-Abhishek Jhanwar

Mr. Keshav Gupta, who had purchased 100 share of Associated Cement Companies Limited (ACC) in the year 1985 was wondering why the company has not been performing well during the last two years as from childhood he has been listening that cement is a scarce commodity in India. He anticipated that since cement is scarce commodity his money would multiply but this didnt happened. The profit declined, dividend paid declined and the market value of share also showed a declining trend. He gathered financials and non-financials of ACC and two other cement companies viz. Andhra Cement and India Cement for standalone and industry wise analysis.

Incorporated in the year 1964. Two cement factories one foundry in Salem District of Tamil Nadu and Nandambakkam, near Madras. Installed capacity of 13.95 lakh tonnes and .05 for Salem District. During seventies company showed improvement in profits and sales. During 1982-83 , the turnover and profits of the company were substantially high because of high capacity utilization, partial decontrol of prices of prices and higher realization on levy and non-levy cements. During 1984-85 capacity utilization increased to 100 % which was 80% in 1983-84 During the year 1985-86, the turnover increased. The cost escalations of key inputs and shortage of inputs like coal further eroded the profitability of the company. During the year 1986-87, the demand was adversely affected by the drought conditions. Co. prepared a 25 and 11.5 crore capital expenditure for improving the plant in 1984-85 and 86 respectively

The co. revalued its fixed assets on 31st March, 1986 , the resultant surplus of 30.27 crore was created through revaluation reserve.

Incorporated in the year 1936. Installed capacity of 12.4 lakhs tonnes. The year 1981-82 and 1982-83 witnessed continuous improvement in performance of the company. Production suffered in 1983 because of cyclone. In 1984-85, production increased significantly, the sales almost doubled. But profitability of the company didnt exhibit similar increase. During 1987-88 the capacity utilization was lower at 48% due to severe shortage of power. Profitability was adversely affected due to hike in power tariffs. The co. chalked out an investment plan of 63 crore in the year 1983-84 for expansion which was financed through term loans, debentures and accruals.

Incorporated in the year 1936.is the largest cement company. Installed capacity of 88.2 lakh tonnes. ACC is the oldest company with 23 plants spread in 10 states. With better utilization of its capacity, the company recorded improved performance in the early eighties. To meet the companys continuous financial requirement, it raised term loans.

Declining performance of ACC and return on investment.

To find out whether this performance was specific to ACC alone or it is industry wide To use ratios for cross-sectional analysis of firms within same industry To position a firm in its competitive environment

Sell off Retain

Qualitative Quantitative

Opportunities: Scarce Commodity Have achieved higher targets of production, which have earned it substantial excise duty rebate and production incentives Capacity utilization could be increased Availability of financial resources Threats: Increase in cost of inputs viz. coal price, power tariffs, labour charges Higher interest charges

Current Ratio
ACC 1983 1984 0.73 0.92 Andhra Cement 1.22 0.71 India Cement 0.94 0.99 Average 0.96 0.87

1.6 1.4 1.22 1.2 1 0.8 0.6 0.4 0.2 0 1983 1984 1985 1986 1987 0.99 0.94 0.92 0.73 0.71 0.47 0.99 0.88 1.24 1.08 0.99 0.85 1.39 1.26

1985
1.48

1.24
0.88 0.85 0.93

0.47
1.39 0.99 0.73

0.99
1.08 1.26 1.48

1.23
1.12 1.03 1.05

1986 1987 1988

0.93 0.73

ACC Andhra Cement India Cement Average

1988

Debt-Equity Ratio
1983 1984 1985

ACC 2.72 3 2.9 2.77 2.89

Andhra Cement 2.39 2.92 4 3.53 4.91

India Cement Average 2.74 2.41 2.19 0.88 0.89 2.62 0.78 3.03 2.39 2.9

14 12 10 8 6 4 2 0 1983 1984 1985 1986 1987 1988 ACC

1986 1987

1988

2.8

13.1

1.14

Andhra Cement India Cement

Average

Interest Coverage Ratio

1983 1984 1985
9.14

ACC 4.65 2.48 2.18 1.75 1.67 1.66

Andhara Cement 7.16 4.32 2.37 2.46 1.5

India Cement 9.14 4.6 5.51 4.49 2.42 2.25

Average 6.98 3.8 3.35 2.9 1.86 1.96

10 9 8 7 6 5.51 5 4 4.65 4.6 4.32 4.49 7.16 ACC Andhara Cement India Cement

1986 1987 1988

3
2 1 0 1983 1984 1985 1986 1987 1988 2.48 2.37 2.18 2.46 1.75 2.42 1.67 1.5 2.25 1.66

Average

Asset turnover ratio

ACC 1983 1984 1985 1986 1987
4.43

Andhra Cement 2.23 2.01 1.89 2.3 2.45 2.4 0.88 0.74 0.87 0.73 5.66 0.46

India Cement 4.43 3.7 5.66 2.18 1.99 1.71

Average 2.51 2.15 2.81 1.74 1.67 1.52

5.66

5.66

1988
3.7 ACC Andhra Cement

3 2.23 2 0.88 2.01 2.3 2.18 1.89

2.45 1.99

2.4 1.71

India Cement

Average

0.74

0.87

0.73

0.46

0 1983 1984 1985 1986 1987 1988

Average Inventory Holding (Days)

100
90 80 70 60 50 40 30 20 10 0 1983 1984 1985 1986 1987 1988 60 62 59 50 62 52 62 52 58 53 87 85 90 81 77 87 85 89

ACC 1983 1984 1985 1986 1987 1988 60 62 59 52 52 53

Andhra Cement 85 90 77 87 85 89

India Cement 87 81 50 62 62 58

Average 77 78 62 67 66 67

ACC
Andhra Cement India Cement Average

Average collection period (Days)

140 120 100 86 80 63 60 40 20 0 1983 1984 1985 1986 1987 1988 16 18 14 56 50 33 24 14 18 22 21 18 33 12 ACC Andhra Cement India Cement 117 99

ACC 1983 1984 1985 1986 1987 1988 16 14 14 18 21 33

Andhra Cement 56 50 63 117 86 99

India Cement 18 33 24 22 18 12

Average 30 32 34 52 42 48

Average

Return on Investment
1983
1984 1985

ACC

Andhra Cement

India Cement

Average

0.23
0.14 0.12 0.1 0.08 0.07

0.18
0.1 0.11 0.06 0.03 -0.07

0.76
0.29 0.37 0.12 0.08 0.07

0.39
0.17 0.2 0.09 0.06 0.07

0.9
0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 -0.1 -0.2 1983 1984 1985 1986 0.23 0.18 0.29 0.14 0.1 0.37 0.76

1986 1987 1988

ACC
Andhra Cement India Cement Average 0.12 0.11 0.12 0.1 0.06 0.08 0.03 1987 0.07 1988-0.07

Return on Equity
1983 1984 1985 1986

ACC 0.36 0.17 0.19 0.12

Andhra Cement 0.34 0.2 0.14 0.1 0.03

India Cement 0.73 0.3 0.25 0.11 0.05 0.01

Average 0.48 0.22 0.19 0.11 0.04

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

0.73

1987 1988

ACC 0.36 0.34 0.3 0.25 0.2 0.17 0.19 0.14 Andhra Cement India Cement

Average
0.120.11 0.1 0.05 0.03 0.01 1988

1983

1984

1985

1986

1987

1983 Net Sales ACC Andhra Cement India Cement PAT ACC Andhra Cement

1984 21.3 3.3 17.9

1985 16.6 79.88 72.4

1986 6.2 -3.3 10.3

1987 0.96 1.4 -1.2

1988 4.7 -19.6 -1.7

40.2 5.38

21.19 3.19

18.65 2.38

18.71 2.18

0 0.69

0.31 -14.24

India Cement
EPS ACC Andhra Cement India Cement DPS ACC Andhra Cement India Cement

8.1

4.38

5.12

5.87

2.5

1.48

120.96 7.31 8.23

63.79 5.1 4.44

56 3.86 8.81

44.89 2.29 11.97

0.02 0.73 5.08

0.56 -11.94 3.05

20 1.5 0.8

20 1.5 0.8

20 1.5 2

17 1.5 2.2

10 1 1.2

10 0 1.2

Gloomy situation is industry wide. ACC is in better position in comparison to other companies Keshav Gupta can retain the shares of ACC if he want to remain in the same sector i.e. cement otherwise he can change the sector of his investment

Thank You