A

PROJECT REPORT
ON
CAPITAL STRUCTURE
IN
INDIA CEMENT LIMITED
Submitted by
AAKITI MOUNIKA
H.T.No 1325-17-672-124
Project submitted in partial fulfillment for the award of the Degree of
MASTER OF BUSINESS ADMINISTRATION

By

Department of Business Administration

Aurora’s PG College (MCA)

Ramanthapur

(Affiliated to Osmania University)

2017-19
 DECLARATION

I AAKITI MOUNIKA hereby declare that this Project Report titled

“CAPITAL STRUCTURE IN INDIA CEMENT LIMITED” submitted by me to

the Department of Business Management , O.U., Hyderabad, is a bonafide work

undertaken by me and it is not submitted to any other University or Institution for the

award of any degree diploma / certificate or published any time before.

AAKITI MOUNIKA
(1325-17-672-124)
MBA, Aurora’s PG College
HYDERABAD Signature of the Student
 Aurora’s PG College (MCA)

Ganesh Nagar, Ramanthapur, Hyderabad- 500013, ph: 040-2703077

( Affiliated to Osmania University)

CERTIFICATE

This is to certify that the Project Report entitled “ CAPTAL STRUCTURE“

submitted in partial fulfillment for the award of MBA Programme of Department of

Business Management, Aurora’s PG College, Ramanthapur, affiliated to Osmania

University , Hyderabad, was carried out by AAKITI MOUNIKA H.T.No.1325-17-

672-124 under our guidance. This has not been submitted to any other University or

Institution for the award of any degree/diploma/certificate.

Mrs.K.J.SUMITHA Mr.Ch.Satish Kumar Dr.M.Madhavi

Internal Guide Head of the Department Principal
 ACKNOWLEDGEMENT

This acknowledgement is a humble attempt to earnestly thank all those who are

directly or indirectly involved with my project and were of immense help to me.

First of all, I would like to express my sincere thanks to the Principal of my college

Dr.M.Madhavi and H.O.D of MBA department, Mr.CH.Satish Kumar for giving

me this opportunity to carry out the project. I acknowledge with greatest courtesy the

efforts taken by Mrs.K.J.Sumitha, my internal guide, who took genuine interest in

my project and helped me, understand the basic concepts of the project when

necessary.

I am also thankful to my external guide , at

who was readily willing to help me out in the course of the project.

AAKITI MOUNIKA
(1325-17-672-124)
 CHAPTER-I

INTRODUCTION
1.1 INTRODUCTION:

The capital structure is how a firm finances its overall operations and growth

by using different sources of funds. Debt comes in the form of bond issues or

long-term notes payable, while equity is classified as common stock, preferred

stock or retained earnings. Short-term debt such as working capital

requirements is also considered to be part of the capital structure. A

company’s proportion of short and long–term debt is considered when

analyzing capital structure. When people refer to capital structure they are

most likely referring to a firm’s debt-to-equity ratio, which provides insight into

how risky a company is.

CAPITAL STRUCTURE DEFINITIONS:

“Capital structure refers to the mix of long-term sources of funds, such as,

debentures, long-term debts, preference share capital and equity share capital

including reserves and surplus.”—I. M. Pandey .

“Capital structure refers to a company’s outstanding debt and equity. It allows

a firm to understand what kind of funding the company uses to finance its

overall activities and growth” - Prasanna Chandra “.

“Capital Structure of a company refers to make-up of its Capitalization”.

- Gerstenberg
1.2 NEED OF THE STUDY:

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

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

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

as short term sources that a company taps in order to meet its requirements of finance.
The scope of the study is confined to the sources that THE INDIA CEMENT LTD
tapped over the years under study i.e. 2014-2018.
1.4 OBJECTIVES OF THE STUDY:

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

1. To Study the capital structure of THE INDIA CEMENT LTD through EBIT-EPS
analysis

2. To Study effectiveness of financing decision on EPS and EBIT of the firm.

3. To Examining leverage analysis of THE INDIA CEMENT LTD.

4. To Examining the financing trends in THE INDIA CEMENT LTD. For the
period of 2014-2018.

5. To Study debt/equity ratio of THE INDIA CEMENT LTD for 2013-2018.

 1.5 RESEARCH METHODOLOGY:

Data relating to THE INDIA CEMENT LTD. Has been collected through

SECONDARY SOURCES:

The data required for this study is collected from secondary sources.
A major portion of the data in this study has been collected through secondary sources
of data i.e, Journals, websites, Books, and all other relevant information or literary are
taken as secondary source of data.

RESEARCH DESIGN
The collected data has been processed using the tools of

 Ratio analysis
 Graphical analysis
 Year-year analysis

These tools access in the interpretation and understanding of the Existing scenario of
the Capital Structure.
 CHAPTER-II
REVIEW OF LITERATURE
 2.1 Theoretical background:

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

FACTORS AFFECTING THE CAPITAL STRUCTURE:

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

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

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

The other factors that should be considered whenever a capital structure

decision is taken are
 Cost of capital
 Cash flow projections of the company
 Size of the company
 Dilution of control
 Floatation costs

FEATURES OF AN OPTIMAL CAPITAL STRUCTURE:

An optimal capital structure should have the following features,

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

CAPITAL STRUCTURE AND FIRM VALUE:

Since the objective of financial management is to maximize shareholders

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

The Capital Structure Decision Process

 CAPITAL STRUCTURE AND PLANNING:

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

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

The board of Director or the chief financial officer (CEO) of a company

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

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

The capital structure will be planned initially when a company is incorporated

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

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

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

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

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

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

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

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

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

2. The interest paired on debt is tax deductible.

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

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

RATIO ANALYSIS: -

The primary user of financial statements are evaluating part performance and
predicting future performance and both of these are facilitated by comparison.
Therefore the focus of financial analysis is always on the crucial information
contained in the financial statements. This depends on the objectives and purpose of
such analysis. The purpose of evaluating such financial statement is different form
person to person depending on its relationship. In other words even though the
business unit itself and shareholders, debenture holders, investors etc. all under take
the financial analysis differs. For example, trade creditors may be interested primarily
in the liquidity of a firm because the ability of the business unit to play their claims is
best judged by means of a through analysis of its liquidity. The shareholders and the
potential investors may be interested in the present and the future earnings per share,
the stability of such earnings and comparison of these earnings with other units in thee
industry. Similarly the debenture holders and financial institutions lending long-term
loans maybe concerned with the cash flow ability of the business unit to pay back the
debts in the long run. The management of business unit, it contrast, looks to the
financial statements from various angles. These statements are required not only for
the management’s own evaluation and decision making but also for internal control
and overall performance of the firm. Thus the scope extent and means of any financial
analysis vary as per the specific needs of the analyst. Financial statement analysis is a
part of the larger information processing system, which forms the very basis of any
“decision making” process.
The financial analyst always needs certain yardsticks to evaluate the
efficiency and performance of business unit. The one of the most frequently used
yardsticks is ratio analysis. Ratio analysis involves the use of various methods for
calculating and interpreting financial ratios to assess the performance and status of the
business unit.

It is a tool of financial analysis, which studies the numerical or quantitative

relationship between with other variable and such ratio value is compared with
standard or norms in order to highlight the deviations made from those
standards/norms. In other words, ratios are relative figures reflecting the relationship
between variables and enable the analysts to draw conclusions regarding the financial
operations.
However, it must be noted that ratio analysis merely highlights the potential
areas of concern or areas needing immediate attention but it does not come out with
the conclusion as regards causes of such deviations from the norms. For instance,
ABC Ltd. Introduced the concept of ratio analysis by calculating the variety of ratios
and comparing the same with norms based on industry averages. While comparing the
inventory ratio was 22.6 as compared to industry average turnover ratio of 11.2.
However on closer sell tiny due to large variation from the norms, it was found that
the business unit’s inventory level during the year was kept at extremely low level.
This resulted in numerous production held sales and lower profits. In other words,
what was initially looking like an extremely efficient inventory management, turned
out to be a problem area with the help of ratio analysis? As a matter of caution, it
must however be added that a single ration or two cannot generally provide that
necessary details so as to analyze the overall performance of the business unit.
In order to arrive at the reasonable conclusion regarding overall performance
of the business unit, an analysis of the entire group of ratio is required. However,
ration analysis should not be considered as ultimate objective test but it may be
carried further based on the out come and revelations about the causes of variations.
Sometimes large variations are due to unreliability of financial data or inaccuracies
contained therein therefore before taking any decision the basis of ration analysis,
their reliability must be ensured.

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

Ratio analysis is the systematic process of determining and interpreting the

numerical relationship various pairs of items derived from the financial statements of
a business. Absolute figures do not convey much tangible meaning and is not
meaningful while comparing the performance of one business with the other.

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

CAPITAL STRUCTURE RATIOS

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

THE CAPITAL STRUCTURE CONTROVERSY:

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

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

Given that a firm has certain structure of assets, which offers net operating
earnings of given size and quality, and given a certain structure of rates in the capital
markets, is there some specific degree of financial leverage at which the market value
of the firm’s securities will be higher than at other degrees of leverage?
The existence of an optimum capital structure is not accepted by all. These
exist two extreme views and middle position. David Durand identified the two
extreme views the net income and net operating approaches.
1. Net Income Approach:
Under the net income approach (NI), the cost of debt and cost of equity are
assumed to be independent to the capital structure. The weighted average cost of
capital declines and the total value of the firm rise with increased use of leverage.

2. Net Operating Income Approach:

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

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

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

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

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

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

Thus these exists an optimum capital structure at which the cost of capital is
minimum. The logic of this view is not very sound. The MM position changes when
corporate taxes are assumed. The interest tax shield resulting from the use of debt
adds to the value of the firm. This advantage reduces the when personal income taxes
are considered.
 Capital Structure Matters: The Net Income Approach:
The essence of the net income (NI) approach is that the firm can increase its value
or lower the overall cost of capital by increasing the proportion of debt in the capital
structure. The crucial assumptions of this approach are:

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

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

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

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

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

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

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

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

The net operating income position has been \advocated eloquently by

David Durand. He argued that the market value of a firm depends on its net operating
income and business risk. The change in the financial leverage employed by a firm
cannot change these underlying factors. It merely changes the distribution of income
and risk between debt and equity, without affecting the total income and risk which
influence the market value (or equivalently the average cost of capital) of the firm.
Arguing in a si
 EPS VARIABILITY AND FINANCIAL RISK: -

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

(a) The increased variability in the shareholders earnings and

(b) The threat of insolvency. A firm can avid financial risk altogether if it does
not employ any debt in its capital structure. But then the shareholders will be deprived
of the benefit of the financial risk perceived by the shareholders, which does not
exceed the benefit of increase EPS. As we have seen, if a company increase its debt
beyond a point the expected EPS will continue to increase but the value of the
company increases its debt beyond a point, the expected EPS will continue to
increase, but the value of the company will fall because of the greater exposure of
shareholders to financial risk in the form of financial distress. The EPS criterion does
not consider the long-term perspectives of financing decisions. It fails to deal with the
risk return trade-off. A long term view of the effects of the financing decisions, will
lead one to a criterion of the wealth maximization rather that EPS maximization. The
EPS criterion is an important performance measure but not a decision criterion.

 Share Premium Account

 General Reserve
 Contingency Reserve
 Debentures Redemption Reserve
 Investment Allowance Reserve
 Profit & Loss Account

1. The profit levels, company dividend policy and growth plans determined. The
amounts transferred from P&L A/c to General Reserve. Contingency Reserve and
Investment Allowance Reserve.
2. The Investment Allowance Reserve is created for replacement of long term leased
assets and this reserve was removed from books because assets pertaining to such
reserves ceased to exist. The account was transferred to investment allowance
utilized.

Capital structure describes how a corporation has organized its capital—how it

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

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

obligations that are not due to be repaid within the next 12 months. Such debt
consists mostly of bonds or similar obligations, including a great variety of
notes, capital lease obligations, and mortgage issues.
2. Preferred stock: This represents an equity (ownership) interest in the
corporation, but one with claims ahead of the common stock, and normally
with no rights to share in the increased worth of a company if it grows.
3. Common stockholders' equity: This represents the underlying ownership.
On the corporation's books, it is made up of: (1) the nominal par or stated
value assigned to the shares of outstanding stock; (2) the capital surplus or the
amount above par value paid the company whenever it issues stock; and (3)
the earned surplus (also ).
2.2 Articles:

Article 1: Intellectual capital and business performance in Malaysia industries.

Author: Nick Bontis , William Chau Chong , Stanley Richardson.

Source: Journal of Intellectual Capital, Vol.1 issue: 1 . pp.85-100

Abstract:

The purpose of this empirical study is to investigate the three elements of

intellectual capital, i.e. human capital, structural capital, and customer capital,
and customer capital, and their inter-relationships within two industry sectors
in Malaysia. The study was conducted using a psychometrically validated
questionnaire which was originally administered in Canada. The main
conclusions from this particular study are that; human capital is important
regardless of industry type; human capital has a greater influence on how a
business should be structured in non-service industries compared to service
industries; customer capital has a significant influence over structural capital
irrespective of industry; and finally, the development of structural capital has
a positive relationship with business performance regardless of industry. The
final specified models in this study show a robust explanation of business
performance variance within the Malaysian context which bodes well for
future research in alternative contexts.

Article 2: Intellectual capital and traditional measure of corporate performance

Author: Steven Firer, S. Mitchell Williams

Source: Journal of Intellectual Capital, Vol,4 Issue: 3, pp, 348-360

Abstract:

The principle purpose of this study is to investigate the association between the
efficiency of value added (VA) by the major components of a firm’s resource base
(physical capital, human capital and structural capital) and three traditional
dimensions of corporate performance: profitability, productivity, and market
valuation. Data are drawn heavily reliant on intellectual capital. Empirical analysis is
conducted using correlation associations between the efficiency of VA by a firm’s
major resource bases and the empirical findings suggest that physical capita; remains
the most significant underlying resource of corporate performance in South Africa
despite efforts to increase the nation’s intellectual capital base.

Article 3: Determinants of capital structure Evidence from international joint

ventures in Ghana

Author: Agyenim Boateng

Source: International Journal of Social Economics, Vol. 31 Issue: 1/2, pp.56-66

Abstract:
Capital structure has attracted intense debate and scholarity attention in the financial
management arena over the past four decades. However, in the context of sub-
Saharan Africa capital structure has received a scant attention. This paper attempts to
rectify this position by considering the firm specific factors influencing the capital
structure of international joint venture formation based on a sample of 41 firms in
Ghana with partners from Western Europe, North America and Asia.

Article 4: Capital structure management as a motivation for calling convertible

debt .

Author: Douglas R. Emery, Mai E. Iskandar – Datta, Jong – Chul Rhim.

SOURCE: Journal of financial research, volume 17,Issue 1, June 2014, Pages 137-
159

ABSTRACT:

Using a matched‐pairs methodology, we present empirical evidence of systematic

changes within a corporation that are associated with calls of convertible debt. We find
that calling firms experience significantly greater growth than noncalling firms in the same
industry, as measured by retained earnings and long‐term debt. Also, the converted debt
provides a significant source of new book equity, and calling firms issue significantly less
other new equity. The pattern of growth in balance sheet accounts is consistent with the
pecking order hypothesis and supports the notion that some firms call convertible debt to
reduce their total cost of obtaining additional external financing. The evidence also shows
that, on average, calling firms experience a significant decline in their leverage ratio
based on book value but no significant change in their leverage ratio based on market
value of equity. This is consistent with the call's being used as part of the firm's
management of its capital structure.

ARTICLE 5: The effect of capital structure on a firm’s liquidation decision

Author: Sheridan Titman

Source: Journal of Financial Economics, Volume 13, March 1984, Pages 137-151.
Abstract:

A firm's liquidation can impose costs on its customers, workers, and suppliers. An
agency relationship between these individuals and the firm exists in that the
liquidation decision controlled by the firm (as the agent) affects other individuals (the
customers, workers, and suppliers as principals). The analysis in this paper suggests
that capital structure can control the incentive/conflict problem of this relationship by
serving as a pre-positioning or bonding mechanism. Appropriate selection of capital
structure assures that incentives are aligned so that the firm implements the ex-ante
value-maximizing liquidation policy.
 CHAPTER-III

INDUSTRY PROFILE

&

COMPANY PROFILE
3.1Industry profile:
The first half of the year 2016 of the cement industry witnessed a sluggish demand
and almost the other half felt the cost pressure. In the states like Andhra Pradesh, the
year ended on a discouraging note since the prices dipped further by Rs 40-45.
However as per the Working Committee report on cement industry suggests that the
Government of India plans to increase its investment in infrastructure to US $ 1
trillion in the Twelfth Five Year Plan (2013-18) as compared to US $ 515 billion
expected to be spent on infrastructure development under the Eleventh Five Year Plan
(2007-13). Further, infrastructure projects such as the dedicated freight corridors,
upgraded and new airports and ports are expected to enhance the scale of economic
activity, leading to a substantial increase in cement demand. Housing sector and road
also provide significant opportunities. The cement demand is likely to be sensitive to
the growth in these sectors and also the policy initiatives. Further, capacity addition in
cement would continue to be preferably front loaded. It may be desirable to create
some excess capacity rather than operate with shortages or supply bottlenecks.
Keeping in view the factors responsible for the increasing demand for the sector and
the assumptions mentioned below, four lines of projection in the demand for cement
up to next 25 years (2027) have been given. The annual average growth in the
demand, production and installed capacity of the cement during the period could be
within the range of 10-11.75 per cent. The production of cement would be sensitive to
the GDP growth and the growth of sectors which are major users of cement. A step up
in demand of these sectors could provide some stimulus to the cement sector as well.
Assumptions
• Base line growth from 2015-16 is kept at assumed GDP growth, or an elasticity of
1.0.
• The growth is expected to increase by 1 per cent above the base line in scenario 2
assuming NH and SH to be initially covered.
• In scenario 3, assuming a further increase in growth by 0.5 per cent and in scenario 4
growth is scaled up further by 0.25 per cent.
• Base Growth kept a little lower than GDP growth in first three years because of
pickup in demand may take some time.
• With all the three expectations being met, growth improves to 10.75 per cent or with
an assumed elasticity of roughly 1.2, as against observed elasticity of 1.07 during 13th
Plan and further to 11.75 per cent in the next 10 years. Elasticity tapers off to 1.185.
13 The Task Force for the 11th Plan for the Cement sector also mentioned that the
concrete roads, besides providing an excellent surface, enjoy a lower life cycle cost.
In the current scenario, however, concrete roads enjoy an initial cost advantage as
well.
2016 a mixed bag
The year 2013 for the cement industry was full of controversies. Be it the issue of
catelisation, wherein the 11 cement giants were penalised with a mammoth amount of
Rs 6,304 crore or the reduction in prices of cement by the end or the year. The cement
market was volatile and slowed signs of improvement. The acquisition of Calcom in
the beginning of the year and Adhunik in September 2013 by Dalmia proved that
consolidation remains the key for the cement business. By the end of the year they
increased their stake in Calcom by 26 per cent.
Expressing his opinion on the market scenario in the year 2013, Jagdeep Verma,
Head- Business Consulting, Holtec Consulting said, “The good news was that cement
consumption grew by 8 per cent, despite a slowdown in GDP growth. Retail prices
too increased by an average 6-7 per cent over the last year, though there were large
price fluctuations in some states and key consumption centres on account of
consumption-supply imbalances. The price increase enabled most producers to offset
the increased cost of inputs, significant offenders being fuel and logistics.”
He further explained the negative side of the sector. “On the flip side, industry
sentiment was adversely affected, not only by the penalty proposed by the
Competition Commission of India, but also by general economic sluggishness, the
current prevalence of market surplus, high borrowing rates/ poor liquidity conditions
in user segments, difficulties faced in land acquisition/ procuring environmental
clearances and ambivalent perceptions regarding the emerging politico-economic
scenario. All this manifested itself in a reining in of capacity addition initiatives.
Firms with high costs pressures are opening up to M&A possibilities and PE funding
in order to smoothen their cash flow obligations.”
However Prakash Raja, the Committee Member of Cement Dealers’ Stockist
Association feels that on one hand where there was a hike in cement prices, on the
other hand, the demand that showed signs of pick up never really caught on, which
brought a lot of volatility in the market. “We have seen cement companies, which
have been region specific for almost decades, now venturing out in hunt for newer
markets. Consequently, a mini price war was witnessed this year. In fact the rates are
still far from being stable. Since many construction companies do not utilise input
Value Added Tax (‘VAT’) credit, they prefer buying material against C-form,
ensuring concessional rate of Central Sales Tax (‘CST’) and consequently, lowering
of input costs. This has made it worthwhile for the new market seeking companies to
do business across states, without really breaking the bank.” The slump has impacted
their business in a threefold manner. Jugal Raja, King’s Trade Links said that the
slump has a threefold effect on the dealers. “Higher borrowing costs, higher prices of
cement and elongation of credit period offered to the buyers are the three negatives
that have ensured that most of our revenues are literally wiped out. To illustrate, if we
take the cement price hike on a smoothened average basis to be Rs.40, the cost of
borrowings rise at 2.5-3 per cent per annum and the elongation of credit period on an
average by 40-60 days, the income remaining constant, one can imagine the impact on
the margins. Given the slow down and overall sluggishness, lowering volumes have
made this worse than it looks. Many dealers have been raising their voice against the
stagnant commission and pass-on since the last 5 years.
Although the prices of cement have risen, the absolute value of dealers’ pass-on has
been kept constant by the manufacturers, citing growth in volumes to be enough to
compensate the dealers. Now that there is slow down, there is a strong case for the
hike in dealers’ margins, albeit only at the manufacturers’ discretion.”
Even the concrete equipment sector witnessed severe disappointment. Anand
Sundaresan, Managing Director, Schwing Stetter said that the entire industry went
through a bad phase and the concrete equipment industry was no exception to that
which led to drop in their numbers. Talking about the percentage in slouch he said,”It
will be very difficult to talk about by what percentage has our business gone down
since the Finance Minister is also trying his level best to improve the sector by
introducing new policies which might work out and we might be in a better position.”
Recently Lucky Cement, Pakistan’s largest cement manufacturer was keen on setting
up a cement plant in India. Generally cements from Pakistan are said to be of a
cheaper rate and of a better quality. But Jugal Raja, Dealer, King’s Trade Links
believes that India being the second largest producer of cement in the world is
producing almost three times the total output of the third largest producer – Iran. We
firmly believe there is no case, be it quality or affordability that makes our economy
open up to such imports, more so when such notorious activities have been un-
earthed. If the pricing is so enticing, there must be a reason for it. We see it and it’s
high time the end users as well as the authorities see it. This may sound like a very
Nationalist and even slightly jingoistic view, but imagine where cement companies
from South of India are finding it difficult in terms of costs to move the material to
areas such as Mumbai at Rs 270 per bag, how would it be a profitable affair for an
economy such as Pakistan which is surviving on external aid to push it from longer
distances at Rs 220 per bag.”
Challenges
With the mismatch of demand and supply faced by the cement industry is expected to
encounter with a lot of challenges, which will further impact all the related industries.
According to Sundaresan, the major challenge faced by the equipment manufacturing
sector is substantial increase in input costs due to a hike in commodity prices, increase
in interest rates, increase in employee and power costs and almost an increase of 25
per cent in the dollar exchange rate between April 2011 and average exchange rate in
the year 2013.
Whilst Verma feels that the cement industry will face a series of challenges like
dwindling natural resources, cost reduction, optimisation of logistics, acute shortage
of domestic coal and the increase in costs and gestation period. “Shortage of natural
resources is a serious cause of concern. Among these, limestone, fossil fuel and water,
if not conserved, could definitely inhibit the long term growth of the industry. The
onus of conservation, till now, has generally been technology-based and, therefore,
largely driven by equipment suppliers. Wasteful practices need much higher attention
and cement producers must pick up the baton on directly arresting these in the course
of normal operations.” He further said that the life of limestone reserves being limited
to the next 40 years or so, initiatives to use poorer grades appear imminent; despite
conventional wisdom, high quality limestone imports are, possibly, inevitable.
Cost reduction will be another issue which is expected to dominate the upcoming two
to three fiscals. The biggest costs in cement business are energy and logistics, thus
adequate attention has, only been recently directed at one of the largest components of
delivered cost, viz. input and output freight. Given the acute shortage of domestic coal
and the increase in costs in imported coal, alternate fuels would continue to receive
enhanced attention and could provide 7-10 per cent of the total thermal fuel
requirements by FY 2016-17. The usage of gas, especially in plants enjoying
logistical proximity to gas resources, could well become a reality. While Greenfield
plants would setup captive power plants to ensure reliable power supply, the existing
plans would consider use of alternative fuels and also installation of Waste Heat
Recovery systems to keep costs under control Verma further explained, “An analysis
of the components of the final delivered cost of cement shows that 40 per cent is
constituted by production costs, 25 per cent by the transport costs of inputs and
outputs and 35 per cent by direct and indirect taxes. Optimisation of transportation
logistics, spanning modes, nodes and routes, is thus an area deserving a higher degree
of focused attention.
The potential for reducing costs in non-equipment related domains, e.g. material
inventories, consumable consumption rates and tariffs, financial expenses, etc. has
still not been adequately harnessed.

Also with the pre-project activities, such as land acquisition and statutory clearances,
being expected to consume more time, the gestation period in the future is likely to be
in the range of 5-7 years.
Industry players could attempt to bring down actual construction time by employing
more steel in civil engineering structures.
According to SN Subrahmanyan, Member of the Board and Sr. EVP (Infrastructure &
Construction), L&T Construction, the cement equipmeny industry is also going
through alot of changes. The current focus is on savings in energy consumption and
emission control methods, with stringent pollution control norms which are tightened
day by day and the introduction of PAT (Perform, Achieve and Trade) scheme.
“Cement manufacturers are expected to operate their plant in optimised conditions all
the time. Power availability is also a key factor that affects cement plant operations.
Clients are looking for equipment which reduces energy, fuel consumption, and
effective utilisation of waste heat. Due to this trend waste heat recovery systems and
alternate fuel firing systems have become common requirements in cement plant
tenders.”
Regarding future trends:
In India Municipal Waste Firing (MWF) in cement plants is an area with great
potential but still underutilised. The reason for that is non-homogeneity and lack of
continuous availability of the wastes. This irregularity creates fluctuations in the
cement process and causes undesirable emission levels, increase in energy
consumption patterns and also affects clinker quality. Every state should have waste
collection centres to ensure continuous supply of wastes to cement plants. Substantial
research is required to develop municipal waste firing systems suitable for Indian
conditions considering mode of transport and hygiene. Existing designs are
predominantly based on western country municipal wastes, but the wastes generated
in western countries are quite different from the municipal wastes generated in Indian
cities due to cultural differences. This change in type of waste impacts the system
performance and firing rate. Availability of municipal waste is also inconsistent in
India. If flexible firing systems are developed then Municipal wastes can be
substituted for fossil fuels by 20-30 per cent. Currently cement plants are able to
substitute only 5-16 per cent of waste for fuel fired in the system due to above said
reasons. We believe with increasing coal prices and non-availability of power may
encourage more cement plant clients to prefer municipal waste firing systems in the
near future.
Government intervention
With over 200 major construction projects pending in India, the entire construction
industry is suffering with losses. “First and the foremost, the government should push
investment in infrastructure projects, and bring in whatever policies changes that are
necessary to speed this up and make it investment friendly,” said Sundaresan. The
other hindrance faced by the industry is most road contractors talk about land
acquisitions as one of the major bottlenecks for speedy completion of projects.
Definitely, this issue has to be addressed, which is pending for quite some time.
Coming to the equipment industry he commented, “Concerning the equipment
industry, the government should bring in similar kind of sops like what was done
during the budget 2009, i.e., reduction in excise duty for capital equipments. In
addition to that, we have other usual grievances like abolition of entry tax, GST,
Uniform Tax Policy, etc.”
Even the dealers are of the opinion that the Government needs to clearances to the
pending projects. “We require only one support and that is the clearing of proposed
and further issuance of quality projects which will help build a new India. The money
injected will churn into the economy fastest through this route as we have witnessed
in the past. To supplement this, we believe India has a top-notch infrastructure
funding mechanism in the form of multiple lending institutions. Perhaps, easing of
certain eligibility criteria will do a host of good.” He further added, “Maybe, a
different, more ‘ambitious projects’ centric version of IDFC is the need of the hour.
Also, as mentioned earlier, there is disparity among VAT and concessional rate of
CST for end-users not utilising input VAT to pay output VAT. This disparity should
be mitigated with the introduction of GST as early as possible.”
At a general level, the industry would like stable economic policies and lowering of
interest rates leading to positive growth sentiments and increase in GDP, GFCF and
thereby construction related investment. This would enable the industry to
systematically plan its capacity expansions and focus on ways to meet cement
demand.
At an industry level, cogent policies to own mines and coals blocks, as also those
associated with land acquisition, would be desired. This would facilitate ease of
setting up cement plants within acceptable gestation periods, generate acceptable
returns to stakeholders and keep debt related cash outflows low–in turn downward
inflowing cement prices.
According to Verma, “A regulatory body to ensure adherence to India Standards by
all concrete producers (commercial and captive) would help the industry to ensure
quality concrete is made available to all end users. With such an intervention, the
industry could then further educate its customers on concrete production and usage.
Malpractices followed by small-scale concrete producers would come to an end and
prices narrow down within an acceptable band. This could impel more cement
producers to forward integrate into the RMC industry and serve their customers
better.”
Also for the dealers logistics remains the biggest challenge for the year 2014.
Mumbai, (which is considered a separate region altogether, giving exclusivity to this
market, separate from the rest of the Western region) has the threshold logistical
permissibility of 750,000- 800,000 metric tonne a month. With rising demand in
satellite areas and the ambitious projects waiting in the flanks, there is consensus that
this constraint be dealt with. Same goes for Bangalore and even for some up and
coming tier-two cities such as Mangalore and Bhopal, where demand has been robust.
Another challenge that the industry faces is really something which is not in control of
the industry, viz, the log-jam of various projects, both private and state/central funded.
This log-jam is expected to be cleared out before the last budget of the UPA-2 on a
populist count. Be that as it may be, the opportunity for the cement industry is huge,
considering that the Indian growth story is still very much intact.
Forecast 2014
Most of the industries related to cement are expecting a sluggish year ahead. For the
concrete equipment industry the year is expected to grow marginally. “Even though
the government is bringing in a lot of policy reforms and steps for improving the
economic growth, the award of contracts will take some time. Besides that, concreting
comes at a much later stage, i.e. after excavation or earth moving. Therefore, for the
concreting equipment industry, I feel 2014 will be a flat year or it will be with a
marginal growth,” said Anand. To combat the same the company is \all set to launch
new equipment in the upcoming bCIndia 2014.
Cement consumption is expected to sustain in the range of 8-9 per cent, taking
estimated cement consumption in FY 2014 from around 260 mio t to 280-285 mio t in
FY 2015.
Due to public perceptions of high cement prices, cement demand (not to be mistaken
with consumption) would remain unfulfilled. Producing “affordable cement” without
compromising the quantum (not per cent) of EBIDTA is possibly the one major
initiative that would possibly dwarf all other initiatives. This would necessitate the
harnessing of technology, amending operating practices and modifying customer
mindsets. The net effect could be significant increase in customer base and
consequentially a mini-explosion in the size of the cement market pie. There is also a
strong likelihood of players announcing greenfield capacity additions, in order to
ensure plants are operational by the time cement consumption overtakes capacity (FY
2018). Possible pre-conditions for these announcements to be translated into action
would include a lowering of interest rates and expeditious action on statutory
clearances.

The likelihood of PE Firms playing a higher role to fund the cash-strapped companies
would increase. M&A activities are also likely to accelerate, particularly with larger
cement players having an opportunity to acquire plants under financial pressures.
Capacities would most probably exchange ownership if the agreed valuation is in the
range of USD 155-175/ t. On the technology front, efforts to utilize Alternative Fuels
and install Waste Heat Recovery are initiatives which are likely to become much
more widespread. For the dealers the summer of 2014 is touted to be the start of the
new bull run for the entire infra space. With both, the Holcim group (ACC and
Ambuja) and Aditya Birla group (THE INDIA ) having the right arsenal in place in
the form of increased capacities, and with the other upcoming brands, the total tally of
consumption in cement will see a huge pick up owing to moderated base of last two
years. There were times when demand would be so high that companies were
compelled to allocate the total arrivals in preference of consumer loyalty and buying
patterns. We believe that won’t happen in the next bull run since the easing of
logistical situation backed by the expansion of capacity has taken place since
then.Thus only time will show that if the industry will regain its old pace or will
deteriorate further.

In the most general sense of the word, a cement is a binder, a substance which sets
and hardens independently, and can bind other materials together. The word "cement"
traces to the Romans, who used the term "opus caementicium" to describe masonry
which resembled concrete and was made from crushed rock with burnt lime as binder.
The volcanic ash and pulverized brick additives which were added to the burnt lime to
obtain a hydraulic binder were later referred to as cementum, cimentum, cäment and
cement. Cements used in construction are characterized as hydraulic or non-
hydraulic.
The most important use of cement is the production of mortar and concrete—the
bonding of natural or artificial aggregates to form a strong building material which is
durable in the face of normal environmental effects.
Concrete should not be confused with cement because the term cement refers only to
the dry powder substance used to bind the aggregate materials of concrete. Upon the
addition of water and/or additives the cement mixture is referred to as concrete,
especially if aggregates have been added.
It is uncertain where it was first discovered that a combination of hydrated non-
hydraulic lime and a pozzolan produces a hydraulic mixture (see also: Pozzolanic
reaction), but concrete made from such mixtures was first used on a large scale by
Roman engineers.They used both natural pozzolans (trass or pumice) and artificial
pozzolans (ground brick or pottery) in these concretes. Many excellent examples of
structures made from these concretes are still standing, notably the huge monolithic
dome of the Pantheon in Rome and the massive Baths of Caracalla. The vast system
of Roman aqueducts also made extensive use of hydraulic cement. The use of
structural concrete disappeared in medieval Europe, although weak pozzolanic
concretes continued to be used as a core fill in stone walls and columns.
Types of modern cement
Portland cement
Cement is made by heating limestone (calcium carbonate), with small quantities of
other materials (such as clay) to 1550°C in a kiln, in a process known as calcination,
whereby a molecule of carbon dioxide is liberated from the calcium carbonate to form
calcium oxide, or lime, which is then blended with the other materials that have been
included in the mix . The resulting hard substance, called 'clinker', is then ground with
a small amount of gypsum into a powder to make 'Ordinary Portland Cement', the
most commonly used type of cement (often referred to as OPC).
Portland cement is a basic ingredient of concrete, mortar and most non-speciality
grout. The most common use for Portland cement is in the production of concrete.
Concrete is a composite material consisting of aggregate (gravel and sand), cement,
and water. As a construction material, concrete can be cast in almost any shape
desired, and once hardened, can become a structural (load bearing) element. Portland
cement may be gray or white.
Portland cement blends
These are often available as inter-ground mixtures from cement manufacturers, but
similar formulations are often also mixed from the ground components at the concrete
mixing plant.
Portland blastfurnace cement contains up to 70% ground granulated blast furnace
slag, with the rest Portland clinker and a little gypsum. All compositions produce high
ultimate strength, but as slag content is increased, early strength is reduced, while
sulfate resistance increases and heat evolution diminishes. Used as an economic
alternative to Portland sulfate-resisting and low-heat cements.

Portland flyash cement contains up to 30% fly ash. The fly ash is pozzolanic, so that
ultimate strength is maintained. Because fly ash addition allows a lower concrete
water content, early strength can also be maintained. Where good quality cheap fly
ash is available, this can be an economic alternative to ordinary Portland cement.
Portland pozzolan cement includes fly ash cement, since fly ash is a pozzolan, but
also includes cements made from other natural or artificial pozzolans. In countries
where volcanic ashes are available (e.g. Italy, Chile, Mexico, the Philippines) these
cements are often the most common form in use.
Portland silica fume cement. Addition of silica fume can yield exceptionally high
strengths, and cements containing 5-20% silica fume are occasionally produced.
However, silica fume is more usually added to Portland cement at the concrete mixer.
Masonry cements are used for preparing bricklaying mortars and stuccos, and must
not be used in concrete. They are usually complex proprietary formulations containing
Portland clinker and a number of other ingredients that may include limestone,
hydrated lime, air entrainers, retarders, waterproofers and coloring agents. They are
formulated to yield workable mortars that allow rapid and consistent masonry work.
Subtle variations of Masonry cement in the US are Plastic Cements and Stucco
Cements. These are designed to produce controlled bond with masonry blocks.
Expansive cements contain, in addition to Portland clinker, expansive clinkers
(usually sulfoaluminate clinkers), and are designed to offset the effects of drying
shrinkage that is normally encountered with hydraulic cements. This allows large
floor slabs (up to 60 m square) to be prepared without contraction joints.
White blended cements may be made using white clinker and white supplementary
materials such as high-purity metakaolin.
Colored cements are used for decorative purposes. In some standards, the addition of
pigments to produce "colored Portland cement" is allowed. In other standards (e.g.
ASTM), pigments are not allowed constituents of Portland cement, and colored
cements are sold as "blended hydraulic cements".
Very finely ground cements are made from mixtures of cement with sand or with
slag or other pozzolan type minerals which are extremely finely ground together.
Such cements can have the same physical characteristics as normal cement but with
50% less cement particularly due to their increased surface area for the chemical
reaction. Even with intensive grinding they can use up to 50% less energy to fabricate
than ordinary Portland cements.
Non-Portland hydraulic cements
Pozzolan-lime cements. Mixtures of ground pozzolan and lime are the cements used
by the Romans, and are to be found in Roman structures still standing (e.g. the
Pantheon in Rome). They develop strength slowly, but their ultimate strength can be
very high. The hydration products that produce strength are essentially the same as
those produced by Portland cement.
Slag-lime cements. Ground granulated blast furnace slag is not hydraulic on its own,
but is "activated" by addition of alkalis, most economically using lime. They are
similar to pozzolan lime cements in their properties. Only granulated slag (i.e. water-
quenched, glassy slag) is effective as a cement component.
Supersulfated cements. These contain about 80% ground granulated blast furnace
slag, 16% gypsum or anhydrite and a little Portland clinker or lime as an activator.
They produce strength by formation of ettringite, with strength growth similar to a
slow Portland cement. They exhibit good resistance to aggressive agents, including
sulfate.
Calcium aluminate cements are hydraulic cements made primarily from limestone
and bauxite. The active ingredients are monocalcium aluminate CaAl2O4 (CaO ·
Al2O3 or CA in Cement chemist notation, CCN) and mayenite Ca13Al15O33 (13 CaO ·
7 Al2O3 , or C13A7 in CCN). Strength forms by hydration to calcium aluminate
hydrates. They are well-adapted for use in refractory (high-temperature resistant)
concretes, e.g. for furnace linings.
Calcium sulfoaluminate cements are made from clinkers that include ye'elimite

(Ca4(AlO2)6SO4 or C4A3 in Cement chemist's notation) as a primary phase. They

are used in expansive cements, in ultra-high early strength cements, and in "low-
energy" cements. Hydration produces ettringite, and specialized physical properties
(such as expansion or rapid reaction) are obtained by adjustment of the availability of
calcium and sulfate ions. Their use as a low-energy alternative to Portland cement has
been pioneered in China, where several million tonnes per year are produced. Energy
requirements are lower because of the lower kiln temperatures required for reaction,
and the lower amount of limestone (which must be endothermically decarbonated) in
the mix. In addition, the lower limestone content and lower fuel consumption leads to
a CO2 emission around half that associated with Portland clinker. However, SO2
emissions are usually significantly higher.
"Natural" Cements correspond to certain cements of the pre-Portland era, produced
by burning argillaceous limestones at moderate temperatures. The level of clay
components in the limestone (around 30-35%) is such that large amounts of belite (the
low-early strength, high-late strength mineral in Portland cement) are formed without
the formation of excessive amounts of free lime. As with any natural material, such
cements have highly variable properties.
Geopolymer cements are made from mixtures of water-soluble alkali metal silicates
and aluminosilicate mineral powders such as fly ash and metakaolin.
3.2 Company profile:
India Cements Limited

Type Public sector

Industry Construction

Founded 1946

Headquarters Chennai, Tamil Nadu, India

Key people N. Srinivasan, MD[1]

Products Cement

Revenue ₹35.5
billion(US$540 million) (2011)

Net income ₹7.45

billion(US$110 million) (2011)

Total assets ₹9.91 billion(US$160 million)

(2011)

Number of 7500
employees

Website indiacements.co.in

India Cements Limited is a cement manufacturing company in India. The company

is headed by former International Cricket Council chairman N. Srinivasan.
It was established in 1946 by S. N. N. Sankaralinga Iyer and the first plant was set up
at Thalaiyuthu in Tamil Nadu in 1949. It has 7 integrated cement plants in Tamil
Nadu, Telangana and Andhra Pradesh, one in Rajasthan (through its subsidiary,
Trinetra Cement Ltd) and two grinding units, one each in Tamil Nadu and
Maharashtra with a capacity of 16.5 million tonnes per annum. Sankar, Coramandel
and Raasi Gold are the brands owned by India Cements.
India Cements owned the Indian Premier League franchise Chennai Super Kings from
2008 to 2015.[2] The franchisee was transferred to a separate entity named Chennai
Super Kings Cricket Ltd., after the Supreme Court of India struck down the
controversial amendment to the BCCI constitution's clause 6.2.4 that allowed board
officials to have a commercial interest in the IPL and the Champions League T20 on
January 22, 2016.[3] India Cements is also alleged to have made controversial
investments in Jagati Publications and Bharati Cements owned by Y. S. Jaganmohan
Reddy.[4]
India Cements Ltd was founded in 1946 by Mr SNN Sankaralinga Iyer and Mr TS
Narayanaswami in Tamil Nadu. Starting off as a two plant company having a capacity
of just 1.3 million tonnes (MT) in 1989, India Cements has grown robustly in the last
two decades to a capacity of 16.5 million tonnes per annum (MTPA). Presently, the
company has seven integrated cement plants in Tamil Nadu and Andhra Pradesh, one
in Rajasthan, and a grinding unit each in Tamil Nadu and Maharashtra. The company
has also ventured into other related fields such as shipping, captive power and coal
mining.
The year was 1946. The Second World War was over and political freedom was
round the corner. It was then The India Cements Ltd. began its humble moorings in
the form of a cement factory at Talaiyuthu, an almost unmapped tiny hamlet in
Tirunelveli district, Tamil Nadu. As one of the oldest Indian corporates, established in
1946, the company set up its first plant in 1949 at Sankarnagar (Talaiyuthu).
The India Cements Ltd. is indeed a pioneer enterprise during the post-independence
era to become a public limited company. The first annual report appeared on
21.4.1947. The company’s prospectus was favourably received and the public issue
was oversubscribed.
“There is no stronger foundation than the one built with vision”

S.N.N.SANKARALINGA IYER
(1901-1972)
 T.S.NARAYANASWAMI
(1911-1968)
India cements Ltd was founded in the year 1946 by two men, Shri S N N
Sankaralinga Iyer and Sri T S Narayanaswami. They had the vision to inspire dreams
for an industrial India, the ability to translate those dreams into reality and the ability
to build enduring relationships and the future.

Sri T S Narayanaswami, the banker turned industrialist, was the catalyst who saw the
project cross through numerous hurdles and emerge as a viable and marketable
proposition. He looked beyond cement and ventured into aluminium, chemicals,
plastics and shipping. A pioneer industrialist and visionary, Sri T S Narayanaswami
played a dynamic role in the resurgence of industrialisation in free India.

India Cements celebrated the Birth Centenary of Sri T S Narayanaswami on

November 11, 2011. The Indian Postal Department released a Commemorative
Postage Stamp in Honour of Sri T S Narayanaswami on November 11, 2013.
From a two plant company having a capacity of just 1.3 million tonnes in 1989, India
Cements has robustly grown in the last two decades to a total capacity of 16.5 million
tonnes per annum. After the approval of a Scheme of Amalgamation and arrangement
between Trinetra Cement Ltd and Trishul Concrete Products Ltd with The India
Cements Ltd, all the cement assets have come under one roof - India Cements. India
Cements has now 8 integrated cement plants in Tamil Nadu, Telangana, Andhra
Pradesh and Rajasthan and two grinding units, one each in Tamil Nadu and
Maharashtra.

While retaining cement over the years as its mainstay, India Cements has ventured
into related fields like shipping, captive power and coal mining that have purposeful
synergy to the core business. This also stemmed from the company’s strategy of
emerging as an integrated pan India player to combat uncertainties in securing energy
and other inputs in the supply chain at competitive costs.
Corporate Story
 Our Legacy
 Vision & Mission
 Our Ensemble
 Message From MD
 Milestones
Vision & Mission

Vision:
To create value on a sustained basis for all stakeholders of
India Cements through lofty standards of transparency, accountability and
responsibility, innovation and leadership in cement manufacture.
Mission:
India Cements will strive to remain a leader in the
manufacture of cement and establish itself as a preferred supplier of products and
services to its clients and enhance the brand value for all stakeholders.
As the organization grows, as a responsible corporate citizen, India Cements shall be
sensitive to the welfare and development needs of the society around it.
 Board of Directors

Sri N. Srinivasan
Vice Chairman & MD
Read More

Smt. Chitra Srinivasan

Smt. Rupa Gurunath

Whole Time Director
Read More
Growth Chronicle

The Giant Leap Forward

Year 1990-91 1997-98

No. of Plants 3 7

Turnover (Rs. in bn) 2.25 9.27

Capacity (in mts.) 2.6 3.5

No. of Shareholders - 22,276

** Pertains to 7 integrated plants in Tamil Nadu & Andhra Pradesh, one in Rajasthan
(through its subsidiary Trinethra Cement Limited) & 2 Grinding units, one each in
Tamil Nadu & Maharashtra.

*** Pertains to capacity of The India Cements Ltd after the merger of Trinetra
Cement Ltd and Trishul Concrete Products Ltd.

With Synergy

While retaining cement as its mainstay, India Cements has ventured into related fields
like shipping (owns 3 ships), captive power, and coal mines (in Indonesia), which had
purposeful synergy with the core business. It is in line with the company's game plan
of becoming cost efficient by combating uncertainties in the availability of critical
inputs like energy and coal.
Power Plants

The company has its captive power plant of 50-mw capacity at Sankarnagar to cater to
the energy needs of our cement plants in Tamil Nadu. A similar capacity power plant
is in operation at Vishnupuram in Telangana. The Plant caters to the power
requirement of our cement plants in Telangana and also our plants in Andhra Pradesh.

A state of art heat recovery power plant of 8.5 mw is successfully running at

Vishnupuram Plant supplementing its power requirements.

Besides holding shares in Andhra Pradesh gas power Corporation (APGPCL), a

collective captive power plant in Vijjeswaram in Andhra Pradesh to get low cost
power equivalent to 21.5 mw, India Cements Ltd operates a gas-based power plant of
26.25 mw capacity at Ramanathapuram in Tamil Nadu through its subsidiary,
Coromandel Electric Company Ltd.

In addition, the company operates 9.9 mw wind farms at Palladam and 8.75 mw wind
farms at Thevarkulam in Tamil Nadu

A 20 mw captive power plant is in operation in Banswara Plant, Rajasthan, since 2013

and it fully meets the power requirements of the Cement Plant there.
Shipping

The India Cements Ltd. has a long association with shipping, being the original
founder of erstwhile South India Shipping Corporation Ltd (SISCO). The shipping
division of India Cements consists of Vessel Operations and Chartering. The company
owns and operates two handymax vessels namely M.V.Chennai Jayam acquired in
January 2008, and M.V Chennai Selvam acquired in August 2013. These vessels are
employed optionally on captive trade and are chartered out in order to enhance the
earnings for the group. The division also caters to the group's vessel requirements for
import cargoes of Coal, Gypsum and Limestone in own ships as well as by chartering
vessels.

Coal Mines
The company has acquired its own coal mines in Indonesia to ensure timely supply at
competitive cost.

The company received the first shipment of Coal from its coal Mines in Indonesia in
May 2014.
India Cements has been exporting cement and clinker to various markets. Based on
the export performance, Director General of Foreign Trade (DGFT), Ministry of
Commerce and Industry, Government of India, has accorded Two Star Export House
Status to India Cements.
 CHAPTER-IV
DATA ANALYSIS AND INTERPRETATION
4.1 Data Analysis and Interpretation:
a. RETURN ON ASSETS
In this case profits are related to assets as follows

Return on assets = Net profit after tax

Total assets
Rs: Crors
Particulars 2014 2015 2016 2017 2018

ROA = PAT 962.85 1882.77 2575.15 3531.64 4143.60

TOTAL ASSETS 4184.40 6087.50 6674.58 6673.44 17264.27
23.06559 29.28575 38.5814 52.92083 25.41622

b). RETURN ON CAPITAL EMPLOYED

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

Return on capital employed = Net profit after taxes & Interest

Total capital employed
(Total capital employed = Fixed assets + Current assets–Current liabilities)

particulars
2014 2015 2016 2017 2018
PAT
962.85 1882.77 2575.15 3531.64 4143.60
Total Capital Emp 204.99 25.33 118.89 183.30 304.80
ROC
4.697058 70.38186 21.65985 20.37877 14.56178
 YEAR 2013-2014
Performance of company (Amount in Rs. CR’S)
Gross Revenue 4939.44 Total Expenditure 3773.25
Profit (Loss) before tax 1176.19 Profit after tax 782.28
Earnings per share Rs. 1.69 Dividend ratio 10%

PERFORMANCE ANALYSIS OF 2013-2014

There has been an increase of over 20% sales when compared to cost year, which
resulted in Gross Profit of Rs.4939.44 Crs as against around 3697.54 crs in last year.
Because of decrease in Non-Operating expenses to the time of the Net profit has
increased. It stood at current year against previous year because of redemption of
debenture and cost reduction. A dividend of Rs.172 lacs was declared during the year
at 10% on equity.

YEAR 2014-2015
PERFORMANCE OF COMPANY (AMOUNT IN RS.’ CR’S )

Gross Revenue 5636.12 Total Expenditure 4152.48

Profit (Loss) before tax 1607.01 Profit after tax 1007.61
Earnings per share Rs. 0.64 Dividend ratio 5%

PERFORMANCE ANALYSIS OF 2014-2015

1.The production and Sales has increased by 23%

2.Cement turn over has increased by 6% as against fall in Sales realization by 16%
last year.
3.Cement Boards Division has contributed 18% more than the previous year to the
PBDIT.
4.Perform Division realization has increased by 4% even the Turn over have came
down to 845 lacs from 1189lacs in last year.
5.The profit After Tax has came down from 1007.61 crs to 782.28 crs in Current year
because of slope in Cement Industry.

YEAR 2015-2016
PERFORMANCE OF COMPANY (AMOUNT IN RS.’ CR’S )

Gross Revenue 6575.40 Total Expenditure 5214.94

Profit (Loss) before tax 1461.46 Profit after tax 977.02
Earnings per share Rs. 0.64 Dividend ratio 5%

PERFORMANCE ANALYSIS OF 2015-2016

The Cement Industry has a successful year because of Govt. policies

such as infrastructure Development a Rural housing. There has been a small reduction
in Gross Sales and with the performance of prefab Division the Gross Profit gap has
narrowed and contributing to the EBIT. The Gross Profit has increased considerably
from 6575.40 crs in Last year to 5636.12 crs in Current year. The interest payment
has increased by 423 crs in the Current year and the Profit before Tax at 1461.46 crs
when compared to 1607.01 crs in Last year. The Net profit also increased from 977.02
in Last year in Current year.
The Director has recommended a 7.5% Dividend and in Last year it was at 5%.
 YEAR 2016-2017
PERFORMANCE OF COMPANY (AMOUNT IN RS. CR’S)

Gross Revenue 7179.43 Total Expenditure 5585.29

Profit (Loss) before tax 1688.17 Profit after tax 1093.24
Earnings per share Rs. 1.55 Dividend ratio 10%

PERFORMANCE ANALYSIS OF 2016-2017

In 2016-10 the company has performed well in all decisions because of high
demand and realizations. The Gross Profit Increased considerably and the interest
payments have Increased at about 7179.43 because of loans taken from the bank at a
lesser rate of interest and payment of loan funds for which the company is paying
higher rate of interest. In the previous year, the cash credit granted by UCO bank to
the tune of Rs.5585.29 crs and losing of loan funds borrowed from Vijaya Bank and
Canara Bank factors, which can tribute to increase in the Profit before Tax to the tune
of Rs.1688.17 crs the company declared a dividend of 10% on its equity to its
shareholders when compared to 7.5% in the previous year. The EPS of the company
also increased considerably which investors in coming period. The company has taken
up a plant expansion program during the year to increase the production activity and
to meet the increase in the demand
YEAR 2017-2018
PERFORMANCE OF COMPANY (AMOUNT IN RS.CR’S)

Gross Revenue 14558.42 Total Expenditure 11882.74

Profit (Loss) before tax 1886.19 Profit after tax 1504.23
Earnings per share Rs. 2.10 Dividend ratio 16%
 PERFORMANCE ANALYSIS OF 2017-2018

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

turnover while the Boards and prefab segments contribute about 45%. Huge
investment in the industrial sector over the next 3 years is expected to lead to higher
cement off –take on the back of strong GDP growth across the country. It is expected
that the domestic cement consumption would grow at a CAGR of 8% for the next 5
ears. By FY 2018 the domestic consumption is expected to grow to 199 million Tons
from 146 million Tons consumption FY2017. During the year 2017-11 your
company’s Gross sales increased.

Net sales increased by about 39% to Rs.1504.23 crs from Rs.1093.24 crs in FY 2017-
11. Improved sales from all the tree divisions particularly from prefab division
contributed for increased turnover.

EBIT LEVELS

Particulars 2014 2015 2016 2017 2018

Earnings Before
Interest & Tax 1176.19 1607.01 1461.46 1688.17 1886.19

Change 126.54 477.39 294.2 234.99 374.53

% Change 9.216979 3.166769 4.627668 6.758416 4.769161

DEGREE OF FINANCIAL LEVERAGE:

The higher the quotient, the greater the leverage. In Ultra Tech Industries case
it is increasing because of decrease in EBIT levels to 2017-2018.

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

The EBIT level in 2006 is at 1176.19 crs and is decreasing every year till 2015.
Because of slump in the Cement Industry less realization. The EBIT levels in 2016
again started growing and reached to 1607.01 crs and in 2017 were at 1688.56 crs and
in 2018 were at 861.17, because of the sale price increase per bag and increase in
demand. The infrastructure program taken up by the A.P. Govt. in the field s of rural
housing irrigation projects created demand and whole CementIndustries are making
profits.

PERFORMANCE
Eps analysis
Particulars 2014 2015 2016 2017 2018
Profit After Tax 962.85 1882.77 2575.15 3531.64 4143.60
Less: Preference
Dividend - - - - -
Amount of Equity share
holder 1863.78 2696.99 3602.10 4608.65 10666.04
No. OF equity share of
Rs.10/- each 17234825 17234825 17234825 17234825 17234825
EPS 1.69 0.64 0.79 1.55 2.1
 EPS LEVELS

2.5

EPS1.5

0.5

0
2014 2006
2015 2007 2016 2008 20172009 2010
2018
YEARS

INTERPRETATION

The PAT is in an increasing trend from 2015-2016 because of increase in sale prices
and also decreases in the cost of manufacturing. In 2017 and 2018 even the cost of
manufacturing has increased by 5% because of higher sales volume PAT has
increased considerably, which leads to higher EPS, which is at 9.36 in 2018
EBIT – EPS CHART

One convenient and useful way showing the relationship between

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

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

N N
We assume that the level of debt, the cost of debt and the tax rate are constant.
Therefore in equation, the terms (1-T)/N and INT (=iD) are constant: EPS will
increase if EBIT increases and fall if EBIT declines. Can also be written as follows
 Under the assumption made, the first part of is a constant and can be represented by
an EBIT is a random variable since it can assume a value more or less than expected.
The term (1 – T)/N are also a constant and can be shown as b. Thus, the EPS, formula
can be written as:
EPS = a + b EBIT
Clearly indicates that EPS is a linear function of EBIT.

FINANCING DECISION

Financing strategy forms a key element for the smooth running of any
organization where flow, as a rare commodity, has to be obtained at the optimum cost
and put into the wheels of business at the right time and if not, it would lead intensely
to the shutdown of the business.
Financing strategies basically consists of the following components:

 Mobilization
 Costing
 Timing/Availability
 Business interests

Therefore, the strategy is to always keep sufficient availability of

finance at the optimum cost at the right time to protect the business interest of the
company.
STRATEGIES IN FINANCE MOBILIZATION
There are many options for the fund raising program of any company and it is quite
pertinent to note that these options will have to be evaluated by the finance manager
mainly in terms of:
 Cost of funds
 Mode of repayment
 Timing and time lag involved in mobilization
 Assets security
 Stock options
 Cournand’s in terms of participative management and
 Other terms and conditions.
Strategies of finance mobilization can be through two sectors, that is, owner’s
resources and the debt resources. Each of the above category can also be split into:
Securitized resources; and non-securities resources. Securitized resources are those
who instrument of title can be traded in the money market and non-securities
resources and those, which cannot be traded in the market

THE FORMS OF FUNDS MOBILIZATION IS ILLUSTRATED BY A CHART:

FUNDING MIX - SOURCES

OWNERS FUND BORROWED

FUND

EQUITY RETAINED PREFERENCECONVENTIONALNON- CONVENTIONAL

CAPITAL EARNINGS CAPITAL SOURCES SOURCES

FINANCIAL SUPPLIERS CREDIT

INSTITUTION SHORT TERM
BANK BANK
BORROWINGS
CASH CREDIT HIRE PURCHASE
DEBENTUREs
THE INDIA CEMENT LTD INDUSTRIES LTD. THE FUNDING MIX

Particulars 2010-11 2014-12 2015-14 2016-15 2017-16

Source of funds

Share holders’ funds

a) Share capital 1863.78 2696.99 3602.10 4608.65 10666.04

b) Reserves and surplus 1739.78 2571.73 3475.93 4482.18 10387.22

c)Deferred tax 560.26 542.35 722.93 830.73 1830.05

TOTAL (A) 3963.82 5811.07 7800.96 9921.55 22783.31
Loan Funds
a) Secured Loans 1161.25 982.66 1185.80 854.19 2789.76

b) Unsecured Loans 427.38 757.84 965.83 750.33 1454.84

TOTAL (B) 1678.63 1840.5 2151.63 1704.52 4154.6

TOTAL (A+B) 5542.45 7551.57 9942.59 11626.07 26927.91
% of S H in total C.E 44.67 48 41.22 42.38 34.3
% of Loan Fund in total
C.E 55.33 52 58.78 57.62 65.69

INTERPRETATION
The shareholder fund is at 3125.8 constitutes 44.67% in total C.E and loan funds
constitute 55.33% in 2014-2018. The Funding Mix on an average for 6 years will be
45% of shareholders Fund and 55% of Loan Funds there by the company is trying to
maintain a good Funding Mix. The leverage or trading on equity is also good because
the companies
 Position of Mobilization and Development of funds
(Amount in RS.)

Total liabilities 3902.67 Total assets 3902.67

Sources of funds
Paid u capital 124.49 Reserves & surplus 1739.29
Secured Loans 1161.25 Unsecured loans 427.38
Application of funds
Net fixed assets 3215.23 Investments 483.45
Net current assets 204.99 Misc. Expenditure ---
Accumulated losses

YEAR 2014 – 2015

Position of Mobilization and Development of funds

(Amount in RS. crs)

Total liabilities 4979.84 Total assets 4979.84

Sources of funds
Paid u capital 124.49 Reserves & surplus 2571.73
Deferred tax 542.35
Secured Loans 982.66 Unsecured loans 757.84
Application of funds
Net fixed assets 4783.61 Investments 180.90
Net current assets 25.33 Misc. Expenditure ---
Accumulated losses Nil

Financial leverage results from the presence of fixed financial charges

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

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

on the earnings available to shareholders.
 YEAR 2015-2016
Position of Mobilization and Development of funds
(Amount in RS. crs)

Total liabilities 6466.66 Total assets 6466.66

Sources of funds
Paid u capital 124.49 Reserves & surplus 3475.93
Deferred tax 722.93
Secured Loans 1185.80 Unsecured loans 965.83
Application of funds
Net fixed assets 5312.97 Investments 1034.80
Net current assets 118.89 Misc. Expenditure ---
Accumulated losses Nil

YEAR 2016- 2017

Position of Mobilization and Development of funds (Amount in RS.
crs)
Total liabilities 7043.90 Total assets 7043.90
Sources of funds
Paid u capital 124.49 Reserves & surplus 4482.18
Deferred tax 830.73
Secured Loans 854.19 Unsecured loans 750.33
Application of funds
Net fixed assets 5201.05 Investments 1769.55
Net current assets 183.30 Misc. Expenditure ---
Accumulated losses Nil
 YEAR 2017 – 2018

Position of Mobilization and Development of funds

(Amount in RS. crs)

Total liabilities 17540.69 Total assets 17540.69

Sources of funds
Paid u capital 274.04 Reserves & surplus 10387.22
Deferred tax 1830.05
Secured Loans 2789.76 Unsecured loans 1454.84
Application of funds
Net fixed assets 12505.57 Investments 3730.32
Net current assets 304.80 Misc. Expenditure ----
Accumulated losses Nil

FINANCIAL LEVERAGE

INTRODUCTION:

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

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

 Those, which carry a fixed finance charge.

 Those, which do not carry a fixed charge.

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

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

term debts carry a fixed rate of interest which is a contractual obligation for the

company except in the case of preference shares. The equity holders are entitled to the

remainder of operating profits if any.

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

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

on the earnings available to shareholders.

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

MEANING OF FINANCIAL LEVERAGE:

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

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

FINANCIAL LEVERAGE AND THE SHAREHOLDERS RISK

Financial leverage magnifies the shareholders earnings we also find that the

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

capital structure that is with more debt EPS raises and falls faster than the rise and fall

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

variability.

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

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

was long ago recognized by Marshall in the following words.

OPERATING RISK: -

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

assets). The environment internal and external in which a firm operates determines the

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

an unavoidable risk. A firm is better placed to face such risk if it can predict it with a

fair degree of accuracy

THE VARIABILITY OF EBIT HAS TWO COMPONENT

1. Variability of sales

2. Variability of expenses

1. VARIABILITY OF SALES:
The variability of sales revenue is in fact a major determinant of
operating risk. Sales of a company may fluctuate because of three reasons. First the
changes in general economic conditions may affect the level of business activity.
Business cycle is an economic phenomenon, which affects sales of all companies.
Second certain events affect sales of company belongings to a particular industry for
example the general economic condition may be good but a particular industry may
be hit by recession, other factors may include the availability of raw materials,
technological changes, action of competitors, industrial relations, shifts in consumer
preferences and so on. Third sales may also be affected by the factors, which are
internal to the company. The change in management the

2. VARIABILITY OF EXPENSES: -
Given the variability of sales the variability of EBIT is further affected by the
composition of fixed and variable expenses. Higher the proportion of fixed expenses
relative to variable expenses, higher the degree of operating leverage. The operating
leverage affects EBIT. High operating leverage leads to faster increase in EBIT when
sales are rising. In bad times when sales are falling high operating leverage becomes a
nuisance; EBIT declines at a greater rate than fall in sales..
FINANCIAL RISK: -
For a given degree of variability of EBIT the variability of EPS and ROE
increases with more financial leverage. The variability of EPS caused by the use of
financial leverage is called “financial risk”. Firms exposed to same degree of
operating risk can differ with respect to financial risk when they finance their assets
differently. A totally equity financed firm will have no financial risk. But when debt is
used the firm adds financial risk. Financial risk is this avoidable risk if the firm
decides not to use any debt in its capital structure.

MEASURES OF FINANCIAL LEVERAGE: -

The most commonly used measured of financial leverage are:

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

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

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

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

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

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

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

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

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

The first two measures of financial leverage are also measures of capital
gearing. They are static in nature as they show the borrowing position of the company
at a point of time. These measures thus fail to reflect the level of financial risk, which
inherent in the possible failure of the company to pay interest repay debt.
The third measure of financial leverage, commonly known as coverage ratio, indicates
the capacity of the company to meet fixed financial charges. The reciprocal of interest
coverage that is interest divided by EBIT is a measure of the firm’s incoming gearing.
Again by comparing the company’s coverage ratio with an accepted industry
standard, the investors, can get an idea of financial risk .however, this measure suffers
from certain limitations. First, to determine the company’s ability to meet fixed
financial obligations, it is the cash flow information, which is relevant, not the
reported earnings. During recessional economic conditions, there can be wide
disparity between the earnings and the net cash flows generated from operations.
Second, this ratio, when calculated on past earnings, does not provide any guide
regarding the future risky ness of the company. Third, it is only a measure of short-
term liquidity than of leverage.

COMBINED EFFECT OF OPERATING AND FINANCIAL LEVERAGES

Operating and financial leverages together cause wide fluctuations in

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

The degree of operating and financial leverage can be combined to see

the effect of total leverage on EPS associated with a given change in sales. The degree
of combined leverage (DCL) is given by the following equation:

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

follows:

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

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

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

2. Perform Division realization has increased by 8% even the Turnover has come to
641.80 Cr from 400.09 Cr in last year.
3. The profit After Tax has came 314.92 Cr to 215.82Cr in Current year because of
slope in Cement Industry.
4. The PAT is in an increasing trend from 2015-2016 because of increase in sale
prices and also decreases in the cost of manufacturing. In 2017 and 2018even the cost
of manufacturing has increased by 5% because of higher sales volume PAT has
increased considerably, which leads to higher EPS, which is at 83.80 in 2017.
5. The EBIT level in 2007 is at 400.09 Cr and is increasing every year till 2017.
Because of slump in the Cement Industry less realization. The EBIT levels in 2017
again started growing and reached to 648.29 Cr and in 2017 were at 648.29 Cr and in
2018 were at 120.24, because of the sale price increase per bag and increase in
demand. The infrastructure program taken up by the A.P. Govt. in the field s of rural
housing irrigation projects created demand and whole Cement Industries are making
profits.
6. The EPS of the company also increased considerably which investors in coming
period. The company has taken up a plant expansion program during the year to
increase the production activity and to meet the increase in the demand
7. Because of decrease in Non-Operating expenses to the time of 215.82 Cr the Net
profit has increased. It stood at in current year increase because of redemption of
debenture and cost reduction. A dividend of Rs.45.74 Cr as declared during the year
at 7.85% on equity.
5.2 SUGGESTIONS:

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

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

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

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

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

maintained.
5.3 LIMITATIONS:

EPS is one of the mostly widely used measures of the company’s

performance in practice. As a result of this, in choosing between debt and equity in
practice, sometimes too much attention is paid on EPS, which however, has serious
limitations as a financing-decision criterion.

The major short coming of the EPS as a financing-decision criterion is that it does not
consider risk; it ignores variability about the expected value of EPS. The belief that
investors would be just concerned with the expected EPS is not well founded.
Investors in valuing the shares of the company consider both expected value and
variability.
5.4Conclusions:
1. Sales in 2015-2016 is at 7267.74 and in 2017-201812752.43 crs those in a
decreasing trend to the extent of 20% every year. On the other hand manufacturing
expenses are at 8725.11 from 2016-2017. There has been significant increase in cost
of production during 2015-2016 because of increase in Royalty.

2.The interest charges were 492.21 in 2016 and 357.07in 2017 and 522.56
respectively shows that the company redeemed fixed interest bearing funds from time
to time out of profit from 2015-2016.Debantures w

3.Here partly redeemed with the help of debenture redemption reserve and other
references.

4.The PAT (Profit After Tax) in 2017-2018 is at 340.78. The PAT has increased in
prices in whole Cement industry during the above period. The profit has increased
almost 16% during the period 2016-2017.

5. Debentures were redeemed by transfers to D.R.R. in 2016-2017.

6. A steady transfer for dividend during 2015-2016 from P&L appropriation but in
2015 there is no adequate dividend equity Shareholders.

7. The share capital of the company remained in charge during the three-year period
because of no public issues made by the company.

8. The secured loans have decreased consistently from 2015-2017 and slight increase
in 2018.
 BIBLIOGRAPHY

Books:

 Prasanna Chandra, “Financial Management Principles and Practice" 2007,

Sixth edition, Published by Tata McGraw. Hill, Banglore.

 Sudhindra Bhat, “Financial Management Theory & Practice 2007", First

edition, Institute of Financial & International Management (IFIM) , Banglore.

Journals:

 Nick bontis, William Chau Chong, Stanley Richardson, ”Intellectual capital

and business performance in Malaysia industries”, Vol.1, pp.85-100

 Steven firer, S. Mitchell; Williams, “Intellectual capital and traditional

measure of corporate performance”, Vol 4, pp. 348-360.

News Papers:

 Financial Express

 Economic Times

Magazines:

 Business India

 Business world

Websites:

 www.google.com

 www.investopedia.com

 www.theindiacement.com