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ASSIGNMENT ON FUNDAMENTAL ANALYSIS

COMPANY: ACC LTD.

SUBJECT: Security analysis and portfolio management

SUBMITTED TO: Ms. MONIKA KALANI

SUBMITTED BY: PARTEEK GUPTA

ROLL NO. A-05

SECTION. Q1806

COURSE: M.B.A. (INT.)

LOVELY PROFESSIONAL UNIVERSITY

CONTENTS:

 COMPANY INFORMATION

 FUNDAMENTAL ANALYSIS

• ECONOMIC ANALYSIS

• INDUSTRIAL ANALYSIS

 CONCLUSION

 BIBLIOGRAPHY
COMPANY INFORMATION:

Established in 1936 as a merger of 10 cement companies, ACC Limited (hereafter

called ACC) is the only cement company that figures in India’s list of Consumer Super
Brands.

Formerly called The Associated Cement Companies Limited - (the company

changed its name in 2006) - ACC’s corporate office is located in Mumbai. The company has
14 modern cement factories, more than 30 Ready Mix Concrete (RMX) plants, 20 sales
offices and several zone offices. It has a workforce of about 10,000 persons and a
countrywide distribution network of over 9000 dealers.

The house of TATA was intimately associated with ACC up to 1999, after which
the Tata Group sold all 14.45% of its shareholding in ACC in three stages to subsidiary
companies of Gujarat Ambuja Cements Limited (GACL).

In January 2005, the Holcim Group of Switzerland announced its plans to enter
into a long-term strategic alliance with the Ambuja Group by acquiring a majority stake in
Ambuja Cements India Ltd. (ACIL), which at the time held 13.8% of the total equity shares
in ACC. Holcim simultaneously announced its bid to make an open offer to ACC
shareholders, through Holdcem Cement Pvt Limited and ACIL, to acquire a majority
shareholding in ACC. An open offer was made by Holdcem Cement Pvt. Limited along with
Ambuja Cements India Ltd. (ACIL), following which the shareholding of ACIL increased to
34.69% of the Equity share capital of ACC.

ACC has 12 captive power generating plants across 7 locations, with a captive
power generating capacity of 241 MW. It also has wind power plants at Madukkarai and
Lakheri, which together generate 16.5 MW electricity from wind power ACC plans to invest
Rs. 30 billion as capital expenditure over the next two years. This would result in enhancing
the total cement manufacturing capacity to 30.58 MTPA and the captive power generation
capacity to 351 MW by the end of 2010.

ACC has also extended its services overseas to the Middle East, Africa &
South America, where it has provided technical and managerial consultancy to a variety of
consumers, and also helps in the operation and maintenance of cement plants abroad. The
overseas contract with YANBU Cement Company, Saudi Arabia for management and
operation of its cement plants, is an ongoing relationship for the last 29 years and has been
renewed up to February 28, 2011.
FUNDAMENTAL ANALSIS:
Fundamental analysis of a business involves analyzing its financial statements and
health, its management and competitive advantages, and its competitors and markets. When
applied to futures and forex, it focuses on the overall state of the economy, interest rates,
production, earnings, and management. When analyzing a stock, futures contract, or currency
using fundamental analysis there are two basic approaches one can use; bottom up analysis
and top down analysis.

Economic analysis: Economic analysis involves impact of macroeconomic factors i.e.

GDP, FII, Inflation etc on the performance of stock of the company.

STOC INFLATION UNEMPLOYME

YEAR K RATE GDP NT CRR PLR

11.00-
2006 782 4.20% 8.4 8.90% 5% 11.50%
12.55-
2007 734 5.30% 9.2 7.80% 6% 12.50%
13.25-
2008 825 6.40% 8.5 7.20% 9% 14.00%
11.00-
2009 N.A N.A N.A N.A 5% 12.00%

Analysis: In 2006, G.D.P was 8.4% and it has increased in 2007. That’s why R.B.I has also
increased C.R.R by 9% in 2008. C.R.R is lagging indicator which is used after economy has
changed. Similarly, when G.D.P has come down to 8.5% in 2008, C.R.R has been reduced to
5% in 2009. Reduction in cash reserve ratio in 2009 shows that it is an lagging indicator as it
has been used only after economy has taken change.

Similarly prime lending rates are lagging indicators. In the data given above, it is
clear that changes in PLR also have been brought only after changes in economic growth.

While with the growth of economy unemployment has also been reduced. Such
kinds of indicators are called co-incidental indicators. Co-incidental indicators are those
which tend to move in the same direction in which economy moves.
 INDUSTRIAL ANALYSIS:
ACC is cement industry. Therefore it comes under the definition of cyclical
industries. It is cyclical industry because it is directly related to business cycles and it
performs best during expansions and worst during contractions.

As it clears from the following balance sheet:

Profit & Loss account ------------------- in Rs. Cr. -------------------

of ACC
Mar '05 Dec '05 Dec '06 Dec '07 Dec '08

12 mths 9 mths 12 mths 12 mths 12 mths

Income
Sales Turnover 4,549.80 3,723.51 6,467.84 7,865.11 8,300.18
Excise Duty 651.95 539.71 736.09 970.32 1,070.21
Net Sales 3,897.85 3,183.80 5,731.75 6,894.79 7,229.97
Other Income 44.71 300.84 247.87 369.35 252.84
Stock Adjustments 53.44 45.26 -29.25 6.93 0.33
Total Income 3,996.00 3,529.90 5,950.37 7,271.07 7,483.14
Expenditure
Raw Materials 1,511.25 1,078.84 1,513.55 1,843.65 1,180.48
Power & Fuel Cost 348.48 299.52 430.98 517.56 1,598.96
Employee Cost 214.76 184.84 318.02 352.73 413.04
Other Manufacturing Expenses 183.32 157.65 262.45 344.17 362.90
Selling and Admin Expenses 939.32 838.12 1,298.32 1,547.30 1,620.65
Miscellaneous Expenses 83.16 84.88 189.08 354.51 270.99
Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00
Total Expenses 3,280.29 2,643.85 4,012.40 4,959.92 5,447.02
Mar '05 Dec '05 Dec '06 Dec '07 Dec '08
12 mths 9 mths 12 mths 12 mths 12 mths
Operating Profit 671.00 585.21 1,690.10 1,941.80 1,783.28
PBDIT 715.71 886.05 1,937.97 2,311.15 2,036.12
Interest 95.23 66.19 75.19 73.87 39.96
PBDT 620.48 819.86 1,862.78 2,237.28 1,996.16
Depreciation 186.86 164.64 254.61 305.43 294.18
Other Written Off 19.40 6.46 6.24 1.55 0.00
Profit Before Tax 414.22 648.76 1,601.93 1,930.30 1,701.98
Extra-ordinary items 37.55 46.93 14.55 -0.16 35.39
PBT (Post Extra-ord Items) 451.77 695.69 1,616.48 1,930.14 1,737.37
Tax 66.43 140.17 369.10 491.70 524.60
Reported Net Profit 378.39 544.18 1,231.84 1,438.59 1,212.79
Total Value Addition 1,769.04 1,565.01 2,498.85 3,116.27 4,266.54
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 124.97 147.61 280.92 375.02 375.33
Corporate Dividend Tax 17.53 20.70 39.40 63.74 63.79
Per share data (annualised)
Shares in issue (lakhs) 1,785.34 1,845.08 1,872.78 1,876.24 1,876.82
Earning Per Share (Rs) 21.19 29.49 65.78 76.67 64.62
Equity Dividend (%) 70.00 80.00 150.00 200.00 200.00
Book Value (Rs) 89.46 115.76 167.81 221.33 262.56

From the above balance sheet, we can see earning per share (EPS) and net profit are reduced
by 2008. It is all because in 2008 there is increase in inflation rate and economy was going
through recession.

While there are some industries which are not much effected by economy or they use to move
opposite direction but not perfectly e.g. Pharmaceutical industry.

Life cycle:

 Maturity stage: ACC is going through its maturity stage, as its sales are at peak.

 Introductory stage: In 1936, when company was established it was its introductory
stage.

 Growth stage: 2000-2008 was it growth period because its sales volume got growth
year by year.

 Decline stage: It could in next 20-30 years if other alternative or technique has been
developed.
PORTER’S FIVE FORCE MODEL:

THREAT OF NEW ENTRANTS:

ACC has threat from new entrants like TATA; Reliance etc can enter into this industry.

But there are certain barriers to their entry. These are:

• Availability of raw material

• Restrictions on entry by government into cement industry

• Cement industry requires a huge investment

• Switching costs are high in cement industry

BARGAINING POWER OF SUPPLIERS:

Suppliers have very much impact on cement industry because of the following reasons:

• Raw materials used in cement are gypsum, fly ash and slag. There are few suppliers
of these materials.

• Quality of finished goods i.e. cement is very important for ACC ltd.

• As already said, there are high switching costs in cement industry.

• There is no substitute to the raw material used in cement.

BARGAINING POWER OF BUYER:

ACC ltd plays the role of buyer. It has following bargaining powers:

• There are only few buyers of raw material of cement.

• ACC has major stake in cement industry i.e. 11% of the world.

THREAT OF SUBTITUES:

It has threat from Ambuja cements, Birla cements etc.

RIVALRY AMONG THE COMPETING FIRMS IN INDUSTRY:

In spite of huge stake in cement industry, it is difficult to be on the top because of the other
competing companies i.e. Ambuja, Birla, and Binani etc.

Competitor analysis

ACC, with an installed capacity of 22.63 MTPA, enjoys an 11% market share in India, which
with its total installed capacity of 207 MTPA, is the second largest cement producing country
in the world. ACC’s nation-wide presence and brand image ensures a competitive edge and
helps it to withstand regional fluctuations in prices and also to adapt its distribution to market
place needs. Its key competitors are as follows:
Company Capacity (in MTPA)
ACC 22.63
Ambuja Cements 18.50
Binani Cements 6.50
Birla Corporation Limited 5.80
CCI 3.85
Century Textiles 6.80
Grasim 16.75
India Cements 8.94
Jaypee Group 13.50
Kesoram Industries 5.60
Lafarge 5.50
Madras Cements 10.00
Ultratech Cement 18.20
Zuari Cement 3.50
 BIBLIOGRAPHY:

http://www.acclimited.com/newsite/finance.asp?tag=sp

http://www.acclimited.com/newsite/finance/profitloss05.asp

http://cmsdata.iucn.org/downloads/due_diligence_report_acc_india.pdf

http://www.indexmundi.com/g/g.aspx?v=74&c=in&l=en

http://www.rbi.org.in/scripts/WSSViewDetail.aspx?TYPE=Section&PARAM1=4%0A

http://www.moneycontrol.com/stocks/marketstats/economic_survey/display_grap
h.php