Group Assignment 1

Analysis of Financial Information

Ramco Cement
vs
JK Cement

GMP (BATCH 2019-20)

XLRI JAMSHEDPUR
Submitted to - Santosh Sangem

Prepared by:
Rajdeep Gupta G19084
Rahul Udainiya G19084
Vivek Kumar G19101
Joginder Sangwan G19068
Syed Mohd Haider Abbas Zaidi G19097
Contents

Executive
Summary.....................................................................................................................................2
Company Background
a) Ramco Cement……………………………………………………………………………………………………………3
i. Key financial Highlights-Ramco……………………………………………………………………….4

b) JK Cement…………………………………………………………………………………………………………………..5
ii. Key financial Highlights-JK……………………………………………………………………………….6
Ration Analysis……………………………………………………………………………………………………………………….7

1
Executive Summary

In this report, we intend to provide an overview of Ramco and JK cement and

conduct analysis of the several aspects of the financial statements of the company.
This include various items from balance sheets, profit and loss account, and cash
flow statements for the last three years i.e. 2017 to 2019.
The report intends to address the significant areas of performance by the company
by conducting ratio analysis and itemized study of important items and thereby
focusing on the areas to be improved by the company. External influences that do
not cover the financial aspect but may affect the investor’s decision have been also
identified and discussed. These include the market rating given by various credit
rating agencies and the study of the industry in which the company belongs because
the company does not function as an independent entity and its success and failure
depends on lots of factors.

2
 Company Overview

Ramco Cement Limited

The Ramco Cements Limited is the flagship company of the Ramco Group, a well-
known business group of South India. It is headquartered at Chennai. The main
product of the company is Portland cement, manufactured in eight state-of-the art
production facilities that includes Integrated Cement plants and Grinding units with
a current total production capacity of 16.69 MTPA (out of which Satellite Grinding
units capacity alone is 4.20 MTPA). The company is the fifth largest cement
producer in the country and the most popular cement brand in South India. The
company also produces Ready Mix Concrete and Dry Mortar products and operates
one of the largest wind farms in the country.

Since inception, The Ramco Cements Limited is assiduously following its self-
determined goals on Corporate Governance. The object of the Company is to protect
and enhance the value of all the stakeholders of the Company viz., shareholders,
creditors, customers and employees. It strives to achieve these objectives through
high standards in dealings and following business ethics in all its activities. The
Company believes in continuous upgradation of technology to improve the quality
of its production and productivity to achieve newer and better products for total
customer satisfaction. The Company lays great emphasis on team building and
motivation. A contended and well-developed worker will give to the Company better
work and therefore better profits.

The Company has strong faith in innate and infinite potential of human resources. It
believes in the creative abilities of the people who work for the Company and
believes in investing in their development and growth as foundation for strong and
qualitative growth of the Organization. If there is no customer, there is no business.
Customers’ continued satisfaction and sensitivity to their needs are the Company’s

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source of strength and security. The Company also believes that as the organization
grows, the society and the community around it should also grow.
Key Financial Highlights
Ramco Cement (FY 2018-19)

Revenue

5126.34 Crore 13%

EBITDA
705.42 Crore -10%

PAT
510.35 Crore -10 %

EPS
21.00 Crore -9%

Market Capitalization

16972.13 Crore -0.49%

4
JK Cement Limited

JK Cement Ltd is an affiliate of the multi-disciplinary industrial conglomerate JK

Organization. For over four decades, JK Cement has partnered India's multi-sectoral
infrastructure needs on the strength of its product excellence, customer orientation
and technology leadership. Today JK Cement has an installed grey cement capacity
of 10.5 MnTPA making it one of the leading manufacturers in the country.

The Company is the second largest manufacturer of white cement in India, with an
annual capacity of 600,000 tonnes in India. Today at its different locations, the
Company has captive power generation capacity of over 140.7 MWs which include
23.2 MW of waste heat recovery power plants.

The Company has made its first international foray with the setting up of a green-
field dual process white cement-cum-grey cement plant in the free trade zone at
Fujairah, U.A.E to cater to the GCC and African markets. The plant at Fujairah has
a capacity of 0.6 million tonnes per annum for White Cement with a flexibility to
change over its operation to produce up to 1 million tonnes per annum of Grey
Cement. The commercial production from Fujairah Plant started from
Sep'2014.With this, J.K Cement Ltd has become the second largest White Cement
Producer in the World.

As a part of its new initiatives, the Company plans to increase the production
capacity of Wall Putty to keep pace with the rising demand. In this direction, the
company plans to put up 6 lac tonnes capacity at Katni in M.P. with state-of-the-art
technology, best quality raw materials and highly skilled manpower, we are upbeat
about the future. Superior products and a strong Brand name, an extensive marketing
and distribution network and the technical know-how represent the Company's
abiding strengths.
5
Key Financial Highlights
JK Cement (FY 2018-19)

Revenue

5339.05 Crore -3.70%

EBITDA
673.55 Crore -2%

PAT
284.16 Crore -6%

EPS
36.74 Crore -11%

Market Capitalization

7678.15 Crore 8%

6
 Ratio Analysis
Liquidity Ratios:
Current Ratio
Relevance:

Current ratio is relevant because it gives an idea of a cementcompany's ability to pay back its short- term
liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). Since in cement
industry receivables and inventory management keep happening on a rotating basis this ratio indicates
the internal financial policy of the company with respect to receivables, inventory and payables and
there can be an external policy driver like for e.g. the economic situation and liquidity that can also
influence these parameters .But since we are comparing all companies in the same economic scenario,
our main focus is internal drivers. The higher the current ratio, the more capable the company is of paying
its obligations.

Interpretation and Summary-Analysis:

A ratio under 1 suggests that the company would be unable to pay off its obligations if they became due
at that point. The rule of thumb is 2 but if it is > 2 then it definitely indicates increased holding period
and bad receivable policy of the management. JK Cements is doing fine in terms of Current Ratio. Ramco
is doing sub optimally in terms of Current Ratio that reflects a poor inventory and receivable
management policy and it may be because of sales dipping or because of delayed payments by
customers that would leave the firm with less of cash and hence not being able to meet its current
liabilities sufficiently.

Comparison and Expectations:

In our case Ramco Cements for 2019 has .67 as current ratio and JK Cements has 1.28 as current ratio.
The industry average calculated has come out to be as 1.3. The highest being 2.21 of Shree Cement and
the lowest being .67 of Ramco. Delaying capital purchases that involve cash expenditure, reduction in
drawings, re amortization of some loans and selling of non-revenue generating assets can improve the
ratio.

Quick Ratio
Relevance:

Quick ratio is relevant in cement industry as it is indicative of an undesirable inventory situation in the
company if the current ratio is found to be favourable. In cement industry usually purchases are done on
a short-term credit basis and efficient inventory turnover is desirable so having sufficient liquid assets is
relevant to pay-off the liquid liabilities to prosper and the non-payment on time would also mean loss of
goodwill and increased debtors. It should also need not be too high as then firm will suffer from
shortage of funds.

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Interpretation and Summary-Analysis:

A high Liquid ratio means that a firm is in a good position to pay its liquid liabilities. The behaviour is
expected to be in line with the Current Ratio. The quick ratio measures a company’s ability to meet its
short-term obligations with its most liquid assets. It is also known as Acid Test ratio or Liquid ratio. JK
cement has a quick ratio equivalent to the industry average, however Ramco Cements has a very less
Quick Ratio. This shows that Ramco has less of short-term liquid assets to sufficiently meet its liquid
liabilities and relies on inventory turnovers for liquid assets and most of its assets are long term.

Comparison and Expectations:

Ramco Cements has .40 as quick ratio and JK Cements has .89 as quick ratio. The industry average
calculated has come out to be as .87. The highest being 1.33 of Shree Cements and the lowest being
.40 of Ramco. However increased sales and inventory turnover days can be brought down from the
current 9-day period can bring more liquid assets to meet liquid obligations, invoice collection period
can be improved from 8 days to lesser number of days and current liabilities can be reduced to increase
the ratio.

Activity Ratios:
Inventory Turnover Ratio
Relevance:

In cement industry replenishment of inventory on a regular basis is of prime importance as increased

holding period of inventory means blocking of funds which could have been used otherwise. Longer
inventory period also means risk to the firm as cement is prone to hardening because of moisture. The
greater number of times the inventory gets rotated the higher chances of increase in the gross profits as
the profits per cycle get added up. There is no thumb rule as such for the Inventory turnover ratio as it
depends on industry to industry and firm to firm basis.

Interpretation and Summary-Analysis:

The inventory turnover formula measures the rate at which inventory is used over a measurement
period. One can use the formula to see if a business has an excessive inventory investment in
comparison to its sales level, which can indicate either unexpectedly low sales or poor inventory
planning. It indicates the number of times the inventory is turned over in an accounting period. In our
companies Ramco and JK Cements the inventory is getting replenished at a sufficiently quick rate.

Comparison and Expectations:

Ramco Cements has 9.2 days as Inventory Turnover ratio and JK Cements has 8.39 days as Inventory
Turnover Ratio. The industry average calculated has come out to be as 8.7. The highest being 10.55 of
Ultratech Cements and the lowest being 6.71 of Shree Cements. This shows that both Ramco Cements
and JK cements are performing at par with industry average and this may be due to Customer
preference for the two companies and better utilization of capacity.

Debtors Turnover Ratio

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Relevance:

Selling on credit and a sound credit policy are the two most important criteria for the success of a
cement firm. Since the distribution network is mostly on credit from factory to retailers a sound
collectibles policy is what is needed so that the company has enough funds to run its operating cycles.
Cement companies with a tight receivables policy are likely to prosper.

Interpretation and Summary-Analysis:

Debtors Turnover Ratio is an accounting measure used to quantify a firm's effectiveness in extending credit
as well as collecting debts. The debtor’s turnover ratio is an activity ratio, measuring how efficiently a
firm manages its assets. Higher the value, more efficient the management of receivables and debtors. It
indicates how the credit policy of the company is being implemented. This shows that while Ramco is
doing decently in converting its debtors whereas JK Cements takes more time to realise its debtors.

Comparison and Expectations:

Ramco Cements has 10.5 days as Debtor Turnover ratio and JK Cements has 20.4 days as Debtor
Turnover ratio. The industry average calculated has come out to be as 15.6 days. The highest being JK
Cements and the lowest being of Ramco Cements. This may be because of a loose credit policy, high
defaulting customers and inadequate collections effort. A more robust collection system and
prevention of non -faulty deliverables can prevent the customer defaulting.

Debt Equity Ratio

Relevance :

As cement projects are big and require a substantial capital outlay, funding from various sources is the
most important decision as it comes with huge financial costs. Cement is an important component in all
development plans and is the most commonly used construction material and is vital in the daily life of
people as an important material , so the demand is always high and there are always uncertainties
facing this industry like political scenario, new entrants in the market, regionalisation etc and all these
have financial implications on the firm. In order to fund these projects and overcome the uncertainties,
huge amount of capital is needed so an optimal mix must be decided by the financial manager of debt
and equity in capital structuring.

Interpretation and Summary-Analysis:

It is calculated by dividing total liabilities by the shareholder’s equity. It indicates that what part of the
business is being funded by equity and what is being funded by external borrowings. It helps in short
term and long term forecasting. It influences the shareholders return and thus capital structuring has an
impact on the market value of its share. A low Debt Equity ratio of Ramco indicates that it is not able to
take the full advantage of its profit. A high Debt Equity means insufficient cash to satisfy debt
obligations as leveraging large amount of debts makes payments difficult as well as have financing
costs. Creditors might view JK Cements as riskier since it has a higher DE Ratio. A good debt equity
ratio is around 1 to 1.5. However it depends from firm to firm.

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Comparison and Expectations:

Ramco Cements has .35 as Debt Equity ratio and JK Cements has 1.16 as Debt Equity ratio. The industry
average calculated has come out to be as .55. The highest being 1.16 of JK Cements and the lowest
being .06 of Ambuja Cements. This might be due to low cost debt financing that JK might have
subscribed and Ramco might have missed. In Ramco low ratio indicates a faulty financing policy by the
management. Other reasons can be lesser assets to offer as long term security, contractual obligations
etc. Increase in sales can cause more revenues and these revenues can result in paying of the debt and
thereby balancing the debt equity of the company.

Profitability Ratios:
Net Profit Ratio
Relevance:

Net profit margin as a prime indicator of a company’s performance can be used to find out if the
company is earning profit or loss. In cement industry the competition is intense with so many players in
the market. So, if a firm has to do well in the future, it has to maintain a positive net profit margin in
accordance with industry average so as to get future funding and incremental goodwill.

Comparison and Expectations:

Our report indicated that the Net Profit Margin for Ramco Cement and JK Cement are 9.83% and 4.94%
respectively. While the industry average for the year 2019 has found to be 7.92. Now though, Ramco
cement is doing well in comparison with both, JK Cement, its competitors and the industry average, we
still expect it to grow it further.

Interpretation and Summary-Analysis:

It can be interpreted that Ramco with a net profit margin of 9.83% is keeping Rs 0.98 as a profit for every
1 rupee generated as sales revenue. Which looks somewhat better if we compare it with the industry
average of 7.92%. This also means that the company has been efficiently converting its sales into net
income. Now it could be due to the effective cost management or the prudence shown by the company
management while budget allocation. On the other hand, JK cement has not been doing well on this front,
as its net profit margin ratio is less than the industry average though they are slightly better than some of
the other players in the market.

Operating profit Ratio

Relevance:

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Operating profit margin is a prime indicator of a company’s operating efficiency as to whether it is
earning an operating profit or loss. It is a parameter that management see first and in cement industry
the competition is intense with so many players in the market. So if a firm has to do well in the future, it
has to maintain an efficient operating system in accordance with industry so as to get increase its overall
profits.

Interpretation and Summary-Analysis: Operating margin is a measurement of what proportion of a

company's revenue is left over after paying for variable costs of production. A healthy operating margin is
required for a company to be able to pay for its fixed costs, such as interest on debt. It is a key indicator for
the company operations and expresses the cost price effectiveness of the operating activities of the
company. Ratios show that the companies Ramco and JK Cements we took as our prime company are
doing better than their competitors however for the companies with low operating margin the reason
can be decrease in sales or if only those products are being sold primarily those have low profit
margin

Comparison and Expectations: In our case Ramco Cements has 14.42% as Operating margin and JK
Cements has 12.62% as Operating margin. The industry average calculated has come out to be as
12.19%. The highest being 14.42% of Ramco and the lowest being 8.29% of shree cement. If these
companies can lower down the labour cost and reduce operating expenses than operating margin will
increase significantly.

Earnings Per Share

Relevance:

By looking at earnings per share, an investor can see the value of a stock in terms of how much the
market is willing to pay for each dollar of earnings. It is common for a company to report EPS that is
adjusted for extraordinary items and potential share dilution. The higher a company's EPS, the more
profitable it is considered. This serves as an indicator of a company's profitability.

Comparing EPS in absolute terms may not have much meaning to investors because ordinary
shareholders do not have direct access to the earnings. Instead, investors will compare EPS with the
share price of the stock to determine the value of earnings and how investors feel about future growth.

Comparison and Expectations:

The Earning Per Share (EPS) for Ramco Cement and JK Cement are 21.00 and 45.28 respectively. While
the industry average for the year 2019 has found to be 75.52, with highest being 273 for Shree Cement
and the lowest 10.97 for Ambuja Cement.

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Interpretation and Summary-Analysis:

While looking at the Earning Per Share (EPS) for Ramco Cement it can be observed that it is not doing
well as its EPS is below the industry average of 75.52. Since higher earnings per share is always better
than a lower ratio because this means the company is more profitable and the company has more
profits to distribute to its shareholders, it is to be interpreted that it will be advantageous for Ramco to
focus more on EPS. Increasing its EPS will also help Ramco achieve higher earnings per share by
increasing its stock price.

Return on Capital Employed

Relevance:

Return on Capital Employed (ROCE) is relevant in the cement industry because generally ROCE is used in
capital intensive industries and cement industry is a capital-intensive industry. It considers debt as well
as other liabilities.it gives an estimate of actually on average what percentage of capital is employed in
the business and helps the cement companies assess their component of capital and what percentage of
it is actually employed vis a vis a the industry average.

Interpretation and Summary-Analysis:

Return on Capital Employed is a financial ratio that measures a company's profitability and the
efficiency with which its capital is employed. “Capital Employed” as shown in the denominator is
the sum of shareholders' equity and debt liabilities; it can be simplified as (Total Assets – Current
Liabilities). Ramco is outperforming the industry average however JK cement is
underperforming. Amongst its competitors only Ambuja cement has outperformed. For
Ambuja cement and Ramco cement they have reduced the costs and increased the sales that
resulted in high ROCE. A higher ROCE indicates more efficient use of capital. It is often used by
investors to analyse various prospective investment alternatives. It provides a better indication
of financial performance of companies with significant debt.
Comparison and Expectations: Ramco Cements has 13.37% as ROCE and JK Cements has
11.88% as ROCE. The industry average calculated has come out to be as 12.28%. The highest
being 18.34% of Ramco cement and the lowest being 10.40% of Ultratech cement. For the
companies that have underperformed they should get rid of unnecessary and obsolete assets

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which will increase their ROCE. Also by paying off debt they will reduce the liabilities and
therefore it will significantly increase their ROCE.

Price Earnings Ratio:

Relevance:

It plays a significant role to the investors to show whether the company is undervalued or
overvalued against industry average and benchmark index. A high P/E could mean that a stock's
price is high relative to earnings and possibly overvalued. Conversely, a low P/E might indicate
that the current stock price is low relative to earnings.

Interpretation and Summary-Analysis:

The price-to-earnings ratio (P/E ratio) is the ratio to value a company. It is measured by dividing
the price of a share by earning per share that determines whether the company’s share value is
overvalued or undervalued as compared to its earnings. Ramco is slightly overvalued from the
earnings standpoint as compared to its competitors and in near future investors might not find
it attractive till the valuation gets corrected, on the other hand JK cement is undervalued which
may attract those investors who are looking to invest in cement companies. P/E ratios are
used by investors and analysts to determine the relative value of a company's shares. It is also
used to evaluate company’s performance against its own historical data and to compare it with
the industry

Comparison and Expectations:

In our case Ramco Cements has 35.06 as PE and JK Cements has as 19.14 . The industry
average calculated has come out to be as 34.61. The highest being 68.71 of shree cement and
the lowest being 19.14 of JK cement .Competitors are doing at par with the industry average
which indicates that the investors have been showing great confidence in the cement industry
however companies should focus on generating more earnings per share to keep the market
value intact else they might not be as attractive for the investors in future as they are now

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