Académique Documents
Professionnel Documents
Culture Documents
_________________________________________________________________________________
Financial Snapshot
Operating Performance
Fast Facts
Headquarters Address
Telephone
+ 91 22 66525000
Fax
+ 91 22 66525841
Website
www.hindalco.comindex.htm
Number of Employees
20,238
March
15,190
SWOT Analysis
Strengths
Weaknesses
Business Diversity
Opportunities
Threats
Structural Deficit
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Hindalco Industries Limited - SWOT Profile
Page 1
1.2
1.3
Hindalco Industries Limited - Five Year Snapshot: Overview of Financial and Operational Performance
Indicators ..................................................................................................................................................................... 8
2.2
2.2.1
2.2.2
2.2.3
2.2.4
2.2.5
2.3
4.2
4.3
4.4
4.5
9.2
10
Appendix ........................................................................................................................................... 29
10.1
Methodology .................................................................................................................................................. 29
10.2
10.3
Disclaimer ..................................................................................................................................................... 33
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Hindalco Industries Limited - SWOT Profile
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1.2
1.3
Hindalco Industries Limited - Five Year Snapshot: Overview of Financial and Operational Performance
Indicators ..................................................................................................................................................................... 8
2.2
2.2.1
2.2.2
2.2.3
2.2.4
2.2.5
2.3
4.2
4.3
4.4
4.5
9.2
10
Appendix ........................................................................................................................................... 29
10.1
Methodology .................................................................................................................................................. 29
10.2
10.3
Disclaimer ..................................................................................................................................................... 33
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Hindalco Industries Limited - SWOT Profile
Page 2
List of Tables
Table 1: Hindalco Industries Limited - Major Products and Services ................................................................................. 7
Table 2: Hindalco Industries Limited - Key Ratios - Annual .............................................................................................. 8
Table 3: Hindalco Industries Limited - Key Capital Market Indicators .............................................................................. 10
Table 4: Hindalco Industries Limited - History ................................................................................................................ 23
Table 5: Hindalco Industries Limited - Key Employees ................................................................................................... 24
Table 6: Hindalco Industries Limited - Key Employee Biographies ................................................................................. 26
Table 7: Hindalco Industries Limited - Subsidiaries ........................................................................................................ 27
Table 8: Hindalco Industries Limited - Locations ............................................................................................................ 28
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Hindalco Industries Limited (Hindalco) is a aluminium and copper company. The company is a part of Aditya Birla Group.
It operates in two business segments, namely, Aluminium and Copper. The aluminium operation also includes mining of
bauxite to produce not only primary aluminium but also value added downstream products. Hindalco provides a wide
range of aluminum products including standard and specialty grade aluminas & hydrates, billets, wire rods, extrusions,
aluminium ingots, flat rolled products, foil and alloy wheels and broad spectrum of copper products including cathodes,
continuous cast copper rods along with other by-products, including gold, silver and DAP fertilisers. It has its operations in
Europe, Canada, Asia, Australia and the US. Hindalco is headquartered in Mumbai, India.
The company follows a integrated business model in case of its aluminium business. The upstream strategy of its
aluminium products is to focus on the continuing existing low cost operations and progressing on new greenfield projects.
This will enable the company to reduce the cost competitiveness through lowest production costs. The company strategy
for its downstream product is to leverage its strength further. Recently, it has acquired Novelis which has provided a well
diversified geographical market base to the company.
1.2
Hindalco Industries Limited (Hindalco) operates as the metals flagship company of the Aditya Birla Group. It produces
broad range of aluminum and copper products as well as exports these aluminium products. After the acquisition of
Novelis Inc., the company placed as the top five aluminium majors across the world and the largest vertically integrated
aluminium company in India.
The companys Aluminium segment is engaged in the production and distribution of hydrate and alumina, aluminum and
aluminum products. The aluminium units of the segment encompass the entire gamut of operations, from bauxite mining,
alumina refining, aluminium smelting to downstream rolling, extrusions and recycling in India. The Aluminium segment
operates across India. Hindlaco operates aluminium units across the world, which consists of the entire gamut of
operations, from bauxite mining, alumina refining and aluminium smelting to downstream rolling, extrusions, foils, along
with captive power plants and coal mines. The major aluminium products of Hindalco are standard and specialty grade
aluminas and hydrates, aluminium ingots, billets, wire rods, flat rolled products, extrusions and foil. The company's
integrated facility at Renukoot comprises an alumina refinery and an aluminium smelter, along with facilities for the
production of semi-fabricated products such as redraw rods, flat rolled products and extrusions. The plant gas has support
of a co-generation power unit and a 742 MW captive power plant at Renusagar, which will help to ensure the continuous
supply of power for smelter and other operations. The Aluminium segment's facilities are an aluminium smelter at Hirakud
(Odisha) with a captive power plant and coal mine, alumina refineries at Muri (Jharkhand), and Belgaum (Karnataka), and
rolling mills at Belur (West Bengal), and Taloja, Mouda (Maharashtra), foil rolling at Kalwa (Maharashtra) and Silvassa
(Union Territory of Dadra and Nagar Haveli) and an extrusions plant at Alupuram (Kerala).
Being a leading player in the extrusions industry in India, Hindalco offers a range of alloys including hard alloys and some
special alloys for the defense and space sectors. It has a extrusions capacity of 31,000 tpa. Hindalco is an India's largest
manufacturer of the entire range of flat rolled products. The Aluminium segment also offers services through its
subsidiary, Novelis, an aluminium rolled products producer based on shipment volume, which is the leading producer of
aluminium rolled products in Europe, South America and Asia, and the second leading producer in North America. Novelis
is engaged in recycling used aluminium beverage cane. The company serves to industries such as automotive,
transportation, packaging, construction and printing. For the fiscal year ended March, 2012, the Aluminium segment
generated INR 90411.7m, reflecting an increase of 13.5% over the revenue 2011. In 2012, the Aluminium segment
accounted for 33.97% of the companys total revenue.
The Copper segment of the company carries out operations of a copper unit, Birla Copper, is the largest single-location
copper smelter in the world, which is located at Dahej in Gujarat, India with a capacity of 500,000 tpa. Birla Copper unit
provides copper cathodes, continuous cast copper rods and other by-products such as gold, silver and DAP fertilizers.
Birla Copper unit also produces precious metals, fertilizers and sulphuric and phosphoric acid. The copper unit has
captive power plants that can provide continuous power generation and a captive jetty to facilitate logistics and
transportation. The company's copper cathode products are distributed under the brand name of Birla Copper and Birla
Copper II. For the fiscal year ended March, 2012, the Copper segment generated INR 175745.6m, reflecting an increase
of 10.5% over the revenue of 2011. In 2012, the Copper segment accounted for 66.03% of the companys total revenue.
Under research and development activities, Hindalco operates two R&D centers at Belgaum and Taloja, both recognized
by the Department of Scientific & Industrial Research (DSIR), the Government of India. The Belgaum R&D center carries
out research in the field of bauxite, Bayer process and alumina. The Taloja R&D center specially focuses on the field of oil
and lube and aluminium related metallurgical services. Hindalco also offers industry leading technology and operating
expertise to a large base of customers across the world. For the fiscal year ended 2012, the research and development
expenditure was INR 71.3m.
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Hindalco Industries Limited - SWOT Profile
Page 5
Geographically, the company operates through two regions namely, India and Rest of World. For the fiscal year ended
2012, India accounted for 70.26% of the company's total revenue followed by Rest of World with 29.74%.
The subsidiaries of the company are Bihar Caustic and Chemicals Limited, Dahej Harbour and Infrastructure Limited, East
Coast Bauxite Mining Company Private Limited, Hindalco - Almex Aerospace Limited, Indal Exports Limited, Lucknow
Finance Company, Aditya Birla Minerals Limited, AV Minerals (Netherlands) B.V. and Birla Resources Pty Limited.
Hindalco owns 51% in Aditya Birla Minerals Ltd., (ABML), which wholly-owned Birla Nifty Pty Limited and Birla Mt. Gordon
Pty Limited located in Western Australia and Queensland, respectively. Hindalco acquired two Australian copper mines,
namely, Nifty and Mt. Gordon. Its Nifty copper mine encompasses an underground mine, heap leach pads and a solvent
extraction and electrowinning (SXEW) processing plant, which involves in producing copper cathode. The Mt. Gordon
copper operation includes an underground mine and a copper concentrate plant. Till date, the operation unit produced
copper cathode by using the ferric leach process. Hindalco-Almex Aerospace Limited (HAAL) is established through a
joint venture between Hindalco Industries Limited (70% interest) and Almex USA Incorporated (30% interest). HAAL
manufactures high-strength aluminium alloys that useful in the aerospace, sporting goods and surface transport
industries.
Hindalco planned an Aditya Aluminium project of a 359 ktpa, Aluminium smelter along with a 900 MW captive power plant
in Odisha, which will be completed in 2013. The company also planned out a Aditya Refinery Project of 1.5 million tonnes
per annum of alumina Refinery along with a 90 MW cogen plant in Odisha, which will be operational in 2014.
In September 2012, the company subsidiary Novelis, signed a multi year agreement with Jaguar Land Rover to supply
automotive sheet products. In April, Novelis has signed an agreement with the Changzhou National Hi-Tech district to
build the companys first automotive sheet manufacturing facility in China.
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1.3
Hindalco Industries Limited (Hindalco) is an India-based company, engaged in the production of aluminum and copper.
The companys key products and brands include the following:
Table 1: Hindalco Industries Limited - Major Products and Services
Products:
Alumina
Primary Metal
Wire Rods
Value Added Products (VAP)
Flat Rolled products
Extrusions
Foils
Wheels
Copper
Primary Aluminium Ingots
Brands:
Birla Copper
Birla Copper II
Source: World Market Intelligence
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Page 7
Hindalco Industries Limited - Five Year Snapshot: Overview of Financial and Operational
Performance Indicators
The company reported revenue of US$15,190 million during the fiscal year 2013 (2013). The company's revenue grew at
a CAGR of 2.72% during 20092013, with an annual decline of 0.49% over 2012. During 2013, operating margin of the
company was 4.81% in comparison with operating margin of 5.32% in 2012. In 2013, the company recorded a net profit
margin of 3.73% compared to a net profit margin of 4.16% in 2012.
Table 2: Hindalco Industries Limited - Key Ratios - Annual
Key Ratios
Unit/Currency
2013
2012
2011
2010
2009
Equity Ratios
EPS (Earnings per Share)
INR
15.81
17.74
12.83
22.16
3.21
INR
1.40
1.55
1.50
1.35
1.35
Absolute
11.29
11.45
8.55
16.42
2.38
INR
184.53
166.68
151.61
112.60
92.68
Gross Margin
28.98
27.25
28.41
30.64
25.55
Operating Margin
4.81
5.32
5.29
10.13
-0.91
3.73
4.16
3.38
6.43
0.73
Profit Markup
41.53
37.96
40.07
44.51
34.81
4.81
5.32
5.29
10.13
-0.91
Return on Equity
8.57
10.64
8.46
18.22
3.07
4.01
5.36
5.90
11.50
-1.17
Return on Assets
2.51
3.35
2.89
5.47
0.70
4.80
6.35
7.33
12.73
-1.24
24.50
34.17
30.38
119.51
-20.09
Sales Growth
-0.78
11.94
18.93
-7.97
9.91
-10.04
13.06
-37.82
EBITDA Growth
-3.71
6.28
-26.61
269.64
-55.40
-10.89
38.29
-37.42
711.23
-77.94
EPS Growth
-14.46
46.08
-42.04
575.66
-80.65
25.48
0.51
144.62
71.78
-29.23
95.19
94.68
94.71
89.87
100.91
15.25
13.49
8.30
8.32
8.03
Current Ratio
Absolute
1.69
1.63
1.64
1.29
1.17
Quick Ratio
Absolute
1.07
0.97
0.94
0.66
0.68
Cash Ratio
Absolute
0.46
0.40
0.41
0.12
0.13
Absolute
1.61
1.29
1.02
1.20
1.80
Dividend Cover
Book Value per Share
Profitability Ratios
Growth Ratios
-120.48
Cost Ratios
Liquidity Ratios
Leverage Ratios
Debt to Equity Ratio
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Hindalco Industries Limited - SWOT Profile
Page 8
Unit/Currency
2013
2012
2011
2010
2009
Absolute
1.67
1.37
1.09
1.26
1.87
Absolute
0.58
0.51
0.45
0.48
0.55
Asset Turnover
Absolute
0.67
0.80
0.86
0.85
0.97
Absolute
1.47
1.92
2.55
2.27
2.53
Inventory Turnover
Absolute
3.95
4.42
3.75
3.73
5.74
Absolute
2.08
2.47
2.24
2.63
3.29
Absolute
2.30
2.56
2.51
2.83
4.23
Absolute
5.09
6.42
5.75
11.80
22.14
Efficiency Ratios
INR
39,624,864.00
INR
1,495,647.00
Capex to Sales
14.62
15.33
10.88
7.02
4.01
R&D to Sales
0.34
0.28
0.26
0.31
0.29
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Hindalco Industries Limited - SWOT Profile
Page 9
12-Jun-2014
10.71
Dividend Yield
0.01
Note: Above ratios are based on share price as of 12-Jun-2014. The above ratios are absolute numbers.
Source: World Market Intelligence
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Hindalco Industries Limited - SWOT Profile
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2.2
2.2.1
The consolidated group revenue of the company for 2013 stood at US$15,190 million, which corresponds to a decline of
0.49% over the previous year. The operating margin of the company was 4.81% in 2013, a decrease of 51.00 basis
points over the previous year.
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2.2.2
The company's assets grew 18.92% over the previous year to US$22,557 million in 2013. The company's liabilities grew
22.69% over the previous year to US$15,948 million in 2013. The company's asset to liability ratio reduced from 1.46 in
2012 to 1.41 in 2013.
Figure 2: Hindalco Industries Limited - Financial Position
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2.2.3
The company recorded higher net debt of US$10,653 million at the end of fiscal year 2013 when compared to the
previous year's net debt of US$7,677 million. The company's gearing ratio for the year 2013 was 1.41, which was higher
when compared to the previous year's gearing ratio of 1.16. The gearing ratio remained higher in 2013 due to higher debt
funding activities over equity.
Figure 3: Hindalco Industries Limited - Net Debt vs. Gearing Ratio
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2.2.4
The company's working capital turnover for 2013 declined to 5.09, from the previous year's working capital turnover of
6.42. In 2013, the company's asset turnover declined to 0.67 from the previous year's asset turnover of 0.80.
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2.2.5
In 2013, the company's current ratio increased to 1.69 from the previous year's current ratio of 1.63. The companys quick
ratio increased to 1.07 in 2013 from the previous year's quick ratio of 0.97. In 2013, the companys debt ratio increased to
0.47 from the previous year's debt ratio of 0.40.
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2.3
The following companies are the major competitors of Hindalco Industries Limited:
Aleris International, Inc.
Companhia Brasileira de Aluminio
Furukawa-Sky Aluminum Corp. (Ticker: 5741)
Sumitomo Light Metal Industries, Ltd. (Ticker: 5738)
Wise Metal Group LLC Alcoa
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Hindalco Industries Limited (Hindalco) is one of the leading companies in aluminium and copper industries in India. The
company operates in two business segments, namely, Aluminium and Copper. The company retains strong foothold in the
market with efficient business diversity coupled with strong liquidity/cash flow. However, the companys increasing trade
accounts receivable along with low debt to equity is a cause of concern for the company to look upon. Nevertheless, it can
utilize the opportunity of growing aluminium and copper market along with strategic business expansion activities.
However, the company faces threat from the volatility of commodity prices and project execution risks.
4.2
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4.3
4.4
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4.5
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Page 21
the economy globally. The new assets that the Company is building will undeniably encircle it with an even greater
competitive edge. Given thedistinctive growth path that we have charted, the onlydirection that your Company can go in
the years ahead is upward. To our teams I thank all our teams for their solid performance, undiluted commitment and
laser sharp focus on delivering results. The Aditya Birla Group in perspective Despite a choppy global economy, our
Group turned in a solid performance in FY 2011-12, anchored by our 133,000 strong workforce comprising 42 nationalities
spanning 36 countries. Our consolidated revenues were a little over USD 40 billion, reflecting a 14% growth. It is my
abiding belief that our people are the single most important enablers from every perspective. It is with a sense of deep
pride that I share with you the fact that our continuous investment in the people area has paid rich dividends. Our Group
has been ranked fourth in the Global Top Companies for Leaders and first in Asia Pacific in the Top Companies for
Leaders 2011 study conducted by Aon Hewitt, Fortune and the RBL Group. 470 companies worldwide participated in
this study. This recognition is personally heartening for me, given that we have competed against the best of breed global
companies. I personally am convinced that we are now forging ahead on the people front. Our dedicated efforts in
enhancing the quality of life of our employees and their families, continues unabated. Our Talent Management and
Leadership Development processes have been further enhanced, to meet our very specific talent requirements, with
many more employees being included. To mention a few, launched:
A Global Manufacturing Leadership Program to induct lateral recruits and fortify our technical talent in our Units.
AContinuing Education Policy to support managers in acquiring higher specialist education for skills upgradation while
they continue to be in their jobs.
Cutting Edge, the accelerated P&L Leadership Development Program, to enable function leaders to
transition to P&L roles.
And over 30,000 touch points to our learners through multiple learning formats. With these the number of people being
targeted for honing competencies and developing skills has risen many times over. This is in sync with our World of
Opportunities proposition.
The customization of these learning programmes is far sharper this year on.
Beyond Business
Given that our employees have a desire to contribute to the larger community, including those of their colleagues who
need support, we are setting up a new trust called the World Of Opportunities Foundation, thorough which our
employees can contribute to supporting the higher education of children in need. Last Man Standing First Man Forward
And finally let me add that over the years, we have through determined and deliberate effort come to be in this position of
being the Last Man Standing, almost across each of our businesses. And when we do face a downturn today, from our
position of strength, the message I want to convey is that, the last man standing has the best chance at being the first
man forward. The first man forward to consolidate market positions, to show superior
performance in each industry and get a few steps ahead of competition.
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Page 22
Event type
Description
2011
Corporate Changes/Expansions
In June, the company announced the investment of $15.8 million in the construction of
a new continuous casting line at its production facility in Pieve Emanuele, Italy.
2010
Corporate Changes/Expansions
In October, the company started setting up a 1.5 mtpa alumina refinery in the eastern
state of Orissa to feed Mahan and Aditya smelters.
2010
Corporate Awards
Hindalco Renukoot won the Golden Peacock Award 2010 for corporate social
responsibility.
2008
Contracts/Agreements
Hydromine Inc., together with its strategic partners Hindalco Industries Limited and
Dubai Aluminium Co., established a new mineral firm, Cameroon Alumina Ltd.
2007
2007
Acquisitions/Mergers/Takeovers
2003
Acquisitions/Mergers/Takeovers The company completed the acquisition of copper mining assets in Australia.
2003
Acquisitions/Mergers/Takeovers
2000
1998
1994
Others
1967
1962
Others
1958
Incorporation/Establishment
The company acquired 100% interest of Alcan Inc. Canada (Alcan) in Utkal Alumina
International Ltd.
The company completed the acquisition of the Nifty copper mine and the rights to
explore seven more mines.
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Job Title
Board Level
Since
Age
Sanjay Sehgal
Senior Management
Anil Malik
Secretary
Senior Management
Askaran Agarwala
Director
Senior Management
Director
75
Executive Board
62
Dilip Gaur
President - Copper
Senior Management
Senior Management
Jagdish Khattar
Director
Director
69
Chairperson
44
Meleveetil Damodaran
Director
Narendra
Jhaveri
Director
Philip Martens
Senior Management
Praveen Maheshwari
Senior Management
Raghavendra Dhulkhed
Senior Management
Rajashree Birla
Director
Ram Charan
Director
Sachin Satpute
Senior Management
Satish M Bhatia
Senior Management
Jamnadas
2012
65
2011
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Page 24
Job Title
Board Level
Sunil Kulwal
Suryakant Mishra
Vineet Kaul
Since
Age
Senior Management
Senior Management
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9.2
India
India
India
Zip: 6000
Tel: + 91 20 25888681
Australia
Tel: + 61 8 93668800
Fax: + 61 8 93668805
Kolkata
Bharuch
India
India
Tel: + 91 3322 826130
Fax: + 91 3322 826139
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Hindalco Industries Limited - SWOT Profile
Page 27
India
Australia
11 Tolstoy Marg
New Delhi
Bangalore
India
India
Tel: + 91 11 42200204
Tel: + 91 80 40416010
Fax: + 91 11 23721595
1, Middleton Street
Mumbai
Kolkata
India
India
Tel: + 91 22 66917031
Tel: + 91 33 22809710
Fax: + 91 80 22533086
Fax: + 91 33 22886139
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Page 28
10 Appendix
10.1 Methodology
World Market Intelligence company reports are based on a core set of research techniques which ensure the best
possible level of quality and accuracy of data. The key sources used include:
Company Websites
Company Annual Reports
SEC Filings
Press Releases
Proprietary Databases
Notes
Financial information of the company is taken from the most recently published annual reports or SEC filings
The financial and operational data reported for the company is as per the industry defined standards
Revenue converted to US$ at average annual conversion rate as of fiscal year end
Capital Market Ratios measure investor response to owning a company's stock and also
the cost of issuing stock.
Price/Earnings (P/E) ratio is a measure of the price paid for a share relative to the annual
income earned per share. It is a financial ratio used for valuation: a higher P/E ratio
means that investors are paying more for each unit of income, so the stock is more
expensive compared to one with lower P/E ratio. A high P/E suggests that investors are
expecting higher earnings growth in the future compared to companies with a lower P/E.
Price per share is as of previous business close, and EPS is from latest annual report.
Formula: Price per Share / Earnings per Share
Enterprise Value/Earnings
before Interest, Tax,
Depreciation &
Amortization (EV/EBITDA)
Enterprise Value/Sales
Enterprise Value/Sales (EV/Sales) is a ratio that provides an idea of how much it costs to
buy the company's sales. EV/Sales is seen as more accurate than Price/Sales because
market capitalization does not take into account the amount of debt a company has, which
needs to be paid back at some point. Price per share is as of previous business close,
and shares outstanding last reported. Other items are from latest annual report.
Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / Sales
Enterprise
Value/Operating Profit
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Enterprise Value/Total
Assets
Enterprise Value/Total Assets measures the company's enterprise value to the total
assets. Price per share is as of previous business close, and shares outstanding last
reported. Other items are from latest annual report.
Formula: (Market Cap + Debt + Preferred Stock - Cash & Cash Equivalents) / Total
Assets
Dividend Yield
Dividend Yield shows how much a company pays out in dividends each year relative to its
share price. In the absence of any capital gains, the dividend yield is the return on
investment for a stock.
Formula: Annual Dividend per Share / Price per Share
Equity Ratios
Earnings per share (EPS) is the portion of a company's profit allocated to each
outstanding share of common stock. EPS serves as an indicator of a company's
profitability.
Formula: Net Income / Weighted Average Shares
Dividend Cover
Dividend cover is the ratio of company's earnings (net income) over the dividend paid to
shareholders.
Formula: Earnings per share / Dividend per share
Book Value per Share measure used by owners of common shares in a firm to determine
the level of safety associated with each individual share after all debts are paid
accordingly.
Formula: (Shareholders Equity - Preferred Equity) / Outstanding Shares
Cash Value per Share is a measure of a company's cash (cash & equivalents on the
balance sheet) that is determined by dividing cash & equivalents by the total shares
outstanding.
Formula: Cash & equivalents / Outstanding Shares
Profitability Ratios
Gross Margin
Profitability Ratios are used to assess a company's ability to generate earnings, based on
revenues generated or resources used. For most of these ratios, having a higher value
relative to a competitor's ratio or the same ratio from a previous period is indicative that
the company is doing well.
Gross margin is the amount of contribution to the business enterprise, after paying for
direct-fixed and direct variable unit costs.
Formula: {(Revenue-Cost of revenue) / Revenue}*100
Operating Margin
Operating Margin is a ratio used to measure a company's pricing strategy and operating
efficiency.
Formula: (Operating Income / Revenues) *100
Net Profit Margin is the ratio of net profits to revenues for a company or business segment
- that shows how much of each dollar earned by the company is translated into profits.
Formula: (Net Profit / Revenues) *100
Profit Markup
Profit Markup measures the company's gross profitability, as compared to the cost of
revenue.
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Profit Before Tax Margin measures the pre-tax income over revenues.
Formula: {Income Before Tax / Revenues} *100
Return on Equity
Return on Equity measures the rate of return on the ownership interest (shareholders'
equity) of the common stock owners.
Formula: (Net Income / Shareholders Equity)*100
Return on Capital
Employed
Return on Capital Employed is a ratio that indicates the efficiency and profitability of a
company's capital investments. ROCE should always be higher than the rate at which the
company borrows; otherwise any increase in borrowing will reduce shareholders'
earnings.
Formula: EBIT / (Total Assets Current Liabilities)*100
Return on Assets
Return on Assets is an indicator of how profitable a company is relative to its total assets,
the ratio measures how efficient management is at using its assets to generate earnings.
Formula: (Net Income / Total Assets)*100
Return on Fixed Assets measures the company's profitability to its fixed assets (property,
plant & equipment).
Formula: (Net Income / Fixed Assets) *100
Return on Working Capital measures the company's profitability to its working capital.
Formula: (Net Income / Working Capital) *100
Cost Ratios
Operating costs (% of
Sales)
Cost ratios help to understand the costs the company is incurring as a percentage of
sales.
Operating costs as percentage of total revenues measures the operating costs that a
company incurs compared to the revenues.
Formula: (Operating Expenses / Revenues) *100
Administration costs as percentage of total revenue measures the selling, general and
Administration costs (% of
administrative expenses that a company incurs compared to the revenues.
Sales)
Formula: (Administrative Expenses / Revenues) *100
Interest costs (% of Sales)
Interest costs as percentage of total revenues measures the interest expense that a
company incurs compared to the revenues.
Formula: (Interest Expenses / Revenues) *100
Leverage Ratios
Leverage ratios are used to calculate the financial leverage of a company to get an idea of
the company's methods of financing or to measure its ability to meet financial obligations.
There are several different ratios, but the main factors looked at include debt, equity,
assets and interest expenses.
Debt to Equity Ratio is a measure of a company's financial leverage. The debt/equity ratio
also depends on the industry in which the company operates. For example, capitalintensive industries tend to have a higher debt equity ratio.
Formula: Total Liabilities / Shareholders Equity
Debt to capital ratio gives an idea of a company's financial structure, or how it is financing
its operations, along with some insight into its financial strength. The higher the debt-tocapital ratio, the more debt the company has compared to its equity. This indicates to
investors whether a company is more prone to using debt financing or equity financing. A
company with high debt-to-capital ratios, compared to a general or industry average, may
show weak financial strength because the cost of these debts may weigh on the company
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Interest Coverage Ratio is used to determine how easily a company can pay interest on
outstanding debt, calculated as earnings before interest & tax by interest expense.
Formula: EBIT / Interest Expense
Liquidity Ratios
Current Ratio
Liquidity ratios are used to determine a company's ability to pay off its short-terms debts
obligations. Generally, the higher the value of the ratio, the larger the margin of safety that
the company possesses to cover short-term debts. A company's ability to turn short-term
assets into cash to cover debts is of the utmost importance when creditors are seeking
payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios
to determine whether a company will be able to continue as a going concern.
Current Ratio measures a company's ability to pay its short-term obligations. The ratio
gives an idea of the company's ability to pay back its short-term liabilities (debt and
payables) with its short-term assets (cash, inventory, receivables). The higher the current
ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests
that the company would be unable to pay off its obligations if they came due at that point.
Formula: Current Assets / Current Liabilities
Quick Ratio
Quick ratio measures a company's ability to meet its short-term obligations with its most
liquid assets.
Formula: (Current Assets - Inventories) / Current Liabilities
Cash Ratio
Cash ratio is the most stringent and conservative of the three short-term liquidity ratio. It
only looks at the most liquid short-term assets of the company, which are those that can
be most easily used to pay off current obligations. It also ignores inventory and
receivables, as there are no assurances that these two accounts can be converted to
cash in a timely matter to meet current liabilities.
Formula: {(Cash & Bank Balance + Marketable Securities) / Current Liabilities)}
Efficiency Ratios
Fixed Asset Turnover ratio indicates how well the business is using its fixed assets to
generate sales. A higher ratio indicates the business has less money tied up in fixed
assets for each currency unit of sales revenue. A declining ratio may indicate that the
business is over-invested in plant, equipment, or other fixed assets.
Formula: Net Sales / Fixed Assets
Asset Turnover
Asset turnover ratio measures the efficiency of a company's use of its assets in
generating sales revenue to the company. A higher asset turnover ratio shows that the
company has been more effective in using its assets to generate revenues.
Formula: Net Sales / Total Assets
Current Asset Turnover indicates how efficiently the business uses its current assets to
generate sales.
Formula: Net Sales / Current Assets
Inventory Turnover
Inventory Turnover ratio shows how many times a company's inventory is sold and
replaced over a period. A low turnover implies poor sales and, therefore, excess
inventory. A high ratio implies either strong sales or ineffective buying.
Formula: Cost of Goods Sold / Inventory
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Capital Employed
Turnover
Capital employed turnover ratio measures the efficiency of a company's use of its equity
in generating sales revenue to the company.
Formula: Net Sales / Shareholders Equity
Capex to sales
Capex to Sales ratio measures the company's expenditure (investments) on fixed and
related assets' effectiveness when compared to the sales generated.
Formula: (Capital Expenditure / Sales) *100
Net income per Employee looks at a company's net income in relation to the number of
employees they have. Ideally, a company wants a higher profit per employee possible, as
it denotes higher productivity.
Formula: Net Income / No. of Employees
Revenue per Employee measures the average revenue generated per employee of a
company. This ratio is most useful when compared against other companies in the same
industry. Generally, a company seeks the highest revenue per employee.
Formula: Revenue / No. of Employees
Efficiency Ratio
Efficiency Ratio is used to calculate a bank's efficiency. An increase means the company
is losing a larger percentage of its income to expenses. If the efficiency ratio is getting
lower, it is good for the bank and its shareholders.
Formula: Non-interest expense / Total Interest Income
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electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, World Market
Intelligence.
The data and analysis within this report is driven by World Market Intelligence from its own primary and secondary
research of public and proprietary sources and does not necessarily represent the views of the company profiled.
The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the
findings, conclusions and recommendations that World Market Intelligence delivers will be based on information gathered
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such World Market Intelligence can accept no liability whatever for actions taken based on any information that may
subsequently prove to be incorrect.
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