Financial study of ACC

Presented By – Group # 2
Sagar Sharma ( 15)
Mandeep Kumar ( 061)
R. Anand (155)
Ratik Khurana (161)
Vikram Puri ( 163)
Mahaveer Singh (173)
 Flow of Presentation
• Introduction of ACC
• Historical return and risk
• Cost of capital
• Valuation of securities
• Leverage
• Working capital
• Capital structure
• Comparative analysis
• Case analysis
•
 About ACC
• Founded in 1930 as a umbrella
company
•
• Second largest cement company in
India
•
• Acquired by Ambuja Cement in 2000
•
• Present market capitalization Rs
18644.46 Cr
 Historical Return and Risk
• Rate of annual return( annualized daily return)
• daily return* 240 = 0.14* 240
• = 33.6%
• Annual Holding Period Return(Average of 5 years)
= annual income/beginning price +
capital gain or loss/beginning price
• = (93+4.9-62.3+102+36.16)/5
• = 34.74%
 What does it mean
• daily rate of return = .0014
standard deviation or risk = .017
• so according statistical theory
P (.0014-.017*3 between .
0014+.017*3) = .997
P( - 0.31 <= x<= .324) = .997
 Market Risk and Return
•

•ß = Covariance(market, security)
• Variance of Market
• = 0.44
• ß is measurement of sensitivity toward market
• Annual return for market(Sensex) = 0.08 * 240
• = 18.64%
• Standard deviation(daily) = 0.0102
•

•
 Cost of capital

• Cost of equity
• Cost of preference shares (Nil)
• Cost of debt
• Weighted cost of capital
•
 Cost of equity

• Cost of equity by CAPM

Ke = Rf + ß (Rm-Rf)
Ke- cost of equity, Rf- risk free return
Rm- Rate of return for market
Rm-Rf – Risk premium
• Ke= 6.85%+ 0.44(18.64- 6.85)
= 12.06%
 Return on Equity

Return on equity=(EBIT-interest)(1- tax)

Equity fund
= (2703-84)*.7
6015
= 30.4%
 cost of equity
• Dividend growth model
• Ke = Do (1+ g)/Po + g
• Do – dividend for current year
• P0 – market price of equity
• (growth) g = b r
• b – retention ratio
• r – rate of return on equity
• Ke = 23(1+.207 )/1070 + .69*30%
• = 23.27%
•

•
 Cost of Debt

• Kd (cost of debt) = interest

payment(1-tax)
book value
of debt
= 84.3*0.7
566.92
= 10.37%
 Weighted average cost of
capital
•book value of debt = Rs 566.92 Cr
•Book value of equity = Rs 187.94 Cr

• Reserves = Rs 5,828.20
Cr
• Total capital = Rs 6583.06
Cr
• Weights equity = .918
• debt = .082
•
Weighted Average Cost of
capital
WACC = .914*23.27% + .086*
10.7%
= 22.18%
 Equity Valuation

• dividend growth model=

= D/(Ke-
g)
D next year dividend
Ke-cost of equity
g- growth
=
23(1.2)/(.23-.207)
=
• Earning per share method ---
• value of equity=
EPS/Ke + PVGO
• EPS- earning per share
• PVGO- present value for growth
opportunity
• PVGO = NPV/(Ke-g)
• 19.092/.023 = 373 +
830
•
 Reality check
• Intrinsic value of equity = Rs 1209
•
• Present market price of share- Rs
1009
•

• 52 weeks average price of share =

Rs 910
• At present growth rate share is under
valued
 Valuation of ACC

• Net present value of ACC = (EBIT- I)(1-

T)+I/r
=
2236.6/.23
= Rs 9721
Cr
 Reality check
• Net worth of ACC = Rs 6200 Cr
• Market capitalization = Rs18000 Cr
• Net present value = Rs 9721 Cr
 Leverage
• In finance, leverage is a general term
for any technique to multiply gains
and losses .
• common ways to attain leverage are
borrowing money, buying fixed
assets and using derivatives.
 Operating leverage
• Operating leverage is the study of the
impact of fixed cost on the earnings of
the firm.
• Presence of fixed cost magnifies
earnings of the firm. Earnings are
• –better under favourable business
conditions, and
• –poorer if conditions are unfavourable
• Degree of Operating leverage= (%
change in EBIT) / (% change in
sales) or
• DOL=total contribution/operating
 Operating Leverage
( from 2008 to 2009)
• Degree of Operating leverage= (%
change in EBIT) / (% change in
sales)
• = [{(2361.66 – 1741.94)/1741.94}
*100] / [{(8021.59 –
7229.97)/7229.97}*100]
• = .35576 / .10949
• = 3.25
• 1% change in sales will result into
3.25% change in EBIT
•
 Financial leverage
• Financial leverage is the study of
impact of fixed cost of interest on
the earnings for the shareholders.
• Degree of Financial Leverage (DFL) is
the % change in the Earnings per
Share with 1% change in the EBIT
level.
• The minimum value of DFL is 1.00.
•
•
 Financial Leverage
(from 2008 to 2009)
• Degree of Financial leverage = %
change in EPS / % change in
EBIT
• = [{( 85.58 – 64.62)/64.62}*100] /
[{(2361.66 – 1741.94)/1741.94}
*100]
• = .32435 / .10949
• = 2.962
• 1% change in EBIT will result into
2.962% change into EPS
 Combined/total leverage
Degree of Total Leverage (DTL) is the
•

study of impact of changing level of

sales on the EPS. It is the product of
DOL and DFL. It is measure of
combined risk.
• DTL=%change in EPS/% change in
sales
• DTL=sales-variable cost/EBIT *
EBIT/EBIT-interest.
 Total leverage
• = % change in EPS x % change in
EBIT
• % change in EBIT % change in
Sales
• =DOL x DOF
• = 9.62
• 1% change in sales will lead to 9.62%
change in EPS
 Total risk and leverage
• Total firm risk = CVEPS =
• = 0.87
•Firm’s eps is very volatile but growing

•
 Working Capital
• Cash needed for day to day
operational activities.
• Net working capital = current asset –
current liabilities
 Current Assets
PARTICULARS 2008 - 09 ( IN CRORES ) 2007 - 08 ( IN CRORES )

• CURRENT ASSETS

• INVENTORIES 778.98 793.27

• SUNDRY DEBTORS 203.70 310.17

• CASH AND BANK BALANCES 746.38 984.24

• OTHER CURRENT ASSETS 10.99 20.67

• LOANS AND ADVANCES 554.42 651.28

TOTAL CURRENT ASSETS 2294.47 2759.63

 Current liabilities
PARTICULARS 2008 - 09 ( IN CRORES ) 2007 - 08 ( IN CRORES )

• CURRENT LIABILITIES

• CURRENT LIABILITIES 2060.34 1801.79

• PROVISIONS 1091.88 963.93

TOTAL CURRENT 3152.22 2765.72

LIABILITIES
 Working capital
§ WORKING CAPITAL = Current Assets −
Current Liabilities
• = -857.75 for 2008-09 (IN CRORES)

• = -6.09 for 2007-08 (IN CRORES)

§ CURRENT RATIO= CA/CL

• = 0.727 (for 08-09)&=0.997 (for 07-08)

•
 Capital structure
• The mix of company’s long term
financing components.
• like- debt, common stock, preferred
share etc
• ACC does not have preferred shares
Capital structure
 Share holding Pattern

share holder percentage

Promoter(Holcim) 46.2

FIIs 15

MFs 21.32
Others 17.48
 Comparative Analysis
Last Market Net P/E ratio book value
Price Cap. ROA

(Rs. cr.) profitability per share

UltraTechCement 1,099.85 30,139.03 15.178 15.72 12.9 370

Ambuja Cements 146.2 22,316.90 16.9 18.35 18.30 42

ACC 1,026.40 19,290.16 19.61 24.4 16.70 320

Samruddhi Cem 520.85 13,629.79 14.4 8.66 12.81 264

Shree Cements 2,117.85 7,378.00 18.55 17.6 10.47 566

Birla Corp 395.1 3,042.48 25.34 22.81 12.81 231

Net profitability Ratio
Return on Asset
 A small case analysis
• Third Quarter financial results of ACC
declared on 21 Oct 10
• Profit After Tax down by 80%
• Sales was down by 20%
• Capital market was stagnant around
21 Oct
•

•
` Sep '09 Dec '09 Mar '10 Jun '10 Sep '10  

Sales Turnover 2,005.47 1,983.87 2,136.28 2,062.16 1,688.48  

Other Income 14.78 20.04 26.43 18.26 29.61  
Total Income 2,020.25 2,003.91 2,162.70 2,080.42 1,718.09  
Total Expenses 1,301.49 1,490.78 1,479.58 1,467.74 1,467.27  
Operating Profit 703.98 493.09 656.70 594.42 221.21  
Gross Profit 718.76 513.13 683.13 612.68 250.82
Interest 13.51 18.05 12.75 14.07 16.23
PBDT 705.25 495.08 670.38 598.60 234.60
Depreciation 79.58 105.19 93.53 96.16 91.06
PBT 625.67 389.89 576.85 502.44 143.54
Tax 190.04 109.17 171.72 143.51 43.49
Net Profit 435.63 280.72 405.13 358.93 100.05
Earnings Per 23.18 14.94 21.56 19.10 5.32
Share
Book Value -- -- -- -- --
Equity 187.91 187.94 187.94 187.94 187.94
Reserves -- 5,828.20 -- -- --
Face Value 10.00 10.00 10.00 10.00 10.00
 What should be the
reaction of investors?
 Why?

• Share price Intraday grow by .8%

on 21 oct
• 15.7% growth in one month.
 Analysis
• Micro
• Macro
• Technical analysis
• Investments in the company
• Regulations
• competitive advantage

•
 micro
• The volume of clinker production and
cement came down due to the shut down
at wadi 2 for maintenance and
restructuring for five months
• So investors expected loss
• It resumed manufacturing.
• Return on assets one of the highest in
cement industry.
•
 customer
• Real estate
• Infrastructure
 Infrastructure
• The exemption for investments in infrastructure
bonds up to 20,000 is in addition to the
investments of Rs 1 lakh in tax-saving
instruments under Section 80C, 80CCC, 80CCD.
• Successful foreign expedition by Mr. Kamal Nath

• Iifcl guarantee for unsecured infra bonds.

•
• Infrastructure investment by government ` 10
trillion per annum
 Real estate
• RESSEX was up by 5% in Oct
• Good monsoon so demand in rural
and semi urban .
 Regulation
• GST implementation
• Abolish CVAT
• Uniform taxation for intrastate trade.
•
 Supply
• CIL Stability
• Due to IPO, employee discomfort.
 Investment
• World’s largest cement company
Holcim acquires 46% share in ACC
• FII inflow in to ACC
 Reference
• www.acclimited.com
• www.yahoofinance.com
• www.moneycontrol.com
• Economic times
• Business standard
• Annual and quarterly reports
• Ressex.com
• Income tax India
• IIFCL web site
•
Thank
you