STATEMENT OF PROFIT/ LOSS (All amounts are in crores of ) For the year ended 31.03.2014 For the year ended 31.03.2013 Revenue Sale of Products and Services (Gross) 22803 22705 Less: Excise Duty (2725) (2682) Sale of Products and Services (Net) 20078 20023 Other Operating Revenues 202 157 Revenue from Operations (Net) 20280 20180 Other Income 329 305 Total Revenue (I) 20609 20485 Expenses Cost of Raw Materials Consumed 2911 2792 Purchases of Stock-in-Trade 309 236 Changes in Inventories of Finished Goods, Work-in-Progress and Stock-in-Trade 107 (118) Employee Benefits Expense 1015 968 Power and Fuel 4135 4299 Freight and Forwarding Expense 4581 4224 Other Expenses 3436 3149 16494 15549 Less: Captive Consumption of Cement {Net of Excise Duty ` 28.89 Crores, (Previous Year `39.80 Crores)} (32) (45) Total Expenses (II) 16462 15504 Profit before Interest, Depreciation and Tax (PBIDT) (I)-(II) 4147 4980 Finance Costs 319 210 Depreciation and Amortisation Expense 1052 945 Profit before Tax 2776 3825 Income Tax Expenses: Current Tax 559 1006 MAT Credit (222) Excess tax provision reversal related to prior years (96) (4) Deferred Tax Charge 390 168 Total 631 1170 Profit for the Year 2144 2655 Earnings Per Equity Share (Face Value 10 each)
Basic (in `) 78.21 97 Diluted (in `) 78.18 97
BALANCE SHEET (All amounts are in crores of ) As At 31.03.2014 As at 31.03.2013 EQUITY AND LIABILITIES Shareholders Funds Share Capital 274 274 Reserves and Surplus 16823 14961 Total 17098 15235 Non-Current Liabilities Long-term Borrowings 4494 3894 Deferred Tax Liabilities (Net) 2296 1906 Other Long-term Liabilities 2 2 Long-term Provisions 138 134 Total 6930 5936 Current Liabilities Short-term Borrowings 379 569 Trade Payables 2424 2173 Other Current Liabilities 2088 2561 Short-term Provisions 835 935 Total 5727 6238 TOTAL EQUITY AND LIABILITIES 29754 27409 ASSETS Non-Current Assets Fixed Assets Tangible Assets 15781 13074 Intangible Assets 91 48 Capital Work-in- Progress 2038 3505 Intangible Assets under Development 3 0 TOTAL 17913 16628 Non-Current Investments 1662 1982 Long-Term Loans and Advances 1181 983 TOTAL NON-CURRENT ASSETS (a) 20756 19593 Current Assets Current Investments 3729 3127 Inventories 2368 2350 Trade Receivables 1281 1017 Cash and Bank Balances 278 143 Short-term Loans and Advances 1326 1173 Other Current Assets 15 6 TOTAL CURRENT ASSETS (b) 8998 7816 TOTAL ASSETS (a + b) 29754 27409 CASH FLOW STATEMENT (All amounts are in crores of ) For the year ended 31.03.2014 For the year ended 31.03.2013 (A) Cash Flow from Operating Activities: Profit Before tax 2776 3825 Adjustments for:
Depreciation and Amortisation 1052 945 Compensation Expenses under Employees Stock Options Scheme 3 0 Provision for Doubtful Advances/ debts (net) (0) - Bad Debts Written-off 0 0 Excess Provision written back (net) (17) (22) Provision for Wealth Tax 2 2 Provision for Retirement Benefits 4 18 Provision for Mines Restoration 2 2 Interest and Dividend Income (52) (57) Finance Costs 319 210 Unrealised Foreign Exchange Loss 14 3 Profit on Sale of Fixed Assets (net) (6) (0) Profit on Sale of Current Investments (net) (266) (245) Operating Profit before Working Capital Changes 3831 4681 Movements in working capital:
Increase/(decrease) in Trade payable and other Liabilities 423 238 Decrease/(Increase) in Trade receivables (264) (251) Decrease/(Increase) in Inventories (18) (315) Decrease/(Increase) in Loans and Advances (72) (81) Cash Generated from Operations 3900 4272 Direct Taxes paid (655) (717) Expenditure for Mines Restoration (3) (3) Net Cash Generated from Operating Activities (A) 3242 3552 (B) Cash Flow from Investing Activities:
Purchase of Fixed Assets (2228) (3249) Sale of Fixed Assets 10 2 Expenditure for Cost on Assets transferred from Samruddhi Cement Limited (SCL), pursuant to Scheme of Amalgamation (9.72) - Proceeds / (Purchase) of Non-current Investments (net) 449 (675) Advances to Subsidiaries and Joint Venture (net) (15) (15) Investment in Subsidiaries / Joint Venture (130) (160) (Purchase) / Proceeds of current Investments (net) (337) (241) Interest / Dividend Received 51 56 Net Cash used in Investing Activities (B) (2210) (4282) (C) Cash Flow from Financing Activities:
Proceeds from Issue of Share Capital 4 8 Repayment of Long Term Borrowings (597) (220) Proceeds from Long Term Borrowings 577 1069 Proceeds / (Repayment) of Short Term Borrowings (190) 407 Interest paid (405) (327) Dividend Paid (246) (218) Corporate Dividend Tax (42) (36) Net Cash (Used) / Generated from Financing Activities (C) (897) 683 Net Increase/(Decrease) in Cash and Cash Equivalents (A + B + C) 135 (47) Cash and Cash Equivalents at the Beginning of the Year 143 190 Cash and Cash Equivalents at the End of the Year 278 143
IMPORTANT FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
Dividend: UltraTech Cement has recommended a dividend of Rs. 9/- per equity share of Rs. 10/- each for the year ended March 31, 2014.
Other Income: Other income is up from 462 crores to 531 crores in FY14. This can be attributed to financial incentives attributed due to investing in increasing capacity
Finance cost: It has risen from 210 crores to 319 crores mainly due to lower capitalization of interest upon the commissioning of various projects.
Margins: EBITDA margin decreased to 21% from 25% mainly due to decrease in cement prices
Capital Expenditure: The Company has earmarked around Rs. 10,000 Crore to be incurred in setting up the grinding units, clinkerisation plants, cement terminals and other capex, and these are likely to be commissioned in a phased manner by 2015. During the year the Company has commissioned Clinkerisation plant of 3.30 mtpa, 25 MW TPP and 1.45 mtpa cement plant at Rajashree Cement in Karnataka.
Inventories: Changes in Inventories of Finished Goods, Work-in-Progress and Stock-in- Trade was Rs 107 Cr in FY14 compared to (Rs 118 cr) in FY13. However ending inventory has remained at similar level at Rs 2368 cr in FY14.
Sales: Sales increased by 5% to Rs 22803 cr compared to FY13. However the capital turnover ratio has declined from 1.05 to 0.93 from FY13 to FY14. The company needs to endure that its capital is being used efficiently.
Depreciation charge: Depreciation expense has increased from Rs 388 cr in 2009-10 to Rs 1052 cr in current year due to high capital expenditure capitalization.
Penalty: Competition Commission of India has imposed a fine of Rs 1,175.49 cr with stay permission on deposit of Rs 117.6 cr. However the company has not made any provisions in the account believing that it has a good case.
Liabilities: The Company has decreased its current liabilities from Rs 6238 cr to Rs 5727 cr while increasing its non-current liability to Rs 6930 cr from Rs 5936 cr. This is in line with the companys long term investments in increasing cement production capacity.
Analysis of Profitability: Gross Profit ratio declined from 56.16% in FY13 to 51.51% in FY14. However due to high depreciation and interest expenses Net profit ratio stands 9.1%. Overall GPR, NPR, ROE, ROA have declined due to lower cement prices in the market. A 5% increase in sales has slightly negated this effect on the bottom line but the company needs to respond to decreasing margins.
Liquidity Analysis: The Companys current ratio has increased from 1.25 in FY 2014 to 1.57 in FY 2013. The quick ratio also increased from 0.69 in FY13 to 0.93 in FY14. This shows a healthy shift by the company towards long term liabilities. Its current assets also increased by 15% owing to increase in current investments. The Cash and Bank balance has almost doubled from Rs.143 cr in FY 2013 to Rs. 278 cr in FY 2014. Thus overall company has improved its solvency position by increasing current assets and decreasing current liabilities in accordance to the high amount of capex it is indulging towards. Only the Inventory Holding Period has increased to 96 days in FY14 from 91 days in FY13 as a small risk towards liquidity. This can be attributed to the mismatch between high capacity and lower demand in the market.
Solvency Position Analysis: The Share Capital remained stable at Rs 274 cr in FY14 although 15440 stock options were vested to employees. The Debt/Equity ratio remained stable at 0.43. This highlights that the company is currently able to manage its borrowings well with equity. However its interest coverage ratio has decreased drastically from 19.24 in FY13 to 9.59 in FY14. The company has good solvency condition currently but needs to make sure that its revenues also increase correspondingly to the increasing interest charges.
Cash Flow from Operations: Although PBT declined to Rs 2775 cr from 3825 cr between FY13 and 14, Cash flow from operation has remained relatively stable at Rs 3241 cr in FY14 compared to Rs 3552 cr in FY13. This is mainly due to the change in Working Capital.
SPECIFIC AREAS OF STRENGTHS
1. The company managed to reduce Energy costs required for Cement productions by 5% during the financial year which reduced the overall cost of production.
2. The Company set up many new plants during the financial year, increasing its overall capacity to 62 million tonnes which will boost sales and keep them in a state of preparedness, with a favourable market condition likely in the coming financial year due to a lot of infrastructure projects in the pipeline
3. The Company also acquired a plant with capacity of 4.8 million tonnes which will further the cause of the company to increase its capacity to meet expected demands.
4. During the financial year the growth for the company was 6%, while the growth in the segment was 3.5%, a good indicator of the good performance of the company. Moreover it is expected to grow at a rate of 8% in the coming financial year.
5. They have good solvency and liquidity ratios, which is indicative of the good performance if the company despite the year not being very good for the industry.
6. While the profit has come down as compared to last year, the cash generated from Operations has not declined in the same ratio, again an indicator of good performance in a tough year.
7. The Gross Profit Ratio of the company is very high (51.51%), an indication of reduced cost of goods, which will help increase overall profitability.
8. The book value per share has increased from 556 in FY 2013 to 623 in FY 2014. This shows a favorable condition for an investor in case the company is liquidated in the future.
9. Proprietary Ratio: The proprietary ratio shows the contribution of stockholders in total capital of the company. The increase of proprietary ratio from 0.55 to 0.57 despite the increase in total assets, therefore, indicates a strong financial position of the company and greater security for creditors.
SPECIFIC AREAS OF WEAKNESS
1. All the key Profitability ratios have gone down considerably from the previous financial year.
2. Inventory Holding Period: The inventory holding period has gone up to 101.59 days (2013-14) from 95.98 days (2012-13), resulting in increased holding costs.
3. Debt Service Coverage Ratio: The debt service coverage ratio (DSCR) measures how effectively a company's operations-generated income is able to cover outstanding debt payments. The reduction in the value of DSCR from 6.49 to 2.72 indicates decreased capability to cover outstanding debt payments.
4. The demand has been low in cement industry due to infrastructural slowdown resulting in lower sales and weak pricing leading to poor realization on cement sold.
5. The Earning per share(EPS) has dropped from 96.87 to 78.21 while the number of shares have remained same
6. The acquisition of the Gujarat Cement Unit of Jaypee Cement Corporation has led to increase in the interest expenses leading to slashing of interest coverage ratio by more than 50% and also affected the profitability ratios.
7. The new acquisitions have drastically increased the depreciation for the company and have risen finance cost from 210 crores to 319 crores.
8. Freight costs have risen by more than 5% year which has resulted in poor operating performance.
9. As per the judgment of Supreme Court the company is to pay a sum of Rs.100 crores on charges of cartelisation. Provisions for the same have not been created.
10. Clinker export volume declined to 0.11 million tonnes in FY13-14 from 0.33 million tonnes in FY12-13 and the export of grey cement remained almost flat
11. Cement demand, as projected, has not materialised, while capacity has been created leading to excess production capacity
SUGGESTIONS TO THE COMPANY
1. Competition
The competitive landscape in the cement industry is becoming more intense. The Company needs to continue to focus on enhancing brand equity, value added services and cost optimization measures to mitigate this risk.
2. Securing critical resources
Company should plan on entering into long term contracts, securing coal blocks and linkages.
3. Fuel cost
Companys continued focus on controlling cost and optimisation of fuel mix helped in curtailing cost to some extent and it should continue doing so
4. Export
Company should work to improve the export of clinkers and grey cement
5. Freight cost
Company must work on strengthening the logistics to counter rising freight costs as It may eat into the profits of the company
ANNEXURE (SUPPORTING CALCULATIONS)
Financial Ratios
Ratio Definition 2014 2013 Gross Profit Ratio Gross Profit/Sales 11376/22803*100= 51.51% 11683/22705*100= 56.16% Net Profit Ratio PAT/Sales 2144/228.03=9.70% 2655/22705=11.69 % Capital turnover Ratio Net Sales/Capital Employed 20078/21591=0.93 20023/19129=1.046 Return on Investment (ROI) (EBIT-Taxes)/Net Assets 2144/21184=10% 2655/18206=14.6% Return on Equity (ROE) PAT/Equity 2144/17098=12.5% 2655/15235=17.43% Return on Net Worth (RONW) PAT/Net Worth 2144/17098=12.6% 2655/15235=17.43% Return on Total Assets PAT/Total Assets 2144/29754=7% 2655/27409=9% Return on Capital Employed (ROCE) Net Profit/Capital Employed 2144/21591=10% 2655/19129=13.9% Earnings per Share (EPS) PAT/Number of equity shares 2144/27.424=78.17 2655/27.418=96.83 Earning Power EBIT/Total Assets 3095/29754=0.104 4035/27409=0.147 Quick Ratio (Current Assets - Inventory)/(Current Liabilities) (8998-2368- 1326)/5727=0.93 (7816.2-1173-2350.47) /6238.38 =0.69 Current Ratio Current Assets / Current Liabilities 8998/5727 = 1.57 7816/6238=1.25 Debt Equity Ratio Debts/Equity 7309/17098 = 0.43 6504/15235 = 0.43 Proprietary Ratio Stockholder's Equity/Total Assets 17098/29754 = 0.57 15235/27409=0.56 Dividend Coverage Ratio (Profit after tax - Dividend paid on Irredeemable Preference Shares)/Dividend paid to Ordinary Shareholders 2144/246=8.72 2655/218= 12.18 Interest Coverage EBIT/Interest Expense 3095/319=9.70 4035/210=19.21 Debt Service Coverage Ratio (DSCR) Net Operating Income/Total Debt Service 3242/(405+786)=2.72 3552/(327+220)= 6.49 Total Asset Turnover Sales/Average Assets 22803/28581=0.80 22705/25177=0.90 Inventory Turnover COGS/Average Inventory 8702/2359.42=3.59 8777/2193.21=3.80 Ratio Definition 2014 2013 Net Working Capital Current Assets-Current Liabilities 8998-5727=3271 7816-6238=1578 Fixed asset turnover Net Sales/Fixed Assets 20078/ 17913= 1.12 20023/16628 = 1.20 Inventory Holding Period 365*(Avg.Inventory/ COGS) 365/3.59 =101.59 days 365/3.80 = 95.98 days Operating leverage Gross Profit / EBIT 11376/3095=3.67 11683/4.35=2.89 Financing leverage EBIT / PBT 3095/2776=1.11 4035/2655=1.52 Combined leverage Gross Profit / PBT (OL*FL) 3.675*1.11=4.1 2.89*1.52=4.40
COMMON SIZE STATEMENT SHOWING PROFIT & LOSS
Comparative Profit & Loss Year Ended 31st March 2014 % Year Ended 31st March 2013 % Income Net Sales 20078 97 20023 98 Other Income 531 3 462 2 Total Income 20609 100 20485 100 Expenses Cost of Raw Materials Consumed 2911 14 2792 14 Purchases of Stock-in-Trade 309 2 236 1 Changes in Inventories of Finished Goods, Work-in-Progress and Stock-in-Trade 107 1 (118) (1) Employee Benefits Expense 1015 5 968 5 Power and Fuel 4135 20 4299 21 Freight and Forwarding Expense 4581 22 4224 21 Other Expenses 3402 17 3104 15 Total Expenses 16462 80 15504 76 PBIDT 4147 20 4980 24 Finance Costs 319 2 210 1 Depreciation and Amortisation Expense 1052 5 945 5 PBT 2776 13 3825 19 (Taxation) 631 3 1170 6 Profit After Tax 2144 10 2655 13
ALTMAN Z-SCORE ANALYSIS The Altman Z Score was designed as a way to rank a manufacturing company's risk of going bankrupt. A Z Score above 2.99 is safe; 1.81 to 2.99 means there is a chance the company will declare bankruptcy in the next two years; and less than 1.81 means the company is severely distressed. It is given by:
Z = 1.2 * [(Current Assets Current liabilities)/Total Assets] + 1.4 * [Retained Earnings/Total Assets] + 3.3 * [EBIT/Total Assets] + 0.6 * [Equity Value/Total Liabilities] + 1 * [Sales/Total Assets] The Z score for Ultratech Cements for the FY 2013-14 is 3.10, indicating this is a healthy firm.
DU-PONT CHART: Return on Equity (ROE)
WORKING 2014 2013 Current Assets 8998 Current Assets 7816 Non-current assets 20756 Non-current assets 19593 Assets 29754 Assets 27409 Share capital 274 Share capital 274 Reserves and surpluses 16823 Reserves and surpluses 14961 Equity 17098 Equity 15235 Sales 20078 Sales 20023 EBIT 3095 EBIT 4035 PBT 2776 PBT 3825 Net Income 2144 Net Income 2655 Assets/ Equity 1.74 Assets/ Equity 1.80 Sales/Assets 0.675 Sales/Assets 0.731 EBIT/Sales 0.154 EBIT/Sales 0.202 PBT/EBIT 0.897 PBT/EBIT 0.948 Net income/PBT 0.773 Net income/PBT 0.694 ROE 0.125 ROE 0.174