for the business indicates a sound balance sheet.
Institutional Holding has gone up for Arvind Limited which is a positive sign for them.

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 Arvind Limited has a 52-week high of 143.60 and 52-week low of 77.70. In the year ended
March 31, 2023, the company used 1.96% of its operational revenues for interest charges and
10.35% for labor costs.

(Source – Trendlyne)
Indicator CAGR 3 Yrs CAGR 5 Yrs Mar-23 Mar-22 Mar-21 Mar-20 Mar-19
Total Revenue Annual Cr 4.30% -5% 8,427 8,084.30 5,124.60 7,424.20 7,225.90
Operating Expenses Annual Cr 4.30% -5.10% 7,582.50 7,245.40 4,610.40 6,676.60 6,425.50
Operating Profit Annual in Cr 4.90% -3.70% 800 788.3 462.6 692.4 716.7
Operating Profit Margin Annual % 0.60% 1.40% 9.49% 9.75% 9.03% 9.33% 9.92%
Total Expenses Annual Cr 3.60% -5.20% 7,999.70 7,693.80 5,120 7,203.90 6,880.70
EBIDT Annual Cr 4.10% -3.80% 844.5 838.9 514.2 747.6 800.4
EBIDT Annual margin % -0.20% 1.20% 10.02% 10.38% 10.03% 10.07% 11.08%
Interest Annual Cr -11.50% -8.60% 164.2 176.4 224.5 236.9 220.1
Depreciation Cr -4.50% -6.80% 253 272 285.1 290.4 235.1
Profit Before Tax Annual Cr 41.90% 4.60% 486 376.7 -31.4 170.1 299.3
Tax Annual Cr -2.30% -1.10% 70.5 136.2 -3.5 75.7 61.5
PAT Before ExtraOrdinary Items Annual Cr 63.90% 5.80% 415.5 240.5 -27.8 94.4 237.7
Net Profit Annual Cr 61.70% 5.50% 404.6 238.2 -16.5 95.7 226.2
Net Profit Margin Annual % 56.50% 11.20% 4.91% 2.99% -0.54% 1.28% 3.18%
Basic EPS Annual Rs 61.20% 5.40% 15.5 9.1 -0.6 3.7 8.7

IMPACT OF COVID 19
The textile and apparel (T&A) market in India makes up about 4% of the total market. In
terms of output, foreign exchange earnings, and employment, the T&A sector is one of the
biggest and most significant for the Indian economy. The industry makes up about 7% of the
value of industrial output, 2% of the GDP, and 15% of export revenue for the nation.

The pandemic has impacted the majority of India's export markets (the US and EU together
account for about 60% of the country's total apparel exports in value terms), resulting in order
cancellations and order delays that have increased inventory levels and increased working
capital needs.

The length of the recovery cycle would be directly impacted by the scope of the outbreak and
the lockdown. The Confederation of Indian Textile Industry (CITI) has asked the government
to swiftly announce a relief package for the textile and apparel sector in order to lessen the
crisis the capital- and labor-intensive textile industry is currently experiencing in the wake of
the coronavirus outbreak.

27 | P a g e
The attempt of textile giant Arvind to cut costs by Rs 440 crore has run into trouble.
According to bankers, the company anticipates a substantial decline in product demand and
plummeting sales due to the pandemic in the June quarter (Q1) of FY21.

Arvind Limited, kept 75% of its stores operational once the easing of lockdown started.
Textile being a basic commodity, Arvind Limited wasn’t affected much by the pandemic but
took certain measures to cut down the costs.

IMPACT OF RUSSIA – UKRAINE WAR

The past few months have seen some noteworthy developments in the global fashion sector. In
addition to the customary shifts in fashion, the retail clothing market has also experienced some
unexpectedly significant changes. The ongoing war between Russia and Ukraine, which has
been waging since February 2022, is to blame for the majority of these unforeseen happenings.
The retailing of fashion has taken a significant impact in Russia. Major domestic brands have
stopped doing business in the nation. Clothing companies from other countries have followed
suit, including H&M, Zara, Marks & Spencer, and Nike. More than 400 international
corporations reportedly stopped operating in Russia in March 2022. The crisis has had a
significant impact on the fashion sector due to the numerous sanctions that are in place.

Importing and exporting textile materials won't be simple for clothing producers due to rising
freight prices. These businesses may suffer significant losses as a result. Shipping companies
have increased their pricing as a result of the growing cost of gasoline. Retailers and suppliers
have been negatively impacted by this. Retailers and suppliers should prepare for additional
losses if oil prices continue to rise.

Supply is one of the biggest issues the world's fashion business has to deal with. The vendors
are still having trouble producing the desired amount. The majority of providers struggle to
accurately predict and fulfil client demand. The cause of this is the post-conflict lack of laborers
and raw supplies. Significant delays and even order cancellations have resulted from this.
Normal conditions (i.e., having enough resources) would allow suppliers to easily meet client
expectations. Now, however, this is not the case.

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Following a surge in capacity expansions soon before COVID-19, denim manufacturers are
now anticipating a one-third reduction in sales in both domestic and international markets.
According to industry projections, domestic and international sales of denim declined by 30%
from fiscal 2022 to fiscal 2023. Stakeholders claimed that the Russia-Ukraine conflict caused
the major western economies to experience a severe slowdown that had a big influence on
global demand.

Arvind Limited saw a reduction in order volumes as well as revenues due to the war. Volatility
of cotton prices led to speculation by buyers and they weren’t able to make informed buying
decisions. Also, capacity utilization got reduced as demand reduced in the international
markets.

BUSINESS RISK

• Market rivalry: Arvind Limited's market share, pricing, and profitability may be under
pressure from fierce rivalry from both domestic and foreign rivals.
• Price fluctuations for raw materials: Cotton, polyester, and other fibres are major
sources of supply for the textile industry. The cost structure and margins of Arvind
Limited may be impacted by price volatility in raw materials.
• Currency and exchange rate risks might affect Arvind Limited's revenues and earnings
due to the company's exposure to international markets.
• Disruptions in the supply chain can have an effect on productivity and customer
satisfaction if there are delays, shortages, or quality problems.
• Economic and Political Instability: Arvind Limited's activities may be impacted by
changes in government regulations, trade barriers, and economic downturns in the
nations in which it conducts business.
• Rapid adjustments in consumer preferences and fashion trends can cause demand to
vary, necessitating the need for Arvind Limited to modify its product lineup.
• Environmental and sustainability issues: The textile business is under more and more
criticism for its sustainability efforts and environmental impact. Regulatory problems
and reputational harm can emerge from failing to handle these issues.
• Intellectual property infringement could have an impact on Arvind Limited's sales and
brand reputation because its goods and designs are susceptible to copying.

29 | P a g e
 • Technological disruptions: Arvind Limited may become less competitive in the market
if it does not adopt new technology or stay up with industry innovations.
• Labour Issues: The business may have labour-related issues including strikes, wage
disputes, or compliance with labour rules, which could have an effect on operations as
a whole and productivity.

4. VALUATION
4.1. CALCULATION OF WEIGHTED AVERAGE COST OF CAPITAL
The following equation has been used to calculate the WACC:

𝑊𝐴𝐶𝐶 = (𝑊𝑒𝑖𝑔ℎ𝑡 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 × 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦) + (𝑊𝑒𝑖𝑔ℎ𝑡 𝑜𝑓 𝐷𝑒𝑏𝑡 × 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐷𝑒𝑏𝑡)

4.1.1. Cost of Equity

𝐶𝑜𝑠𝑡 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 = 𝑅𝑓 + 𝛽(𝑀)
Where:
Rf = Risk free Rate of Return
β = Beta
M = Market Risk Premium = Market Return – Risk free Rate of Return

Particulars Figure Source

Rf 7.43% https://bit.ly/3YenHr9
Β 1.11 https://bit.ly/3DBuHoE
Market Risk Premium 3.33% https://bit.ly/3Qi4iDD
Cost of Equity 11.13%

4.1.2. Cost of Debt

𝐶𝑜𝑠𝑡 𝑜𝑓 𝐷𝑒𝑏𝑡 = 𝑃𝑟𝑒 𝑇𝑎𝑥 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐷𝑒𝑏𝑡 × (1 − 𝑇𝑎𝑥 𝑅𝑎𝑡𝑒)

Particulars Figure Source

3 Year Effective Interest Rate 30.00% Company Financial Report
(Pre-Tax Cost of Debt)
Tax Rate 30.00% Author’s Calculation
Cost of Debt 21.00%

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 4.1.3. Cost of WACC

Weighted Average Cost of Capital

Weight of Equity 59.30%
Weight of Debt 40.70%
Cost of Equity 11.13%
Cost of Debt 21.00%
WACC 15.15%

4.2. CALCULATION OF FREE CASH FLOWS

To calculate the DCF valuation of a company we first need to calculate the Free cash flows.
Free Cash Flow is the cash left with company after making the operating expense and
capital expense.

We have assumed there will be no exceptional items in the next five years and the tax rate
will be at an average rate of 30%.

We have taken the CAGR rate to forecast the free cash flow for the next five years. The
following table shows the CAGR rate:

Particulars CAGR Rate

EBITDA 3.00%
Depreciation 1.00%
Interest Expenses -4.00%
The following table shows the calculation of FCF and FFCF.

All figures in INR Crore

Actual Estimate
Particulars Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Mar-25 Mar-26 Mar-27 Mar-28
EBITDA 730.24 788.25 541.71 852.51 771.51 794.66 818.49 843.05 868.34 894.39
Less: Depreciation 209.75 240.54 236.43 203.24 208.49 210.57 212.68 214.81 216.96 219.13
EBIT 520.49 547.71 305.28 649.27 563.02 584.08 605.81 628.24 651.39 675.27
Less: Interest 227.34 238.78 222.31 184.94 177.35 170.26 163.45 156.91 150.63 144.61
Exceptional Items 70.85 58.82 26.93 241.37 (28.51) 0.00 0.00 0.00 0.00 0.00
EBT 222.30 250.11 56.04 222.96 414.18 413.82 442.37 471.33 500.75 530.66
Less: Taxes 22.86 78.73 (36.63) 145.81 62.23 62.07 66.36 70.70 75.11 79.60
Net Operating
Profit After Tax
(NOPAT) 199.44 171.38 92.67 77.15 351.95 351.75 376.01 400.63 425.64 451.06
Add: Depreciation 209.75 240.54 236.43 203.24 208.49 210.57 212.68 214.81 216.96 219.13
Free Cash Flow 409.19 411.92 329.10 280.39 560.44 562.33 588.69 615.44 642.60 670.19

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 4.3. DCF VALUATION
For DCF valuation we have discounted the future free cash flows using WACC as
discounting Rate. The following table shows the calculation.

DF @
Period FCF 15.15% DCF
1 562.33 0.868 488.34
2 588.69 0.754 443.98
3 615.44 0.655 403.08
4 642.60 0.569 365.50
5 670.19 0.494 331.04
2,031.94

4.4. CALCULATION OF TERMINAL VALUE

𝐹𝐶𝐹 × (1 + 𝑔)
𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 =
𝑑−𝑔
Where:
FCF = free cash flow for the last forecast period
g = Terminal Growth Rate
d = Discount Rate (Taken as WACC)
𝑔 = 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 × (1 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑃𝑎𝑦𝑜𝑢𝑡 𝑅𝑎𝑡𝑖𝑜)
Also,
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑅𝑒𝑡𝑒𝑛𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑖𝑜 = 1 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑃𝑎𝑦𝑜𝑢𝑡 𝑅𝑎𝑡𝑖𝑜
Therefore,
𝑔 = 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 × 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑅𝑒𝑡𝑒𝑛𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑖𝑜

The following section calculates the Terminal VALUE for Arvind Limited:
Dividend Payout Ratio 24.00%
Earnings Retention Ratio 76.00%
Return on Equity 11.18%

Therefore, g = 8.50%.
Using the equation for terminal value:
Terminal Value of Arvind Limited = 4,799.46 Crore

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 4.5. CALCULATION OF NET CAPITAL EXPENDITURE
The Net Capex value shows the expenditure made by company on asset acquisition or
upgradation. The following table shows the Capex trend of Arvind Mills for past five years:

Particulars Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

Beginning value of fixed
assets 4,208.00 4,858.00 4,874.00 4,842.00 4,923.00
Depreciation 821.00 1,057.00 1,307.00 1,528.00 1,665.00
End value of fixed assets 4,858.00 4,874.00 4,842.00 4,923.00 -
Net Capex 1,471.00 1,073.00 1,275.00 1,609.00 -

Net Capex = End value of fixed assets – Beginning value of fixed assets + Depreciation

4.6. CALCULATION OF NET WORKING CAPITAL

The Net working capital is the difference between current assets and current liabilities of an
organization. The following table shows the Net Working Capital of Ultratech for past five
years.

Particulars Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

Current Assets 3,490.00 3,038.00 2,905.00 4,040.00 3,117.00
Current Liabilities 2,840.00 3,636.00 2,596.00 3,075.00 3,408.00
Net Working Capital 650.00 -598.00 309.00 965.00 -291.00

4.7. CALCULATION OF NET OPERATING ASSETS

The net operating assets show the difference between operating assets and operating liabilities
of a company. This, eventually, helps in valuing the operating performance of a company
independent of its financial performance.

Net Operating Assets = Operating Assets – Operating Liabilities

Particulars Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

Operating Assets
Inventories 1,598.43 1,276.83 1,159.85 2,208.42 1,648.99
Trade receivables 897.12 1,047.67 1,091.67 1,108.58 965.88
Cash and cash equivalents 70.62 50.24 27.12 59.78 56.79
Bank balance 9.95 33.84 24.44 17.31 20.17

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 Total 2,576.12 2,408.58 2,303.08 3,394.09 2,691.83
Operating Liabilities
Trade Payable 1,357.99 1,259.86 1,400.26 2,182.77 1,237.55
Total 1,357.99 1,259.86 1,400.26 2,182.77 1,237.55

Net Operating Assets 1,218.13 1,148.72 902.82 1,211.32 1,454.28

4.8. CALCULATION OF NET TOTAL ASSETS

Net Total Assets means the difference between the total assets and total liabilities of the
company.

Net Total Assets = Total Assets – Total Liabilities

Particulars Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

Total Assets 7,322.00 7,130.00 6,713.00 7,697.00 6,898.00
Total Liabilities 4,572.00 4,421.00 3,994.00 4,746.00 3,551.86
Net Total Assets 2,750.00 2,709.00 2,719.00 2,951.00 3,346.14

4.9. CALCULATION OF CHANGE IN DEBT

The total debt represents all short term and long-term borrowings and obligation of a
company.

Particulars Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

Total Debt 2,700.00 2,455.00 2,002.00 1,759.00 1,404.00
% Change - -9.07% -18.45% -12.14% -20.18%

4.10. PE RATIO ANALYSIS

PE Ratio stands for Price-Earnings Ratio. It is the ratio between a company’s share price to
its earnings.
𝑆𝑡𝑜𝑐𝑘 𝑃𝑟𝑖𝑐𝑒
𝑃𝐸 =
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒

The following table shows the calculation for PE ratio of Arvind Limited:

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 Stock Price (as of 29th July, 2023) 129.10
EPS (TTM) 8.95
PE 14.42

For peer analysis we have took PE ratio of top 10 peers of Arvind Limited.

S.No Company Name PE Ratio

1. Swan Energy 1,590.05
2. Lux Industries 31.86
3. Kewal Kiran Clothing 35.69
4. PDS 49.4
5. Indo Count Inds 17.43
6. Arvind 14.42
7. Gokaldas Exports 18
8. Welspun India 64.26
9. Dollar Industries 41.53
10. Rupa & Co 43.94

The industry average PE Ratio comes out as 1590.05, however due to extreme high value
we will not consider mean since the mean value will get affected by this outlier. The industry
median PE ratio comes out as 38.61. The PE of Arvind Limited is lower than the industry
median, signifying that the company when compared to its peers in undervalued.

4.11. CONCLUSION
Arvind Limited as a stock is slightly overvalued in general but again when compared
with competitors and industry performance in terms of P/E ratio it is optimally priced.
Being a utility good there was no overall major effect of covid pandemic or war on the
revenue of the firm as the garments were still consumed in the same quantities as
before. War also proved an opportunity for the firm as big players are banning Russia
and India is increasing business with Russia, Arvind has ramped up its production to
cater the demand in Russia. Fluctuations in exchange rate and recession fears in US
and Europe market can be threat for Arvind due to its international market.

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 REFERENCES
Mint Genie. (n.d.). Russia-Ukraine war is causing havoc on Indian cement companies,
here's what's going on. Retrieved from
https://mintgenie.livemint.com/news/markets/russia-ukraine-war-is-causing-havoc-on-
indian-cement-companies-here-s-what-s-going-on-151646372897501

Ultratech Cement Ltd. (n.d.). Financial Highlights and Performance | Annual Reports |
UltraTech. In www.ultratechcement.com/. Retrieved July 20, 2023, from
https://www.ultratechcement.com/investors/financials#annual-reports

Financial reports. (2017, December 26). Arvind Ltd. https://www.arvind.com/financial-

reports

UltraTech Cement Ltd. competitors - peer and industry comparison. (n.d.). Trendlyne.com.
https://trendlyne.com/fundamentals/peer-group/1443/ULTRACEMCO/ultratech-cement-
ltd/

MoneyControl. (n.d.). https://www.moneycontrol.com/financials/ultratechcement/balance-

sheetVI/UTC01#UTC01

IFIN. (n.d.). https://ifinltd.in/Equity/CompanyProfile/Key-Financial-Ratios/UltraTech-

Cement-Ltd/24951

7. Reuters & Business Standard. (2022, July 8). How Indian cement maker Ultratech bought
Russian coal using yuan. www.business-standard.com. https://www.business-
standard.com/article/companies/how-indian-cement-maker-ultratech-bought-russian-coal-
using-yuan-122070800094_1.html
8.
9. John, N. (2022, February 22). Russia-Ukraine tensions to trouble Indian cement makers
most. www.fortuneindia.com. https://www.fortuneindia.com/macro/russia-ukraine-
tensions-to-trouble-indian-cement-makers-most/107205

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 ANNEXURE

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