Analysis of Heidelberg Cement Ltd

Ratio Analysis INDUSTRY

Units 2006 0.793 0.520 0.058 75.778 6.905 2007 0.725 0.465 0.131 25.213 4.730 2008 0.745 0.430 0.101 42.830 19.176

Average Hidelbarg 0.754 0.472 0.097 47.940 10.270

1.06 0.54 0.26

Liquidity Ratios
Current Ratio Quick Ratio Cash Ratio Rec. Turnover Period Inventory Turnover Ratio

times times times days times

36.79 5.47

From the above comparisons it can be said that Heidelberg Cement is in good shape regarding liquidity management. It has a very good current asset to current liabilities ratio then the industry average. It also has great in comparison to the industry regarding their cash ratio and quick ratio. Their cash and quick ratio is greater than the other two companies and industry average. The calculations above also show that the company takes about 37 days to recover their receivables whereas the industry takes 48 days. It tells that management has some inefficiency while recovering their receivables. The inventory turnover ratio shows how almost half of the COGS are compared to the inventory. The industry average is 10.3 while Heidelberg has ITR of 5.47 times.

INDUSTRY
Debt Management Debt Equity Ratio Debt Ratio times % 2006 1.295 42.100 2007 1.806 35.800

Average Hidelbarg 2.537 4.511 0.06 34.061 24.283 0.44

2008

Heidelberg has very low debt compared to their equity. It means compared to the other companies of the industry Heidelberg has very low debt and they mostly depend on their own equity. 44% of their assets are financed by debt, whereas in the industry only 34% of the assets is financed by debt. The ratio shows that the companys debt management is also in good shape and in case of bankruptcy there is low chance of equity holders of not recovering anything from the assets.

INDUSTRY
Asset Management Fixed Asset Turnover Ratio Fixed Asset Turnover Period Total Asset Turnover Ratio Total Asset Turnover Period Units times days times days 2006 1.048 12682.993 0.555 14190.305 2007 1.110 862.565 0.643 1061.255 2008 1.288 679.810 0.715 699.638

Average Heidelberg 1.148 0.12 4741.789 0.638 5317.066

908.7 1.13 893.6

Heidelberg lacks from the industry in asset management too. The ratio shows that they need to squeeze in more sales dollar from their fixed assets and total assets. The company has been highly inefficient in doing so.

INDUSTRY
Units Profitability Net Profit Margin Basic Earning Power Return On Asset Return On Equity % % % % 2006 -2.503 .39 1.358 28.807 2007 7.065 -0.05 2.010 34.098 2008 -8.290 0.01 -1.605 22.628

Average Heidelberg -1.243 0.12 0.588 28.511

0.10 0.0 0.01 0.04

In an average the whole industry had a bad net profit margin but Heidelberg has good net profit margin. Seeing ROA and ROE, the company actually lost money from the assets and of the shareholders.

LEVERAGES
2006 DOL=(sales-cogs)/EBIT DFL=EBIT/(EBIT-Interest) DCL=DOL*DFL

INDUSTRY Average Heidelberg -20.7600189 2.211553601 0.46790876 -6.33879134 -5.45 0.520371003 6.995427599 0.44105536 2.652284656 0.58 -10.8029118 15.47076309 0.20637367 1.487159194 -3.24
2007 2008

DOL depends on fixed operating cost, so, higher the fixed operating cost, the higher the companys operating leverage and its operating risk. Heidelberg is operating at a very high operating risk. DFL of Heidelberg is also very low compared to the industry. It shows the organizations incapability to apply its operating expenses from its earnings.

Risks and Returns

2006 87.67 0.16 -0.12 21.96 -32.72 0.52 1.06 -7.55 2007 62.75 0.30 0.31 15.96 -1.07 0.54 0.61 0.05 2008 Average 0.26 0.06 -0.04 0.07 0.61 0.32 0.68 0.67

avg. return on Padma (%) avg. return on Heidelberg(%) avg. return on Lafarge (%) avg. return of industry (%)
beta of Padma beta of Heidelberg beta of Lafarge beta of Industry

50.23 0.17 0.05 12.66 -11.06 0.46 0.78 -2.28

WACC using DGM

2006 0.01083108 8

2007 0.01185456 5

Heidelber 2008 Average g 0.0086615 9 0.04294 0.07299

Risk Analysis: As the Z-score of Heidelberg is 0.242, which is lower than 2.7, and has very high chance of bankruptcy. The WACC of Heidelberg decreased & average WACC of Heidelberg is 7.2% whereas the WACC of Industry average is 4.3%. Therefore, the cost of capital is almost double than the competitors. From 2006 to 20008, had negative EVA and MVA, they have lost value throughout the years. Heidelberg has a Beta () of 11.06 which indicate that if the overall market risk increases by 1 unit the companys risk will rise by 11.06 units. The average market return is 12.6 where the Square has 50.23, but this does not show the real scene, it is mainly due to the high deviation of stock price.