CHAPTER-I

INTRODUCTION

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Financial Forecasting

The lack of planning and control of cash resources is the reason often given for the failure
of many small businesses in Australia. However, good forecasting can help reduce your
business risk.

Much like a map helps you plan a long road trip, a financial forecast (often called a cash
budget, cash flow, or financial plan) helps you achieve your goals and get your business
to where you want it to be.

A financial forecast is a tool that allows you to use your resources where they're most
needed, so you can control the cash flow of your business, instead of it controlling you. It
allows you to control your money so you are more likely to achieve your desired net
profit.

 A financial plan is a series of steps or goals used by an individual or business, the

progressive and cumulative attainment of which is designed to accomplish a financial
goal or set of circumstances, e.g. elimination of debt, retirement preparedness, etc. This
often includes a budget which organizes an individual's finances and sometimes includes
a series of steps or specific goals for spending and saving future. This plan allocates
future income to various types of expenses, such as rent or utilities, and also reserves
some income for short-term and long-term savings. A financial plan is sometimes
referred to as an investment plan, but in personal finance a financial plan can focus on
other specific areas such as risk management, estates, college, or retirement.

People enlist the help of a financial planner because of the complexity of performing the
following:

 Providing financial security and ensuring that all goals of personal finance are met

 Finding direction and meaning in one's financial decisions;

 Understanding how each financial decision affects other areas of finance; and

 Adapting to life changes to feel more financially secure.

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The best results of working with a comprehensive financial planner, from an individual
client or family's perspective are:

 To create the greatest probability that all financial goals (anything requiring both
money and planning to achieve) are accomplished by the target date, and

 To have a frequently-updated sensible plan that is proactive enough to

accommodate any major unexpected financial event that could negatively affect
the plan, and

 To make intelligent financial choices along the way (whether to "buy or lease"
whether to "refinance or pay-off" etc.).

Before working with a comprehensive financial planner, a client should establish that the
planner is competent and worthy of trust, and will act in the client's interests rather than
being primarily interested in selling the client financial products for his own benefit. As
the relationship unfolds, an individual financial planning client's objective in working
with a comprehensive financial planner is to clearly understand what needs to be done to
implement the financial plan created for them. So, in many ways, a financial planner's
step-by-step written implementation plan of action items, created after the plan is
completed, has more value to many clients than the plan itself. The comprehensive
written lifetime financial plan is a technical document utilized by the financial planner,
the written implementation plan of action is just a few pages of action items required to
implement the plan; a much more "usable" document to the client.

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NEED AND IMPORTANCE OF CAPITAL STRUCTURE:

The value of the firm depends upon its expected Financial Forecasting. The rate
used to discount earnings stream it’s the firm’s required rate of return or the cost of
capital. Thus, the capital structure and Financial Forecasting decision can affect the value
of the firm either by changing the expected earnings of the firm, but it can affect the
reside earnings of the shareholders. The effect of leverage on the cost of capital is not
very clear. Conflicting opinions have been expressed on this issue. In fact, this issue is
one of the most continuous areas in the theory of finance, and perhaps more theoretical
and empirical work has been done on this subject than any other.

If leverage affects the cost of capital and the value of the firm, an optimum capital
structure would be obtained at that combination of debt and equity that maximizes the
total value of the firm or minimizes the weighted average cost of capital. The question of
the existence of optimum use of leverage has been put very succinctly by Ezra Solomon
in the following words.

Given that a firm has certain structure of assets, which offers net operating
earnings of given size and quality, and given a certain structure of rates in the capital
markets, is there some specific degree of financial leverage at which the market value of
the firm’s securities will be higher than at other degrees of leverage?

The existence of an optimum Financial Forecasting is not accepted by all. These

exist two extreme views and middle position. David Durand identified the two extreme
views the net income and net operating approaches.

SCOPE OF THE STUDY:

4
 A study of the Financial Forecasting and planning involves an examination of
long term as well as short term sources that a company taps in order to meet its
requirements of finance. The scope of the study is confined to the sources that Ultra tech
cements tapped over the years under study i.e. 2010-2014.

OBJECTIVES OF THE STUDY:

The project is an attempt to seek an insight into the aspects that are involved in the capital
structuring and financial decisions of the company. This project endeavors to achieve the
following objectives.

1. To Study the Financial Forecasting and planning of Ultra tech cements.

2. Study effectiveness of financing decision on EPS and EBIT of the firm.

3. Examining leverage analysis of Ultra tech cements.

4. Examining the financing trends in the Ultra tech cements. For the period of
2010- 14.

5. To evaluate the Financial Forecasting and planning practices relating to various

projects of Ultra Tech Cements Limited Hyderabad
RESEARCH METHODOLOGY AND DATA ANALYSIS

Data relating to Ultra tech cements. Has been collected through

SECONDARY SOURCES:
 Published annual reports of the company for the year 2010-14.
PRIMARY SOURCES:
 Detailed discussions with Vice-President.

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 Discussions with the Finance manager and other members of the Finance
department.
DATA ANALYSIS
At each point of time a business firm has a number of proposals regarding various
projects in which, it can invest funds. But the funds available with the firm are always
limited and are not possible to invest trend in the entire proposal at a time. Hence it is
very essential to select from amongst the various competing proposals, those that gives
the highest benefits. The crux of capital budgeting is the allocation of available resources
to various proposals. There are many considerations, economic as well as non-economic,
which influence the capital budgeting decision in the profitability of the prospective
investment.

Yet the right involved in the proposals cannot be ignored, profitability and risk are
directly related, i.e. higher profitability the greater the risk and vice versa there are
several methods for evaluating and ranking the capital investment proposals.

These tools access in the interpretation and understanding of the Existing scenario of the
Capital Structure.

LIMITATION OF STUDY

1. The study is limited to Ultra Tech Cements Limited only.

2. The study is limited to certain projects of Ultra Tech Cements Limited.
3. Period of the study is restricted to five years only.

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4. The present study cannot be used for inter firm comparison.
5. Limited span of time is a major limitation for this project.
6. The act and figures of the study is limited to the period of FIVE years i.e. 2010-
2014.
7. The data used in reports are taken from the annual reports, published at the end of
the years.
8. The result does not reflect the day-to-day transactions.
9. It is also impossible to the study of day-to-day transactions in cash management.
10. The analysis of the capital is taken FIVE years.

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 CHAPTER-II

INDUSTRY PROFILE

&

COMPANY PROFILE

Cement industry in India

Introduction
The Indian cement industry is directly related to the country's infrastructure sector and
thus its growth is paramount in determining the development of the country. With a
current production capacity of around 366 million tonnes (MT), India is the second

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largest producer of cement in the world and fueled by growth in the infrastructure sector,
the capacity is expected to increase to around 550 MT by FY20.
India has a lot of potential for development in the infrastructure and construction sector
and the cement sector is expected to largely benefit from it. Some of the recent major
government initiatives such as development of 100 smart cities are expected to provide a
major boost to the sector.
Expecting such developments in the country and aided by suitable government foreign
policies, several foreign players such as the likes of Lafarge, Holcim and Vicat have
invested in the country in the recent past. Another factor which aids the growth of this
sector is the ready availability of the raw materials for making cement, such as limestone
and coal.
Market Size
According to data released by the Department of Industrial Policy and Promotion (DIPP),
cement and gypsum products attracted foreign direct investment (FDI) worth US$
2,984.29 million between April 2000 and September 2014.
In India, the housing sector is the biggest demand driver of cement, accounting for about
67 per cent of the total consumption. The other major consumers of cement include
infrastructure at 13 per cent, commercial construction at 11 per cent and industrial
construction at nine per cent.
To meet the rise in demand, cement companies are expected to add 56 MT capacity over
the next three years. The cement capacity in India may register a growth of eight per cent
by next year end to 395 MT from the current level of 366 MT. It may increase further to
421 MT by the end of 2017. The country's per capita consumption stands at around 190
kg.
A total of 188 large cement plants together account for 97 per cent of the total installed
capacity in the country, while 365 small plants account for the rest. Of these large cement
plants, 77 are located in the states of Andhra Pradesh, Rajasthan and Tamil Nadu. The
Indian cement industry is dominated by a few companies. The top 20 cement companies
account for almost 70 per cent of the total cement production of the country.
Investments

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On the back of growing demands, due to increased construction and infrastructural
activities, the cement sector in India has seen many investments and developments in
recent times. Some of them are as follows:
 Lafarge and Holcim plans to request for the European Commission's approval for
their possible merger. The two companies had earlier unveiled plans in April 2014
to create the world's biggest cement group with US$ 44 billion in yearly sales.
 JSW cement plans to enter the Kerala market to cash in on the construction frenzy
in the state. JSW is presently building a three million tonnes per annum (MTPA)
capacity plant at Chitrapur in Karnataka to add to the current 5.4 MTPA capacity
in South India.
 Zuari Cement through its subsidiary Gulbarga Cement Limited (GCL) plans to set
up a 3.23 MT cement plant in Gulbarga, Karnataka. The company along with the
cement plant is setting up a 50 MW captive power plant in the region.
 Malabar Cements plans to set up an automated cement handling and bagging unit
as well as raw materials import facility in the Kochi port. Malabar Cements has
projected a minimum throughput of 300,000 tonnes per annum which can be
extendable up to 600,000 tonnes per annum, apart from intermediate products and
raw materials such as clinker, limestone and coal.
 Reliance Cement Company (RCC), a subsidiary of Reliance Infrastructure, has
entered into the cement market of Bihar where the demand for the building
material is on the rise due to a realty boom. RCC presently has plants with total
installed capacity of 5.8 MTPA.
Government Initiatives
In the 12th FiveYear Plan, the government plans to increase investment in infrastructure
to the tune of US$ 1 trillion and increase the industry's capacity to 150 MT.
The Cement Corporation of India (CCI) was incorporated by the Government of India in
1965 to achieve self-sufficiency in cement production in the country. Currently, CCI has
10 units spread over eight states in India.
In order to help the private sector companies thrive in the industry, the government has
been approving their investment schemes. Some such initiatives by the government in the
recent past are as follows:

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  The Andhra Pradesh State Investment Promotion Board (SIPB) has approved
proposals worth Rs 9,200 crore (US$ 1.48 billion) including three cement plants
and concessions to Hero MotoCorp project. The total capacity of these three
cement plants is likely to be about 12 MT per annum and the plants are expected
to generate employment for nearly 4,000 people directly and a few thousands
more indirectly.
 India has joined hands with Switzerland to reduce energy consumption and
develop newer methods in the country for more efficient cement production,
which will help India meet its rising demand for cement in the infrastructure
sector.
 The Government of India has decided to adopt cement instead of bitumen for the
construction of all new road projects on the grounds that cement is more durable
and cheaper to maintain than bitumen in the long run.
Road Ahead
With the Government of India providing a boost to the infrastructure and various housing
projects coming up in urban as well as rural areas, the cement sector has enough scope
for development in the future.

Market Size

The Indian cement sector is expected to witness positive growth in the coming years,
with demand set to increase at a CAGR of more than 8 per cent in the period FY 2013-14
to FY 2015-16, according to the latest report titled ‘Indian Cement Industry Outlook
2016’ by market research consulting firm RNCOS. The report further observed that
India’s southern region is creating the maximum demand for cement, which is expected
to increase more in future.

The cement and gypsum products sector has attracted foreign direct investments (FDI)
worth US$ 2,656.29 million in the period April 2000–August 2013, according to data
published by the Department of Industrial Policy and Promotion (DIPP).

Investments

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  Prism Cement Ltd has become the first Indian company to get the Quality Council
of India's (QCI) certification for its ready-mix concrete (RMC) plant in Kochi,
Kerala. The company received the certification from Institute for Certification and
Quality Mark (ICQM), a leading Italian certification body authorised to oversee
QCI compliance.
 UltraTech Cement, an Aditya Birla Group Company, has acquired the 4.8 million
tonne per annum (MTPA) Gujarat unit of Jaypee Cement Corp for Rs 3,800 crore
(US$ 595.61 million).
 ACC Ltd plans to invest Rs 3,000 crore (US$ 470.22 million) to expand its
capacity by nearly 4 MT a year in three eastern region states, over the next three
years.
 Reliance Cements Co Pvt Ltd will set up a 3 MTPA grinding unit at an estimated
cost of Rs 600 crore (US$ 94.04 million). The unit is likely to come up at
Raghunathpur in Purulia, West Bengal.
 Reliance Cement Co, a special purpose vehicle (SPV) of Reliance Infrastructure
Ltd, is commissioning its first 5 MTPA plant in Madhya Pradesh. The project has
been implemented at a cost of approximately Rs 3,000 crore (US$ 470.22
million).
 Zuari Cement plans to set up a cement grinding unit at Auj (Aherwadi) and
Shingadgaon villages in Solapur, Maharashtra. The new unit will have a
production capacity of 1 MTPA and is expected to be operational by the second
quarter of 2015.

 JSW Steel has acquired Heidelberg Cement India's 0.6 MTPA cement grinding
facility in Raigad, Maharashtra, for an undisclosed amount.

Government Initiatives

Giving impetus to the market, the Indian government plans to roll out public-private
partnership (PPP) projects worth Rs 1 trillion (US$ 15.67 billion) over the next six

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months. The Principal Secretary in the Prime Minister's Office (PMO) will monitor these
projects.

Also, the steering group appointed by Dr Manmohan Singh, Prime Minister of India, to
accelerate infrastructure investments, has set deadlines for the awarding of projects such
as Mumbai rail corridor and Navi Mumbai Airport, among others.

The Goa State Pollution Control Board (GSPCB) has signed a memorandum of
understanding (MoU) with Vasavdatta Cement, a company with its plant in Karnataka.
The firm would use the plastic waste collected by the state agencies and village
panchayats from Goa as fuel for its manufacturing plant.

Road Ahead

The globally-competitive cement industry in India continues to witness positive trends

such as cost control, continuous technology upgradation and increased construction
activities.

Furthermore, major cement manufacturers in India are progressively using other

alternatives such as bioenergy as fuel for their kilns. This is not only helping to bring
down production costs of cement companies, but is also proving effective in reducing
emissions.

With the ever-increasing industrial activities, real estate, construction and infrastructure,
in addition to the various Special Economic Zones (SEZs) being developed across the
country, there is a demand for cement.

It is estimated that the country requires about US$ 1 trillion in the period FY 2012-13 to
FY 2016-17 to fund infrastructure such as ports, airports and highways to boost growth,
which promises a good scope for the cement industry.

The 4th Annual India Cement Sector Business Sentiment Survey is nearly out and the
India Construction & Building Materials Journal provides the opportunity of an exclusive
look at the survey’s results before their sharing with the wider audiences. We are glad to

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be able to present here some of the survey highlights and provide our readers with before-
hand data regarding the views and expectations of cement industry professionals.

Optimism continues to be the name of the game for the Indian cement industry – a
function of long-term trends as well as human nature. But on a closer look, the survey
shows that the optimism only runs skin deep and that it has already been eroded by an
increasing percentage of industry members who feel dissatisfied with the overall
performance of the field last year.

For instance, the percentage of those who believe the industry performed “well” dropped
from 43 percent in 2012 to 26 percent in 2013, while the number of respondents who
believe the industry performed poorly almost tripled from 8 percent last year to 22
percent in 2013. Regarding the future evolution of the industry, survey participants
continue to be on the optimistic side and hope for a “somewhat better” or “much better”
performance compared to the last 6 months.

China tackles pollution and overcapacity

2013 has been the year that China's central planners took action against cement
production overcapacity and pollution. Consolidation plans for the industry followed
falling profits for cement producers in 2012. However, record air pollution levels in
Beijing in early 2013 shut the city down, raised public awareness and gave the
government a strong lever to encourage further industry consolidation through
environmental controls. By the middle of year profits of major producers were up but
production was also up. Finally in December 2013, China started to launch its emissions
trading schemes (ETS), led by Guangdong province, to create what will be the second
largest carbon market in the world after the EU ETS.

India faces a sticky wicket

Meanwhile, the world's second largest cement producing country has faced poor profits
and growth for cement producers blamed on paltry demand, piddling prices and
proliferating production costs. Compounding that, the Indian Rupee fell to a historic low

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relative to the US Dollar in mid-2013, further putting pressure on input costs. Holcim
reacted to all of this by releasing plans to simplify its presence in the country between
Holcim India, Ambuja and ACC.

Sub-Saharan Africa draws up the battle lines

Competition in sub-Saharan Africa is set to intensify when Nigeria's Dangote Cement

opens its first cement plant in South Africa in early 2014. It is the first time Africa's two
largest cement producers, Dangote and South Africa's PPC, will produce cement in the
same country. Future clashes will follow across the region as each producer increasingly
advances toward the other.

The Kingdom needs cement... and workers

Saudi Arabian infrastructure demands have created all sorts of reverberations across the
Middle Eastern cement industry and beyond as the nation pushes on to build its six
'economic' cities amongst other projects. Back in April 2013 King Abdullah bin
Abdulaziz Al Saud of Saudi Arabia issued an edict ordering the import of 10Mt of
cement. Then some producers started to report production line shutdowns in the autumn
of 2013 as they buckled under the pressure, although they consoled themselves with solid
profit rises. Now, cement sales have fallen following a government crackdown on
migrant workers that has hit the construction sector.

Competition concerns in Europe

Europe may be slowly emerging from the economic gloom but anti-trust regulators have
remained vigilant. An asset swap between Cemex and Holcim over units in the Czech
Republic, Germany and Spain has received attention from the European Commission. In
the UK the Competition Commission has decreed that further action is required for the
cement sector following the creation of new player Hope Construction Materials in 2012.
Lafarge Tarmac may now have to sell another one of its UK cement plants to increase
more competition into the market. Elsewhere in Europe, Belgium regulators took action
in September 2013 and this week we report on Polish action against cartel-like activity.

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Don't forget South-East Asia, Brazil or Russia!

Growth continues to dominate these regions and major sporting tournaments are on the
way in Brazil and Russia, further adding to local cement demand. Votorantim may have
cancelled its US$4.8bn initial public offering in August 2013 but it is still has the highest
cement production capacity in Brazil. Finally, Indonesia may not have had any 'marquee'
style story to sum up 2013 but it continues to regularly announce cement plant builds. In
July 2013 the Indonesian Cement Association announced that cement sales growth had
fallen to 'just' 7.5% for the first half of 2013.

In the most general sense of the word, a cement is a binder, a

substance which sets and hardens independently, and can bind other materials together.
The word "cement" traces to the Romans, who used the term "opus caementicium" to
describe masonry which resembled concrete and was made from crushed rock with burnt
lime as binder. The volcanic ash and pulverized brick additives which were added to the
burnt lime to obtain a hydraulic binder were later referred to as cementum, cimentum,
cäment and cement. Cements used in construction are characterized as hydraulic or non-
hydraulic.
The most important use of cement is the production of mortar and concrete—the bonding
of natural or artificial aggregates to form a strong building material which is durable in
the face of normal environmental effects.
Concrete should not be confused with cement because the term cement refers only to the
dry powder substance used to bind the aggregate materials of concrete. Upon the addition
of water and/or additives the cement mixture is referred to as concrete, especially if
aggregates have been added.
It is uncertain where it was first discovered that a combination of hydrated non-hydraulic
lime and a pozzolan produces a hydraulic mixture (see also: Pozzolanic reaction), but
concrete made from such mixtures was first used on a large scale by Roman
engineers.They used both natural pozzolans (trass or pumice) and artificial pozzolans
(ground brick or pottery) in these concretes. Many excellent examples of structures made
from these concretes are still standing, notably the huge monolithic dome of the Pantheon
in Rome and the massive Baths of Caracalla. The vast system of Roman aqueducts also

16
made extensive use of hydraulic cement. The use of structural concrete disappeared in
medieval Europe, although weak pozzolanic concretes continued to be used as a core fill
in stone walls and columns.
Modern cement
Modern hydraulic cements began to be developed from the start of the Industrial
Revolution (around 1800), driven by three main needs:
Hydraulic renders for finishing brick buildings in wet climates
Hydraulic mortars for masonry construction of harbor works etc, in contact with sea
water.
Development of strong concretes.
In Britain particularly, good quality building stone became ever more expensive during a
period of rapid growth, and it became a common practice to construct prestige buildings
from the new industrial bricks, and to finish them with a stucco to imitate stone.
Hydraulic limes were favored for this, but the need for a fast set time encouraged the
development of new cements. Most famous was Parker's "Roman cement." This was
developed by James Parker in the 1780s, and finally patented in 1796. It was, in fact,
nothing like any material used by the Romans, but was a "Natural cement" made by
burning septaria - nodules that are found in certain clay deposits, and that contain both
clay minerals and calcium carbonate. The burnt nodules were ground to a fine powder.
This product, made into a mortar with sand, set in 5–15 minutes. The success of "Roman
Cement" led other manufacturers to develop rival products by burning artificial mixtures
of clay and chalk.
John Smeaton made an important contribution to the development of cements when he
was planning the construction of the third Eddystone Lighthouse (1755-9) in the English
Channel. He needed a hydraulic mortar that would set and develop some strength in the
twelve hour period between successive high tides. He performed an exhaustive market
research on the available hydraulic limes, visiting their production sites, and noted that
the "hydraulicity" of the lime was directly related to the clay content of the limestone
from which it was made. Smeaton was a civil engineer by profession, and took the idea
no further. Apparently unaware of Smeaton's work, the same principle was identified by
Louis Vicat in the first decade of the nineteenth century. Vicat went on to devise a

17
method of combining chalk and clay into an intimate mixture, and, burning this, produced
an "artificial cement" in 1817. James Frost,orking in Britain, produced what he called
"British cement" in a similar manner around the same time, but did not obtain a patent
until 1822. In 1824, Joseph Aspdin patented a similar material, which he called Portland
cement, because the render made from it was in color similar to the prestigious Portland
stone.
All the above products could not compete with lime/pozzolan concretes because of fast-
setting (giving insufficient time for placement) and low early strengths (requiring a delay
of many weeks before formwork could be removed). Hydraulic limes, "natural" cements
and "artificial" cements all rely upon their belite content for strength development. Belite
develops strength slowly. Because they were burned at temperatures below 1250 °C, they
contained no alite, which is responsible for early strength in modern cements. The first
cement to consistently contain alite was made by Joseph Aspdin's son William in the
early 1840s. This was what we call today "modern" Portland cement. Because of the air
of mystery with which William Aspdin surrounded his product, others (e.g. Vicat and I C
Johnson) have claimed precedence in this invention, but recent analysis of both his
concrete and raw cement have shown that William Aspdin's product made at Northfleet,
Kent was a true alite-based cement. However, Aspdin's methods were "rule-of-thumb":
Vicat is responsible for establishing the chemical basis of these cements, and Johnson
established the importance of sintering the mix in the kiln.
William Aspdin's innovation was counter-intuitive for manufacturers of "artificial
cements", because they required more lime in the mix (a problem for his father), because
they required a much higher kiln temperature (and therefore more fuel) and because the
resulting clinker was very hard and rapidly wore down the millstones which were the
only available grinding technology of the time. Manufacturing costs were therefore
considerably higher, but the product set reasonably slowly and developed strength
quickly, thus opening up a market for use in concrete. The use of concrete in construction
grew rapidly from 1850 onwards, and was soon the dominant use for cements. Thus
Portland cement began its predominant role. it is made from water and sand

Types of modern cement

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Portland cement
Cement is made by heating limestone (calcium carbonate), with small quantities of other
materials (such as clay) to 1450°C in a kiln, in a process known as calcination, whereby a
molecule of carbon dioxide is liberated from the calcium carbonate to form calcium
oxide, or lime, which is then blended with the other materials that have been included in
the mix . The resulting hard substance, called 'clinker', is then ground with a small
amount of gypsum into a powder to make 'Ordinary Portland Cement', the most
commonly used type of cement (often referred to as OPC).
Portland cement is a basic ingredient of concrete, mortar and most non-speciality grout.
The most common use for Portland cement is in the production of concrete. Concrete is a
composite material consisting of aggregate (gravel and sand), cement, and water. As a
construction material, concrete can be cast in almost any shape desired, and once
hardened, can become a structural (load bearing) element. Portland cement may be gray
or white.
Portland cement blends
These are often available as inter-ground mixtures from cement manufacturers, but
similar formulations are often also mixed from the ground components at the concrete
mixing plant.
Portland blastfurnace cement contains up to 70% ground granulated blast furnace slag,
with the rest Portland clinker and a little gypsum. All compositions produce high ultimate
strength, but as slag content is increased, early strength is reduced, while sulfate
resistance increases and heat evolution diminishes. Used as an economic alternative to
Portland sulfate-resisting and low-heat cements.
Portland flyash cement contains up to 30% fly ash. The fly ash is pozzolanic, so that
ultimate strength is maintained. Because fly ash addition allows a lower concrete water
content, early strength can also be maintained. Where good quality cheap fly ash is
available, this can be an economic alternative to ordinary Portland cement.
Portland pozzolan cement includes fly ash cement, since fly ash is a pozzolan, but also
includes cements made from other natural or artificial pozzolans. In countries where
volcanic ashes are available (e.g. Italy, Chile, Mexico, the Philippines) these cements are
often the most common form in use.

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Portland silica fume cement. Addition of silica fume can yield exceptionally high
strengths, and cements containing 5-20% silica fume are occasionally produced.
However, silica fume is more usually added to Portland cement at the concrete mixer.
Masonry cements are used for preparing bricklaying mortars and stuccos, and must not
be used in concrete. They are usually complex proprietary formulations containing
Portland clinker and a number of other ingredients that may include limestone, hydrated
lime, air entrainers, retarders, waterproofers and coloring agents. They are formulated to
yield workable mortars that allow rapid and consistent masonry work. Subtle variations
of Masonry cement in the US are Plastic Cements and Stucco Cements. These are
designed to produce controlled bond with masonry blocks.
Expansive cements contain, in addition to Portland clinker, expansive clinkers (usually
sulfoaluminate clinkers), and are designed to offset the effects of drying shrinkage that is
normally encountered with hydraulic cements. This allows large floor slabs (up to 60 m
square) to be prepared without contraction joints.
White blended cements may be made using white clinker and white supplementary
materials such as high-purity metakaolin.
Colored cements are used for decorative purposes. In some standards, the addition of
pigments to produce "colored Portland cement" is allowed. In other standards (e.g.
ASTM), pigments are not allowed constituents of Portland cement, and colored cements
are sold as "blended hydraulic cements".
Very finely ground cements are made from mixtures of cement with sand or with slag
or other pozzolan type minerals which are extremely finely ground together. Such
cements can have the same physical characteristics as normal cement but with 50% less
cement particularly due to their increased surface area for the chemical reaction. Even
with intensive grinding they can use up to 50% less energy to fabricate than ordinary
Portland cements.
Non-Portland hydraulic cements
Pozzolan-lime cements. Mixtures of ground pozzolan and lime are the cements used by
the Romans, and are to be found in Roman structures still standing (e.g. the Pantheon in
Rome). They develop strength slowly, but their ultimate strength can be very high. The

20
hydration products that produce strength are essentially the same as those produced by
Portland cement.
Slag-lime cements. Ground granulated blast furnace slag is not hydraulic on its own, but
is "activated" by addition of alkalis, most economically using lime. They are similar to
pozzolan lime cements in their properties. Only granulated slag (i.e. water-quenched,
glassy slag) is effective as a cement component.
Supersulfated cements. These contain about 80% ground granulated blast furnace slag,
15% gypsum or anhydrite and a little Portland clinker or lime as an activator. They
produce strength by formation of ettringite, with strength growth similar to a slow
Portland cement. They exhibit good resistance to aggressive agents, including sulfate.
Calcium aluminate cements are hydraulic cements made primarily from limestone and
bauxite. The active ingredients are monocalcium aluminate CaAl2O4 (CaO · Al2O3 or CA
in Cement chemist notation, CCN) and mayenite Ca12Al14O33 (12 CaO · 7 Al2O3 , or C12A7
in CCN). Strength forms by hydration to calcium aluminate hydrates. They are well-
adapted for use in refractory (high-temperature resistant) concretes, e.g. for furnace
linings.
Calcium sulfoaluminate cements are made from clinkers that include ye'elimite

(Ca4(AlO2)6SO4 or C4A3 in Cement chemist's notation) as a primary phase. They are

used in expansive cements, in ultra-high early strength cements, and in "low-energy"
cements. Hydration produces ettringite, and specialized physical properties (such as
expansion or rapid reaction) are obtained by adjustment of the availability of calcium and
sulfate ions. Their use as a low-energy alternative to Portland cement has been pioneered
in China, where several million tonnes per year are produced. Energy requirements are
lower because of the lower kiln temperatures required for reaction, and the lower amount
of limestone (which must be endothermically decarbonated) in the mix. In addition, the
lower limestone content and lower fuel consumption leads to a CO 2 emission around half
that associated with Portland clinker. However, SO2 emissions are usually significantly
higher.
"Natural" Cements correspond to certain cements of the pre-Portland era, produced by
burning argillaceous limestones at moderate temperatures. The level of clay components
in the limestone (around 30-35%) is such that large amounts of belite (the low-early

21
strength, high-late strength mineral in Portland cement) are formed without the formation
of excessive amounts of free lime. As with any natural material, such cements have
highly variable properties.
Geopolymer cements are made from mixtures of water-soluble alkali metal silicates and
aluminosilicate mineral powders such as fly ash and metakaolin.

COMPANY PROFILE
ULTRATECH CEMENT:

22
UltraTech Cement Limited has an annual capacity of 18.2 million tonnes. It manufactures
and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and
Portland Pozzalana Cement. It also manufactures ready mix concrete (RMC).

UltraTech Cement Limited has five integrated plants, six grinding units and three
terminals — two in India and one in Sri Lanka.

UltraTech Cement is the country’s largest exporter of cement clinker. The export markets
span countries around the Indian Ocean, Africa, Europe and the Middle East.
UltraTech’s subsidiaries are Dakshin Cement Limited and UltraTech Ceylinco (P)
Limited.

The roots of the Aditya Birla Group date back to the 19th century in the picturesque town
of Pilani, set amidst the Rajasthan desert. It was here that Seth Shiv Narayan Birla started
trading in cotton, laying the foundation for the House of Birlas.

Through India's arduous times of the 1850s, the Birla business expanded rapidly. In the
early part of the 20th century, our Group's founding father, Ghanshyamdas Birla, set up
industries in critical sectors such as textiles and fibre, aluminium, cement and chemicals.
As a close confidante of Mahatma Gandhi, he played an active role in the Indian freedom
struggle. He represented India at the first and second round-table conference in London,
along with Gandhiji. It was at "Birla House" in Delhi that the luminaries of the Indian
freedom struggle often met to plot the downfall of the British Raj.

Ghanshyamdas Birla found no contradiction in pursuing business goals with the

dedication of a saint, emerging as one of the foremost industrialists of pre-independence
India. The principles by which he lived were soaked up by his grandson, Aditya Vikram
Birla, our Group's legendary leader.

FACT FILE

 Largest producer of grey cement, white cement and ready-mix concrete in India.

23
  Largest producer of white cement in India.
 Installed capacity of 62 MTPA.
 Presence with 12 integrated plants, 1 white cement plant, 2 WallCare putty plants,
1 clinkerisation plant in UAE, 16 grinding units; 12 in India, 2 in UAE, 1 in
Bahrain and Bangladesh each, 6 bulk terminals; 5 in India and 1 in Sri Lanka and
101 Concrete plants.
 Straddling export markets in countries across the Indian Ocean and the Middle
East.

Aditya Vikram Birla: putting India on the world map

A formidable force in Indian industry, Mr. Aditya Birla dared to dream of setting up a
global business empire at the age of 24. He was the first to put Indian business on the
world map, as far back as 1969, long before globalisation became a buzzword in India.

In the then vibrant and free market South East Asian countries, he ventured to set up
world-class production bases. He had foreseen the winds of change and staked the future
of his business on a competitive, free market driven economy order. He put Indian
business on the globe, 22 years before economic liberalisation was formally introduced
by the former Prime Minister, Mr. Narasimha Rao and the former Union Finance
Minister, Dr. Manmohan Singh. He set up 19 companies outside India, in Thailand,
Malaysia, Indonesia, the Philippines and Egypt.

Interestingly, for Mr. Aditya Birla, globalisation meant more than just geographic reach.
He believed that a business could be global even whilst being based in India. Therefore,
back in his home-territory, he drove single-mindedly to put together the building blocks
to make our Indian business a global force.

Under his stewardship, his companies rose to be the world's largest producer of viscose
staple fibre, the largest refiner of palm oil, the third largest producer of insulators and the
sixth largest producer of carbon black. In India, they attained the status of the largest
single producer of viscose filament yarn, apart from being a producer of cement, grey
cement and rayon grade pulp. The Group is also the largest producer of aluminium in the
24
private sector, the lowest first cost producers in the world and the only producer of linen
in the textile industry in India.

At the time of his untimely demise, the Group's revenues crossed Rs.8,000 crore globally,
with assets of over Rs.9,000 crore, comprising of 55 benchmark quality plants, an
employee strength of 75,000 and a shareholder community of 600,000.

Most importantly, his companies earned respect and admiration of the people, as one of
India's finest business houses, and the first Indian International Group globally. Through
this outstanding record of enterprise, he helped create enormous wealth for the nation,
and respect for Indian entrepreneurship in South East Asia. In his time, his success was
unmatched by any other industrialist in India.

That India attains respectable rank among the developed nations, was a dream he forever
cherished. He was proud of India and took equal pride in being an Indian.

Under the leadership of our Chairman, Mr. Kumar Mangalam Birla, the Group has
sustained and established a leadership position in its key businesses through continuous
value-creation. Spearheaded by Grasim, Hindalco, Aditya Birla Nuvo, Indo Gulf
Fertilisers and companies in Thailand, Malaysia, Indonesia, the Philippines and Egypt,
the Aditya Birla Group is a leader in a swathe of products — viscose staple fibre,
aluminium, cement, copper, carbon black, palm oil, insulators, garments. And with
successful forays into financial services, telecom, software and BPO, the Group is today
one of Asia's most diversified business groups.

Board of Directors
:: Mr. Kumar Mangalam Birla, Chairman
:: Mrs. Rajashree Birla
:: Mr. R. C. Bhargava
:: Mr. G. M. Dave
:: Mr. N. J. Jhaveri
:: Mr. S. B. Mathur
:: Mr. V. T. Moorthy
:: Mr. O. P. Puranmalka

25
:: Mr. S. Rajgopal
:: Mr. D. D. Rathi
:: Mr. S. Misra, Managing Director

Executive President & Chief Financial Officer

:: Mr. K. C. Birla

Chief Manufacturing Officer

:: R.K. Shah

Chief Marketing Officer

:: Mr. O. P. Puranmalka

Company Secretary
:: Mr. S. K. Chatterjee

Our vision

"To actively contribute to the social and economic development of the communities
in which we operate. In so doing, build a better, sustainable way of life for the
weaker sections of society and raise the country's human development index."

— Mrs. Rajashree Birla, Chairperson,

The Aditya Birla Centre for Community Initiatives and Rural Development

Awards won

Year Award
IMC Ramkrishna Bajaj National Quality Award
2013-2014

Asociated with Govrmnent projects & Business World FICCI-SEDF

2012-2013
CSR Award
ASSOCHAM CSR Excellence Award for its "truly outstanding" CSR
2011-2012
activities

26
2010-2011 Subh Karan Sarawagi Environment Award
2010-2011 Business World FICCI-SEDF CSR Award
2010 Greentech Environment Excellence Gold Award
2010 IMC Ramkrishna Bajaj National Quality Award
2010 Asian CSR Award
2009-2010 National Award for Prevention of Pollution
2009-2010 Rajiv Gandhi Environment Award for Clean Technology
2009-2010 State Level Environment Award (Plant)

Making a difference
Before Corporate Social Responsibility found a place in corporate lexion, it was already
textured into our Group's value systems. As early as the 1940s, our founding father Shri
G.D Birla espoused the trusteeship concept of management. Simply stated, this entails
that the wealth that one generates and holds is to be held as in a trust for our multiple
stakeholders. With regard to CSR, this means investing part of our profits beyond
business, for the larger good of society.

While carrying forward this philosophy, his grandson, Aditya Birla weaved in the
concept of 'sustainable livelihood', which transcended cheque book philanthropy. In his
view, it was unwise to keep on giving endlessly. Instead, he felt that channelising
resources to ensure that people have the wherewithal to make both ends meet would be
more productive. He would say, "Give a hungry man fish for a day, he will eat it and the
next day, he would be hungry again. Instead if you taught him how to fish, he would be
able to feed himself and his family for a lifetime."

Taking these practices forward, our chairman

Mr. Kumar Mangalam Birla institutionalised the concept of triple bottom line
accountability represented by economic success, environmental responsibility and social
commitment. In a holistic way thus, the interests of all the stakeholders have been
textured into our Group's fabric.

27
The footprint of our social work today straddles over 3,700 villages, reaching out to more
than 7 million people annually. Our community work is a way of telling the people
among whom we operate that We Care.

Our strategy
Our projects are carried out under the aegis of the "Aditya Birla Centre for Community
Initiatives and Rural Development", led by Mrs. Rajashree Birla. The Centre provides the
strategic direction, and the thrust areas for our work ensuring performance management
as well.
Our focus is on the all-round development of the communities around our plants located
mostly in distant rural areas and tribal belts. All our Group companies —- Grasim,
Hindalco, Aditya Birla Nuvo, Indo Gulf and UltraTech have Rural Development Cells
which are the implementation bodies.

Projects are planned after a participatory need assessment of the communities around the
plants. Each project has a one-year and a three-year rolling plan, with milestones and
measurable targets. The objective is to phase out our presence over a period of time and
hand over the reins of further development to the people. This also enables us to widen
our reach. Along with internal performance assessment mechanisms, our projects are
audited by reputed external agencies, who measure it on qualitative and quantitative
parameters, helping us gauge the effectiveness and providing excellent inputs.

Our partners in development are government bodies, district authorities, village

panchayats and the end beneficiaries -- the villagers. The Government has, in their 5-year
plans, special funds earmarked for human development and we recourse to many of
these. At the same time, we network and collaborate with like-minded bilateral and
unilateral agencies to share ideas, draw from each other's experiences, and ensure that
efforts are not duplicated. At another level, this provides a platform for advocacy. Some
of the agencies we have collaborated with are UNFPA, SIFSA, CARE India, Habitat for
Humanity International, Unicef and the World Bank.

Our focus areas

28
Our rural development activities span five key areas and our single-minded goal here is to
help build model villages that can stand on their own feet. Our focus areas are healthcare,
education, sustainable livelihood, infrastructure and espousing social causes.

The name “Aditya Birla” evokes all that is positive in business and in life. It exemplifies
integrity, quality, performance, perfection and above all character.

Our logo is the symbolic reflection of these traits. It is the cornerstone of our corporate
identity. It helps us leverage the unique Aditya Birla brand and endows us with a
distinctive visual image.

Depicted in vibrant, earthy colours, it is very arresting and shows

the sun rising over two circles. An inner circle symbolising the
internal universe of the Aditya Birla Group, an outer circle
symbolising the external universe, and a dynamic meeting of rays converging and
diverging between the two.

Through its wide usage, we create a consistent, impact-oriented Group image. This
undoubtedly enhances our profile among our internal and external stakeholders.

Our corporate logo thus serves as an umbrella for our Group. It signals the common
values and beliefs that guide our behaviour in all our entrepreneurial activities. It embeds
a sense of pride, unity and belonging in all of our 130,000 colleagues spanning 25
countries and 30 nationalities across the globe. Our logo is our best calling card that
opens the gateway to the world.

Group companies
:: Grasim Industries Ltd.
:: Hindalco Industries Ltd.
:: Aditya Birla Nuvo Ltd.
:: UltraTech Cement Ltd.

29
Indian companies
:: Aditya Birla Minacs IT Services Ltd.
:: Aditya Birla Minacs Worldwide Limited
:: Essel Mining & Industries Ltd
:: Idea Cellular Ltd.
:: Aditya Birla Insulators
:: Aditya Birla Retail Limited
:: Aditya Birla Chemicals (India) Limited

International companies
Thailand
:: Thai Rayon
:: Indo Thai Synthetics
:: Thai Acrylic Fibre
:: Thai Carbon Black
:: Aditya Birla Chemicals (Thailand) Ltd.
:: Thai Peroxide
Philippines
:: Indo Phil Group of companies
:: Pan Century Surfactants Inc.
Indonesia
:: PT Indo Bharat Rayon
:: PT Elegant Textile Industry
:: PT Sunrise Bumi Textiles
:: PT Indo Liberty Textiles
:: PT Indo Raya Kimia
Egypt
:: Alexandria Carbon Black Company S.A.E
:: Alexandria Fiber Company S.A.E
China
:: Liaoning Birla Carbon
:: Birla Jingwei Fibres Company Limited
:: Aditya Birla Grasun Chemicals (Fangchenggang) Ltd.
Canada
:: A.V. Group
Australia
:: Aditya Birla Minerals Ltd.
Laos

30
:: Birla Laos Pulp & Plantations Company Limited
North and South America, Europe and Asia
:: Novelis Inc.
Singapore
:: Swiss Singapore Overseas Enterprises Pte Ltd. (SSOE)
Joint ventures
:: Birla Sun Life Insurance Company
:: Birla Sun Life Asset Management Company
:: Aditya Birla Money Mart Limited
:: Tanfac Industries Limited

UltraTech is India's largest exporter of cement clinker. The company's production

facilities are spread across eleven integrated plants, one white cement plant, one
clinkerisation plant in UAE, fifteen grinding units, and five terminals — four in India and
one in Sri Lanka. Most of the plants have ISO 9001, ISO 14001 and OHSAS 18001
certification. In addition, two plants have received ISO 27001 certification and four have
received SA 8000 certification. The process is currently underway for the remaining
plants. 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.

UltraTech's products include Ordinary Portland cement, Portland Pozzolana cement and
Portland blast furnace slag cement.

 Ordinary Portland cement

 Portland blast furnace slag cement
 Portland Pozzolana cement
 Cement to European and Sri Lankan norms

Ordinary Portland cement

Ordinary portland cement is the most commonly used cement for a wide range of
applications. These applications cover dry-lean mixes, general-purpose ready-mixes, and
31
even high strength pre-cast and pre-stressed concrete.

Portland blast furnace slag cement

Portland blast-furnace slag cement contains up to 70 per cent of finely ground, granulated
blast-furnace slag, a nonmetallic product consisting essentially of silicates and alumino-
silicates of calcium. Slag brings with it the advantage of the energy invested in the slag
making. Grinding slag for cement replacement takes only 25 per cent of the energy
needed to manufacture portland cement. Using slag cement to replace a portion of
portland cement in a concrete mixture is a useful method to make concrete better and
more consistent. Portland blast-furnace slag cement has a lighter colour, better concrete
workability, easier finishability, higher compressive and flexural strength, lower
permeability, improved resistance to aggressive chemicals and more consistent plastic
and hardened consistency.

Portland Pozzolana cement

Portland pozzolana cement is ordinary portland cement blended with pozzolanic

materials (power-station fly ash, burnt clays, ash from burnt plant material or silicious
earths), either together or separately. Portland clinker is ground with gypsum and
pozzolanic materials which, though they do not have cementing properties in themselves,
combine chemically with portland cement in the presence of water to form extra strong
cementing material which resists wet cracking, thermal cracking and has a high degree of
cohesion and workability in concrete and mortar.

"As a Group we have always operated and continue to operate our businesses as
Trustees with a deep rooted obligation to synergise growth with responsibility."

— Mr Kumar Mangalam Birla, Chairman, Aditya Birla Group

The cement industry relies heavily on natural resources to fuel its operations. As these
dwindle, the imperative is clear — alternative sources of energy have to be sought out
and the use of existing resources has to be reduced, or eliminated altogether. Only then

32
can sustainable business be carried out, and a corporate can truly say it is contributing to
the preservation of the environment.

UltraTech takes its responsibility to conserve the environment very seriously, and its eco-
friendly approach is evident across all spheres of its operations. Its major thrust has been
to identify alternatives to achieve set objectives and thereby reduce its carbon footprint.
These are done through:
:: Waste management
:: Energy management
:: Water conservation
:: Biodiversity management
:: Afforestation
:: Reduction in emissions

Importantly, UltraTech has set a target of 2.96 per cent reduction in CO2 emission
intensity, at a rate of 0.5 per cent annually, up to 2015-16, with 2009-10 as the baseline
year. This will also include CO2 emissions from the recently acquired ETA Star Cement
and upcoming projects.

Our strategy

Our projects are carried out under the aegis of the "Aditya Birla Centre for Community
Initiatives and Rural Development", led by Mrs. Rajashree Birla. The Centre provides the
strategic direction, and the thrust areas for our work ensuring performance management
as well.

Our focus is on the all-round development of the communities around our plants located
mostly in distant rural areas and tribal belts. All our Group companies —- Grasim,
Hindalco, Aditya Birla Nuvo and UltraTech have Rural Development Cells which are the
implementation bodies.

Projects are planned after a participatory need assessment of the communities around the
plants. Each project has a one-year and a three-year rolling plan, with milestones and
measurable targets. The objective is to phase out our presence over a period of time and
33
hand over the reins of further development to the people. This also enables us to widen
our reach. Along with internal performance assessment mechanisms, our projects are
audited by reputed external agencies, who measure it on qualitative and quantitative
parameters, helping us gauge the effectiveness and providing excellent inputs.

Our partners in development are government bodies, district authorities, village

panchayats and the end beneficiaries — the villagers. The Government has, in their 5-
year plans, special funds earmarked for human development and we recourse to many of
these. At the same time, we network and collaborate with like-minded bilateral and
unilateral agencies to share ideas, draw from each other's experiences, and ensure that
efforts are not duplicated. At another level, this provides a platform for advocacy. Some
of the agencies we have collaborated with are UNFPA, SIFSA, CARE India, Habitat for
Humanity International, Unicef and the World Bank.

Our vision

"To actively contribute to the social and economic development of the communities
in which we operate. In so doing, build a better, sustainable way of life for the
weaker sections of society and raise the country's human development index."

— Mrs. Rajashree Birla, Chairperson,

The Aditya Birla Centre for Community Initiatives and Rural Development

Making a difference
Before Corporate Social Responsibility found a place in corporate lexicon, it was already
textured into our Group's value systems. As early as the 1940s, our founding father Shri
G.D Birla espoused the trusteeship concept of management. Simply stated, this entails
that the wealth that one generates and holds is to be held as in a trust for our multiple
stakeholders. With regard to CSR, this means investing part of our profits beyond
business, for the larger good of society.
While carrying forward this philosophy, our legendary leader, Mr. Aditya Birla, weaved
in the concept of 'sustainable livelihood', which transcended cheque book philanthropy.

34
In his view, it was unwise to keep on giving endlessly. Instead, he felt that channelising
resources to ensure that people have the wherewithal to make both ends meet would be
more productive. He would say, "Give a hungry man fish for a day, he will eat it and the
next day, he would be hungry again. Instead if you taught him how to fish, he would be
able to feed himself and his family for a lifetime."

Taking these practices forward, our chairman

Mr. Kumar Mangalam Birla institutionalised the concept of triple bottom line
accountability represented by economic success, environmental responsibility and social
commitment. In a holistic way thus, the interests of all the stakeholders have been
textured into our Group's fabric.

The footprint of our social work today spans 2,500 villages in India, reaching out to
seven million people annually. Our community work is a way of telling the people among
whom we operate that We Care.

PRODUCT PROFILE

ULTRA TECH CEMENTS manufactures and distributes its own main product lines
of cement .We aim to optimize production across all of our markets, providing a
complete solution for customer's needs at the lowest possible cost, an approach we call
strategic integration of activities.

Cement is made from a mixture of 80 percent limestone and 20 percent clay. These
are crushed and ground to provide the "raw meal”, a pale, flour-like powder. Heated to
around 1450° C (2642° F) in rotating kilns, the “meal” undergoes complex chemical
changes and is transformed into clinker. Fine-grinding the clinker together with a small
quantity of gypsum produces cement. Adding other constituents at this stage produces
cements for specialized uses.

QUALITY

Six strong benefits that make 43, 53 Grade, Super fine, Premium and Shakti
the ideal cement

35
 Higher compressive strength.
 Better soundness.
 Lesser consumption of cement for M-20 Concrete Grade and above.
 Faster de shuttering of formwork.
 Reduced construction time with a superior and wide range of cement catering to
every conceivable building need, ULTRA TECH CEMENTS is a formidable
player in the cement market.

Here just a few reasons why ULTRA TECH CEMENTS chosen by millions of India.

 Ideal raw material

 Low lime and magnesia content and high proportion of silicates.
 Greater fineness.

36
 CHAPTER-III

LITERATURE REVIEW

37
What is a financial forecast?

A financial forecast is simply a financial plan or budget for your business. It is an

estimate of two essential future financial outcomes for a business – your projected
income and expenses. Create a cashflow forecast by adding income and expenses as they
are due. You will then know exactly how much you need to make every month for a
profitable business.

A financial forecast is the best guess of what will happen to your business financially
over a period of time. Usually, financial forecasts are an estimate of future income and
expenses for a business over the next year and are used to develop the projections of
profit and loss statements, balance sheets and, most critically, the cash flow forecast.

Predicting the financial future of your business is not easy, especially if you are starting a
business and do not have a trading history. Initially, your financial forecasts will be
inexact and inaccurate. However, frequent forecasting with adjustments as required will
promote more accurate forecasting.

Why prepare a financial forecast?

The financial forecast is critical to your business plan, especially if it is for the purpose of
getting a bank loan. More importantly, you are an investor in your own business and you
must have confidence in the validity of your business concept. Use a financial forecast to
prove to yourself that your business will generate your desired profit and when it will
start to make that profit.

A financial forecast is a vital tool in the financial management of your business and, like
your business plan, requires regular review and amendment to be effective. Once the
period for which you prepared the budget is over, be sure to compare the actual results
against your budget forecasts. Examine why variations have occurred, take any remedial
action necessary to correct the problem, or plan for them accordingly in your next budget.

38
Advantages of an effective financial forecast:

Demonstrates the financial viability of a new business venture. Allows you to construct a
model of how your business might perform financially if certain strategies, events and
plans are carried out.

Allows you to measure the actual financial operation of the business against the forecast
financial plan and make adjustments where necessary.

Allows you to guide your business in the right direction and take control of your cash
flow.

Provides a benchmark against which to measure future performance.

Identifies potential risks and cash shortfalls to keep the business out of financial trouble.

Provides an estimate of future cash needs and whether additional private equity or
borrowing is necessary.

Assists you to secure a bank loan or other funding. Lenders and investors require
financial forecasts to show your capacity to repay the loan.

How often should I prepare a financial forecast?

How often you forecast will depend on the circumstances of your business and where it is
positioned in the business life cycle. If you are planning to start a business, you will
develop an annual financial forecast as part of your feasibility study to prove that the
business is viable.

Monthly or weekly forecasts may be necessary when the business is just starting or if the
business is experiencing difficulties or rapid growth. Frequent forecasts allow you to
closely monitor your figures and develop strategies to rectify any problems before they

39
become a major issue. Rolling monthly or quarterly forecasts may be more appropriate
for a stable, mature business.

You should regularly measure and monitor the performance of your business, and
compare your financial forecasts with the actual figures as they become available. If
necessary, adjust your forecasts to reflect the changes.

Monitoring the differences between your forecasts and the actual figures will help
you to:

Identify the cause of the variation so you can take corrective action before it becomes a
major problem.

Fine tune your skills so you prepare more accurate forecasts next year.

What are the components of a financial forecast?

Creating a financial forecast shows you the financial requirements to start the business,
convince you and your bank of the viability of your business or your business growth,
and what resources you need to keep the business profitable.

Your financial forecast will be based on information gathered from industry and market
research. Since you will be responsible for achieving the predetermined financial
objectives, make sure your estimates and assumptions are realistic. Be consistent and
make sure that your financial forecast reflects the rest of the business plan. For example,
your sales forecast should reflect the capacity of production equipment mentioned in the
operational section.

Combine the components of your financial forecasts to generate projected financial

statements, (balance sheet, profit and loss statement). You may need help from your
accountant to assemble the figures in the conventional format, but the research and
operational assumptions should be your own.

40
You can develop your own financial forecast by using the spreadsheets to complete the
individual components. Then add the timing dimension (when you expect to receive
payment and the amount) over 12 months to generate an annual cash flow forecast.

Use the components listed below to develop a cash flow forecast for your own small
business.

Cash flow forecast

Establishment costs

Sales forecast

Cost of goods sold forecast

Expenses forecast

41
Financial Planning

Gain Control Over Your Budgeting and Planning Processes

Tired of error-prone, labor-intensive spreadsheet-based approaches to financial

planning? Want more visibility into your business so you can accurately plan and
forecast? The NetSuite Financial Planning Module is an add-on solution for NetSuite
that gives you cost-effective, highly sophisticated planning and "what-if" financial
modeling capabilities. And it's delivered over the same Software-as-a-Service (SaaS)
infrastructure as NetSuite's industry-leading accounting/ERP, CRM and ecommerce
capabilities.

Together, NetSuite and the NetSuite Financial Planning Module give you a real-time,
end-to-end business management solution for strategy, planning and execution—a
solution that previously cost large corporations millions of dollars and months, if not
years, implementing on-premise enterprise software. You'll streamline business
processes, improve financial agility, strengthen collaboration and drive better-
informed, more strategic decision-making.

42
Benefits

 Spend less time consolidating data, and more time analyzing information and
providing insight to your executive and management teams—enhancing the
strategic value of the finance function

 Improve business agility with "what-if" scenarios while using a business suite
that enables you to change business direction as needed

 Offer better plan accuracy based on sound data and centralized plans, reducing
budgeting and forecasting cycle times by up to 90%

 Dramatically reduce the costs of running critical financial processes such as

finance/ERP, budgeting and planning

 Promote the effective execution of business strategy by improving planning

across finance, sales, service, support and other organizations

 Achieve strong fiscal control based on accurate and timely historical data and
up-to-date plans

 Better manage to financial and operational results using real-time dashboards

showing Actual versus Plan versus Forecast

 Make better business decisions by simplifying and standardizing data collection

across the organization.

Key Features

 Budgeting and Forecasting

o Intuitive, spreadsheet-like data entry sheets

o Multi-dimensional data collection

o Automated consolidation and rollup of plans

o Dynamic formulas and assumptions

o Actuals data incorporated into new forecasts

o Workflow management

43
 o Planning of full financial statements (such as income statements,
balance sheets and cash flow statements).

 Modeling and Administration

o Unlimited versions for "what-if" analysis

o Multi-dimensional models for complex sales and product planning

o Financial and operational accounts and metrics

o User-based access controls and customized sheets

o Ability to budget in multiple currencies, both the local function

currency and the consolidated reporting currency

o Localized in French, German, Spanish and Japanese.

 Reporting and Dashboards

o Graphical "drag-and-drop" Report Builder

o Multi-dimensional analysis with automatic security filtering

o Multi-version variance reporting (e.g., actual vs. plan vs. forecast)

o Drill through into NetSuite real-time actuals data.

 Private Team Collaboration

o Discussion groups for managing ongoing communications about
planning

o Collaborative online documents for centrally capturing non-numeric

planning information

o Attachments for archiving documents and other files associated with

plans.

44
Financial Forecasting

Forecasting is a key component in determining future operations, problems, and

opportunities. Good financial forecasts benefit governments by enabling decision-makers
to:

 Develop an understanding of available funding

 Evaluate financial risk

 Assess the likelihood that services can be sustained

 Assess the level at which capital investment can be made

 Identify future commitments and resource demands

 Identify the key variables that cause changes in the level of revenue and
expenditures

Governments at all levels find forecasting beneficial in determining available resources

and developing budgeted expenditure amounts. Most public entities use forecasts that
extend three to five years beyond the current budget period, although some entities use
10-year forecasts. In any case, the forecast should be monitored and updated on a regular
basis.

Quantitative or qualitative methods, or a combination of both, can be used to develop

forecasts. Qualitative methods are more intuitive and are based on the following types of
information:

 Judgmental
Based on “good sense” or a decision made through discerning and evaluating. For

45
 example, a city auditor uses prior experience to project the impact of an increase
in income tax revenue.

 Consensus
Based on collective opinion or general accord. For example, a management
discussion is used to determine the service level and corresponding cost impact of
a policy to limit garbage collection.

 Expert
Based on the advice of an expert. For example, a township clerk uses a State
Employee Relations Board report on benefit costs to project future cost increases.

Quantitative methods include any of the following types of information:

 Trend Analysis
Compares historical information to forecast percentage changes. For instance, in
prior years, step and cost-of-living increases were about 4 percent for village
employees. This percentage change is used to project future wage increases.

 Multiple Regression Analysis

Uses chosen factors to determine the forecasted percentage change. For instance,
a regression analysis is used to identify the health care cost reductions resulting
from a wellness program instituted by a state agency.

 Time-Series Analysis
Uses the average percentage change during specific time periods. For instance,
over the past 10 years, police and fire department costs have increased at twice
the rate of population growth. If the population is expected to increase at 3
percent annually, the costs for public safety may increase at 6 percent annually.

While entities may use either of these methods, research has shown that combining
qualitative and quantitative methods improves forecasting accuracy.

Regardless of which method or combination of methods is used to develop a forecast, the

following steps should always be followed:

46
 1. Establish a base year.

2. Assess revenue and expenditure growth trends.

3. Clearly specify underlying assumptions.

4. Select a forecasting method.

5. Assess the reliability and validity of the data used to determine assumptions.

6. Monitor actual revenue and expenditure levels against the forecast and explain
variances.

7. Update the forecast based on changes.

Factors Influencing Capital Budgeting Decisions:

There are many factors, financial as well as non-financial, which influence that
Budget decisions. The crucial factor that influences the capital expenditure decisions is
the profitability of the proposal. There are other factors, which have to be in
considerations such as.

1. Urgency:
Sometimes an investment is to be made due to urgency for the survival of the firm
or to avoid heavy losses. In such circumstances, the proper evaluation of the proposal
cannot be made through profitability tests. The examples of such urgency are breakdown
of some plant and machinery, fire accident etc.

2. Degree of Certainty:
Profitability directly related to risk, higher the profits, Greater is the risk or
uncertainty. Sometimes, a project with some lower profitability may be selected due to
constant flow of income.

3. Intangible Factors:
some times a capital expenditure has to be made due to certain emotional and
intangible factors such as safety and welfare of workers, prestigious project, social
welfare, goodwill of the firm, etc.,

47
 4. Legal Factors.
Any investment, which is required by the provisions of the law, is solely
influenced by this factor and although the project may not be profitable yet the
investment has to be made.

5. Availability of Funds.
As the capital expenditure generally requires large funds, the availability of funds
is an important factor that influences the capital budgeting decisions. A project, how so
ever profitable, may not be taken for want of funds and a project with a lesser
profitability may be some times preferred due to lesser pay-back period for want of
liquidity.

6. Future Earnings
A project may not be profitable as compared to another today but it may promise
better future earnings. In such cases it may be preferred to increase earnings.

7. Obsolescence.
There are certain projects, which have greater risk of obsolescence than others. In
case of projects with high rate of obsolescence, the project with a lesser payback period
may be preferred other than one this may have higher profitability but still longer pay-
back period.

8. Research and Development Projects.

48
 It is necessary for the long-term survival of the business to invest in research and
development project though it may not look to be profitable investment.

9. Cost Consideration.
Cost of the capital project, cost of production, opportunity cost of capital, etc. Are
other considerations involved in the capital budgeting decisions?

RISK AND UNCERTANITY IN CAPITAL BUDGETING

All the techniques of capital budgeting require the estimation of future cash
inflows and cash outflows. The future cash inflows are estimated based on the following
factors.

1. Expected economic life of the project.

2. Salvage value of the assets at the end of economic life.
3. Capacity of the project.
4. Selling price of the product.
5. Production cost.
6. Depreciation rate.
7. Rate of Taxation
8. Future demand of product, etc.

But due to the uncertainties about the future, the estimates of demand, production,
sales, selling prices, etc. cannot be exact. For example, a product may become
obsolete much earlier than anticipated due to unexpected technological developments.
All these elements of uncertainty have to be take in to account in the form of forcible
risk while taking on investment decision. But some allowances for the elements of the
risk have to provide.

The following methods are suggested for accounting for risk in capital Budgeting.

1. Risk-Adjusted cut off rate or method of varying discount rate :

49
 The simple method of accounting for risk in capital Budgeting is to increase the
cut-off rate or the discount factor by certain percentage on account of risk. The
projects which are more risky and which have greater variability in expected
returns should be discounted at a higher rate as compared to the projects which
are less risky and are expected to have lesser variability in returns.

The greatest drawback of this method is that it is not possible to determine

the premium rate appropriately and more over it is the future cash flow, which is
uncertain and requires adjustment and not the discount rate.

Risk Adjusted Cut off Rate Decision Tree Analysis

Certainty Equivalent Suggestions Co-Efficient of

Method Accounting risk Variation Method
In Capital Budgeting

Sensitivity Technique Standard Deviation

Method

Profitability Technique

2. Certainty Equivalent Method:

Another simple method of accounting for risk in capital budgeting is to reduce
expected cash flows by certain amounts. It can be employed by multiplying the expected
cash in flows certain cash outflows.

3. Sensitivity Technique:
Where cash inflows are very sensitive under different circumstances, more than
one forecast of the future cash inflows may be made. These inflows may be regards as

50
“Optimistic”, “Most Likely”, and “Pessimistic”. Further cash inflows may be discounted
to find out the Net present values under these three different situations. If the net present
values under the three situations differ widely it implies that there is a great risk in the
project and the investor’s decision to accept or reject a project will depend upon his risk
bearing abilities.

4. Probability Technique:
A probability is the relative frequency with which an event may occur in the
future. When future estimates of cash inflows have different probabilities the expected
monetary values may be computed by multiplying cash inflow with the probability
assigned. The monetary values of the inflows may further be discounted to find out the
present vales. The project that gives higher net present vale may be accepted.

5. Standard Deviation Method:

If two projects have same cost and there net present values are also the same,
standard deviations of the expected cash inflows of the two projects may be calculated to
judge the comparative risk of the projects. The project having a higher standard deviation
is set to be more risky has compared to the other.

6. Coefficient of variation Method:

Coefficient of variation is a relative measure of dispersion. If the projects have the
same cost but different net present values, relative measure, I,e. coefficient of variation
should be computed to judge the relative position of risk involved. It can be calculated as
follows.

Coefficient of Variation = Standard Deviation X100

Mean

7. Decision Tree Analysis:

In modern business there are complex investment decisions which involve a
sequence of decisions over time. Such sequential decisions can be handled by plotting

51
 decisions trees. A decision tree is a graphic representation of the relationship between a
present decision and future events, future decisions and their consequences. The
sequences of event are mapped out over time in a format resembling branches of a tree
and hence the analysis is known as decision tree analysis. The various steps involved in a
decision tree analysis are

1 Identification of the problem

2 Finding out the alternatives;
3 Exhibiting the decision tree indicating the decision points, chance events, and
other relevant date;
4 Specification of probabilities and monetary values for cash inflows;
5 Analysis of the alternatives.

COMPOSITION AND OBSERVATION

The sources tapped by ULTRA TECH CEMENTS Industries Ltd. Can be classified into:

 Shareholders’ funds resources

 Loan fund resources
SHAREHOLDER FUND RESOURCES:
Shareholder’s fund consists of equity capital and retained earnings.
EQUITY CAPITAL BUILD-UP
RETAINED EARNINGS COMPOSITION
This includes…
 Capital Reserve
 Share Premium Account
 General Reserve
 Contingency Reserve
 Debentures Redemption Reserve
 Investment Allowance Reserve

52
 Profit & Loss Account

1. The profit levels, company dividend policy and growth plans determined. The
amounts transferred from P&L A/c to General Reserve. Contingency Reserve and
Investment Allowance Reserve.

2. The Investment Allowance Reserve is created for replacement of long term leased
assets and this reserve was removed from books because assets pertaining to such
reserves ceased to exist. The account was transferred to investment allowance utilized.

Capital structure describes how a corporation has organized its capital—how it obtains
the financial resources with which it operates its business. Businesses adopt various
capital structures to meet both internal needs for capital and external requirements for
returns on shareholders investments. As shown on its balance sheet, a company's
capitalization is constructed from three basic blocks:

1. Long-term debt. By standard accounting definition, long-term debt includes

obligations that are not due to be repaid within the next 12 months. Such debt
consists mostly of bonds or similar obligations, including a great variety of notes,
capital lease obligations, and mortgage issues.
2. Preferred stock. This represents an equity (ownership) interest in the corporation,
but one with claims ahead of the common stock, and normally with no rights to
share in the increased worth of a company if it grows.
3. Common stockholders' equity. This represents the underlying ownership. On the
corporation's books, it is made up of: (I) the nominal par or stated value assigned
to the shares of outstanding stock; (2) the capital surplus or the amount above par
value paid the company whenever it issues stock; and (3) the earned surplus (also
called retained earnings), which consists of the portion of earnings a company
retains after paying out dividends and similar distributions. Put another way,
common stock equity is the net worth after all the liabilities (including long-term
debt), as well as any preferred stock, are deducted from the total assets shown on

53
 the balance sheet. For investment analysis purposes, security analysts may use the
company's market capitalization—the current market price times the number of
common shares outstanding—as a measure of common stock equity. They
consider this market-based figure a more realistic valuation.

CHAPTER-IV
DATA ANALYSES AND INTERPRETATION

54
FINACIAL ANALYSIS
ANALYSIS OF ULTRATECH CEMENTS LIMITED

Capital Long Share

Total Total Fixed Net
Years Employe term holders’
sales assets assets Profit
d funds Funds
1093.2 124.49
2009-2010 7042.82 6213.17 854.19
4716.99 4 4059.56
13205.6 14810.6 10890.3 1404.2 274.04
2010-2011 2789.76
4 4 3 3 6607.67
18270.6 16667.9 12166.1 2446.1 274.07
2011-2012 2012.09
9 5 3 9 10392.72
20174.9 19697.5 14025.1 2655.4 274.18
2012-2013 2147.34
4 0 9 3 11986.24
20279.8 21970.2 15521.4 2144.4 274.24
2013-2014 2389.35
0 9 2 7 14186.57

TRADITIONAL CAPITAL BUDGETING APPRISAL METHODS

1. PAY BACK PERIOD METHOD:

Payback period method is a traditional method of evaluation of capital

budgeting decision. The term payback or pay out or payoff refers to the
period in which the project will generate the necessary cash and recoup the
initial investment or the cash out flows.

55
 To calculate the pay period, the cumulative cash flows will be
calculated and by using interpolation the exact period may be calculated.

The Ultratech Cements Limited has Rs. 2041.63 crors of initial

investment and the annual cash flows for the years 2013 to 2014. Then the
payback period is calculated as follows:

CALCULATION OF PAY BACK PERIOD OF Ultratech Cements Limited

(Rs. In crorers)
SI .NO YEAR CASH INFLOW CUMULATIVE
CASH FLOWWS

1 1481.32
2009-2010
1481.32
2 2010-2011 2169.96 3651.28
3 2011-2012 3348.75 7000.03
4 2012-2013 3505.51 10505.5
5 2013-2014 2041.63 12547.2

The above table shows that, the initial investment RS.2986.65 Cr… lies between second
and third years with Rs. 2781.34 and 4951.30 Cr

Difference in cash flows

PBP = Actual (Base) year + ----------------------------------
Next year cash flows

2041.63
PBP = 2 + -------------
12547.2

= 2 + 0.16

56
 = 2.16 year

Payback period (PBP) = 2.16 year.

ACCEPT-REJECT CRITERION:

PBP can be used as a criterion to accept or reject an investment

proposal. A proposal whose actual payback period is more than what is
pre-determined by the management.

PBP thus, is useful for the management to accept the investment decision on the
Ultratech cements limited and also to assist the management to know that the initial
investment is recovered in 2.16 years.

II. ACCOUNTING OR AVERAGE RATE OF RETURN METHOD:

It is another traditional method of capital budgeting evaluation. According

to this method the capital investment proposals are judged on the basis of their
relative profitability. The capital employed and related incomes are determined
according to the commonly accepted accounting principles and practices over the
certain life of project and the average yield is calculated. Such a rate is called the
accounting rate of return or the average return or ARR.
It may be calculated according to any one of the following methods:

(i) Annual average net earnings

---------------------------------- X 100
Original investment

(ii) Annual average net earnings

----------------------------------- X 100
Average investment

57
 (iii) Increase in expected future annual net earnings
----------------------------------------------------------- X 100
Initial increase in required investment
The term average annual net earnings are the average of the earnings after depreciation
and tax. Over the whole of the economic life of the project order and these giving on
ARR above the required rate may be accepted.

The amount of average investment can be calculated according to any of

the following methods:

(a) Original investment

------------------------
2

(b) Original investment +scrap value

------------------------------------------
2

(c) Original investment +scrap value + net additional + scrap value

Working capital
---------------------------------------------------------------------------------
2

Cash flows of the Ultratech cements Limited are shown in cash flow statement.
ARR is calculated as follows:

Statement showing calculation of ARR

\
(Rs. In Cr….)
YEARS EARNINGS AFTER TAX (EAT)

1481.32
2009-2010

2010-2011 2169.96

2011-2012 3348.75

2012-2013 3505.51

58
 2013-2014 2041.63

TOTAL 12547.17

Average annual EAT’S

ARR = ------------------------------- x 100
Average investment

Total amount
Average Annual EAT’S = ---------------------
No of years

12547.17
= ------------------ = 2509.43
5

Average investment =2509.43

12547.17
ARR = ---------------- X 100 = 50.1 %
2509.43

Average Rate of Return = 50.1 %

ACCEPT-REJECT critters method allows Ultratech cements Limited to fix a

minimum rate of return. Any project expected to give a return below it will be straight
away rejected. The average rate of return is as good as 50.1 % of ultratech cements
Limited depicts the prospects of management efficiency.

TIME ADJUSTED (OR) DISCOUNTED CASH FLOW METHOD:

59
 The time adjusted or discounted cash flow methods take into accounts the
profitability time value of money. These methods are also called the modern methods of
capital budgeting.
1. NET PRESENT VALUE METHOD: (NPV)

Net present value method or NPV is one of the discounted cash flows methods. The
method is considered to be one of the best of evaluating the capital investment proposals.
Under this method cash inflows and outflows associated with each project are first
calculated.

ROLE OF DISCOUNTING FACTOR:

The cash inflows and out flows are converted to the present values using discounting
factor which is the actuary discount factor of Regulated display tool kit project of
Kesoram cements limited is 10%.

The rate of return is considered as cut off rate or required rate or rate generally
determined on the basis of cost of capital to allow for the risk element involved in the
project.

STEPS FOR CALCULATION OF NPV:

1) Calculation of each cash flows after taxes of three years, which is arrived at
by deducting depreciation, interest and tax from earning before tax and interest
(EBIT). This residue is profit after tax to arrive at cash flow after tax.
2) This cash flow after tax are multiplied with the values obtained from the
Table (the present value annuity table against the 8% actuary discount
Rate i.e. in the case of project.
3) NPV is derived by deducting the sum of present values from the initial
Investment.

4) Initial investments are the sum of cash flows of three years shown in
60
 Capital expenditure table
Let us assume the discount rate be 10%:

YEARS CFAT’S PVIF @ 10% PV’S

1481.32 0.909
2009-2010
1346.51988
2169.96 0.826
2010-2011
1792.38696
3348.75 0.751
2011-2012
2514.91125
3505.51 0.683
2012-2013
2394.26333
2041.63 0.620
2013-2014
1265.8106
TOTAL: 8495.51

LESS: Initial Investment: 2986.65

NPV: 5508.86

ACCEPT-REJECT CRITERION:

The accept -reject decision of NPV is very simple. If the NPV is positive then the project
should be accepted and if NPV is negative then the project should be rejected
i.e .If NPV >0 (ACCEPT)
and NPV <0 (REJECT)

Hence in the case of Ultratech cements Limited project it is visible that the positive
NPV shows the acceptance and importance of the project.

1. INTERNAL RATE OF RETURN METHOD: (IRR)

The internal rate of return method is also a modern technique of capital budgeting that
takes into account the time value of money. It is also known as “TIME ADGUSTED

61
RATE OF RETURN”, “DISCOUNTED CASH FLOW”, “DISCOUNTED RATE
OF RETURN”, “YIELD METHOD” and “TRAIL AND ERROR YIELD
METHOD”.

IRR is the rate the sum of discounted cash inflows equals the sum of discounted cash
outflows. It equals the present value of cash inflow to present value of cash outflows.
In this method discount rate is not known, but the cash inflows
and cash out flows are known. It is the rate of return, which equates the present
value of cash inflows to out flows or it, is the rate of return, which renders NPV TO
ZERO.
STEPS INVOLVED IN THE CALCULATION OF IRR:

1) Calculation of NPV with given discount rate

2) Calculation of NPV with assumed discount rate
3) Select the higher NPV of both
4) Let R be the higher discount rate
5) Let R1 be the difference of discount rates
6) Calculation of difference of P Vs (Always higher NPV-lower NPV)

Higher NP
IRR= R + ---------------------------- XR1
Difference of P V s.

8) Decision making(Accepting- Rejecting the proposal)

FORMULATION OF STEPS:

STATEMENT OF SHOWING CALCULATION NPV @88%,89%,90% UNDER

IRR METHOD
(R s corers)

YEARS Annua Discount Discount Discount

Rate-88% Rate-89% Rate-90%

62
 PVF PV PVF PV PVF PV
l CFA
2009- 1481.3
Ts 0.531 786.58092 0.529 783.6183 0.529 783.6183
2010 2
2010- 2169.9 0.292 633.84531 0.279 607.3718 0.2799 607.3718
2011 6 1 6 9
2011- 3348.7 0.157 528.76762 0.148 495.9499 0.1481 495.9499
2012 5 9 5 1
2012- 3505.5 0.085 300.77275 0.078 274.4814 0.0783 274.4814
2013 1 8 8 3
2013- 2041.6 0.046 94.119143 0.041 84.52348 0.0414 84.52348
2014 3 1 4
      2344.0857 2245.945 2245.945
6

From the above calculations the following can be observed.

DECISION:

Since the initial investment RS.2041.63 cr is lies between 90% and 95% the company
APTDC can determine the IRR as 93.51%

Hence IRR=93.51%

ACCEPT-REJECT CRITERION:

IRR is the maximum rate of interest, which an organization can afford to pay on capital,
invested in, is accepted if IRR exceeds the cutoff rates and rejected if it is below the
cutoff rate.
The cutoff rate of ultratech Limited is 10%, which is less than the IRR i.e 93.51% hence
the acceptance of ultratech Limited is quiet a good investment decision taken by
management.

63
 3. PROFITABILITY INDEX: (BCR OR PI)

Profitability index method is also known as time adjusted method of evaluating

the investment proposals. Profitability also called as benefit cost ratio (B\C) in
relationship between present value of cash inflows and the present value of cash out
flows. Thus
Present value of cash inflows
Profitability index = --------------------------------------
Present value of cash outflows.

(OR)

Present value of cash inflows

Profitability index = - ----------------------------------------
Initial cash outlay

CALCULATIONS OF BCR:

STEP1: Calculations of cash flows after taxes

STEP2: Calculations of Present values of cash inflows @10%.
STEP3: Application of the formula.
Statement for calculating of benefit cost ratio

YEARS CFAT’S PVIF @ PV’S

10%
1481.32 0.909
2009-2010 1346.51988
2169.96 0.826
2010-2011 1792.38696
3348.75 0.751
2011-2012 2514.91125
2012-2013 3505.51 0.683 2394.26333

64
 2041.63 0.62
2013-2014 1265.8106
TOTAL: 9313.892

Present value of cash inflows

Profitability index = --------------------------------------
Initial Investment

9313.892
= ------------------ = 3.11
2687.87

Hence PI = 3 years.

ACCEPT-REJECT CRITERION:

There is a slight difference between present value index method and

profitability index method. Under profitability index method the present value of cash
inflows and cash outflows are taken as accept-reject decision.

I.e. the accept reject criterion is:

If Profitability Index > 1 (ACCEPT).

Profitability Index < 1 (REJECT).

The acceptance of by the management is evaluated through Profitability Index

method of as the PI > 1 (i.e.3years)

65
A. RETURN ON ASSETS
In this case profits are related to assets as follows

Return on assets = Net profit after tax

Total assets
Rs: Crors
Particulars 2009 2010 2011 2012 2013 2014
2575.1 2446.19 2655.43 2144.47
ROA = PAT
4 3531.64 4133.60
TOTAL 16667.9 19697.5 21970.2
6674.5 16264.2
ASSETS 5 0
8 6673.44 7 9
38.581 52.9208 25.4152 14.6758 13.4810 9.7607
3 3 2

TOTAL ASSETS
60

50

40
TOTAL ASSETS
30

20

10

0
1 2 3 4 5 6

b). RETURN ON CAPITAL EMPLOYED

66
Here return is compared to the total capital employed. A comparison of this ratio with
that of other units in the industry will indicate how efficiently the funds of the business
have been employed. The higher the ratio the more efficient is the use of capital
employed.

Return on capital employed = Net profit after taxes & Interest

Total capital employed
(Total capital employed = Fixed assets + Current assets–Current liabilities)

particular 2012 2013 2014

s 2009 2010 2011
PAT 2575.14 3531.64 4133.60 2446.19 2655.63 2144.47
Total 118.89 173.30 304.80 10247.4 11986.2 14186.5
Capital 7 4 7
Emp
ROC 21.6598 20.3787 13.5616 23.8711 22.15 15.1161
5 7 8

ROC
30

25

20

15

10

0
1 2 3 4 5 6

67
 EBIT LEVELS

Particulars 2009 2010 2011 2012 2013 2014

2775.51
Earnings Before 3351.36 3825.4
Interest & Tax 1361.46 1588.16 1786.19 0
-1049.89
Change 294.2 234.99 374.53 389.45 474.04
6.75841 8.6053 8.0697 -27.44
% Change 4.627668 5 4.769151

DEGREE OF FINANCIAL LEVERAGE:

The higher the quotient, the

greater the leverage. In Ultra Tech
Industries case it is increasing
because of decrease in EBIT levels to 2013-2014.

The EBIT level is in a decreasing trend because of drastic decline in prices in Cement
Industry during above period.

In the year 2013 and 2014 the EBIT level has increased substantially because of Raise
inn Cement prices because of demand and the policies of Govt. such as rural housing and
irrigation project taken up.

68
 5000

4000

3000
Particulars
Earnings Before Interest &
2000 Tax

1000 Change

% Change
0
1 2 3 4 5 6
-1000

-2000

INTERPRETATION

The EBIT level in 2009 is at 294.20 crs and is increasing every year till 2013. Because of
slumps in the Cement Industry less realization. The EBIT levels in 2009 again started
growing and reached to 1507.01 crs and in 2010 were at 1588.56 crs and in 2012 were at
389.43, because of the sale price increase per bag and increase in demand. The
infrastructure program taken up by the A.P. Govt. in the field s of rural housing irrigation
projects created demand and whole Cement Industries are making profits.

ERFORMANCE

EPS ANALYSIS
Particulars 2009 2010 2011 2012 2013 2014
Profit After Tax 1024.14 1093.24 1404.23 2446.19 2655.43 2144.47
Less: Preference
Dividend - - - -- -- ---
Amount of Equity 274.07 274.18 274.24
share holder 124.49 124.49 274.04
No. OF equity share 27407.00 27418.00 27424.00
of Rs.10/- each 12449.00 12449.00 27404.00
EPS 8.22 8.78 5.12 8.92 9.68 7.81

69
 EPS
12

10

8
EPS
6

0
1 2 3 4 5 6

INTERPRETATION

The PAT is in an increasing trend from 2009-2014 because of increase in sale prices and
also decreases in the cost of manufacturing. In 2012 and 2013 even the cost of
manufacturing has increased by9% because of higher sales volume PAT has increased
considerably, which leads to EPS, which is at 7.81 in 2014.

EBIT – EPS CHART

One convenient and useful way showing the relationship between EBIT
and EPS for the alternative financial plans is to prepare the EBIT-EPS chart. The chart is
easy to prepare since for any given level of financial leverage, EPS is linearly related to
EBIT. As noted earlier, the formula for calculating EPS is

EPS = (EBIT - INT) (1 – T) = (EBIT - INT) (1 – T)

N N

70
 We assume that the level of debt, the cost of debt and the tax rate are constant. Therefore
in equation, the terms (1-T)/N and INT (=iD) are constant: EPS will increase if EBIT
increases and fall if EBIT declines. Can also be written as follows

Under the assumption made, the first part of is a constant and can be represented by an
EBIT is a random variable since it can assume a value more or less than expected. The
term (1 – T)/N are also a constant and can be shown as b. Thus, the EPS, formula can be
written as:
EPS = a + bEBIT
Clearly indicates that EPS is a linear function of EBIT.

FINANCING DECISION

Financing strategy forms a key element for the smooth running of any
organization where flow, as a rare commodity, has to be obtained at the optimum cost
and put into the wheels of business at the right time and if not, it would lead intensely to
the shut down of the business.

Financing strategies basically consists of the following components:

 Mobilization
 Costing
 Timing/Availability
 Business interests

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 Therefore, the strategy is to always keep sufficient availability of finance
at the optimum cost at the right time to protect the business interest of the company.

STRATEGIES IN FINANCE MOBILIZATION

There are many options for the fund raising program of any company and it is quite
pertinent to note that these options will have to be evaluated by the finance manager
mainly in terms of:

 Cost of funds
 Mode of repayment
 Timing and time lag involved in mobilization
 Assets security
 Stock options
 Cournand’s in terms of participative management and
 Other terms and conditions.

Strategies of finance mobilization can be through two sectors, that is, owner’s resources
and the debt resources. Each of the above category can also be split into: Securitized
resources; and non-securities resources. Securitized resources are those who instrument
of title can be traded in the money market and non-securities resources and those, which
cannot be traded in the market

THE FORMS OF FUNDS MOBILIZATION IS ILLUSTRATED BY A CHART:

FUNDING MIX - SOURCES

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 OWNERS FUND BORROWED FUND

EQUITY RETAINED PREFERENCE CONVENTIONAL NON-

CONVENTIONAL
CAPITAL EARNINGS CAPITAL SOURCES SOURCES

FINANCIAL SUPPLIERS CREDIT

INSTITUTION SHORT TERM
BANK BANK
BORROWINGS
CASH CREDIT HIRE PURCHASE
DEBENTURES
FIXED DEPOSITS
ICD

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 ULTRA TECH CEMENTS INDUSTRIES LTD. THE FUNDING MIX

Particulars 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Source of funds      

Share holders’ funds      

17097.51
a) Share capital 3602.10 4608.65 10666.04 12585.82 15234.82
16823.27

b) Reserves and surplus 3475.93 4482.17 10387.22 12585.75 14960.64

1547.85
c)Deferred tax 722.93 830.73 1730.05 1793.89 1987.54
TOTAL (A) 7800.96 9921.55 22783.31 27239.46 32183.00 35468.63
Loan Funds      
2389.35
a) Secured Loans 1175.80 854.19 2789.76 2012.09 2147.34
2483.43

b) Unsecured Loans 965.83 750.33 1354.84 1769.04 2315.34

4872.78
TOTAL (B) 2141.63 1604.52 4144.6 3808.13 4462.68
TOTAL (A+B) 9942.59 11526.07 26927.91 31047.59 36645.68 40341.41
% of S H in total C.E 41.22 42.38 34.3 31.65 39.67 34.54
% of Loan Fund in total 89.64
C.E 58.78 57.62 65.69 68.74 75.58

INTERPRETATION

The shareholder fund is at 2141.63 constitutes 41.22% in total C.E and loan funds
constitute 58.78% in 2009-10. The Funding Mix on an average for 6 years will be 49% of
shareholders Fund and 61% of Loan Funds there by the company is trying to maintain a
good Funding Mix. The leverage or trading on equity is also good because the company
affectively utilizing the Loan Funds in the Capital Structure. So that it leads to higher
profit increase of EPS in 2009 at0.45 to 2014 04.2.

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 CHAPTER-V
 FINDINGS
 SUGGESSIONS
 CONCLUSIONS
 BIBLIOGRAPHY

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 FINDINGS

1. There has been a small reduction in Gross Sales and with the performance of prefab
Division the Gross Profit gap has narrowed and contributing to the EBIT. The Gross
Profit has decreased in 2014 considerably from 3817.90 Cr in 2013 to 4675.48 Cr in year.
The interest payment has decreased by 857.58 Cr in the Current year and the Profit before
Tax at 2144.47 when compared to 2655.43 cr in 2013.
2. Perform Division realization has increased by 7% even the Turnover has come to
18975.54 Cr in 2013 from 14858.60 Cr in 2012.
3. The profit After Tax has came 2144.47 in 2014 Cr to 1404.23 in 2011 Cr in year
because of slope in Cement Industry.
4. The PAT is in an increasing trend from 2009-2010 because of increase in sale prices
and also decreases in the cost of manufacturing. In 2010 and 2011even the cost of
manufacturing has increased by 6.2% because of higher sales volume PAT has increased
considerably, which leads to higher EPS, which is at 89.26 in 2012.
5. The EBIT level in 2009 is at 489.65 Cr and is increasing every year till 2013. Because
of slumps in the Cement Industry less realization. The EBIT levels in 2012 again started
growing and reached to 3569.64Cr and in 2012 were at 2354.67 Cr and in 2013 were at
1491.17, because of the sale price increase per bag and increase in demand. The
infrastructure program taken up by the A.P. Govt. in the field s of rural housing irrigation
projects created demand and whole Cement Industries are making profits.
6. The EPS of the company also increased considerably which investors in coming
period. The company has taken up a plant expansion program during the year to increase
the production activity and to meet the increase in the demand
7. Because of decrease in Non-Operating expenses to the time of -0.417 Cr the Net profit
has increased. It stood at in current year increase because of redemption of debenture and
cost reduction. A dividend of Rs.219.25 Cr as declared during the year at 64.57% on
equity.

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 CONCLUSIONS

 The budgeting exercise in Ultratech also covers the long term capital budgets,
including annual planning and provides long term plan for application of internal
resources and debt servicing translated in to the corporate plan.
 The scope of capital budgeting also includes expenditure on plant betterment, and
renovation, balancing equipment, capital additions and commissioning expenses
on trial runs generating units.
 To establish a close link between physical progress and monitory outlay and to
provide the basis for plan allocation and budgetary support by the government.
 The manual recommends the computation of NPV at a cost of capital / discount
rate specified from time to time.
 A single discount rate should not be used for all the capacity budgeting projects.
 The analysis of relevant facts and quantifications of anticipated results and
benefits, risk factors if any, must be clearly brought out.
 Inducting at least three non -official directors the mechanism of the Search
Committee should restructure the Boards of these PSUs.
 Feasibility report of the project is prepared on the cost estimates and the cost of
generation.

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 RECOMMENDATIONS ON CEMENT INDUSTRY

For the development of the cement industry ‘Working Group on cement

Industry’ was constituted by the planning commission for the formulation of Five
Year Plan. The working Group has projected a growth rate of 12% for the cement
industry during the plan period and has projected creation of additional capacity of
40-62 million tones mainly through expansion of existing plants. The working
Group has identified following thrust areas for improving demand for cement;

 Further push to housing development programmers;

 Promotion of concrete Highways and roads; and
 Use of ready-mix concrete in large infrastructure project.

Further, 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, viz.. The report submitted by the organization has made several
recommendations for making the Indian Cement Industry more competitive in the
international market. The recommendations are under consideration.

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