A Study On Fundamental Analysis of Indian Cement Industry

A STUDY ON FUNDAMENTAL ANALYSIS OF
INDIAN CEMENT INDUSTRY
Abstract
India is the world's second largest producer of cement behind China with ever growing
industry capacity of over 200 plus million tonnes (MT) and has left behind developed
markets such as the US and Japan. With low per capita consumption of 28 kg in the
1980’s, it has risen to 110 kg in the 2000’s but still far behind world present average of
260 Kgs. It is a highly capital-intensive industry and operates with a high level of fixed
cost. With huge investments planned in the Indian Infrastructure both by government and
private sector, to various national infrastructure projects, road networks and housing
facilities, growth in the cement consumption is anticipated in future years. For smooth
running of cement industry it is important to have overall balanced projection. The
current scenario of Cement industry in India is more concerned of solving the consumer
complaints, resolve disputes with special attention given to public interface. For smooth
survival and competitive growth it is paramount important for cement industry to
evaluate the past performance and the expected future performance of companies along
with the profitability position.
Key Words: EPS, OPM, NPM, DER, PER, DPR, CR, KILIN, Ho, Ha,
About the Authors

*Dr S.M.Tariq Zafar is M.Com, PGDMM and PhD in Social Sector Investment,
Presently working as Associate Professor and H.O.D at Dehrdoon Institute of
Technology, Dehradun. His areas of interest are: Financial Management, Working
capital, Financial Market and Institution Can be reached at: smtariqz2015@gmail.com
Acknowledgment: I solemnly accept full responsibility for any remaining mistakes; I

wish to thank Prof. Imran Saleem VC Shinghanya University Jaipur for true support and
guidance in all regards.
Objective and Methodology:

This study is an attempt to analyze the various factors of the industry like cost structure &
profitability, government policy, inflation and taxation whether it impact on the
1
fundamental of the company or not. The core aspect is to evaluate the past performance
and the expected future performance of companies, to analyze the profitability position of
the companies and the various ratios of the past five years of sample companies. The
study is based on the secondary data collected from various government records and
published national document, websites and adopts analytical and descriptive research
design.
Sampling Technique: The study is done with special reference to large scale private
sector cement companies and the technique of ‘Convenience Sampling’ is being adopted
for the study.
Sample Size: Five Indian Large scale companies are chosen as sample size of the study,
on account of sales, production and profitability.
Tools for analysis:

Ratio Analysis: Ratios have been calculated for past five years for the purpose of
analysis. Ratios being designed are named as: Earning per Share (EPS), Operating Profit
Margin (OPM), Net Profit Margin (NPM), Debt Equity Ratio (DER), and Price Earning
Ratio (PER), dividend payout ratio & Current Ratio.
Analysis of Variance (ANOVA): The statistical tool that is used for testing hypothesis is
one-way Analysis of Variance (ANOVA).
HYPOTHESIS OF THE STUDY
The study tests whether the selected variables of sample companies vary significantly
during the study period.
This specific hypothesis is tested at appropriate time while analyzing and interpreting the
results.
The two basic hypotheses have been taken for testing. One is null-hypothesis and another
is alternative hypothesis, which have been framed as follows:
(H1): There is no significant difference between the position of a selected variable of

Ultratech cement, India cement, Shree cement, Madras cement, & JK cement.
2
INTRODUCTION
Every developed and developing nation’s favorite project is infrastructure and cement is a
key infrastructure industry. India is fast emerging on the world map as a strong and
efficient economy and an effective global power. The country is going through a multiple
phase of rapid development and growth. All the core industries and sectors of the country
are registering growth and thus, luring investors. And cement industry is one of them.
With growing Government Expenditure on Infrastructure sector in India has generated a
higher demand of cement in the country and resulted increased participation of larger
companies in the sector making seventy years old Indian cement industry second largest
cement producer in the world, producing more than 200 million tones annually. There are
a total number of 134 large cement plants with an installed capacity of 173.08 million
tones approximately and more than 350 operating mini-cement plants, with an estimated
capacity of 11.10 million tones per annum. At early stage it was highly centralized sector
but it has been decontrolled from price and distribution on 1 st March, 1989 and further
delicensed on 25th July, 1991. For raising efficiency in the sector, the Planning
Commission of India in the 10th plan has formed a 'Working Group on Cement Industry'.
However, the government regulatory body monitors the performance of the industry and
prices of cement at regular intervals. The constraints faced by the industry are reviewed
in the Infrastructure Coordination Committee meetings held in the Cabinet Secretariat
under the Chairmanship of Secretary (Coordination).Its performance is also reviewed by
the Cabinet Committee on Infrastructure.
HISTORY OF CEMENT INDUSTRY
Curiosity of exploring some thing good in the 18th century activated honorable people to
explore the truth and to understand why some limes possess hydraulic properties. John
Smeaton generally known as "father of civil engineering in England" concentrated his
efforts in this field. Getting influenced by the work of Smeaton and Parker in 1812 the
French Engineer Louis Vicat started investigative study of hydraulic limes. In 1818 an
English patent was granted to Maurice Leger for "Improvement method of making lime"
(Leger used Vicat's method), in 1822 the civil commercial production of "British
Cement" had been started by James Frost at Swanscombe based on a patent for "a new
cement or artificial stone”. Joseph Aspedin, an English Bricklayer in 1824 should be
credited for the invention of Portland cement. It involves a double kilning such as was
described by Vicat. In 1838 Isaac Johnson a young chemical engineer innovated the
modern Portland cement. In 1875, standards of cement were proposed by German
Chemist Wilhelm Michaelis. Further the chamber kiln was an improved design developed
and patented by Mr. Johnson. Portland cement Company in 1898 bought revolution in
cement industry by improving the design of kilin. After 1900 there was speedy growth in
both rotary kiln and auxiliary equipment technology in the US.
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Indian Cement Industry
Cement hold key status in infrastructure industry and in India it has undergone a major
shift over the last 6 years but still brand premium is almost non-existent in the industry.
India is second largest producer of cement in the world and produce 200 plus million
tones of cement annually but it ranks below steel and aluminum in terms of value-
addition though it is a highly capital-intensive industry and operates with a high level of
fixed cost and therefore volume growth is critical. India is also producing different
varieties of cement like Ordinary Portland Cement (OPC), Portland Pozzolana Cement
(PPC), Portland Blast Furnace Slag Cement (PBFC), Oil Well Cement, Rapid Hardening
Portland Cement, etc. Between April to November 2008, 25 per cent of all cement
produced was OPC, 67 per cent was PPC and 8 per cent was PBFC. For its smooth
survival access to raw materials (limestone and coal) and consuming markets are equally
important in the long term. In order to meet ever growing demand, cement companies are
multiplying their production capacity and fast developing new plants and expected to add
111 MT of annual capacity by the end of 2009–10 (FY 2010), riding on the back of
approximately 141 outstanding cement projects. According to a report by the ICRA
Industry Monitor, the installed capacity is expected to increase to 241 MTPA by FY
2010-end. For the past couple of years in general Indian cement industry demand growth
has surpassed the nation’s economic growth rate and is likely to record an annual growth
of 10 percent will continue to grow by 1.2 x GDP growths in FY10, with higher domestic
demand resulting in increased capacity utilization. According to a Research Analyst at
RNCOS, “The Indian cement industry is expected to grow rapidly in coming years due to
heavy demand from housing, retail and infrastructure industry. Though India has low per
capita consumption (110 Kgs of cement in India as compared to world average of 260
Kgs), moreover, several players have decided to raise their production capacity during
2009-2012, which, in turn, boosts the production volume of the cement industry.
As per the Department of Industrial Policy and Promotion's latest data reveled that Indian
cement modern plants are among the best in the world and comprises of 134 large cement
plants with overall installed capacity of 173.08 million tones along with more than 350
operating mini-cement plants, with an estimated capacity of 11.10 million tones per
annum. Continuous technological changes, upgrading and assimilation of latest
technology have been going on in the cement industry. At present 93 per cent of the total
installed capacity in the industry is based on modern and environment-friendly dry
process technology and remaining 7 per cent of the capacity is based on old wet and
semi-dry process technology. The cement industry in India has to be viewed on a regional
basis viz. northern, western, southern and eastern. Since demand is erratic in certain
regions, companies that focus on these regions suffer if there is a decline in prices. The
Indian cement industry is highly fragmented; generally the top six companies share
almost 60% of industry capacity and the remaining 40% is distributed among 40 small
players. The boom in the real estate and construction industry in India saw a sudden and
sharp increase in the price of cement, to the extent of a price increment as high as 17 per
cent in a single month (Ritu Raj Arora and Runa Sarkar). Against a 17 per cent rise in
demand last year, cement industry saw a sluggish growth in installed capacity, at only a
little more than 1 per cent, says a recent study conducted by the Government (D.Murali).
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With increase in production capacity, in tune with the demand, we need to focus on
“good construction practices” as quality works is poor at present, especially material
prepared for construction at site. This would help in improving the life span of the
structure (Nitish Bhartwal). Further R. Dadras (1999) measure technical efficiency of the
cement industry and suggested that efficiency is time decreasing and ownership type
affects the efficiency of cement industry and Government interventions, price controls
and export bans have contributed to decreasing efficiency trend. M. Sameti (1995)
measures the efficiency of cement manufactures of public and private sectors and reveled
that productivity of capital in private sector companies has experienced the highest level
as compared with other sectors, while some countries (China) benefited joining WTO,
others suffered from loss of domestic industry, moreover the success depends crucially
on the structure of industry and the level of protections imposed before joining WTO.
The state has still to play an important role in determining the development path in a
developing country like India. Though the neo-liberal development paradigm expects
that, the role of the state is to undertake “market friendly” intervention so as to enable
markets to operate efficiently (Indira Hirway and Amita Shah).
Impact of globalization on cement industry

Open market and globalization has impacted Indian Cement Industry in a big way and
has helped the industry to restructure itself to compete with the alterations in all regards.
The international cement demand is derivative in nature as it solely depends on the
constructional activities, real estate and other related industrial activities. Keeping pace
with the advance technological world, the Indian cement industry has transformed itself
into more advanced and globally at par one. The Indian cement industry is among the
oldest industries and has been catering to India's cement requirements from more than
seventy years. It is not only meeting the requirements arisen within the domestic territory
but also fulfilling the burgeoning demands of the international arena. India is also
exporting good amount of cement clinker and by products of cement. With futuristic
development policy the Government of India has lifted the ban on cement export but has
allowed permitted shipments only through Gujarat ports. According to the Directorate
General of Foreign Trade, “The existing ban on export of cement and cement clinker
shall not be applicable to export from ports of Gujarat". Due to the superlative quality,
the Indian cement has established high status on the global map. Gradually the
consumption of cement has increased in India by nearly 7.5%. With the globalization of
Indian cement industry many foreign cement manufacturers (Heidelberg Cement, Holcim
Cement Italcementi cement) has established agreements and deals with their India counter
parts to have a share of the growth, though the majority of the players in the Indian
cement industry are private sector organizations and are highly regulated. Increase in
demand will increase the production and consumption and will impact the overall
profitability of the cement industry. The Indian cement industry will continue to show
steady performance by increasing its capacity another 50 Million Tones in 2009 despite
the recession and slump in the country’s housing industry, stated H M Bangur, President
of Cement Manufacturers’ Association (CMA) and reported by economictimes.
5
Impact of Inflation on Cement Industry
Inflation is indirect tax which cannot be omitted. With inflated economy every segment
of industry has to face the heat of cost. Cement seems to be one of the worst hit sectors as
the prominent industry players have reported 42 percent jump in the raw material cost
against 25 percent increase in sales in the last quarter of fiscal '08. A recent study by
industry body ASSOCHAM on 'Cost Escalation in Cement Industry has revealed that the
cement industry facing the charges of cartelization, has borne a sharp rise of 42 percent in
its raw material cost in the fourth quarter of fiscal 2008 even as the wholesale prices of
cement surged by 8.5 percent during this period. According to AEP the wholesale prices
of limestone, a key ingredient for cement manufacturing, have climbed by 13.9 percent in
first three months of the year 2008. Fire clay has risen by as much as 30 percent. The
power and fuel cost, which constitute 60 per cent of the total operating expenditure of the
cement companies have increased by 24 percent in the fourth quarter. This is on account
of the 10 rise in coal prices," said ASSOCHAM President, Venugopal N. Dhoot. Due to
inflation one-third market share of industry, have registered least or no growth in the last
quarter of financial year 2007-08. But at the same time cement remains one of the highest
tax items in the country under the higher duty regime, the cement production growth
declined from 9.5 percent in April-February 2006-07 to 7.5 percent in the corresponding
period of the financial year 2007-08. The AEP stated that continued rise in the raw
material cost of the cement companies may prove detrimental to their expansion plans in
view of their inability to share the cost burden with the consumers. Under the shadow of
inflation companies are registering percent growth in sales with no growth in net profit.
Industries, whose three-fourth revenue comes from cement segment, recorded a rise of 26
percent while sales grew by 18.7 percent. The net profit growth was restricted to nine
percent.
Impact of Taxation on Cement Industry

Despite the changes in export policy and labialization, feel good factor in the cement
industry is mirage, major cement players are echoing the same view that the taxation will
impact negatively. As A.K. Jain Executive Director, ACC Ltd points out, "Our major
problem continues to be the high incidence of statutory taxes and levies. Currently, this is
of the order of Rs 950 per tonne. This is higher than the incidence on any other building
material and certainly the highest in the world. Yet, excise duty was raised by Rs 50 per
tonne in the last budget." The differential excise duty structure which was introduced in
the Union Budget of fiscal 2007-08, was further revised upwards in the central budget for
fiscal 09, wherein excise duty on bulk cement was increased from previous Rs. 400 per
tonne to '14 percent or Rs. 400 per tonne whichever is higher.' Also, the excise duty on
cement clinkers was raised from Rs. 350 per tonne to Rs. 450 per tonne. P.C. Nalwaya,
Vice President, Indo Rama Cements Ltd, says, "The cement industry, the mother of all
infrastructure industries, does expect some relief in the 2004-05 Union budgets since,
currently, the taxation component in the cement price is almost equal to its production
cost like Rs 700-800 per tonne. The taxation includes (all per tonne) excise-duty of Rs
400, sales tax of Rs 300-400, octroi of 4 per cent and corporate tax."
Introduction of VAT may provide a partial solution to their problem, though. The burden
6
of VAT may have to be borne by the cement producers. With high duties and various
taxes companies will feel negative impact on their profitability and thus it needs prompt
and positive consideration for its growth and global competition.
FUNDAMENTAL ANALYSIS & INTERPRETATION OF RESULTS

To trace out the impact of cost structure & profitability, governmental policies, inflation,
globalization, taxation we have analyzed top five companies in the field of Cement sector
at the bases of Fundamental analysis. In fundamental analysis we find out the
comparative balance sheet, profit & loss account of each company. Top Five companies
as given below:-
o ULTRATECH CEMENT
o INDIA CEMENT LIMITED
o SHREE CEMENT LIMITED
o MADRAS CEMENT LIMITED
o JK CEMENT LIMITED
1. OPERATING PROFIT MARGIN (OPM)
Operating Profit Margin indicates how effective a company is at controlling the costs and
expenses associated with their normal business operations. This ratio is found out using
the following formulae and expressed in percentage terms.
Operating Profit Margin = Operating Profit X 100
Net Sales
The Operating Profit Margin position of the sample companies is depicted in Table: 1 and
discussed below.
Table: 1
India Shree Madras
Year Ultratech cement cement cement Jk cement
2004 15.1476 11.7720 27.2112 23.8261 0
2005 13.84606 12.2437 28.9412 20.5010 10.8246
2006 17.02132 17.3030 31.7156 20.7580 14.1677
2007 29.00031 33.0483 42.3327 35.2514 24.5698
2008 31.33826 35.8899 41.0466 37.2673 28.5040
Average 21.2707 22.0514 34.2495 27.5207 15.6132
Source: Computed using MS- Excel spread sheets from the data available in
money.rediff.com
Here we can see that operating profit margin of Shree cement is highest among all the
companies and JK cement is very low so Shree cement is best among all in case of
operating profit margin.
Hypothesis Testing
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Ho: OPM position of Ultratech, India cements, Shree cements, Madras cements & JK
cements does differ significantly.
Ha: OPM position of Ultratech, India cements, Shree cements, Madras cements & JK
Table 2: One-Way ANOVA for Operating Profit Margin

Sum of Mean 5% F-
Squares df Square F limit
Between Groups 692.303 4 173.076 2.225 2.90
Within Groups 1478.181 19 77.799
Total 2170.484 23
Source: One-way ANOVA has been calculated by SPSS.
Inference: Since the calculated value of F is 2.225 which is less than the table value of
2.90 (CV < TV at 5% significance level), the null hypothesis is accepted and hence it is
concluded that the operating profit margin position of Ultratech, India cements, Shree
cements, Madras cements & JK cements does differ significantly.
2. NET PROFIT MARGIN (NPM)

Net Profit Margin indicates how much a company is able to earn after all direct and
indirect expenses to every rupee of revenue. This ratio is calculated by using the
following formula and expressed in percentage terms.
Net Profit Margin = Net Profit X 100
Net Sales
Table 3: Net profit margin (in %) of the sample companies
India Shree Madras Jk
Year Ultratech cement cement cement cement
2004 1.7150 -9.4335 2.6381 4.7901 5.80
2005 0.1063 0.3941 4.8277 7.6254 1.7749
2006 6.9635 2.9388 2.6481 7.8675 3.4655
2007 15.9354 21.2321 12.6153 19.6520 13.2937
2008 18.2788 20.9424 12.3502 20.3603 18.1841
Average 8.5998 7.2147 7.01593 12.0591 9.1796
money.rediff.com.
As shown we can watch here that NPM of Madras cement is 12.06 which are higher than
other four companies so here we can easily interpret that in terms of NPM madras cement
limited is best amongst all the five companies.
8
Ho: NPM position of Ultratech, India cements, Shree cements, Madras cements & JK
Ha: NPM position of Ultratech, India cements, Shree cements, Madras cements & JK
cements does differ significantly
Table 4: One-Way ANOVA for Net Profit Margin
Sum of Mean 5% F-
Between Groups 81.859 4 20.465 .271 2.87
Within Groups 1510.711 20 75.536
Total 1592.570 24
Source: One-way ANOVA has been calculated by SPSS
Inference: Since the calculated value of F is .271 which is less than the table value of
concluded that the net profit margin position of Ultratech, India cements, Shree cements,
Madras cements & JK cements does differ significantly.
3. EARNING PER SHARE (EPS)

Earning per share is the measure of company’s ability to generate after tax profits per
share held by the investors. This ratio is computed with the help of the following formula
and expressed in rupee terms.
Earning per share = Profit after tax - Preference dividend
No. of Equity Share
Table 5: Earning Per Share (in %) of the sample companies
2004 3.1214 -6.8744 3.7431 101.2121 0.0109
2005 0.2291 0.3282 8.3445 169.4545 1.2618
2006 18.4696 2.37507 5.2817 239.4544 4.6577
2007 62.8408 21.7280 50.8080 933.3939 25.5437
2008 80.9416 22.6183 74.7395 1237.2424 37.9209
Average 33.1205 8.0350 28.5834 536.151 13.8790
money.rediff.com.
As shown in table EPS position madras cement is very high Rs.536 as compare to others
and that of India cement is very low just Rs.8 so here we can say that madras cement
enjoys a good position in market as compared to other companies.
The EPS position of sample companies are compared and tested using the following
hypothesis. The details are shown in Table.
9
Ho: EPS position of Ultratech, India cements, Shree cements, Madras cements & JK
Ha: EPS position of Ultratech, India cements, Shree cements, Madras cements & JK
cements does differ significantly
Table 6: One-way ANOVA for Earning Per Share

Mean 5% F-
Sum of Squares df Square F limit
Between Groups 1064033.821 4 266008.455 4.961 2.87
Within Groups 1072423.098 20 53621.155
Total 2136456.919 24
Inference: Since the calculated value of F is 4.961 which is more than the table value of
2.87 (CV > TV at 5% significance level), the null hypothesis is rejected and hence it is
concluded that the earning per share position of Ultratech, India cements, Shree cements,
4. DIVIDEND PER SHARE (DPS)
This ratio tells us about the dividend paying of a particular company. This ratio
determines about the dividend as a return from the point of view of investor.
Dividend per Share:-
Equity dividend *100
Number of equity shareholders
Table 7: Dividend per share (in %) of the sample companies
2004 0.5000 0 2.9996 27.4849 0
2005 0.7501 0 3.9986 36.6668 0
2006 1.7516 0 5.0004 54.9697 1.5001
2007 3.9997 68.4400 5.9993 91.6364 3.4994
2008 4.9998 2.3376 8.0001 145.5455 4.9995
Average 2.4002 14.1555 5.1996 71.2606 1.9998
money.rediff.com
As shown in above table we can easily come to know that madras cement has paid the
maximum DPS approax Rs.71 which is quite high if compares to other companies. While
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JK cement is just Rs.2 so it is good to go with Madras cement if an investor wants to have
a fair return on his investment.
The DPS position of sample companies are compared and tested using the following
hypothesis. The details are shown in Table.
Ho: DPS position of Ultratech, India cements, Shree cements, Madras cements & JK
Ha: DPS position of Ultratech, India cements, Shree cements, Madras cements & JK
Table 8: One-way ANOVA for Dividend per Share

Sum of Mean 5% F-
Between Groups 16807.421 4 4201.855 5.465 3.06
Within Groups 11533.665 15 768.911
Total 28341.086 19
Inference: Since the calculated value of F is 5.465 which is more than the table value of
3.06 (CV > TV at 5% significance level), the null hypothesis is rejected and hence it is
concluded that the dividend per share position of Ultratech, India cements, Shree
cements, Madras cements & JK cements does differ significantly.
5 DIVIDEND PAYOUT RATIO (DPR)
This ratio DPR tells us about the amount of dividend given as compared to what the
earning of share is. It shows us the ratio of dividend as per the ratio of earning of share.
Dividend Payout Ratio:-

Dividend per share
Earning per share
Table 9: Dividend payout ratio (in %) of the sample companies

2004 16.0185 0 80.1381 27.1557 0
2005 327.3684 0 47.9188 21.6381 0
2006 9.4838 0 94.6739 22.9563 32.2076
11
2007 6.3647 6.36134 11.8079 9.8175 13.6995
2008 6.1769 10.3351 10.7039 11.7637 13.1839
Average 73.0825 3.3392 49.0486 18.6662 11.8182
money.rediff.com
From this table we can easily came to know that ultratech cement limited has got the best
position if dividend payout ratio is concerned.
Hypothesis Testing
Ho: DPR position of Ultratech, India cements, Shree cements, Madras cements & JK
Ha: DPR position of Ultratech, India cements, Shree cements, Madras cements & JK
Table10: One-way ANOVA for Dividend Payout Ratio.

Sum of Mean 5% F-
Between Groups 11377.139 4 2844.285 .489 3.06
Within Groups 87264.752 15 5817.650
Total 98641.891 19
concluded that the Dividend payout position of Ultratech, India cements, Shree cements,
12
6 RETURN ON NET WORTH (RONW)
This ratio helps us in examining what the shareholders getting after paying out all the
liabilities. RONW takes into account final profit and all the shareholders funds.
Return on net worth:-

Net profit * 100
Equity share capital + reserve & surplus
Table 11: Return on net worth (in %) of the sample companies
2004 3.6123 -26.6583 5.1872 11.4125 0.1093
2005 0.2671 1.3549 10.0418 16.7000 11.1980
2006 22.1311 5.2625 6.2099 20.0976 9.1512
2007 44.3525 34.5339 38.9396 46.2243 34.6586
2008 37.3605 24.5509 38.6989 42.8044 34.7905
Average 21.5447 7.8088 19.8155 27.4478 17.9815
money.rediff.com
This table shows us that India Cements has got very low figure 7.808 and that of Madras
cement is quite good as compared to others. Madras cement RONW is around 24 so here
we can say that madras cement enjoying the dominant position over the other companies
in terms of return on net worth.
Hypothesis Testing
Ho: RONW position of Ultratech, India cements, Shree cements, Madras cements & JK
Ha: RONW position of Ultratech, India cements, Shree cements, Madras cements & JK
Table 12: One-way ANOVA for Return on Net Worth
Sum of Mean 5% F-
Between Groups 1023.767 4 255.942 .730 2.87
Within Groups 7011.698 20 350.585
Total 8035.465 24
13
concluded that the return on net worth of Ultratech, India cements, Shree cements,
7. CURRENT RATIO
Current ratio is a liquidity ratio which shows the liquidity position of a company. Current
ratio is current assets over current liabilities. Current ratio signifies how efficient the
company is to pay off its liabilities the higher the ratio better the company is in liquidity
position.
Current ratio = Current assets

Current liabilities
Table 13: Current ratio (in %) of the sample companies
2004 0.6646 3.3442 1.4189 0.7100 335.28
2005 0.8226 2.8754 1.0056 0.8800 1.0966
2006 0.6844 3.2029 0.8833 0.7704 2.0427
2007 0.7323 3.5097 2.3013 0.9910 1.8177
2008 0.7181 1.7774 2.0619 1.0198 1.9643
Average 0.7244 2.9419 1.5342 0.8742 68.4403
money.rediff.com
Over here we can see that India cement is a having a good liquidity position near around
3 so here we can say that its good to go with India cement although JK cement having
very high current ratio but having this much high ratio also bad for the company it shows
that company has got idle funds wasted in current assets good ratio is near around 2.
Hypothesis Testing
Ho: CR position of Ultratech, India cements, Shree cements, Madras cements & JK
Ha: CR position of Ultratech, India cements, Shree cements, Madras cements & JK
Table 14: One-way ANOVA for Current Ratio
Sum of Mean 5% F-
Between Groups 17929.342 4 4482.335 1.007 2.87
Within Groups 89008.436 20 4450.422
Total 106937.778 14
24
Inference: Since the calculated value of F is 1.007 which is less than the table value of
2.87 (CV > TV at 5% significance level), the null hypothesis is accepted and hence it is
concluded that the current ratio of Ultratech, India cements, Shree cements, Madras
cements & JK cements does differ significantly.
8. DEBT EQUITY RATIO

Debt equity ratio shows us company’s position in maintaining and handling its capital
structure. Capital structure is composed of proper portion debt and equity. It also shows
how efficiently company had gone with its capital structure.
Debt equity ratio:-

Debt *100
Equity
Table 15: Debt equity ratio (in %) of the sample companies
2004 1.4457 5.8153 1.3408 2.0987 0
2005 1.4350 5.8792 0.9784 2.0635 9.8548
2006 1.3984 1.7715 1.1742 1.5322 1.5553
2007 0.8950 1.4848 1.9351 1.0164 1.0240
2008 0.6454 0.6976 1.8878 1.7148 0.6698
Average 1.1639 3.1297 1.4633 1.6852 2.6208
money.rediff.com
from the above table we can easily interpret that almost all the companies has got some
what similar ratio but India cement has got really high debt equity position i.e.3.12 and
ultratech cement limited has got least debt equity ratio.
Hypothesis Testing
Ho: DER position of Ultratech, India cements, Shree cements, Madras cements & JK
Ha: DER position of Ultratech, India cements, Shree cements, Madras cements & JK
15
Table 16: One-way ANOVA for Debt Equity Ratio.
Sum of Mean 5% F-
Between Groups 18.102 4 4.525 1.007 2.90
Within Groups 85.414 19 4.495
Total 103.516 23
Inference: Since the calculated value of F 1.007 which is less than the table value of
concluded that the debt equity position of Ultratech, India cements, Shree cements,
9. PRICE EARNING RATIO

This price earning ratio shows the relationship between market price per share and
earning per share. Here we analyze what a shareholder is getting how much is justified by
the current prevailing price of share in the market.
Price earning ratio:-
Market price per share
Earning per share
Table 17: Price earning ratio (in %) of the sample companies
2004 0 -5.2949 37.5353 7.6518 0
2005 1528.5799 203.0730 40.6252 5.8024 119.3812
2006 37.0582 69.4505 169.1677 9.0463 37.3574
2007 11.4925 7.0807 17.9066 2.9154 5.6296
2008 9.6347 8.2588 14.4422 2.7132 4.2984
Average 317.3531 56.5136 55.9354 5.6258 41.6686
money.rediff.com
As shown in above table we can easily conclude that Ultratech cement is best in price
earning ratio as it has got the highest Rs.317 and Madras cement limited is having low
price earning ratio. So a shareholder/investor can have very good response towards
Ultratech if he goes for price earning ratio as criteria for investment.
Hypothesis Testing
16
Ho: PER position of Ultratech, India cements, Shree cements, Madras cements & JK
Ha: PER position of Ultratech, India cements, Shree cements, Madras cements & JK
Table 18: One-way ANOVA for price earning ratio

Sum of Mean 5% F-
Between Groups 429326.024 4 107331.506 1.095 2.93
Within Groups 1764286.764 18 98015.931
Total 2193612.787 22
Inference: Since the calculated value of F 1.095 which is less than the table value of
concluded that the price earning ratio of Ultratech, India cements, Shree cements, Madras
cements & JK cements does differ significantly.
FINDINGS OF THE STUDY
Industry
 It is reveled that in India domestic demand for cement has been increasing at a
fast pace and it has surpassed the economic growth rate of the country
17
 Cement consumption in India is forecasted to grow by over 22% by 2009-10 from
2007-08 and the installed capacity is expected to increase to 241 MTPA by FY
2010-end
 Housing sector is expected to remain the largest cement consumer in coming
years
 It is reveled that Indian cement modern plants are among the best in the world and
93 per cent of the total installed capacity is based on modern and environment-
friendly dry process
 It is reveled that due to inflation there is 42 percent rise in its raw material cost,
wholesale prices of cement surged by 8.5 percent, prices of limestone have
climbed by 13.9. Fire clay has risen by as much as 30 percent. The power and fuel
cost, have increased by 24 percent, 10 percent rise in coal prices.
 It is reveled that it is one of the highest tax items in the country and certainly the
highest in the world.
 It is reveled that 25 per cent of all cement produced was OPC, 67 per cent was
PPC and 8 per cent was PBFC.
 It is reveled that Indian consumption of cement is comparatively lower than
international standard.
Companies
 It is reveled that Operating profit margin is maximum of Shree cement over the
period of five years 2004-2008.
 Net profit margin is at dominant position in case of Madras cement i.e. 12.05912
over the five year period time 2004-2008.
 It is reveled that Earning per Share of Madras Cement tends to have advantage its
really very high as compared to other companies it is 536.1515 which shows good
earning per share.
 Dividend per share is also found to be maximum in case of Madras cement
limited over the period of five years 2004-2008. It shows that shareholder of
Madras limited tends to gain good rate of return.
 The study reveled that dividend payout ratio of Ultratech cement is 73.0825
percent, followed by Shree cement 49.0486 percent.
 Study reveled that return on net worth of Madaras cement is 27.4478 followed by
Ultratech cement which is 21.5447.
 The study reveled that Current Ratio of India Cement has got comparative
advantage on others as it is around 3:1 which shows good liquidity position.
 It is found that Debt equity ratio of India cement is comparatively high and its
position i.e.3.12 and simultaneously ultratech cement limited has got least debt
equity ratio.
 The Study reveled that Ultratech cement has better Price earning ratio than others
it is around Rs.317.3531 over the period of five years 2004-2008 and Madras
Cement has lowest PER which is Rs. 5.6258 per share.
Recommendations
18
Infrastructure projects are considered as mother of employment and it require proper and
futuristic planning which may generate more balance growth and employment.
Government initiatives in the infrastructure sector and the housing sector are likely to be
the main drivers of growth for the industry. The international cement demand is
derivative in nature as it solely depends on the constructional activities, real estate and
other related industrial activities and the demand-supply situation is tightly balanced.
Government has to develop balance and growing if not then constant demand for the
industry through promoting housing development, concrete highways and roads and use
of ready mix concrete in large infrastructure projects. Government has to rationalize the
tax and duties structure with more liberalized export, import policy. Foreign companies
have to be allowed with controlled freedom and government has to act as parental body.
Licensing of coal and limestone reserves, supply of power from the state grid and
availability of railways for transport have to be economical, efficient and effective.
Rising interest rates, price of raw material, fuel prices are to be controlled as it has direct
impact on cost of the product and its profitability. To meet out increasing demand
expansion must be eco friendly. Companies who have sound ratios have to keep pace and
promises and those who have average and below to average have to improve their
performance for their competitive survival.
References
 Detecting Cartels in the Indian cement industry: An Analytical Framework Ritu

Raj Arora and Runa Sarkar Industrial and Management Engineering Department
IIT Kanpur
 Indira Hirway and Amita Shah conducted a study on Dynamics of Development
in Gujarat/edited by Indira Hirway, S.P. Kashyap and Amita Shah. New Delhi,
Concept Pub., 2002, xvi, 468 p., tables, ISBN 81-7022-968-5.
19
 Detecting Cartels in the Indian cement industry: An Analytical Framework by
Ritu Raj Arora and Runa Sarkar. rituraja@iitk.ac.in runa@iitk.ac.in,
runa@iimcal.ac.in, runa.sarkar@gmail.co.
 Study adopted from Centre for Development Alternatives Email:
sgoswami31@rediffmail.com Web site: www.cfda.ac.in
 Effects of Iran’s WTO accession on the cement industry” The 4th European
Cement Conference Barcelona, Spain, by R. Dadras in 1999
 Effects of Iran’s WTO accession on the cement industry” The 4th European
Cement Conference Barcelona, Spain, by M. Sameti in 1995
 RNCOS publishers Indian Cement Industry Forecast to 2012,
 UAE Construction Industry Outlook to 2012 Indian Housing Sector Analysis,
 Financial Management – S.N.Maheswari, Ravi.M.Kishore
 Basics of Financial Management – V.K. Saxena, C.D. Vashist
 Punithavathy Pandian (2007), “Security Analysis and Portfolio Management”,
New Delhi: Vikas Publishing House Pvt Ltd.
 Global Cement Magazine. Monthly. PRo Publications International.
(http://www.propubs.com)
 International Cement Review. Monthly. Tradeship Publications Ltd.
(http://www.cemnet.com)
 H M Bangur, President of Cement Manufacturers’ Association (CMA) and
reported by economic times
 ASSOCHAM, Study on “Cost Escalation in Cement Industry”
 ICRA
Websites:-
www.moneyrediff.com
www.google.com
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A Study On Fundamental Analysis of Indian Cement Industry

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A Study On Fundamental Analysis of Indian Cement Industry

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A STUDY ON FUNDAMENTAL ANALYSIS OF

INDIAN CEMENT INDUSTRY

About the Authors

Acknowledgment: I solemnly accept full responsibility for any remaining mistakes; I

Objective and Methodology:

Tools for analysis:

HYPOTHESIS OF THE STUDY

(H1): There is no significant difference between the position of a selected variable of

HISTORY OF CEMENT INDUSTRY

Impact of globalization on cement industry

Impact of Taxation on Cement Industry

FUNDAMENTAL ANALYSIS & INTERPRETATION OF RESULTS

1. OPERATING PROFIT MARGIN (OPM)

Table 2: One-Way ANOVA for Operating Profit Margin

2. NET PROFIT MARGIN (NPM)

3. EARNING PER SHARE (EPS)

Table 6: One-way ANOVA for Earning Per Share

4. DIVIDEND PER SHARE (DPS)

Table 8: One-way ANOVA for Dividend per Share

5 DIVIDEND PAYOUT RATIO (DPR)

Dividend Payout Ratio:-

Table 9: Dividend payout ratio (in %) of the sample companies

Table10: One-way ANOVA for Dividend Payout Ratio.

Source: One-way ANOVA has been calculated by SPSS

Return on net worth:-

Source: One-way ANOVA has been calculated by SPSS

Current ratio = Current assets

8. DEBT EQUITY RATIO

Debt equity ratio:-

9. PRICE EARNING RATIO

Table 18: One-way ANOVA for price earning ratio

FINDINGS OF THE STUDY

 Detecting Cartels in the Indian cement industry: An Analytical Framework Ritu

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