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© Samruddhi Cement Ltd. to merge with Ultratech Cement on July 1,2010.

© Cement production for the month of November 2009 is higher by 16.11% at 29.07 lakh
mt, over November 2008.


Net Profit Margin(%) 15.30
Asset Turnover Ratio 1.10
Debt-Equity Ratio 0.60
Current Ratio 0.80
Quick Ratio 0.30
P/E Ratio 8.70

ȕ(Beta) = 0.5

Required Rate of Return = 7.12 Current Market Price ± Rs. 912.85

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Incorporated as ³L&T Cement Limited´ on 24th August 2000,the name of the company was
changed to Ultratech Cement Co.Ltd. w.e.f 19th November 2003 after the Grasim group
acquired it.Ultratech Cement Ltd. is having an annual capacity of 18.2 million tones. Currently,
the Aditya Birla Group is the 11th largest cement producer in the world and the seventh largest
in Asia and Ultra Tech and Grasim together make it the largest cement producer in India. The
group mainly has two cement units ± Grasim and Ultra tech. The Company has in place
adequate internal control systems and procedures to support smooth and efficient business
operations and effective statutory compliance.

© The merger with Samruddhi Cement Ltd. will result in UltraTech emerging as the largest
Cement Company in India and 10th largest in the world.
© UltraTech will issue around 150 million shares to Samruddhi for the cement business.
© The Aditya Birla Group¶s cement production for the period April-November 2009 has
moved up by 18.08 per cent at 237.57 lakh mt as against 201.19 lakh mt during April-
November 2008.

UltraTech is India's largest exporter of cement clinker. The company's production facilities are
spread across five integrated plants, five grinding units, and three terminals ² two in India and
one in Sri Lanka. All the plants have ISO 9001 certification, and all but one have ISO 14001
certification. While two of the plants have already received OSHAS 18001 certification, the
process is underway for the remaining three. The company exports over 2.5 million tonnes per
annum, which is about 30 per cent of the country's total exports. The export market comprises
of countries around the Indian Ocean, Africa, Europe and the Middle East. Export is a thrust
area in the company's strategy for growth.

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© Second largest in the country in terms of capacity
© Low cost of production
© The company is the largest exporter of cement and clinker from India.

© Effect of global recession on Real Estate and Infrastructure
© Demand-Supply gap, Overcapacity
© Increasing Cost of Production
© High Interest rates
© Strong growth of economy in the long run
© Increase in infrastructure projects
© Growing middle class
© Technological Changes
© Increase in government spending

© Imports from Pakistan affecting markets in Northern India.
© Excess over capacity can hurt margins as well as prices.

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As compared to last year,there is an increase in sales in 2008-09.The profits after tax of the
company decreases because of the increase in the fixed interest payment due to more debt
being raised by the company in the year 2008-09 .Current Ratio has increased this year over
the previous year from 1.02 to 1.10.It is still less than ideal ratio of 2:1.But it shows good sign as
current assets are increasing while liabilities are decreasing. Return on capital employed has
also decreased showing less capability of the capital employed to generate that much profits.
Earning per share and dividend payout on net profit has also decreased despite no shares
being issued in the current year which causes dissatisfaction among the shareholders.
Proceeds from long term borrowings in the last year exceeds by huge amount by repayment of
long term borrowings showing dependence of the company on the external debt. There is also
increase in the working capital showing decrease in the liquidity of the company.

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The cement industry is one of the vital industries for economic development in a country. The
total utilization of cement in a year is used as an indicator of economic growth. Cement is a
necessary constituent of infrastructure development and a key raw material for the construction
industry, especially in the government¶s infrastructure development plans in the context of the
nation¶s socioeconomic development. Cement industry in india is greatly affected by GDP,
Inflation, Employment and Interest rates and all these has role to play in Ultratech Cement

GDP growth in FY08 was 9% while in FY09 was 6.7%.This has resulted in a slower economic
growth and the Indian Cement Industry has not been spared by it either. A volume growth of
9.8% in FY08 slowed to 8.4% in FY09 and net earnings of the company fall from Rs.1008 crores
in 2007-08 to Rs.977 crores in 2008-09. Cement Industry contribution in the total value added
in the manufacturing sector is 2.5%. The growth of the cement sector pertaining to the total
output was 10%.

As the inflationary pressures across commodity segments have gripped the economy, cement
seems to be one of the worst hit sectors.A study on µCost Escalation in cement industry¶ has
revealed that as the seven prominent industry players have reported 42 per cent jump in the raw
material cost against 25 per cent increase in sales in the last quarter of fiscal 08. Ultratech
Cement recorded 35 per cent rise in its raw material cost in Q4 with only 9.3 per cent growth in

Interest rates which mainly impacted industries like real estate and infrastructure also affected
cement industry. Increase in interest rates will dampen demand as increase in Cash Reserve
Ratio(CRR-9%) and the Repo Rate (9%) for the third time in two months has resulted in fall in
the demand of residential houses in most Indian cities. Reduction in demand in infrastructure
and realty will reduce demand for cement at the same time resulting in downfall of cement

Employment in the company also has some effect on its performance.With the coming of
technology,the number of labour required decreased and this resulted in many people being
removed from their jobs.

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The cement industry is one of the main beneficiaries of the infrastructure boom. The Indian
Cement Industry with total capacity of 165 million tones is the second largest after China. Due to
rising demand of cement the sales volume of cement companies are also increasing &
companies reporting higher production,higher sales and higher profits. Cement industry has
contributed around 8% to the economic development of India. Cement industry has a long way
to go as Indian economy is poised to grow because of being on verge of development. The
cement industry comprises 130 large cement plants and more than 300 mini cement plants. The
cement industry is dependent on three major infrastructural sectors of the economy: coal, power
and transport. The inputs from these three sectors account for roughly 50% of the cost of


Government policies have affected the growth of cement plants in India in various stages. The
control on cement for a long time and then partial decontrol and then total decontrol has
contributed to the gradual opening up of the market for cement producers. During the Second
World War, cement was declared as an essential commodity under the Defense of India Rules
and was brought under price and distribution controls which resulted in sluggish growth.

In February 1982, partial decontrol was announced. Under this scheme, levy cement quota was
fixed for the units and the balance could be sold in the open market. In 1989 the cement
industry was given complete freedom, to gear it up to meet the challenges of free market
competition due to the impending policy of liberalization.

In 1991 the industry was delicensed. The Planning Commission for the formulation of X Five
Year Plan constituted a 'Working Group on Cement Industry' for the development of cement
industry. In order to improve global competitiveness of the Indian Cement Industry, the
Department of Industrial Policy & Promotion commissioned a study on the global
competitiveness of the Indian Industry through an organization of international repute.


 Ultratech Cements, Century
Cements, Madras Cements, ACC, Gujarat Ambuja Cement Limited, Grasim Cements,
Jaiprakash Associates , JK Cements ,OCL, Binani Cement, Zuari Cement,etc.



Year ended Previous

31st march¶09 Year

!/"' 130,000,000 equity shares of Rs.10 each 130.00 130.00

124,485,879 equity shares of Rs. 10 each fully paid up 124.49 124.49


Year ended Previous
31st march¶09 Year

c"!"' 1175.80 982.66

"!"'  965.83 757.84

2141.63 1740.50
#",%!"$ "18*(6("
In our discussion, all our group members assumed that Wealth Maximisation is the main
objective of the company. After analyzing the capital structure, having a share capital of Rs
124.49 Crores and Debt of Rs 2141.63 Crores i.e. in the ratio of 5.5% and 94.5%.The Debt-
Equity ratio of the company as on 31st March 2009 was 0.60, If we compare this ratio to an ideal
Debt/Equity ratio i.e 2:1,we find that the company has more potentials to take debt from the
market. Now with increased Debt the company could potentially generate more earnings than it
would have made without this financing. Now if this debt increases the earnings of the company
by a margin greater than the cost of debt(interest) than the shareholders will get the ultimate
benefits in the form of higher EPS.On the other hand if the cost of debt(interest) is greater than
the return on investment than the company can face financial crisis leading to bankruptcy
leaving shareholders with nothing, but with strong financial baking of Grasim Group the chances
of bankruptcy becomes highly bleak. Thus we feel that the company is and will maximize its
wealth for its shareholders in present & near future.


As Debt Equity Ratio of Ultratech is less than ideal debt equity ratio and also less than ideal
debt equity ratio of cement industry of 1.59:1 so the company still has the scope for further
raising of debt. It is also discussed that as said above that till the time the return on investment
made by raising money from debt is more than cost of raising debt it is better and beneficial to
raise money from debt instead of issue of share capital.

Therefore our decision is that the company should continue with the current capital structure.


³Working capital means the part of the total assets of the business that change from one form to
another form in the ordinary course of business operations.´:'$$""".$:#9

;%"""'%". - It shows the position of the firm at certain point of time. It

is calculated in the basis of balance sheet prepared at a specific date. In this method there are two
type of working capital:-

0 :#9.% - It refers to the firm¶s investment in current assets. The sum of the
current assets is the working capital of the business
0 ":#9.%= current assets - current liabilities

."93%"".:- The duration or time required to complete the sequence of events

right from purchase of raw material for cash to the realization of sales in cash is called the
operating cycle or working capital cycle.

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Particulars 08-09 07-08 Increase ( + ) Decrease (- )


Inventories 691.97 609.76 82.21

SundryDebtors 186.18 216.61 30.43
Cash & Bank 104.49 100.69 3.8
Loan & Advances 378.97 376.83 2.14
Total ( A ) 5*5 *7

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C.L. 1120.92 1153.01 32.09
Provisions 121.80 125.55 3.75
Total ( B ) (6(*<( (<7*=5

( A-B ) 118.89 25.33 123.99 30.43

Ĺ:#9.% *=5  *=5
Total 7*7 7*7 7*7 7*7
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Inventory is total amount of goods and materials content in a store of factory at any given time

>"" * "

  *( *(7
Stores and Spare parts, 379.14 408.13
Packing Material, Fuels and
Raw Materials 68.00 43.26
Work-in-progress 176.99 102.35
Finished Goods(Includes 67.84 56.12
Trading inventory of Rs.0.02
Crore, Previous Year-Nil)
Total 691.97 609.76

   By analyzing the 2 years data we see that the inventories have increased.
We can see an increasing pattern in inventories. We can see that inventories are grown by
13.5% in 2008-09 from previous year. By this growth we can say that the company is growing
very rapidly in cement sector. A company uses inventory when they have demand in market and
Ultratech is having a great demand in infrastructure sector.From other point of view we can say
that the liquidity of firm is blocked in inventories but to stock is very good due to uncertainty of
availability of raw material in time.

"">1%"9"&"Rs. In Crore

As at 31stMar 2009 Previous Year

  4 In the table and figure we see that there is 14.04% fall in the debtors of
Ultratech Cement Limited in the successive years. This is despite the fact that sales has increased
in 2008-09 as compared to 2007-08. We can say that it is a good sign as the company adopted
stringent credit policy even then it finds increase in sales . This shows customer loyalty. When sales
is increasing with a great speed and debtors are decreasing this benefits the company from both
the sides which results in more increase in overall profits.

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!%As at 31st Mar2009 PreviousYear

  4 If we analyze the above table we find that it follows an increasing trend.
In the year 2009 there is increase in cash as compared to the year 2008 but cash on hand has
decreased from the last year which is a good sign because company has invested that money in
new investment projects.



The company has undertaken various treasury operations like investment in mutual funds,
government securities.The company has invested funds in various schemes like Liquid
Schemes Rs. 5 Crores, Ultra Short Schemes-Rs. 518.02 Crores, Short Term Plans-Rs. 101.01
Crores, Income Schemes- Rs.49.12 Crores, Medium Term Debt Schemes-Rs. 226.34 Crores.
This shows that company has various investment opportunities where it can invest its surplus
funds. Company investment in treasury operations has increased by more than 6 times the
amount invested last year showing good future investment prospects for it. It shows that
company¶s earnings are expected to increase in the future.




The Boards of Directors of UltraTech Cement Limited (UltraTech) and Samruddhi Cement
Limited (Samruddhi),a wholly owned subsidiary of Grasim Industries Limited (Grasim)has
decided to undertake Samruddhi¶s merger with UltraTech. The exchange ratio recommended by
the valuers and approved by both boards is 4 equity shares of UltraTech of face value Rs. 10/-
each for every 7 equity shares of Samruddhi of face value Rs. 5/- each. UltraTech will issue
14.95 crore new shares, thereby increasing its equity capital to Rs. 274.20 crore. Eventually
equity Stake in Samruddhi - 65% Grasim and 35% Grasim¶s existing shareholder. Samruddhi
Cement Limited will be listed post demerger.Proposed Date fro the merger is 1st July 2010.

.3  %" c&!'' &1"'

Grey Cement Million TPA 23.1 25.7 48.8

No. 5 6 11
Composite Plants
No. 6 5 11

Grinding Units
White Cement Million TPA - 0.6 0.6

TPPs MW 236 268 504

RMC No. 32 Plants 36 Plants 68 Plants

Million Cu. M 4.99 6.76 11.76
Key Investments 80% Equity in 100%Equity in Combined
Subsidiaries Lanka Harish cement Investments
Market Share :Grey 9% 10% 19%

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0 India¶s Largest Cement and RMC Company À World¶s 10th largest Cement company.
0 To become amongst Top Ten Grey Cement Companies in the World and No. 7 in White
Cement and India¶s largest user of waste materials.
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Particulars(Rs.Cr.) H1FY10
Ultratech Business under Combined
Net Sales 3404 4193 7687
EBITDA 1252 1423 2675
EBIDTA Margin 36% 34% 35%

Depriciation 190 195 385

EBIT 1062 1228 2289

Ultratech Cement Ltd.(UTCL) is likely to benefit on account of the change in the market mix.
The present market mix is focused on western and southern India, where the demand is low
and cement prices are softening. However, this merger would make UTCL a pan India player
and give investors an opportunity to participate in the growing cement industry in north and
central India. UTCL will have market shares of 16%, 29%, 20% and 15% in the north, west, east
and south respectively. GIL¶s stake in UTCL will increase from 54.8% to 60.3%, which could be
marginally positive at a consolidated level. cubic metres UTCLµs minority shareholders stake
would reduce from 45.2% to 20.6%. The merged entity will have the following capacities: 48.8
million TPA of grey cement across 22 plants, 504 MW of captive thermal power plants and 11.7
million of ready mix concrete across 68 plants. Market share of the Ultratech in grey cement
market will be increased after merger to 19% and their total market share increased to 48.8%.

The Cement industry is an industry which requires huge investment to enter into it. Total
Dependence on one source for finance cannot be possible so company has to rely on both debt
and equity for its sources of finance. The company has to maintain proper balance between
debt and equity. Abnormally high ratios of equity to debt are generally unsafe and lack fiscal
stability in the long run. Conversely, abnormally high debt to equity ratios can also prove harmful
if the firm is excessively leveraged As debentures and other debt are tax deductible which will
bring tax savings to the company. It is always difficult for the new company entering into the
industry to obtain loans from the banks and also raise money through the issue of share capital.
Issue of share capital also results in dilution of control in the management of the company so
company can raise money through issue of debentures as debenture is a cheaper source of
finance as compared to issue of share capital so the new company should have the capital
structure consists more of debt and less of the share capital that is company should have debt
of around 70% and share capital of around 30%. Capital structure of the new company should
be such that it follows ideal capital structure of 2:1.


1. Lets suppose company is having share capital of book value and market value as
Rs.28607 and Rs.267108 million respectively and with no debt raised. Suppose the
company raised Rs. 14000 million at 10% rate of interest and uses the money to buy back
its shares.
Debt will increase by Rs. 14000 million and the book value equity will reduce by this
amount. Suppose that debt is permanent and the corporate tax paid is 35%. The company
will save taxes on interest paid to debt-holders:.
0.35*.10*14000=Rs 490 Million

Value of tax saved is: 490/0.10= Rs. 4900 Million. The firm is richer by Rs. 4900 Million and its
value should increase to Rs. 272008 Million so increase in firm¶s value is a gain to its
shareholders and the value of equity after recapitalization is Rs.258008 million. Thus, the value
of equity drops by Rs. 9100 million but the shareholders received Rs. 14000 million when the
company bought back their shares. Hence the net gain of shareholders is Rs. 4900 million. This
shows that increase in debt brings benefit to the shareholders and the company as well.
  c c A

The case talks about financial performance of Fine Toys Limited in which Mr. D D Narang,
Chairman and Managing Director prepares the operating plan to obtain loan from banks of Rs.
50 Lakhs but he faoled to get so then he analysed the reasons for the same. In this case
various things are considered for analyisng the working capital requirements.

Before incorporating policy changes by the chairman , the working capital requirement of the
company for the period of 4 months is as follows:

!"" Rs. In Lakhs


Average Inventory Stock= (Opening Stock+ Closing Stock)/2= (50+40.8)/2=6=*6

Average Receivable = (Total Credit Sales*Average Collection Period)/365

=164*50/365 ((*65


 " : Current Liabilities

Average Creditors = (Credit Purchases* Average Payment Period)/365

= 40*60/365= 5*=<

#9.%"2!"&" 56*(

The above calculation shows that the working capital requirement for the 4 month period is Rs.
64.29 Lakhs. Before incorporating policy changes the company is making payment to the
creditors in 60 days and also receiving payment from debtors on an average 50 days and
company is currently maintaining Rs. 3 Lakhs as cash . We have also assumed that the above
inventory consists of all of the raw material.

The company actually has allowed debtors credit terms of 30 days whereas debtors take 50
days on an average to pay the money which leads to the inaccurate carrying out of operation
plans so the operating plans does not depict the actual funds requirement by the company and
also company pay money to the creditors in 60 days instead of 30 days credit limit which also
creates the problem at the time of devising the operating plan. The company should try to
reduce the debtor turnover ratio by reducing the amount of credit sales and make some cash
sales. Through this company can reduce working capital requirements and also company can
increase creditors turnover ratio by making full use of credit limits allowed to them .

%39"1"9"&.%"'13* 9

Mr. Narang is contemplating to reduce the purchases by Rs. 3 lakhs each month so as to better
manage working capital requirement, increase the minimum cash requirement to Rs. 4.60 Lakhs
and also at the same time continue to make payment of creditors after 60 days. All these will
lead to increase on working capital and also reduce the working capital requirement. 


!"" Rs. In Lakhs

Cash 6*5

Average Inventory Stock= (Opening Stock+ Closing Stock)/2= (50+28.8)/2=*6

Average Receivable = (Total Credit Sales*Average Collection Period)/365

=164*30/365 *6<


" : Current Liabilties

Average Creditors = (Credit Purchases* Average Payment Period)/365

= 28*60/365= 6*5

#9.%"2!"&" =(*7<

There is reduction of working capital from Rs. 64.29 Lakhs to Rs. 52.87 Lakhs due to
incorporating policy changes but at the same time it could create problem of stock out of raw
material and it may create dissatisfaction among the creditors due to late payment of money by
the company regarding the raw material.