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Chapter 1

Company Details

1.1 Introduction to Cement Industry


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The cement industry is one of the main beneficiaries of the infrastructure
boom. With robust demand and adequate supply, the industry has bright
future. The Indian Cement Industry with total capacity of 165 million
tonnes is the second largest after China.

Cement consumption in India has increased by over 22% in 2009-10 from


2007- 08.Among the states, Maharashtra has the highest share in
consumption at 12.18%,followed by Uttar Pradesh, In production terms,
Andhra Pradesh is leading with 14.72% of total production followed by
Rajasthan.

Cement industry has contributed around 8% to the economic development


of India. Cement industry has a long way to go as Indian economy is
poised to grow because of being on verge of development.

The company continues to emphasize on reduction of costs through


enhanced productivity, reduction in energy costs and logistics expenses.

As per the Working Group report on Cement Industry for the formulation
of the 11th Plan, the cement demand is likely to grow at 11.5 per cent per
annum during the 11th Plan and cement production and capacity by the
end of the 11th Plan are estimated to be 269 million tones and 298 million
tones, respectively, with capacity utilization of 90 per cent.

Foreign cement companies are also picking up stakes in large Indian


cement companies. Swiss cement major Holcim has picked up 14.8 per
cent of the promoters' stake in Gujarat Ambuja Cements (GACL). Holcim's
acquisition has led to the emergence of two major groups in the Indian
cement industry, the Holcim-ACC-Gujarat Ambuja Cements combine and
the Aditya Birla group through Grasim Industries and Ultratech Cement.

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1.2 Introduction to Ambuja Cement
Ambuja Cements was set up in 1986. In the last decade the company
has grown tenfold. The total cement capacity of the company is 18.5
million tonnes. Its plants are some of the most efficient in the world. With
environment protection measures that are on par with the finest in the
developed world.

Ambuja Cements Limited, formerly known as Gujarat Ambuja Limited is


a major Cement producing company in India. The Group's principal
activity is to manufacture and market cement and clinker for both
domestic and export markets.

The Company also operates a hotel through its subsidiary GGL Hotel and
Resort Company. It has shown innovation in utilizing measures like sea
transport, captive power plants, and imported coal and availing of govt.
sops and subsidies to constantly check the costs.

The company's most distinctive attribute, however, is its approach to the


business. Ambuja follows a unique homegrown philosophy of giving
people the authority to set their own targets, and the freedom to achieve
their goals. This simple vision has created an environment where there
are no limits to excellence, no limits to efficiency. And has proved to be a
powerful engine of growth for the company.

As a result, Ambuja is the most profitable cement company in India, and


one of the lowest cost producers of cement in the world.
Its focus:-
 Best quality cement
 Good packaging
 Logistic management - strong distribution network
 Customer service

Capacity built up from 0.7 Mn tonnes in 1986 to 18.0 Mn tonnes as of


today at CAGR of 18%

Organic growth and growth through acquisitions

2001 - Private equity investors (American International Group &


Government of Singapore) invested in ACIL

2005 - ACIL restructured as a joint venture with Holcim

2006 - Founder promoters sold part of their holding in ACL in favour of


Holcim

ACL is a Holcim Group company since May 2006


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Capacity built up from 0.7 mn. Tonnes in 1986 to 16.0 mn. Tonnes today.

Sea transportation of bulk cement from Gujarat to 3 terminal ports at


Surat, Mumbai & Sri Lanka.

A captive port at Muldwarka (Gujarat) for inward / outward movement of


goods.
1.3 Plant Location:

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Ambuja Cement – 2009
Capacity to increase from 16 mn. Tonnes to 22 mn.
tonnes

Clinker Cement

Capacity Capacity

(mn tonne) (mn tonne)

Western 7.0 8.0


India
6.3 10.0
Northern
3.2 4.0
India

Eastern India

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Total 16.5 22.0
Capacity

1.4 Goals and Objectives

MISSION:

Delighted customers, Inspired employees, Empowered partners, Energized


society

VISION:
To be India’s most admired company

OBJECTIVE OF COMPANY:
The management of Gujarat Ambuja decided some objectives to become
topper in the market. And the objectives are:
• Better quality then other company.
• Fair returns to share holders.
• A higher productivity to cover maximum market.
• Maximum customer satisfaction.
• Clean & healthy Environment for employee’s growth.
• Try to lower pollution to fulfillment of social responsibilities

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1.5 Broad Strategies Applied by the Management
in Functional Areas

COMPANY’S STRATEGY:

⇒ Captive Infrastructure: Ports & Power Plants

⇒ Presence in the growing markets of North & West

⇒ Retail Focus – Premium pricing

⇒ Largest Exporter of cement

⇒ 35% Cement transport by sea - Cheapest Mode

⇒ One of the Lowest Cost Cement Producer

MARKETING STRATEGY:
⇒ Emphasis was on Quality
⇒ High Advertisement for BRANDING-3 times than ACC at one time
⇒ Improvement in Packaging by information provided by suppliers
⇒ Extensive & primarily exclusive distribution network-Over 6,000
dealers and 20,000 retailers
⇒ Promotion through seminar, workshops for masons, architects,
contractors etc by providing info on use of AMBUJA CEMENT
⇒ Advertising and Publicity campaign

HUMAN RESOURCE POLICY:

⇒ Unlocking Potential of Employees


⇒ Employed Experienced people from other companies

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⇒ More stress was on enthusiasm not on experience
⇒ Motivating factor was empowerment to perform than monetary
factor
⇒ Free access to senior official including VP
⇒ Communication Meetings on regular basis to discuss and sort out
grievances
⇒ Preference to existing employees for higher position
EXPANSION STRATEGY:

Starting with a plant with a capacity of 0.7 MT in Gujarat, GACL is now


having plants at different place with total 16.5 MT. It has adopted organic
growth. To participate in the growth of the cement industry, the company
has planned capital expenditure programmes aggregating to about Rs
3500 crore. This would help the company maintain its market share going
forward.

CLINKER CAPACITY EXPANSIONS:


The company is setting up new clinker capacity at Bhatapara in
Chattisgarh and Rauri in Himachal Pradesh, each having a capacity of 2.2
million tonnes per annum. The project work is progressing well. The
clinker unit at Bhatapara is slated to be commissioned in mid 2009 while
the unit in Rauri is expected to go on stream in the second half of 2009.

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1.6 Impact of Internet or Other Technological
Innovation on the Company

To being echo friendly "GUJARAT AMBUJA CEMENT LTD" installed pollution


control equipments, by M/s. ABB & M/s. Thermex. The plant achieved
148% productivity with lowest consumption of raw material & electricity
after innovation of plant.
• Computerized process control system
• Zero error electronic equipments

SAP IMPLEMENTATION:

The company is implementing a project - Connect India Plus”, which aims


at connecting all the plants, business places across India online, under a
standardized business template to run on SAP software.

The implementation of “Project CONNECT” India Plus started in June, 2007


& is expected to go live in August, 2008. After the Go Live, all operations,
locations and transactions will become fully integrated in a manner that is
in line with the updated data and information.

The new system will greatly enhance the company’s capability to capture
and process a comprehensive range of data to be used for decision-
making and day-to-day operations, while automating some processes
which were not part of the IT legacy system.

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Chapter 2
Competitors and Strategies

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2.1 Corporate Level Strategy

UNRELATED DIVERSIFICATION:

Ambuja Cements Limited, formerly known as Gujrat Ambuja Limited is


a major Cement producing company in India. The Group's principal
activity is to manufacture and market cement and clinker for both
domestic and export markets.

The Company also operates a hotel through its subsidiary GGL Hotel and
Resort Company. It has shown innovation in utilizing measures like sea
transport, captive power plants, and imported coal and availing of govt.
sops and subsidies to constantly check the costs.

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2.2 Business Level Strategy

A) BCG Matrix

Ambuja Cement enjoys the position of STAR in the BCG Matrix i.e. high
market share & high market growth.

Compared to others, Ambuja has highest Net Profit having market share of
18.12% in the cement industry. Overall it has 3rd largest sales turnover.

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Secondly, if we look at the overall cement industry it is having high
market growth as cement industry depends on infrastructure, housing,
roads, irrigation, etc which are currently in the booming stage.

So the strategy to be followed is to HOLD the position of STAR by


reinvesting their profits and using this profits to increase their turnover
and gain the highest market share.

B) Porter’s Five Forces

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C) SWOT Analysis

Strength

• Growth at approx CAGR of 9% in last 5 years


• Growing Domestic cement consumption at approx CAGR of 8% in last 3
years
• Highly Capital Incentive so difficult for small entrant
• Not much restriction by govt.
• Market consolidation taking place

Weakness

• High Oil Prices, Cost of Power increase production cost


• Supply exceeds Production lead to competition in price
• Low Quality as compared to international standard but improving.

Opportunity

• High Mortgage Penetration - Low Interest Rates


• Easy loan availability for housing finance
• Increased investments in Infrastructure
• Increased govt. outlay on BHARAT NIRMAN, GOLDEN QUADRILATERAL,
BRTS etc.

Threat

• Further Hike in Oil Prices


• Use of plastic engineering in construction
• Sub prime market loss may affect

2.3 Competitors
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Market Share of Major Players of Cement Industry (April
2008)

Market
Sales
Last Cap. Net Total % Market
Particulars
Price Turnove Profit Assets share
(Rs. cr.)
r

ACC 792.75 14,880.42 7,474.15 1,212.78 5,409.76 21.57

Ambuja 14,070. 6,281. 1,402. 5,961.


92.4 18.12
Cements 76 71 27 54
UltraTechCeme
839.6 10,451.83 6,436.96 977.02 5,743.73 18.57
nt

1,598.5
Shree Cements 5,568.73 2,740.57 577.97 2,644.31 7.91
0

India Cements 124.75 3,524.81 3,470.78 432.18 5,619.41 10.01

Madras
114.8 2,731.89 2,538.50 363.52 3,723.65 7.32
Cements

Birla Corp 304.65 2,345.97 1,809.70 323.51 1,515.48 5.22

Prism Cement 49.95 1,489.76 629.86 96.23 661.65 1.82

Dalmia Cement 179.7 1,454.48 1,778.68 158.63 3,606.48 5.13

Binani Cement 67.3 1,366.87 1,497.32 108.66 1,254.73 4.32

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2.4 Competitive Advantage

COMPETITIVE ADVANTAGE: Low Cost Producer

• Ambuja Cement is the lowest cost producer of cement in the world


due to following factors:

o Freight: The most successful of GACL’s innovative strategies


of cost cutting was idea of Sea Transportation.

o Fuel: Fuel strategy was also cost cutting factor

o Power: They have established their own captive power plant of


178 MegaWatts

2.5 Informal Forces Affecting the Organization -


External and Internal Factors

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EXTERNAL FACTOR:

• Government Policies:
Government policies have affected the growth of cement plants in
India in various stages. The control on cement for a long time and
then partial decontrol and then total decontrol has contributed to
the gradual opening up of the market for cement producers. The
stages of growth of the cement industry can be best described in
the following stages:

• Price and Distribution Controls (1940-1981):


During the Second World War, cement was declared as an essential
commodity under the Defense of India Rules and was brought under
price and distribution controls which resulted in sluggish growth.
The installed capacity reached only 27.9 MT by the year 1980-81.

• Partial Decontrol (1982-1988):


In February 1982, partial decontrol was announced. Under this
scheme, levy cement quota was fixed for the units and the balance
could be sold in the open market. This resulted in extensive
modernization and expansion drive, which can be seen from the
increase in the installed capacity to 59MT in 1988-89 in comparison
with the figure of a mere 27.9MT in 1980-81, an increase of almost
111%.

• Total Decontrol (1989):


In the year 1989, total decontrol of the cement industry was
announced. By decontrolling the cement industry, the government
relaxed the forces of demand and supply. In the next two years, the
industry enjoyed a boom in sales and profits. By 1992, the pace of
overall economic liberalization had peaked; ironically, however, the
economy slipped into recession taking the cement industry down

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with it. For 1992-93, the industry remained stagnant with no
addition to existing capacity.
• Government Controls:
The prices that primarily control the price of cement are coal, power
tariffs, railway, freight, royalty and cess on limestone. Interestingly,
all of these prices are controlled by government
• Demand Drivers:
The demand from the housing sector is ~53% of the total Indian
cement demand.

There are fears of a slowdown in the demand from the housing


sector due to a drop in real estate prices in the country. The worry is
that builders may postpone construction of new buildings if the
property prices were to correct.

• Infrastructure to give demand a big boost:


Analysis shows that Infrastructure should be the biggest growth
driver for cement demand in the country. If we were to look only at
order books of the top eight construction and manufacturing
equipment companies in India, we find that their combined order
book has virtually doubled over the last two years from INR1,000bn

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(USD25bn) to INR1,950bn (USD48.75bn) for completion over the
next 24-30 months.

INTERNAL FACTORS

Code of Business Conduct and Ethics

1. Applicability
The Code of Conduct will apply to all the members of the Board of
Directors and
all the employees of the Company in M grade. clause 25 of this Code
requiring annual confirmation is applicable to Directors and employees in
grades MOA and above.

2. Honest and Ethical Conduct


The Company expects all the Directors and the Employees to act in
accordance with highest professional standards, integrity and high morals
and ethics.

3. Conflict of Interest
The Company expects that the Directors or Employees of the Company
shall not engage in any business relationship or activity which might
conflict with the interest of the Company. The following are examples of
situations, which may constitute a conflict of interest:

When
 a Director or an Employee engages in a business relationship or
activity which is or is perceived to be in conflict with the interest of the
Company with anyone who is party to a transaction with the Company.

When a Director and Employee or a member of his or her immediate


family receives personal benefits by making or influencing decisions
relating to any transaction.

In case it is likely that a conflict of interest might exist, the concerned


Director or Employee must at the earliest opportunity make full disclosure
of all facts and circumstances that reasonably could be expected to give
rise to any violations of this Code of Conduct and the Board shall ensure
that Company’s interests are protected. An Employee other than a
Director shall make such disclosure to the Head of the Department and/or
to the Unit Head. The Head of the Department and/or the Unit Head shall
look into the merits of the transaction and ensure that the Company’s
interests are protected.

4. Accounting & Financial Reporting

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The Management shall ensure that all business transactions shall be
recorded in true, fair and timely fashion in accordance with the accounting
and financial reporting standards, as applicable to the Company. They will
ensure the reliability and accuracy of its accounts, records and reports.

5. Confidentiality
a. The Directors and Employees shall strive to protect confidential
information acquired, generated, gathered or which otherwise comes into
their possession during the course of business. All such information should
be maintained in strict confidence, except when disclosure is expressly
authorised by the Company or required by the law.

b. Confidential information includes all non-public information, intellectual


property rights such as trade secrets, business research, new products,
new projects and plans, business strategies, customer, employee and
suppliers’ lists and any unpublished financial or price sensitive
information.

c. The obligation to protect the Company’s proprietary and confidential


information continues even after Directors and Employees leave the
Company. The Directors and Employees must return all proprietary
information in her/his possession upon leaving the Company.

d. The Directors and Employees should respect the rights of other


competitors and their confidential information. They should not attempt to
obtain a competitor’s confidential information by improper means.

6. Compliance with Laws, Rules and Regulations


The Directors and Employees shall keep themselves updated in relation to
laws/statutory compliances applicable to their scope of work. The
Directors and employees of the Company shall comply with all laws, rules
and regulations and shall not commit any illegal or unethical act.

7. Fair Competition
The Company is committed to respect the principles and rules of fair
competition prohibiting anticompetitive behaviour and abuse of a
dominant market position.

8. Bribery and Corruption


The Directors and Employees shall not be involved in bribery and
corruption while conducting the Company’s business. They are prohibited
from offering or providing any undue pecuniary or other advantage for the
purpose of obtaining, retaining, directing or securing any improper
business advantage or for personal gain.

9. Customers, Suppliers and Stakeholders


The Company is committed to create value for each of its stakeholders.
The Directors and Employees shall treat the Company’s customers,

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suppliers and stakeholders with respect and dignity. There should not be
any coercive measures used while dealing with any of the stakeholders.

10. Corporate Opportunities


The Directors and Employees are prohibited from taking for themselves
business opportunities that arise through the use of corporate property,
information or position. They shall not use corporate property, information
or position for personal gain, or to compete with the Company.

11. Gifts, Hospitality and Donations


The Company will not utilize bribery and corruption in conducting
business. The Directors and Employees are prohibited from receiving,
soliciting or offering any illegal or undue pecuniary or other advantage,
(e.g. payments, remuneration, gifts, donations, hospitality of any kind or
comparable benefits) which are intended to obtain any improper business
advantage. Directors and Employees, however, may honour, accept and
offer nominal gifts which are customarily given and are of a
commemorative nature, for special events.

12. Corporate Social Responsibility, Health and Safety


The Company recognizes its social responsibility and aim to improve the
quality of life of its workforce, their families and the communities around
its operations. The Company pursues a clear policy dealing with
employment practices, occupational health and safety, community
involvement as well as customer and supplier relations.

13. Sustainable Environmental Performance


The Company strives to preserve the environment for future generations
by striking a balance between economic growth and continuously
improving environmental performance and social responsibility. The
Directors and employees must adhere to the policy.

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2.6 Formal Forces Affecting the Organization

Internal Control System

The company has instituted a robust internal control system to support


smooth and efficient business operations and effective statutory
compliance. In order to improve the reliability and efficiency of business
processes having an impact on financial reporting, the company has
established an internal control systems project by standardizing and
documenting major processes and associated key controls.
Responsibilities have been assigned to specific individuals to correctly and
timely perform the controls. The formalized systems of control help
discharge the obligations as per Clause 49 of the SEBI Listing Agreement,
and article 728 (a) of the Swiss Code of Obligations applicable to the
Holcim Group from 2008. The company's Internal Audit department is
responsible to independently test the design and operating effectiveness
of the internal control system across the company. This facilitates an
objective assurance to the Board and Audit Committee regarding the
adequacy and effectiveness of the system.

The Internal Audit function, established since company's inception, not


only monitors the effectiveness of controls but also provides an
independent and objective assessment of the overall governance

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processes in the company, including the application of a systematic risk
management framework.

The scope and authority of the function are governed by the Internal Audit
Charter, approved by the Audit committee. Internal Audit plays a key role
by providing an assurance to the Board of Directors, and value adding
consultation service to the business operations

2.7 Structure of the Company

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Chapter 3
Financial Details

3.1 Risk Involved in the Business:

Coal: Coal is a wild card for the cement industry. Coal is used by the
company both as a fuel in the cement manufacturing process as well as in
captive power generation. This entails the effective sourcing of coal, both
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in terms of quality and pricing, which is very critical for the overall
performance of the company.

Domestic coal: The distribution, allocation and pricing are controlled by


the Government. The deterioration in the quality and the timely
availability is a major concern for the company. With the shrinkage in coal
linkage, the company needs to source coal from e- auctions and through
spot buying at significantly higher rates, generally 30% to 40% more than
the notified prices.

Imported coal: Prices for imported coal have raised sharply during the
year, from less that US per tonne (CIF) in December 2006 to US 0 per
tonne in December 2007. The company has drawn plans to meet the coal
requirements in a planned and cost- effective manner.

Freight: International crude prices are ruling consistently at very high


levels resulting in higher cost of Indian crude basket. This continues to be
a source of anxiety, as any increase in diesel prices would adversely affect
road freights. Timely availability of rakes from the Indian Railways is also
a cause of concern.

Incidence of Taxes: The incidence of taxes on cement is extremely high,


despite the fact that cement is an essential infrastructure commodity. The
overall tax is as high as over 50% of the ex-works realization.

Project Execution: The capital goods and engineering industries have


their order books full for a couple of years. The delivery periods quoted for
equipment are growing longer. The boom in the construction industry has
further compounded the problem. There is a scarcity of experienced civil
contractors – a necessity for timely completion of projects. All these
factors may increase the challenge to execute projects on time and also
impact the cost. Efforts are being made to motivate civil contractors by
additional financial incentives to speed up construction.

Bunching of Capacity: The setting up of newer capacities by the cement


manufacturers could lead to bunching of cement capacity in the short
term. This could bring pressure on cement prices, affecting the bottom
lines.

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3.2 Profitability and its impact & Shareholder’s
Value
Profitability Statement

Current Previous
year Year
Particulars
31.12.200
8 31.12.2007

Sales (Net of excise duty) 6234.65 5631.36


Profit before Interest and Dep. 2261.66 3024.54
Less: Interest 32.06 75.85
Gross Profit 2229.6 2948.69
Less: Depreciation 259.76 236.34
Profit Before Tax 1969.84 2712.35
Provision for Tax 567.57 943.25
Profit after Tax 1402.27 1769.1
Add: Balance Brought forward
from previous year 348.2 272.06
Add: Credit Balance of P&L A/C
as on 01.07.2005 of erstwhile INSCL 0 0.21
Proft available for appropriation 1750.47 2041.37

Appropriations

Debenture redumption reserve NET 0 -30


Transfer from exchange fluctuation
reserve on cessation of subsidiary 0 0
General Reserve 1000 1100
Dividend on equity share (Incl
Interim) 334.97 532.65
Corporate dividend tax 56.92 90.52
391.89 623.17
Balance Carried Forward 358.58 348.2

Net Proft 1750.47 2041.37


Capital Structure

PERIOD INSTRUMEN CAPITAL (Rs. cr) PAID U P


Fro To T Authoris Issued Shares Face Capita
m ed (nos) Value l

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200 200 15225994 214.7
8 8 Equity Share 214.75 214.75 24 2 5
200 200 15223754 214.7
7 7 Equity Share 214.75 214.75 22 2 5
200 200 15168285 214.7
5 6 Equity Share 214.75 214.75 90 2 5
200 200 13518826 214.7
4 5 Equity Share 214.75 214.75 23 2 5
200 200 17939995
3 4 Equity Share 214.75 179.45 1 10 179.4

Implications of Profitability Statement


The adjusted net profit declined by 3.1% YoY due to a sharp decline in
margins. Higher clinker purchase pulled down the margins of the
company. Ambuja Cement is trading at a steep premium to its peers
despite the fact that it does not have the best return ratios and best
margins in the industry.

Highlights

Net sales grew 18.2% YoY.

The EBITDA margin fell YoY by 26%.

The adjusted net profit has declined by 3.1% YoY.

Shareholder’s Value
Competitors Comparison
Particulars Last Market Sales Net Total
Price Cap. Profit Assets

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(Rs. cr.)
Turnov
er
14,880. 7,474.1 1,212.7 5,409.7
ACC 792.75
42 5 8 6
14,070. 6,281.7 1,402.2 5,961.5
Ambuja Cements 92.4
76 1 7 4
10,451. 6,436.9 5,743.7
UltraTechCement 839.6 977.02
83 6 3
1,598.5 5,568.7 2,740.5 2,644.3
Shree Cements 577.97
0 3 7 1
3,524.8 3,470.7 5,619.4
India Cements 124.75 432.18
1 8 1
2,731.8 2,538.5 3,723.6
Madras Cements 114.8 363.52
9 0 5
2,345.9 1,809.7 1,515.4
Birla Corp 304.65 323.51
7 0 8
1,489.7
Prism Cement 49.95 629.86 96.23 661.65
6
1,454.4 1,778.6 3,606.4
Dalmia Cement 179.7 158.63
8 8 8
1,366.8 1,497.3 1,254.7
Binani Cement 67.3 108.66
7 2 3

Increase in Dividend over the Previous Years

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Comparative Valuations

3.3 Return on Investment Calculations for the


Last Five Years
Jun '04 Jun Dec Dec Dec
30
'05 '06 '07 '08
Investment Valuation Ratios
Face Value 10 2 2 2 2
Dividend Per Share 8 1.8 3.3 3.5 2.2
Operating Profit Per Share (Rs) 30.54 5.4 14.25 13.49 11.72
Net Operating Profit Per Share (Rs) 109.37 19.21 41.05 37.25 40.6
Free Reserves Per Share (Rs) 75.8 12.08 19.66 27.48 34.13
Bonus in Equity Capital 58.27 71.98 64.15 63.92 63.91

Profitability Ratios
Operating Profit Margin(%) 27.92 28.12 34.71 36.2 28.85
Profit Before Interest And Tax
Margin(%) 18.72 20.39 29.13 31.35 24.04
Gross Profit Margin(%) 25.01 25.44 33.74 36.26 24.65
Cash Profit Margin(%) 24.95 25.29 29.04 34.61 21.17
Adjusted Cash Margin(%) 22.19 23.41 28.29 23.44 21.17
Net Profit Margin(%) 16.63 17.85 23.86 30.53 22.11
Adjusted Net Profit Margin(%) 13.83 15.93 23.09 19.35 22.11
Return On Capital Employed(%) 13.4 16.94 43.76 38.84 28.19
Return On Net Worth(%) 16.66 21.5 43.05 37.95 24.73
Adjusted Return on Net Worth(%) 13.91 19.24 41.77 24.09 19.06
Return on Assets Excluding
Revaluations 8.3 11.45 27.56 26.94 17.88
Return on Assets Including
Revaluations 8.3 11.45 27.56 26.94 17.88
Return on Long Term Funds(%) 13.76 16.94 43.77 38.84 28.19

Liquidity And Solvency Ratios


Current Ratio 0.63 0.76 1.08 1.03 1.26
Quick Ratio 0.31 0.35 0.7 0.64 0.74
Debt Equity Ratio 0.63 0.52 0.25 0.07 0.05
Long Term Debt Equity Ratio 0.59 0.52 0.25 0.07 0.05

Debt Coverage Ratios


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Interest Cover 4.24 6.28 17.61 26.02 52.66
Total Debt to Owners Fund 0.63 0.52 0.25 0.07 0.05
Financial Charges Coverage Ratio 5.35 8.24 19.73 28.68 60.58
Financial Charges Coverage Ratio
Post Tax 5.43 8.24 17.17 27.45 52.89

Management Efficiency Ratios


Inventory Turnover Ratio 7.96 8.28 15.41 9.96 7.54
Debtors Turnover Ratio 44.27 58.66 91.7 48.14 33.39
Investments Turnover Ratio 9.07 9.55 17.19 11.13 7.54
Fixed Assets Turnover Ratio 0.87 1.07 2.28 1.68 1.1
Total Assets Turnover Ratio 0.6 0.79 1.43 1.14 1.05
Asset Turnover Ratio 0.54 0.7 1.37 1.09 1.1
Average Raw Material Holding 35.99 30.85 43.45 30.93 36.96
Average Finished Goods Held 6.47 7.58 6.26 7 8.01
Number of Days In Working Capital -41.58 -26.2 7.99 2.53 28.24

Profit & Loss Account Ratios


Material Cost Composition 17.19 16.76 16.17 16.8 20.23
Imported Composition of Raw Materials
Consumed -- -- 5.05 11.01 8.41
Selling Distribution Cost Composition 19.01 17.91 19.08 20.95 19.2
Expenses as Composition of Total
Sales 11.02 10.48 8.36 4.9 3.69

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Cash Flow Indicator Ratios
Dividend Payout Ratio Net Profit 47.62 46.06 34.98 35.22 27.94
Dividend Payout Ratio Cash Profit 31.69 32.45 28.73 31.06 23.55
Earning Retention Ratio 42.75 48.4 63.85 44.44 63.75
Cash Earning Retention Ratio 64.32 64.89 70.49 54.13 70.81
Adjusted Cash Flow Times 2.82 1.84 0.49 0.24 0.22

3.4 Balance Score Card


The grouping of performance measures in general categories
(perspectives) is seen to aid in the gathering and selection of the

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appropriate performance measures for the enterprise. Four general
perspectives have been proposed by the Balanced Scorecard:

• Financial perspective;
• Customer perspective;
• Internal process perspective;
• Innovation and learning perspective.

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Financial Perspective
FIVE YEAR PERFORMANCE:

(Rs.
Crores)
2006 (18 2007 (12 2008 (12
2004 2005
Months) Months) Months)
Sales 1968 2606 6286 5705 6235
Operating Profit 587 799 2247 2239 1954

Cash Profit 509 714 2168 2163 1922


Profit before Tax 384 519 1842*** 2712*** 1970***

Profit after Tax 337 468 1503 1769 1402

Gross Block 3782 3827 5177 5928 7654


Net Worth 2013 2172 3484 4655 5669
Debt 1270 1127 865 330 289
Cash EPS (Rs.) 28 5.28 14.29 14.26 12.62

EPS (Rs.) 19 3.46* 10.09* 11.61* 9.21*

Dividend (%) 80 90** 165 175 110

Capacity-Million 12.8 13.30 16.30 18.50 22.00


Tons 6
Production- Million 10.3 12.80 22.63 16.88 17.75
Tons 7
Note:
* On Face Value of Rs. 2 per share
** Includes 30% on enlarged captial after issue of Bonus Shares in the
ratio 1:2
***Includes exceptional items of Rs 308.33 crores, Rs 785.89 crores
previous year 2007.Rs 47.52 crores previous period 2006 (18 months)

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KEY NUMBERS:
⇒ Cement production up 5%, at 17.8 million tonnes.
⇒ Domestic cement sales up 9%, at 16.8 million tonnes.
⇒ Average Net Sales Realisation up 5%, at Rs. 3,544 per tonne.
⇒ Net Sales up 11%, at Rs. 6,235 crore.
⇒ EBITDA down 12%, at Rs. 1,833 crore.
⇒ Profit before Tax down 27%, at Rs. 1,970 crore.
⇒ Net Profit down 21%, at Rs. 1,402 crore.
⇒ Exceptional Income Rs. 308 crore compare to Rs. 786 crore in 2007.
⇒ Cash Position Rs. 852 crore at 31 December 2008.

Internal Process Perspective

The internal process perspective is concerned with the processes that


create and deliver the customer value proposition. It focuses on all the
activities and key processes required in order for the company to excel at
providing the value expected by the customers both productively and
efficiently. These can include both short-term and long-term objectives as
well as incorporating innovative process development in order to
stimulate improvement.

The clusters for the internal process perspective are operations


management (by improving asset utilization, supply chain management,
etc), customer management (by expanding and deepening relations),
innovation (by new products and services) and regulatory & social (by
establishing good relations with the external stakeholders).
• Utilization of waste resource

Fly ash - The waste product that helped them to produce larger volumes
of cement.

The disposal of fly-ash, a hazardous waste from power plants is a major


national concern. To tide over the power shortage in the country, large
coal based thermal plants are being set up by power companies, leading
to more fly-ash.

Over the years, they have spent time and capital at their R&D cell, to see
how they could use this waste in manufacturing cement without
compromising on the quality.
36
• Regulatory and Social

The company places great emphasis on the maintenance of effective


internal controls, both from the point of view of compliance with statutory
requirements as well as supporting the smooth and efficient running of
the business. This formalized system of controls helps to meet the
statutory requirements of both Clause 49 of the SEBI Listing Agreement,
and the equivalent Swiss Stock Exchange Code, with which the Holcim
Group is required to comply from 2008.

• Supply Chain Management

The company has initiated various activities at our plants and corporate
offices. All these activities are geared towards awareness generation and
prevention.

They recognize that their workplace programme must reach out to those
in supply chain. They have a large programme for their truckers who are
an important part of this chain.

Since the railways also form a significant part of the cement supply chain,
they have initiated an awareness programme for the labourers working at
their cement yards. They began with the yards in Mumbai and are
gradually expanding it to include other yards across Maharashtra. In
course of time, they are sure this will have a multiplier impact on other
railway yards across the country.

Innovation and Learning Perspective


The innovation and learning perspective is the foundation of any
strategy and focuses on the intangible assets of an organization, mainly
on the internal skills and capabilities that are required to support the
value-creating internal processes. The Innovation & Learning Perspective
is concerned with the jobs (human capital), the systems (information
capital), and the climate (organization capital) of the enterprise.

• Training Programmes

Holcim aims to be recognized as one of the most attractive employers


within the industry. It has implemented various programs, including
Leadership Development Program and development program for senior
management, introduction of variable compensation scheme, cross border
transfers, talent assessment program to evaluate people so they could
take up higher responsibilities.

Through intensive training programmes, they have introduced farmers to


better technologies and cropping techniques, increasing their yield in
agro-based livelihoods. Expansion into alternative livelihood options
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meant sustained incomes for the families, which in turn directly influenced
the standard of living of the family.

• Systems

The three guiding principles of “Value Creation”, “Sustainable


Environmental Performance” and “Corporate Social Responsibilities” are
well anchored in the Holcim Business Model and enshrined in the
Management Systems. They can also be found in our company’s business
model and management systems.

• Climate of organization

The health and safety of the people at Holcim is a key priority. This not
only includes its own employees but also for the personnel of sub-
contractors and for visitors. The implementation of the Holcim Safety
Pyramid – “Passion for Safety” encompasses events, which on successful
implementation would help us achieve our goal of “no harm” environment
within the company Environment Management: We won the Environment
Excellence Gold Award for outstanding achievement in environment
management

They are also very conscious about noise pollution. They follow
sophisticated method of blast control using delayed detonators in mines
and hence there is minimal noise during blasting. This also ensures that
the surrounding areas are not affected as the vibrations are of lower
intensity.

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3.5 Expense Centers
ENGINEERED EXPENSES

Engineered costs are those for which the right or the proper amount can
be estimated with reasonable reliability.

Manufacturing And Other Expenses


• Clinker
• Freight and Handling Charges
• Stores and Spares Consumed
• Packing Materials Consumed
• Power and Fuel
• Mines reclamation expenses
• Repairs and Maintenance
• Excise duty On captive consumption of clinker
• Employees' Remuneration and Benefits
• Salaries, Wages,
• Contribution to Provident and other Funds
• Welfare Expenses
• Rent
• Insurance
• Freight and Forwarding charges on exports
• Miscellaneous Expenses
• Directors' Fees and Expenses
• Capital Projects written off

DISCRETIONARY EXPENSE

Discretionary costs are those for which no such engineered estimate is


feasible.

• Commission to Managing Director


• Rates and Taxes
• Provision for doubtful advances

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• Loss on Assets sold, scrapped or discarded and written off
• Commission to Non-executive Directors
• Commission on sales
• Discount on sales
• Selling and Distribution Expenses
• Advertisement and Publicity
• Bonus, Allowances, etc
• Turnover Tax, Additional Tax and Purchase Tax
• R&D Expenses

The Future Looks Bright for Ambuja Cement

The momentum of growth in the infrastructure and housing industry is a


good sign for the cement industry. The government has set a growth
target of 9 % for the economy during XIth Plan (2007 – 2012). The cement
demand growth is projected at 9.5% CAGR for the XIth plan.

Further, the government has emphasized on public-private partnerships


for removing bottle-necks for developing the infrastructure in the country.
We see that the private sector is poised to play a very major role in the
development of this infrastructure.

Given the overall economic growth, inflow of foreign investments, thrust


on infrastructure development and boom in the housing construction, we
believe the cement demand should display strong growth in the next 3 to
5 years. In view of this robust growth, many cement companies have
announced fresh capacity expansion.

It is expected that over the next 5 to 7 years, new capacities of over 110
million tonnes would be set up across the country.

While there are high growth opportunities, there also lie big challenges
ahead. Bunching of new capacity in a short span could lead to pressure on
prices and distribution network in 2009. We are gearing up to meet these
challenges.

The ominous signs of recession in US economy, accentuated by 75 bps


cut in interest rate, and the emerging signs of domestic inflation rate
going up may generally impact overall economic growth.

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Bibliography
www.gujaratambuja.com
www.moneycontrol.com
www.motilaloswal.com
www.icicidirect.com

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