FINANCIAL ANALYSIS RENUSAGAR .

OF

HINDALCO

INDUSTREIS

LIMITED,

ALIGARH MUSLIM UNIVERSITY

FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED
Submitted To: Mr. B.B. Bhartiya Submitted by:
ZEBA NAZ (09MBA56)

30 JULY 2010

FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED

Foreword
It is my pleasure to write that the project study titled “ANALYSIS OF WORKING CAPITAL MANAGEMENT AND BALANCE SHEET OF HINDALCO INDUSTRIES” by ZEBA NAZ for the summer training during her MBA course is a sincere attempt. I am sure that her observations and suggestions will be quite handy and useful for the company. The report is very useful for any young trainee as relevant information has been compiled at one place in a logical and comprehensive manner. I am of the view that the trainees are hardworking, determined and committed to their targets. In the end I appreciate the efforts put by them for this work and wish them a very bright future in the years to come.

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FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED

(DY.GENERAL MANAGER FINANCE)

Certificate
This is to certify that ZEBA NAZ, a bonafide students of Aligarh Muslim University; Aligarh has undergone her summer internship at our organization during the period dated __________ to __________ and has completed the project study titled “ANALYSIS OF WORKING CAPITAL MANAGEMENT AND BALANCE SHEET OF HINDALCO INDUSTRIES”. The work was carried out entirely by them and towards partial fulfillment of the requirements for the award of the MBA Degree. During their stay in the organization, their conduct has been __________________.

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Our heartfelt thanks to our guide Mr.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED ACKNOWLEDGMENT It is a great sense of satisfaction and a matter of privilege for us to work at Hindalco Industries limited. and HIL. and HIL for following me to do this project under their guidance. B. 4 . I wish to express my heartiest thanks to Renusagar Power Division for providing me the opportunity to undergo training in an esteemed organization under such a proactive environment. as a project trainee in his group and helping in the project with words of encouragement and has shown full confidence in my abilities. Systematic work approach and target oriented task management of this division provided us with the much desired training experience needed for future management professional. Manager (Management services). A. I am also heartily thankful to the entire staff member of TTMDC. It is our pleasure to thank Mr. Bhartiya who accepted me. to whom we owe a lot for giving me an opportunity to do our training in this organization. Gupta. DY. Sumant Kumar.G.B. Nishant Kr.M (TTMDC). Technical services who always have been a source of inspiration for me. I also owe a special thanks to Mr.

The analysis was done using the Annual reports and the official financial statements released by the company. The analysis contains following components: a) Industry Analysis using Porter’s five forces b) Swot analysis c) Financial Statement Analysis:  Liquidity Ratios  Profitability Ratios  Solvency Ratios  Efficiency Ratios  Capital Market Ratios  Du-Pont Analysis  Trend Analysis d) Peer group comparison 5 .FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED EXECUTIVE SUMMARY The assigned project was focused on the detailed financial analysis of HINDALCO for the period of 2007-08 to 2009-10.

efficiency. asset turnover. real time financial data are readily available via the Internet. As the company's use of leverage magnifies its ROE. such as Robert Morris Associates’ Annual Statement Studies. is no longer efficient. and equity multiplier over time. Both the company's profitability (as measured in terms of profit margin) and efficiency (as measured in terms of asset turnover) determine its ROA. Since students and investors now have easy access to on-line databases. Value Line Investment Survey. students are required to examine ROE carefully. Since it is important to understand how the company's profitability. and leverage are linked in its financial performance. To evaluate the company's financial performance against its key competitors. The changes in the company's ROE are to be noted and explained through its profit margin. Standard & Poor’s Corporation Records.. Performing financial ratio analysis using publications. In today's information technology world. The class assignment presented herein is designed to demonstrate how to assess a company's overall operations over time and its current financial standing in the industry. Moody’s Manuals. The objective is to identify the company's strong area that can be capitalized upon and/or its weak area that must be improved upon. contributes to its ROE. Dun & Bradstreet’s Key Business Ratios. To explain the variation in the company's financial ratios over time. the assignments on financial ratio analysis can be modified accordingly to enhance learning. one is required to demonstrate and evaluate its Du Pont system over time.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED INTRODUCTION: Financial ratio analysis is an important topic and is covered in all mainstream corporate finance textbooks. the company-to. It is also a popular agenda item in investment club meetings. the industry comparative analysis must be performed along with the trend analysis. It is widely used to summarize the information in a company's financial statements in assessing its financial health. along with the company's financial leverage (as measured in terms of its equity multiplier). 6 .company comparison report is retrieved from the following path. This ROA. etc.

the Indian aluminium industry is also growing at an enviable pace. In fact. iron ore. transportation (10-12%). the demand for metals. The India aluminum industry falls under the category of non iron based which include the production of copper. Aluminium is third most available element in the earth constituting almost 7. etc.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED ALUMINIUM INDUSTRY IN INDIA Aluminium Industries in India is one of the leading industries in the Indian economy. bauxite. India has huge deposits of natural resources in form of minerals like copper. The Background Though the existence of Aluminium was first established in the year 1808. construction (17%) and packaging etc. Currently it is also the second most used metal in the world after steel. used for various sectors. and manganese Aluminium Industry in India is a highly concentrated industry with the top 5 companies constituting the majority of the country's production. The research work of several years resulted in extracting the aluminium from the ore. tin.3% by mass. the production of aluminium in India is currently outpacing the demand. As a result. Taiwan (10 kgs) and China (3 kgs). is also on the higher side. brass. the Indian aluminium 7 . In India. it took almost 46 years to make its production commercially viable. the industries that require aluminium most include power (44%). Due to the consistent growth of Indian economy at a rate of 8%. manganese. aluminum. The growth of the aluminum Metal industry in India would be sustained by the diversification and exploration of new horizons for the industry. Though India's per capita consumption of aluminium stands too low (under 1 kg) comparing to the per capita consumptions of other countries like US & Europe (range from 25 to 30 kgs). zinc. lead. the demand is growing gradually. Japan (15 kgs). With the growing demand of aluminium in India. chromite. consumer durables. gold.

FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED industry is also growing consistently. Canada had a capacity of producing 2.7 million tonnes.000 ton per annum was commissioned. accounting almost 5% of the total aluminium production in the world. The plant which was set up with a financial and technical collaboration with Alcan. Hindustan Aluminium Corporation (Hindalco) was set up in UP in the year 1959. India saw a significant growth in aluminium production in the past five years. the production of 8 . by 1987. In 1965. It had a capacity of producing 0. in 1989. the government started regulating and controlling the Indian aluminium industry. it had a capacity of producing 20. a public sector enterprise Malco which had a capacity of 10. The production of aluminium started in India in 1938 when the Aluminium Corporation of India's plant was commissioned.218 million ton. which was augmented to 1. In 2006-07. the production target of aluminium in India laid by the Ministry of Mines. India is also a huge reservoir of Bauxite with a Bauxite reserve of 3 billion tones. Overview Aluminium Industry: India is world's fifth largest aluminium producer with an aluminium production competence of around 2. National Aluminium Company (NALCO) was commissioned to produce aluminium. The liberalization resulted in a growth rate of 12% of the industry. the liberal import of technologies and capital goods was started.000 ton per annum. the aluminium industry in India saw a growth of about 9%. electrical.500 ton per annum. Restrictions in entry and price distribution controls were quite common in the Indian aluminium sector. Due to the growing demand from the construction. Aluminium Control Order was implemented where the aluminium producers had to sell 50% of their products for electrical usages. In FY09. With de-licensing of industry in 1991. automobiles and packaging industry. the order was removed as the government decontrolling was revoked.237 KT in the next year (2007-08). However.153 KT. The production India lies at the eighth position in the list of leading primary aluminium producers in the world. Government of India was 1. During the 1970s. comparing to the growth rate of 6% during the 1980.

15 kgs in Japan. consumer durables. The Major Players The Indian aluminium industry is dominated by four or five companies that constitute the majority of India's aluminium production.080 KT in 2006. packaging and construction. However. The per capita consumption of aluminium in India continues to remain abysmally low at under 1 kg as against nearly 25 to 30 kgs in the US and Europe. it started rising sharply since 2002. In FY 09. primarily due to large-scale aluminium consumption by the aviation space.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED aluminium also hiked up. transportation. the pattern of consumption is in favour of transportation. The Consumption After a stagnant consumption of primary aluminium in India from the end of 1990s to 2002 (when the consumptions were between 500 – 600 KT). The key consumer industries in India are power. internationally. Of this.35 tones. power is the biggest consumer (about 44% of total) followed by infrastructure (17%) and transportation (about 10% to 12%). The consumption reached at 1. the total aluminium production in India was around 1. Following are the major players in the Indian aluminium industry:  Hindustan Aluminium Company (HINDALCO)  National Aluminium Company (NALCO)  Bharat Aluminium Company (BALCO)  MALCO  INDAL 9 . 10 kgs in Taiwan and 3 kgs in China.

46.96 billion and it has around 13.P. The net operating and sales revenues of the Hindalco Industries Company had amounted to Rs 42. The Company Hindalco Industries (commissioned in 1962) has its facility for Aluminium at Renukoot in eastern U. the company has grown to become India's biggest producer of integrated Aluminium and ranks top in the global sector as the producer of low cost top quartile.675 employees. while the next year it stood at Rs. the company is a leader in the industry. Today. Its businesses include the manufacture of Copper and Aluminium and in both.737 million in 2005-2006. The Hindalco Industries Ltd's market value is US$ 2.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED Hindalco Industries: Set up in 1958.779 million. The various Aluminium products manufactured by the Hindalco Industries are: • • • • • • Primary Aluminium Alumina Chemicals Wire Rods Rolled Products Alloy Wheels Foils The various Copper products manufactured by the Hindalco Industries are: • • • Copper Cathodes Precious Metals Rods of Cast Copper 10 . is under the Aditya Birla Group.

Hindalco Industries has become a leading company in India on the basis of its quality of products.80 to 2. produces Ingots of E.C. It is for this reason that its exports are also increasing. 11 . In the domestic market. The length of the rod can be extended by 22% and the electrical conductivity is 61% whereas the coil weighs 1. The Copper division of the Hindalco Industries has a market share of around 40% in the domestic market. The ingots vary in weight and use a wide variety of chemicals such as magnesium.C. The company is located in Salem city in Tamil Nadu where it has a large power plant.20 MT. As a result. The alloy grade rods have a tensile strength that varies from 13-16 kg per millimetre and the minimum electrical conductivity is 55%. and Alloy grade.5 mm and the tensile strength varies between 9 to 14. The weight of the coil is equal to the E. manufactures wire rods which serve as electrical conductors. Madras Aluminium Co. Grade rods measure 9. and Southeast Asia. 63% in Rolled Products. This has been due to the fact that the company utilizes the best raw material and the latest technology in the manufacture of its products. The company conducts activities such as smelting. These rods involve a complex production procedure involving rolling as well as casting. and 42% in Primary Aluminium. iron. Middle East. aluminium.5 kg per square millimetre. it enjoys a market share of 44% in Foils.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED Hindalco Industries has an important market share in all the categories it operates. and copper. refining. Korea. Products of Madras Aluminium Madras Aluminium Co. They also manufacture busbars of varied sizes and cross sections. grade rods and can be lengthened by 12-16%. mining. chromium.C. Madras Aluminium: Madras Aluminium is a subsidiary of Vedanta Resources and was established in the year 1965. These bus-bars are used in industries dealing in energy sources such as for the transfer of current. The Hindalco Industries Company's products are exported in large quantities to Taiwan. the products of the Hindalco Industries Ltd are of the best quality. and so on. The diameter of the E.

Routray.Pradhan. Alumina and Hydrates (comprising of calcined alumina and alumina hydrate). Bagra. The company's export turnover for 2006-07 amounted to Rs. and special alumina chemicals.278 MT of bauxite and 358. Zeoilte-A. Its gross sales were worth Rs. 2381 crore. P.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED National Aluminium Company Limited: National Aluminium company Limited better known as NALCO was incorporated in 1981 as a public sector enterprise under the Indian government. and power generation. NALCO has grown to become the largest integrated aluminium unit in Asia and is also one of the largest aluminium complexes of the world. bauxite mining. and driven by its mission of attaining business growth. cast strips. 6514 crore and profits after tax were to the tune of Rs. wire rods. railway operations. sows. and aluminium smelter can be found at Angul. port operations. and Mr.L. casting. C. Mr. Joy Varghese. Activities of NALCO include a plethora of aluminium and related procedures such as refining. In 2006. Mallick. aluminium rolled products. Mr. NALCO has adopted some pioneering practices as well as state-of-theart technology in its manufacturing units that are spread across the country. NALCO also owns port facilities at Vishakhapatnam.734 MT of aluminium. billets. The main bauxite mines under NALCO are located in Panchpatmali. 2585 crore.K. Mr. smelting. NALCO has impressed customers and investors with continual growth over the years. B. and allow wire rods). Since then. National Aluminium Company Limited is headed by 5 directors -Mr. It is due to the efforts of NALCO that India has attained self-sufficiency in terms of aluminium and has also gone on to excel in aluminium production standards.K. In order to fulfil its vision of becoming a "company of global repute in the aluminium sector". NALCO's registered/corporate office is located in Bhubaneswar. National Aluminium Company Limited is primarily engaged in the production of 5 types of products: Aluminium metal (comprising of ingots.623. captive power plant. The National Aluminum 12 . K.R. NALCO's alumina refinery is located at Damanjodi and its rolled production units. and the satisfaction of customers and investors. NALCO produced 4. competitive advantage.

education. The company has also revamped the infrastructure and other facilities in the nearby villages. Mumbai. It has operations based on a Sulphuric Acid Plant. a Copper Rods Plant. For these families NALCO provided employment to the respective nominees. NALCO has also spent as much as Rs. Bangalore. a Smelter. The company also operates the largest capacity of continuous Cast Copper Rod plants. For example. Its chief products are Copper Cathodes and Copper Rods. 100 crore for championing various social causes and development activities. Sterlite Industries certifications are ISO 9001(2000). Paradip. Mumbai.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED Company Limited has offices in New Delhi.67921 million during 2005-06 with CAGR of 28 percent. Chennai. when NALCO was being built in Damanjodi and Angul. Refinery. It has made sales of Rs. along with their social responsibility. Kolkata. a Phosphoric Acid Plant. and OHSAS 18001(1999). Sterlite Limited has a domestic market share of 43 percent by volume in 2005-06. Sterlite Industries (India) Limited: Sterlite Industries (India) Limited is the principal subsidiary of Vedanta Resources Group. and Vishakhapatnam. using the best technology. Successful operations of the company in terms of pisciculture and social forestry have led to the increase of employment generation of income for local residents in areas where National Aluminium Company Limited has a presence. it led to the displacement of more than 600 families in 50 villages. NALCO has also been a pioneer in corporate social responsibility (CSR) in the Indian public sector. drinking water. 13 . ISO 14001(1996). Sterlite Industries has laid great emphasis on customer relationship and quality assurance. NALCO has also prioritized communication. and healthcare for the villages adjoining its plants. and various mines.

Copper cathodes (produced using the highly effective ISA electro-refining technology). Phosphoric Acids. collection of primary gas emissions.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED Some brief descriptions of Sterlite products are: Copper products: Comprises two products. few traces of gold and silver in the products. Ferro Sand. and Continuous cast copper rods (manufactured using the Propezi technology). Precious metals: Copper concentrate. Hydro Fluo Silicic Acid. monitoring of air quality. namely. Some of its efforts in this regard are solid waste and secured landfill. and health welfare. Sterlite Industries has contributed immensely to society and environmental areas. Sulphuric Acid. Let us take a glimpse into these as well:  First company in South India to go in for a secured land fill  First private sector smelter in India  First Copper Smelter in the world to be accredited with "Five Star" rating by British Safety Council  Extensive use of TQM to efficiently maximize employee involvement  National Award in Excellence in Energy Management for the last six years in a row  Zero-effluent discharge systems integrated at every plant  Currently 11% of copper requirement met by captive mines 14 . Sterlite Industries has a number of excelling frontiers credited to its name. sports. education. community. Today. Chemical products: Include Phospho Gypsum.

Several advantages that our customers will be able to gain from us are competitive price. while at the same time moving towards the conservation of the natural environment. We provide customer with the highest quality and precision from product design stage to product delivery. quality control and excellent customer service. BALCO: Bharat Aluminium Company Ltd. laid a profound impact in the manufacture of copper based products. a London listed metals and mining major with Aluminium. Being an ISO 9001:2000 certified company and having semi-automatic production facilities. playing a pivotal role in making aluminium a leading metal with myriad uses ranging from household and industrial requirements to aerospace applications.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED  Sterlite Industries (India) Limited has thus. (BALCO) has been closely associated with the Indian aluminium industry. India and Australia. Copper and Zinc operations in UK. In its over 30 year journey to excellence. Indal has become one of the largest integrated aluminium extrusion manufacturers in South East Asia region that delivers value in product quality and customer service. BALCO is part of Vedanta Resources. Indal's aluminium extrusion and fabrication division ensures that production process adheres with the international quality standard. 15 . We also perfected our service with surface anodizing and paint coatings finishing facilities and on time delivery. INDAL: Indal is the integrated aluminium extrusion manufacturers in south east Asia.

35 m tonnes in FY09. driven largely by increased industrial consumption in China. Asia. On the other hand. accounting for 35% of global primary aluminium consumption in 2008. the steep depreciation of Indian rupee against the US dollar impacted the industry positively.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED GLOBAL ALUMINIUM INDUSTRY Global production of primary aluminium rose continuously from 32 million tonnes (MT) in 2005 to 38 MT in 2007. The total aluminium production in the country stood at around 1. during 2008 the production remained flattish at around 38 MT (2007 levels) on account of significant fall in demand in the second half of the year due to the global credit crisis. However. Strong growth in industrial. it declined by around 3%YoY to 37 MT in 2008 The Indian aluminium industry registered a growth of around 9% in FY09. Prospects Overseas Demand Boosting Metal Prices .Demand in emerging markets like China and India. This created a large amount of demand supply gap. As far as the global consumption goes. However. realizations for the fiscal fell significantly on account of fall in LME prices due to the global credit crisis. China accounted for around 30% of the total global aluminium production. infrastructure. transportation and power sectors during the first half of the fiscal were the key drivers for the demand. US 16 . registering a CAGR of 9%. have boosted US metal prices. thus making the inventory levels at LME reach their multi year highs. once again showed the largest annual increase in consumption of primary aluminium. coupled with drastically reduced inventories and lower output. which has emerged as the largest aluminium consuming nation. automobile. thus causing a dent in margins.

the demand for aluminium is projected to fall by around 7% in 2009 on account of subdued conditions in the key user industries. Steel import permit applications declined 23 percent compared to May. Some say US auto production is too weak to sustain higher prices. Steel Imports Drop . As per Alcoa. The domestic steel industry accounts for about 9 percent of heavy emissions in the US heavy industry sector. Climate Bill Could Impact Steel Costs . with Japan. China is projected to maintain the consumption levels of 2008 mainly due to the fiscal stimulus package that is likely to support its ailing economic growth. and could fall further unless an offset penalty is imposed on imported steel.A Congressional climate-change bill could add $1 billion to production costs for US steel producers by 2030. while domestic production has slowed to 49 percent of capability. according to a recent Goldman Sachs report. The revival in the demand for the metal is expected to start from 2010 globally.com. while Chinese consumption may slow. consumer durables. 17 . however. Steel earnings could drop by 2 to 5 percent as a result of the legislation. and China submitting the largest finished steel applications. while Alcoa boosted aluminium prices by 6 percent since the first quarter. according to BusinessWeek. Industry observers differ over whether prices will continue to rise. Output has furthermore stagnated despite higher prices.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED Steel raised its prices three times between June and July 2009. South Korea. world’s largest aluminium producer. The Waxman.Markey bill calls for the reduction of carbon emissions by 17 percent by 2020 and more than 80 percent by 2050. Despite the falling applications. • Globally. construction and defence. according to the American Iron and Steel Institute. some industry observers are still concerned over unfairly traded imports: steel imports boast a 28 percent market share. the demand for aluminium is projected to grow at around 6% CAGR till 2018 on account of newer packaging applications and increased usage in automobiles. leaving metal makers still in search of profits. However. India.US steel imports in June 2009 dropped to their lowest levels since 1975.

000 crores Gross Assets . the key consuming industries are likely to lead the way. France. Indonesia.700 crores Shareholders . Power. the Group was ranked among the top six great places for leaders in the Asia-Pacific region.Rs. The Group operates in 25 countries – India. for over 50 years now. infrastructure and transportation account for almost 3/4th of domestic aluminium consumption. Singapore. Malaysia and Korea. The Aditya Birla Group is India’s second largest business house with turnover of over 200 billion-asset base values at over Rs. Over 60 per cent of the Group's revenues flow from its overseas operations. • • • Gross Revenue. 26. Philippines. A US$ 29 billion corporation. which could positively impact aluminium consumption. Myanmar. Over 75 units in India and overseas as well and international trading operations ABG is committed to the future of India. Canada. the Aditya Birla Group is in the League of Fortune 500.000 employees. In the year 2009. Bangladesh. 25. Thailand. USA. in a study conducted by Hewitt Associates. Hungary.Rs. Germany. the Group has been adjudged the best employer in India and among the top 20 in Asia by the Hewitt-Economic Times and Wall Street Journal Study 2007. 6. Switzerland. 180 Billion and nearly 72. UK. 50. 000 18 . In India. Vietnam. belonging to 30 different nationalities. the Aluminium industry is sensitive to fluctuations in performance of the economy. Egypt. China. Brazil. Luxembourg. Laos. Australia.Rs. RBL Group and Fortune magazine. With the government focusing towards bringing back GDP growth rates of above 8%. Dubai. Italy.000 employees all over the world.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED • With key consuming industries forming part of the domestic core sector. Domestic demand growth is likely to remain robust over a long term period. It is anchored by an extraordinary force of 130.

branded apparel company The second-largest producer of viscose filament yarn Among the top five cellular operators Among top 10 Indian BPO companies by revenue size Among the top five asset management and private sector life insurance companies Among the top three supermarket chains in the retail business  The second-largest in the chlor-alkali sector     Rock solid in fundamentals. the Aditya Birla Group is a metals powerhouse. the Aditya Birla Group nurtures a culture where success does not come in the way of the need to keep learning afresh. Group Vision: To be a premium metals major.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED Globally. Group Mission: 19 .    The fourth-largest producer of insulators The fourth-largest producer of carbon black The fifth-largest producer of acrylic fiber  The tenth-largest cement producer  Among the best energy-efficient fertiliser plants In India:  Largest cement producer   Largest premium. global in size and reach. Hindalco-Novelis is the largest aluminium rolling company. and creating value for its stakeholders. among the world's most cost-efficient aluminium and copper producers. excelling in everything we do. to keep experimenting. It is one of the three biggest producers of primary aluminium in Asia. with the largest single location copper smelter.

And it was through the vision and guidance of Mr. Its first real contribution to the vision of an industrial India occurred four years later. This was achieved in part by expansion through mergers and acquisitions with companies such as Indal and Birla Copper. Gordon copper mines. Kumar Mangalam Birla.D. adhering to our values. Hindalco embarked on its journey in 1958. while being a responsible corporate citizen. by exceeding customer expectation profitably. Hindalco attained its leadership position in the aluminium industry under the dynamic leadership of the late Mr. Overview of Hindalco: The Hindalco story dates back to the young Indian democracy of the 1950s. G. 20 .FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED To relentlessly pursue the creation of superior shareholder value. It was backed by a captive thermal power plant at Renusagar in 1967. India. unleashing employee potential. Aditya Vikram Birla — a formidable force in the Indian industry. Birla set up India's first integrated aluminium facility at Renukoot. especially in terms of innovation and industrialisation. Ready to take a giant leap. the Group Chairman that the business segments of aluminium and copper areconsolidated to make Hindalco the nonferrous metals powerhouse it is today. India was geared to make it big. Hindalco also secured copper reserves and amplified its operating base by acquiring the Australian Nifty and Mt. when the visionary — late Mr. in the eastern fringe of Uttar Pradesh.

India. A new co-generation plant with a capacity of 41 MW has just been commissioned to meet the requirements of the enhanced post-expansion capacities. The integrated complex at Renukoot also houses a co-generation plant with a capacity of 37. Hindalco has grown into the largest vertically integrated aluminium company in the country and among the largest primary producers of aluminium in Asia. wire rods and aluminium slabs.. Its copper smelter is today the world's largest custom smelter at a single location. Hindalco’s integrated complex at Renukoot . in Uttar Pradesh. Uttar Pradesh. Power is sourced from our Renusagar power plant. primary aluminium ingots. The captive power plant located at Renusagar. located about 45 km from Renukoot. the world's largest aluminium rolling company. Our product range includes rolled products. from bauxite mining. extrusions and recycling. the landmark acquisition of Novelis Inc. alumina refining. billets. Excellent operational standards have ensured a consistent plant load factor of over 90 per cent. foils.5 MW. with 10 power generating units. extrusions. has a current generation capacity of 742 MW. 21 . houses an alumina refinery. In 2007. Our aluminium units across India encompass the entire gamut of operations. securing it a rank amongst the top five global aluminium majors and also placing it in the Fortune 500 league Aluminium business Hindalco is Asia's largest integrated primary producer of aluminium and among the most costefficient producers globally.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED Over the years. In India. an aluminium smelter and facilities for the production of semi fabricated products. We have also been accorded the Star Trading House status in India. we enjoy a leadership position in aluminium and downstream products. aluminium smelting to downstream rolling. Hindalco metal is accepted under the high-grade aluminium contract on the London Metal Exchange (LME) as a registered brand. placed Hindalco's footprint across the globe.

A strong presence across the value chain and synergies in operations has given Hindalco a dominant share of the domestic value-added products market. In India. Electrical conductor (EC) wire rods are used for the production of cables and ACSR and AAC conductors. Mouda (Maharashtra).FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED Other facilities include an aluminium smelter at Hirakud (Odisha) with a captive power plant and coal mine. Hindalco metal is accepted under the high-grade aluminium contract on the London Metal Exchange (LME) as a registered brand. Alloy ingots of various grades are also produced and mainly used for the production of castings in the auto industry and in electrical applications. and Belgaum (Karnataka). and rolling mills at Belur (West Bengal). the company enjoys a leadership position in speciality aluminas and hydrates as well as in primary aluminium and downstream semi-fabricated products. Both these products are re-melted and further processed into a large number of products for various downstream applications. foil rolling at Kalwa (Maharashtra) and Silvassa (Union Territory of Dadra and Nagar Haveli) and an extrusions plant at Alupuram (Kerala). Wire Rods Hindalco manufactures wire rods in a continuous casting and rolling process. Hindalco product range includes: Ingots Hindalco produces high-purity ingots through smelting. alumina refineries at Muri (Jharkhand). Alloy wire rods are used to produce AAA Cconductors. Billets 22 . and Taloja.

 To know about the net working capital position of Hindalco Industries Ltd. Hindalco has the distinction of being India's premier supplier of foil and foil laminates — plain. Foil and packaging Delivering 'never-before-tried' solutions to customers in India and across the globe. Our foil and packaging division operates out of three modern.  To find out the Gross Working Capital position of Hindalco Industries Ltd. India. The plants also employ high-end technology and professional expertise to develop visually appealing and functionally useful packaging. RESEACH DESIGN:  A research design specifies the methods and procedures for conducting survey. These well-equipped foil rolling and converting facilities provide a veritable 'one-stop-shop' for packaging solutions. RESEARCH METHODOLOGY: The methodology followed in this project involved the following Phases: OBJECTIVES OF THE STUDY:  To know about the current assets and current liabilities position of Hindalco Industries Ltd.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED Hindalco's aluminium billets are produced by a state-of-the-art Wagstaff casting process using Airslip technology.  To determine the ratios relating to the working capital. Research design is the plan and structure of investigation so conceived as to obtain answer to 23 . wellequipped plants located at Kalwa in Maharashtra. They are used mainly to produce extrusions and forgings. These are top-quality billets with a smooth finish. Silvassa in Dadra and Nagar Haveli and Kollur in Andhra Pradesh. lacquered and printed.

the information provided in the 24 . But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. books etc were consulted.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED research questions. trend analysis. Balance Sheet. and ratios analysis. Descriptive Research Design has been adopted while doing the research. TYPE OF THE PROJECT: The project is descriptive and analytical in nature. There are various methods or techniques that are used in analyzing financial statements. They play a dominant role in setting the framework of managerial decisions. Internet data’s. different articles. were collected from the annual reports of Hindalco period of 2008-09 and 2009-10.g. funds analysis. The plan is overall scheme of the research. common size percentages. statement of Profit & Loss Account etc. Financial statements are prepared to meet external reporting obligations and also for decision making purposes. such as comparative statements. schedule of changes in working capital. The data collected is a Secondary Data. FINANCIAL ANALYSIS Definition and Explanation of Financial Statement Analysis: Financial statement analysis is defined as the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. DATA COLLECTION METHOD:  Data required for the project e. Besides for Explanation of several issues. However.

25 . with all other years stated in some percentage of this base. Horizontal and Vertical Analysis Ratios Analysis 1. Vertical Analysis: Vertical analysis is the procedure of preparing and presenting common size statements. Tools and Techniques Analysis: of Financial Statement Following are the most important tools and techniques of financial statement analysis: 1. Each item is stated as a percentage of some total of which that item is a part. Trend Percentage: Horizontal analysis of financial statements can also be carried out by computing trend percentages.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED financial statements is of immense use in making decisions through analysis and interpretation of financial statements. Trend percentage states several years' financial data in terms of a base year. The base year equals 100%. Horizontal and Vertical Analysis: Horizontal Analysis or Trend Analysis: Comparison of two or more year's financial data is known as horizontal analysis. Common size statement is one that shows the items appearing on it in percentage form as well as in dollar form. or trend analysis. 2. Horizontal analysis is facilitated by showing changes between years in both dollar and percentage form. Key financial changes and trends can be highlighted by the use of common size statements.

Ratios show how one number is related to another. Following are the most important liquidity ratios. Profitability Ratios: Profitability ratios measure the results of business operations or overall performance and effectiveness of the firm. Some of the most popular profitability ratios are as under: • • • • • • • • • • Gross profit ratio Net profit ratio Operating ratio Expense ratio Return on shareholders’ investment or net worth Return on equity capital Return on capital employed (ROCE) Ratio Dividend payout ratio Earnings Per Share Ratio Price earnings ratio Liquidity Ratios: Liquidity ratios measure the short term solvency of financial position of a firm. These ratios are also called turnover ratios because they indicate the 26 .FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED Ratios Analysis: The ratios analysis is the most powerful tool of financial statement analysis. Ratios can be found out by dividing one number by another number. Ratios simply means one number expressed in terms of another. These ratios are calculated to comment upon the short term paying capacity of a concern or the firm's ability to meet its current obligations. • • Current ratio Liquid / Acid test / Quick ratio Activity Ratios: Activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed. A ratio is a statistical yardstick by means of which relationship between two or various figures can be compared or measured.

Following are some of the most important long term solvency or leverage ratios. for financing the conversion of raw material into finished goods. accounts receivable and accounts payable. Funds are also needed for short-term purposes. • • • • • • • Debt-to-equity ratio Proprietary or Equity ratio Ratio of fixed assets to shareholders funds Ratio of current assets to shareholders funds Interest coverage ratio Capital gearing ratio Over and under capitalization WORKING CAPITAL MANAGEMENT Working Capital refers to the cash a business requires for day-to-day operations. etc. or more specifically. In simple 27 . Following are the most important activity ratios: • • • • • • • Inventory / Stock turnover ratio Debtors / Receivables turnover ratio Average collection period Creditors / Payable turnover ratio Working capital turnover ratio Fixed assets turnover ratio Over and under trading Long Term Solvency or Leverage Ratios: Long term solvency or leverage ratios convey a firm's ability to meet the interest costs and payment schedules of its long term obligations. Among the most important items of Working Capital are levels of inventory. which the company sells for payment. for the purpose of raw materials. Analysts look at these items for signs of a company’s efficiency.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED speed with which assets are being turned over into sales. payment of wages and other day-to-day expenses. These funds are known as Working Capital.

debtors and inventories.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED words. etc. Working capital is also known as Operating Capitals.  Decide Optimal Mix of Short Term and Long Term Capital  Decide Appropriate means of Short Term Financing 28 .term or current assets such as cash. work-in-progress. Steps involved in working capital management:  Forecasting the Amount of Working Capital  Determining the Sources of Working Objectives of Working Capital Management:  Deciding Optimum Level of Investment in various WC Assets.  To incur day-to-day expenses and overhead costs such as fuel. Working Capital refers to that part of the firm’s capital. marketable securities.  To provide credit facility to the customers. which is required for financing short. stores and spares and finished stock.  To pay wages and salaries.  To maintain the inventories of raw materials. power and office expenses.  To meet the selling costs as packing. Working Capital is a valuation metric that is calculated as current assets minus current liabilities. Working Capital is needed for the following purposes:  For the purchase of raw material. advertising etc.

FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED WORKING CAPITAL MANAGEMENT: The working capital requirement of a firm depends. This time gap is called the operating cycle. The operating cycle may be defined as the time duration starting from the procurement of goods or raw material and ending with the sales of realization. Sale of finished goods (cash or credit) 5. there is a time gap between the happening of the first event and the happening of the last event. The length and nature of the operating cycle may differ from one firm to another depending upon the size and nature of the firm. there is a series of activities starting from procurement of goods (saleable goods) and ending with the realization of sales revenue (at the time of sale itself in the case of cash sales and at the time of debtors realization in case of credit sales). In both the cases. 4. however. to a great extent upon the operating cycle of the firm. DUPONT ANALYSIS 29 . Conversion of work-in-progress into finished goods. 3. the operating cycle of a firm consists of the time required for the completion of the chronological sequences of some or all of the following: 1. 2.similarly in case of manufacturing concern. Conversion of receivable into cash. Procurement of raw material and services. Thus. Conversion of raw material into work-in-progress. In a trading concern. this series starts from the procurement of raw materials and ending with the sales realization of finished goods.

Variations may be used in certain industries. The Du Pont identity. such as investment banking. If ROE is unsatisfactory. With this method. a statement (formula) that is by definition true. 30 . however. Du Pont analysis relies upon the accounting identity. Financial leverage.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED A method of performance measurement that was started by the DuPont Corporation in the 1920s. is less useful for some industries. this is measured by profit margin. as long as they also respect the underlying structure of the Du Pont identity. the DuPont analysis helps locate the part of the business that is underperforming. This analysis enables the analyst to understand the source of superior (or inferior) return by comparison with companies in similar industries (or between industries). It is believed that measuring assets at gross book value removes the incentive to avoid investing in new assets. New asset avoidance can occur as financial accounting depreciation methods artificially produce lower ROEs in the initial years that an asset is placed into service. the returns that investors receive from the firm) into three distinct elements. DuPont analysis tells us that ROE is affected by three things: 1) Operating efficiency. It is also known as "DuPont identity". that is. that do not use certain concepts or for which the concepts are less meaningful. The Du Pont identity breaks down Return on Equity (that is. assets are measured at their gross book value rather than at net book value in order to produce a higher return on equity (ROE). which is measured by the equity multiplier. 2) 3) Asset use efficiency. which is measured by total asset turnover.

FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED ROE = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier (Assets/Equity) ANALYASIS & INTERPRETATION 31 .

536 cr for FY 10.003 cr.  Hindalco has scaled up its Hirakud smelter and power expansion project to 360 KTPA from the earlier planned 213 KTPA. 19. The EBIT for the copper business soared three times to Rs 1.  Hindalco is the largest aluminum producer in India with a market share of 45% and is the 32 .  Hirakud’s Brownfield expansion is underway from 155 ktpa to 213 ktpa by 2012.  In this FY10. Hindalco operated very much efficiently producing the highest metal ever complemented by its substantial cost savings.  The copper business contributed Rs 12.  Aditya Birla Minerals.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED SWOT analysis of Hindalco Industries Ltd Strength & Opportunities  The standalone sales increased by 7% Rs. The captive power plant for the project will be raised to 967. a rise of 13%.5 mw as against the proposed 467. report net profit of Rs 246 cr against a loss Rs 304 cr last year. the Australian mining subsidiary of Hindalco. The company has sustained a better cost management in FY10.5 mtpa.575 cr in net sales.

60. 48. 750 cr as well on lower by-product credit. 400 mn.  The company has a future plan of tripling its aluminum production in next three years through Brownfield and Greenfield expansions in India. 260 cr.  The company’s consolidated sales fell by 8% to Rs. 56b capex has been increased by 15pp to 81% taking its project cost marginally higher to Rs.  Commitment on Rs.5 mtpa aluminum refinery’s commissioning has been pushed back to Q2 FY12 presents a major challenge in its domestic business front.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED only player that converts 67% of metal production into value added products like aluminum foils & packaging material. one of its core business revenue fell by 11% to Rs.  Utkal alumina 1. in Q4FY12. 377 cr to Rs. 750 cr.901 cr due to lower LME and less demand in world markets and eroded its aluminum business profit by around Rs.  Post repayment of bridge loan and low treasury corpus for acquisition of Novelis and expansion plans led other income of the company too declined by Rs.  Hindalco has a copper smelting capacity of 500 kpta that is largest in Asia. 722 cr due to weak global demand.e. 33 . Weakness & Threats:  Copper business lost Rs.  Aluminum business. a worrying cash outflow for Hindalco industries.  Hirakud’s Brownfield expansion from 155kpta to 213 kpta is pushed back by 8 months i.

Till then the company has a huge cash outflow to maintain. This is major source of financing working capital requirement of the firm.. IDBI. Hindalco has Short-term Investment in: 1. DSP Merrill Lynch Mutual Funds. 34 .FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED  In short term Hirakud’s expansion is seen in FY11 while most of its project are completing in FY 12 & FY 14. Standard Chartered Mutual Funds. GIC Mutual funds and Alliance Mutual Funds. Birla Mutual Funds. HDFC. Debenture of HPCL Unit of UTI. Zurich India Mutual Funds. WORKING CAPITAL MANAGEMENT AT HINDALCO In Hindalco working capital requirement is finance basically through following sources:  Internal funds  Short term securities and interest thereon  Bank loan A. the company has invested in several short-term securities to meets its day-to-day requirements of funds. B. ICICI. Franklin Templeton Funds.e. The maturity of these securities is from source of financing WCR. through sales turnover. Internal Funds: An internal fund denotes the funds generated through operation of the firm i. Short-Term Securities: On account of uncertainties attached with generation of funds through sales.

Purchase/ Discounting of Bills: The company also purchases and discounts the bills issued by its customers to meet the daily requirements. These are of following types:  Cash credit  Purchase/ discounting of bills  Working capital term loan  Letter of credit I. II. However.03.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED The total current investment of the company at the year ended 31. 2. Besides above. the company has various credit arrangements with banks to finance the daily WCR. The administrative of this is done at the principal office at Renukoot.508. IV. III.81 Lacs. Cash Credit: The Company has cash credit facilities with various banks. 40.08 amount to Rs. it’s Regional and Area offices are authorized to utilize the cash credit facilities up to the limit described by the principal office. Working Capital Term Loan Letter of Credit 35 .

868.93 721.C.79 4050.21 53.921.05 7 .437.97 (A) Current Assets (B) Current Liabilities 36 .87 -2351.02 146.84 1016.672.98 62.A.91 8 03.78 1 .46 7851.29 5.16 2 .96 2009-10 5.37 8. Loan & advances Total Liabilities Provisions Total Working Capital Increase/ (Decrease) W. STATEMENT OF WORKING CAPITAL Particulars Inventories Sundry Debtors Cash & Bank Balance Other C.87 140.311.91 1 .01 3800.3 979.22 8 43.41 1.78 906.426.739.42 2715.201.88 2008-09 4 .14 1 .FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED The company’s Export/ Import operations are done through LOC.49 6.864.573. 2007-08 5097.148.070.91 1565.72 5 1.43 1.07 5067.67 2894.

1 respectively in 2009-10.18 9. 97 166.05 -38. 13 19408. 09 Mar10 1 Year 19796.65 15183. 36 -755. Ideal current ratio is 2:1 but ratio for 2009-10 is 1.51 23.02 37 .25 13225.42 -376.59 PROPORTIONA TE CHANGE 7.1 28. Current assets and current liabilities have increased by 14. 02 128.05 59. 78 520.8 1402.52% and130. 68 ABSOLUT E CHANGE 1316.68 636. This means current asset is not adequate to meet current liabilities as increase in current liability is more.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED The above data shows that working capital is decreasing in comparison to last year’s which is not good for the liquidity of the company.85 16586. STATEMENT OF FINANCIAL ANALYSIS STANDALONE FINANCIAL PERFORMANCE-FY10 Hindalco Industries Ltd Total income Sales Other operating income Other income Total expenditure (Increase)/decrease in stock Consumption of raw materials Mar09 1 Year 18856.58 1275.58 10331.63 1355.3:1.83 2894.26 259.2 7.00 245. Company should try to manage its current liabilities. 3 18052.

32 645. 35 9.15 14.1 9 2.17 46.5 6 667.69 -58.05 59.31 7.93 -425. 324.9 2 3.148.480.94 -111.17 CONSOLIDATED FINANCIAL PERFORMANCE PARTICULARS Net Sales & Operational Revenues PBIDT PBT PAT 484 3.58 1897.8 4 71.01 1124.24 21.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED Purchase of traded goods Employees cost Power and fuel Other expenditure PBIDT Interest PBDT Depreciation Tax PAT Net Worth Paid up Equity Shares (Face Value: Rs 1/.29 2.99 877.47 12.264.64 4152.37 27.16 2.9 1 9.356.5 7 1502.93 1.53 17.12 -314.437.5 6 278 2.per share) Reserves Total Borrowing Current liabilities & provisions Total assets Fixed assets Current assets.130.25 3 36.584.4 2 41762.148.2 9 21.05 2.99 36. 711 38 .43 -274.521 12. 74 1 70. 61 8.23 2.32 4.01 17. loans and advances Investment 113.38 2331.92 -1967.2 7 23754.5 15.864.83 3.05 23.4 24.27 16.6 3 27906.925 711 FY09 65963 3661 -605 484 FY10 60722 10069 6181 3925 ABSOLUTE CHANGE -5231 6408 ….9 0 6.04 818. 61 6. 98 191. 027.11 17.739.476.35 5027.27 4 60.39 3. 690. 83 -41.07 36735.230. 51 11.73 -484. 69 8. 3441 PROPORTINATE CHANGE -8 175 ….29 14.542.60 7. 672.21 348.75 1938 1228.63 130.76 21.161.51 23.68 23.45 18.1 13.93 2.915. 276.715.

21 22.96 590  Net sales were lower mainly on account of lower Aluminum LME.  Profit for FY09 includes unrealized derivative loss of $519 mn while profit for FY10 includes unrealized derivative gain of $578 mn – pertaining to Novelis.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED EPS (Rs) 3. RATIO ANALYSIS OF HINDALCO Financial ratios are a relatively easy way to get a basic understanding of the financial health of an organisation. 39 .17 18. and the relevance of many of the ratios depends on the nature of the organisation and therefore should only be compared with similar companies. They range from the very simple to the complex.

86 8.35 6.49 40 .FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED 1.51 4.35 30888.98 36735. Return on Total Assets (ROTA): Ratio measuring the operating profitability of a firm. PROFITABILITY RATIOS: Profitability Ratios are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time.16 2008-09 2381. expressed as a percentage of the operating assets. ROTA indicates a firm's ability to efficiently allocate and manage its resources but (unlike 'return on equity') ignores the firm's liabilities. It is calculated by ROTA = (Income before interest and tax / Total Assets)*100 Particulars EBIT TOTAL ASSETS ROTA 2007-08 2521.48 2009-10 1875.35 41762.

ROCE = (EBIT / Capital Employed)*100 Particulars EBIT Capital employed ROCE 2007-08 2521.61 7.47 41 . compensation of raw material.87 5. ROCE should always be higher than the rate at which the company borrows. Expenses in stock. power and fuel and depreciation including impairment has increased continuously.42 2009-10 1875.62 2008-09 2381. Investment in total assets has also increased.35 17294.18 14. Revenue from aluminium has decreased as compared to copper but net sales from aluminium has increased.98 32082.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED As per the above data it can be observed that ROTA is decreasing continuously as compared to previous years. Return on Capital Employed (ROCE): A ratio that indicates the efficiency and profitability of a company's capital investments. It indicates company is not using it’s asset effectively to generate funds. employees cost.35 34267. otherwise any increase in borrowing will reduce shareholders' earnings.

15 9. it has been observed that shareholder’s fund has increased a little but more amount is transferred to reserves and surplus.4 2008-09 2230.4 2009-10 1. Thus resulting in blocking funds. ROE= {(PAT)/Net Worth}*100 Net Worth= Share Capital + General Reserves – Misc.38 17294. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.8 42 . Expenditure Particulers PAT* Net Worth ROE 2007-08 2859. reserves and surplus and loans.27 23755.98 6.63 27906.915. Since capital employed comprises of shareholder’s fund.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED The future maintainable profits have not matched the pace with the increase in company’s capital employed . Return on Equity (ROE): The amount of net income returned as a percentage of shareholders equity.18 16.

The objective of margin analysis is to detect consistency or positive/negative trends in a company's earnings. Gross Margin Percentage (GMP): A financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. To a large degree. and growth. 43 . Positive profit margin analysis translates into positive investment quality.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED Due to decrease in financial leverage Net Worth of company has increased. Gross profit margin serves as the source for paying additional expenses and future savings. Also the future maintainable profit has not increased in the same proportion as the Net Worth of the company thus ROE for the company has gone down. MARGIN RATIOS: It is the amount of profit (at the gross. pre tax or net income level) generated by the company as a percent of the sales generated. 2. of a company's earnings that drive its stock price. operating. it is the quality.

22 20.91 15. Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages.08 3888. raw materials. When looking at operating margin to determine the quality of a company.56 2008-09 18052.08 19. such as interest on debt. etc.57 In the above case a decline can be seen in the GP ratio which is due to the reason that increase in sales has not resulted in an increase in GP which has gone down year after year and due to the increase in cost of production. Operating margin gives analysts an idea of how much a company makes (before interest and taxes) on each dollar of sales. it is best to look at the change in operating margin over time and to compare the 44 .97 3606.408.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED GMP = (GROSS PROFIT/SALES)*100 PARTICULARS SALES GROSS PROFIT GMP 2007-08 18909. Operating Profit Margin (OPM): A ratio used to measure a company's pricing strategy and operating efficiency. A healthy operating margin is required for a company to be able to pay for its fixed costs.97 2009-10 19.02 3021.

FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED company's yearly or quarterly figures to those of its competitors.408.32 2009-10 19.56 13. The operating profit has been able to match the increase in sales. Net Profit Margin (NPM): 45 . OPM = (OPERATING PROFIT/SALES)*100 PARTICULARS SALES OPERATING PROFIT OPM 2007-08 18909.33 2008-09 18052. It means the level of operating expenses have been able to match the increase in sales.92 12. One of the primary reasons being that it is the market leader thus is able to command its position in market.97 2223.08 2521.10 As the ratio measures the quantum and extent of expenditure incurred in producing and selling the goods.02 2542. If a company's margin is increasing. the better. High operating profit margin shows that company is in good state and has healthy margins. it is earning more per dollar of sales. The operating profit margin has remained almost stable in 2009-10. The higher the margin.35 13.

97 12. it leads to a lower profit margin. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors.27 18052.915.87 46 . if a company has costs that have increased at a greater rate than sales.63 19. For instance.35 2009-10 1.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED A ratio of profitability calculated as net income divided by revenues. Looking at the earnings of a company often doesn't tell the entire story. but an increase does not mean that the profit margin of a company is improving.38 18909. Profit margin is very useful when comparing companies in similar industries.02 9. Increased earnings are good. This is an indication that costs need to be under better control.408. or net profits divided by sales.08 15.12 2008-09 2230. NPM = (PROFIT AFTER TAX/SALES)*100 PARTICULARS PAT SALES NPM 2007-08 2859. It measures how much out of every dollar of sales a company actually keeps in earnings.

ITR = Cost of Goods Sold (COGS) / Average Inventory 47 . therefore. Also there is a reduction in the leverage of the company and decrease in profit of sales. A high ratio implies either strong sales or ineffective buying. while inventories are usually recorded at cost. A low turnover implies poor sales and. This ratio should be compared against industry averages. ACTIVITY RATIOS: Accounting ratios are the techeniques that measure a firm's ability to convert different accounts within their balance sheets into cash or sales. 3. excess inventory. High inventory levels are unhealthy because they represent an investment with a rate of return of zero. Companies will typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues. Such ratios are frequently used when performing fundamental analysis on different companies. Also.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED The reduction in Net profit margin primarily is due to high increase in interest paid during the year. The asset turnover ratio and inventory turnover ratio are good examples of activity ratios. Inventory Turnover Ratio (ITR): A ratio showing how many times a company's inventory is sold and replaced over a period. COGS (cost of goods sold) may be substituted because sales are recorded at market value. average inventory may be used instead of the ending inventory level to minimize seasonal factors. Although the first calculation is more frequently used.

INVENTORY HOLDING PERIOD.28 2009-10 3.87 4706.15 114.11 4995.03 3. Days of Inventory Holding: This ratio calculates the no.78 48 . A low number of inventory days are desirable. on an average.19 112.85 2008-09 3.28 109. that elapse between finished goods production and sale of goods or average number of days we held our inventory before a sale.61 3.78 3. of days.19 2008-09 14446. A high number of days imply that management is unable to sell existing inventory stocks.28 ITR has increased in 2009-10 which indicate over investment is done in stocks in comparison to previous years.89 4584.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED PARTICULARS COGS AVERAGE INVENTORY ITR(TIMES) 2007-08 15020.360/INVENTORY TURNOVER PARTICULARS ITR IHP 2007-08 3.15 2009-10 16386.

33 3283.97 AVERAGE WORKING CAPITAL 2819. the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED There has been a rise in IHP ’09 which was not healthy as large stock has been kept due to less sales but has gone down in2009-10. Working Capital Turnover Ratio (WCTR): A measurement comparing the depletion of working capital to the generation of sales over a given period. the higher the working capital turnover. This provides some useful information as to how effectively a company is using its working capital to generate sales.11 2009-10 19.408. WCTR = NET SALES/AVERAGE WORKING CAPITAL PARTICULARS 2007-08 2008-09 NET SALES 18909. In a general sense.85 49 .current liabilities) to fund operations and purchase inventory.08 18052.02 3891. A company uses working capital (current assets . The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. These operations and inventory are then converted into sales revenue for the company.

02 10357. FATR = NET SALES/AVERAGE FIXED ASSETS PARTICULARS 2007-08 2008-09 NET SALES AVERAGE FIXED ASSETS 2009-10 19. prudent investors watch this ratio in following years to see how effective the investment in the fixed assets was. where major purchases are made for PP&E to help increase output. The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments – specifically property. This ratio is often used as a measure in manufacturing industries. thus decreasing the efficiency of working capital.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED WCTR 6.08 8656.408.71 5.9 . Fixed Assets Turnover Ratio (FATR): A financial ratio of net sales to fixed assets.97 9052.11 50 18909. A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues. plant and equipment (PP&E) .18 18052.net of depreciation. When companies make these large purchases.49 4.98 The ratio is continously decreasing as working capital employed has increased every year but net sales has not increased in proportion to working capital .

99 1.41 0.54 2009-10 19. Capacity in form of fixed assets has increased but FATR has reduced thus showing that company is working at low Capacity utilization.56 51 . Total Assets Turnover Ratio (TATR): The total asset turnover ratio measures the ability of a company to use its assets to generate sales.80 0.87 The net sales has declined from 2007-08 but has risen in 2009-10 and fixed asset has increased resulting in low FATR.68 2008-09 18052.97 33528.08 27914.18 1.408. as well as inventory and accounts receivable. TATR = NET SALES/AVERAGE TOTAL ASSETS PARTICULARS NET SALES AVERAGE TOTAL ASSET TATR 2007-08 18909. like plant and equipment.11 0.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED FATR(TIMES) 2. The total asset turnover ratio considers all assets including fixed assets.02 34563.

or fixed assets. as compared to historical data for the firm and industry data. 52 . the more sluggish the firm's sales. This may indicate a problem with one or more of the asset categories composing total assets . The small business owner should analyze the various asset classes to determine where the problem lies.inventory.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED The lower the total asset turnover ratio. receivables.

FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED 4. However. the cost of this debt financing may outweigh the return that the 53 . If this were to increase earnings by a greater amount than the debt cost (interest). the greater the probability that the company will default on its debt obligations Debt-Equity Ratio: A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. this ratio can be applied to personal financial statements as well as companies'. Also known as the Personal Debt/Equity Ratio. but as a general rule of thumb. CAPITAL RATIOS: STRUCTURE AND SOLVENCY One of many ratios used to measure a company's ability to meet long-term obligations. then the shareholders benefit as more earnings are being spread among the same amount of shareholders. Sometimes only interest-bearing. excluding non-cash depreciation expenses. a solvency ratio of greater than 20% is considered financially healthy. The solvency ratio measures the size of a company's after-tax income. This can result in volatile earnings as a result of the additional interest expense. Generally speaking. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. It indicates what proportion of equity and debt the company is using to finance its assets. If a lot of debt is used to finance increased operations (high debt to equity). as compared to the firm's total debt obligations. It provides a measurement of how likely a company will be to continue meeting its debt obligations Acceptable solvency ratios will vary from industry to industry. long-term debt is used instead of total liabilities in the calculation. the lower a company's solvency ratio. the company could potentially generate more earnings than it would have without this outside financing.

capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2.61 0.5.9 27910.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED company generates on the debt through investment and business activities and become too much for the company to handle.35 2009-10 6356. DEBT EQUITY RATIO = LONG TERM DEBT/NET WORTH PARTICULARS LONG TERM DEBT NET WORTH D\E RATIO 2007-08 8328. while personal computer companies have a debt/equity of under 0.48 2008-09 8324.29 23862.22 The Debt Equity Ratio is very less and has reduced as compared to the previous year.58 17294. 54 .18 0. This can lead to bankruptcy. which would leave shareholders with nothing. For example.Thus there is in reduction in leverage of the company and most of the operations are financed through shareholder’s equity.97 0. The debt/equity ratio also depends on the industry in which the company operates.

Also the increase in total assets is less as compared to increase in the Net Worth of the company thus there is a decrease in the ALR ratio from last years.18 1.86 17294.35 23862.97 1. Interest Coverage Ratio (ICR): A ratio used to determine how easily a company can pay interest on outstanding debt.61 1.54 2009-10 41762. the more 55 . The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period: The lower the ratio.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED AssetsLevarage Ratio (ALR): ASSET LEVERAGE RATIO = TOTAL ASSETS/NET WORTH PARTICULARS TOTAL ASSETS NET WORTH ALR 2007-08 30888.51 27910.50 Low Asset Leverage ratio suggests that company is dependent more on the funds collected through shareholder’s equity.79 2008-09 36735.

When a company's interest coverage ratio is 1. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses.92 336. its ability to meet interest expenses may be questionable.63 11. INTEREST COVERAGE RATIO = EBIT/INTEREST PARTICULARS EBIDTA INTEREST ICR 2007-08 3109.60 2009-10 2542. 56 .93 6.56 278 9.16 280.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED the company is burdened by debt expense.08 2008-09 2223.15 Interest coverage ratio is adequate to cover the interest expenses.5 or lower.

Some analysts will calculate only the sum of cash and equivalents divided by current liabilities because they feel that they are the most liquid assets. The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash. the more capable the company is of paying its obligations. receivables). 57 . Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Common liquidity ratios include the current ratio.but it is definitely not a good sign. Different analysts consider different assets to be relevant in calculating liquidity. the quick ratio and the operating cash flow ratio. While this shows the company is not in good financial health. the higher the value of the ratio. it is always more useful to compare companies within the same industry. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern. The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. The higher the current ratio.as there are many ways to access financing . and would be the most likely to be used to cover short-term debts in an emergency. the larger the margin of safety that the company possesses to cover short-term debts.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED 5. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. Because business operations differ in each industry. it does not necessarily mean that it will go bankrupt . Current Ratio: A liquidity ratio that measures a company's ability to pay short-term obligations. A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Generally. LIQUIDITY RATIOS: A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. inventory.

FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED

This ratio is similar to the acid-test ratio except that the acid-test ratio does not include inventory and prepaid as assets that can be liquidated. The components of current ratio (current assets and current liabilities) can be used to derive working capital (difference between current assets and current liabilities). Working capital is frequently used to derive the working capital ratio, which is working capital as a ratio of sales.

CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITIES PARTICULARS CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO 2007-08 7851.67 3800.79 1.80 2008-09 7 ,739.91 2 ,672.07 2.3 2009-10 8,864.29 6,148.42 1.29

Current Ratio of the company is low w.r.t to industry standards which is 2:1. Current asset and current liabilities both has increased as compared to previous years .

Liqudity Ratio (LR):
A stringent test that indicates whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working

58

FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED

capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets. Companies with ratios of less than 1 cannot pay their current liabilities and should be looked at with extreme caution. Furthermore, if the acid-test ratio is much lower than the working capital ratio, it means current assets are highly dependent on inventory. Retail stores are examples of this type of business.

LIQUID RATIO = LIQUID ASSETS/CURRENT LIABILITIES PARTICULARS LIQUID ASSETS CURRENT LIABILITIES LIQUID RATIO 2007-08 1774.3 3800.79 0.46 2008-09 2096.72 2 ,672.07 0.78 2009-10 2942.89 6,148.42 0.48

The low value of the liquid ratio suggests that company’s current assets are highly dependent on inventories, thus company may face difficulties in resolving short term liabilities.

59

FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED

DUPONT ANALYSIS OF HINDALCO
The DuPont Model is a technique that can be used to analyze the profitability of a company using traditional performance management tools. To enable this, the DuPont model integrates elements of the Income Statement with those of the Balance Sheet. The advantages of DuPont Analysis are as follows:  Simplicity  Can be easily linked to compensation schemes

Can be used to convince management about steps needed to professionalize

purchasing or sales function. The limitations of DuPont Analysis are:  It is based on accounting numbers which are not reliable\  It does not include cost of capital

DUPONT ANALYSIS OF ROE (2009-10)
As per DuPont Analysis ROE depends on three things: 1. Operating Efficiency, measured by profit margin. 2. Asset use efficiency, measures by total asset turnover. 3. Financial leverage, measured by equity multiplier. By this Approach

ROE= NPM * ATR*ALR DUPONT ANALYSIS ROE NPM ATR ALR

2008-09 9.4 12.35 0.54 1.54

2009-10 6.8 9.87 0.56 1.50 60

FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED ROE is decreasing for the year 2009-10. The main reason being the net worth of the company has increased and overall debt has reduced thus company is more dependent on the funds collected through shareholder’s equity rather than loans and leverage funds. 61 .

Also sometimes known as "price multiple" or "earnings multiple". CAPITAL MARKET RATIO Capital market ratios relate the market price of a company’s earnings and dividends. Price Earning (PE) Ratio: A valuation ratio of a company's current share price compared to its per-share earnings. dividend. The P/E is sometimes referred to as the "multiple". Calculated as: Market value per share/Earnings per share (EPS) PARTICULARS Price to cash earning (x)* * Stock price on 31st March 2007-08 2008-09 8. the P/E ratio doesn't tell us the whole story by itself. However.44 62 . and price to book ratio are the most commonly used ratios that aid investors and analysts in understanding the strength of a company in the capital market. In general. to the market in general or against the company's own historical P/E.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED 6.67 2009-10 14. a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. because it shows how much investors are willing to pay per dollar of earnings. Priceearnings (PE) ratio. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry.

to. EPS = PROFIT AFTER TAX (PAT) / AVERAGE OUTSTANDING SHARES PARTICULARS 2007-08 2008-09 2009-10 EPS 22.8 12. However. it could also mean that something is fundamentally wrong with the company. P/B Ratio = Stock Price/ (Total assets-Intangible Assets) Earnings per Share (EPS): The portion of a company's profit allocated to each outstanding share of common stock. but one could do so with less equity (investment) .01 63 . As with most ratios.that company would be more efficient at using its capital to generate income and. A lower P/B ratio could mean that the stock is undervalued. This ratio also gives some idea of whether you're paying too much for what would be left if the company went bankrupt immediately. be aware that this varies by industry. Earnings per share serve as an indicator of a company's profitability.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED Price to Book (P|B) Ratio: A ratio used to compare a stock's market value to its book value.earnings valuation ratio. all other things being equal would be a "better" company. It is also a major component used to calculate the price. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share also known as the "price-equity ratio”. Two companies could generate the same EPS number. Earnings per share are generally considered to be the single most important variable in determining a share's price.23 10.

81 1.14 129.77 16.43 9.22 17.78 8.54 12.28 1.6 644.85 26.31 10Mar PAREKH ALUMINIUM 637.94 10-Mar ESS DEE ALUMINIUM 401.26 14.46 27.55 16.46 46.83 10-Mar MALC O 10Mar PARTICULA RS OPM% NPM% RONW 16.63 191.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED PEER GROUP COMPARISON PEER GROUP COMPARISON 10-Mar 10-Mar 10-Mar 10-Mar 10-Mar PARTICULA RS SALES PAT EQUITY HINDALC O 19536.63 16.001.01 KEY FINANCIAL RATIOS 29.81 64 .158.29 12.37 10-Mar NALCO 5.48 66.37 16.28 7.0 0 832.915.

8 to 1.76 21. a Current Ratio of 2:1 is considered to be the standard to indicate sound liquidity position. on an average. and Hindalco should try to maintain it’s liquidity position. the company has been maintaining 1. which is not good sign for the enterprises. It may not be able to meet its current liabilities on time.24 - 23.term liabilities usually.08 6. This ratio has been continuously 65 .11 - CONCLUSION  It can be observed that the Current Ratio of Hindalco is varied between 1.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED EPS CEPS P/E 10.88 25. In 2009-10 it is 0. during the period from FY08 to FY10.5 - 12.77 55. Quick ratio 1:1 is considered satisfactory.   The inventory turnover ratio shows how rapidly the inventory is turning into receivables through sales.82 13.28 rupee of current assets as a cushion to meet the short.28. per one rupee of current liability.66 which again can be considered non satisfactory. It is evident that.63 4.87 - 35.92 17.

10 has lowest Net Working Capital as compared to earlier years.if we compare the Gross Working Capital of the years 2008-09 and 2009-10. It varies between 6. Gross Working Capital has increased heavily as compared to year 2007-08. Thus Hindalco has a very good inventory management. A high inventory turnover indicates the efficient management of inventory because more frequently the stocks are sold.71 times and 4. 66 . It denotes the total working capital or total investment in current assets.    Working Capital Turnover Ratio indicates the efficiency of the firm in Utilizing the working capital in the business.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED increasing since FY 2007-08. Company should focus on working capital management. The Net Working Capital measures the liquidity of the firm. there is slightly difference. The year 2009. It means the company is investing in current assets and expending its business. The current assets and liabilities are increasing year by year.89 times.  Net Working Capital is fluctuating from very high to very low. So we can say that enterprises have a very good turnover ratio.

The greater the margin. The company should maintain the low level of creditors because the company can pay them easily whenever required. the better will be the liquidity of the firm. The Company should try to increase productivity and produce products at lower  The company should maintain a proper inventory management system. SUGGESTIONS & RECOMMENDATIONS 67 .  The company must have adequate cash and bank balance to face any situations. The company has 2nd highest market capitalization after NALCO. The year 2009-10 has lowest Net Working Capital as compared to earlier years.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED    rate. The company must increase its NWC. so the unnecessary blockage of money can be avoided.

 The company must have adequate cash and bank balance to face any situations. The company should try to increase productivity and produce products at lower  The company should maintain a proper inventory management system. The company has 2nd highest market capitalization after NALCO. 68 . The greater the margin.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED    rate. so the unnecessary blockage of money can be avoided. the better will be the liquidity of the firm. The company must increase its NWC. The year 2009-10 has lowest Net Working Capital as compared to earlier years. The company should maintain the low level of creditors because the company can pay them easily whenever required.

moneycontrol.co www.adityabirla.com 69 .com www.hindalco.FINANCIAL ANALYSIS OF HINDALCO INDUSTRIES LIMITED Annual report • 2007-08 • 2008-09 • 2009-10 Websites referred www.