CALUCLATION OF EARNING PER SHARE

8/7/2019 CALUCLATION OF EARNING PER SHARE

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CHAPTER- 1

FUNDAMENTAL

ANALYSIS


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INTRODUCTION


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NEED AND IMPORTANCE OF THE PROJECT :

Fundamental analysis involves analyzing the characteristics of a company inorder to estimate its value. A method of evaluating a security by attempting to measuresits intrinsic value by examining related economic, financial and other qualitative and

quantitative factors. Fundamental analysts attempt to study everything that can affect thesecuritys value, including macroeconomic factor (like the financial conditionmanagement of companies).

Fundamental analysis is about using real data to evaluate a securitys value.Altought most analysis uses fundamental analysis to value stocks, this method ofvaluation can be used for just about any type of security.

Fundamental analysis really just studies in an attempt to determine what, or tend,will continue in the future.

In other words, fundamental analysis attempt to understand the emotion in themarked by studying the components. If you understand the benefit and limitations offundamental analysis, it can give you a new set of tools or skills that will enable you to bea better trader or investors.

Investors use this form of analysis at the beginning points for their decision making.Investors use the fundamental analysis in making decision about whether to buy or sellstock. The only things that matters is a securitys past trading data and what informationthis data can provide about where the security might move in the future. There is thebelief that without fundamental analysis it would be near impossible to understand orpredict where the market is heading, and to act upon anything other than instinct. But

many times all analysis proved wrong and market sentiments become the real winner. Soits not advisable to completely depend on the analysis investors should give all the factorequal importance.

OBJECTIVES OF THE STUDY:

The main objective of the study are to analyze and interpret the market conditionsand the next crucial trend will follow in the near future. Fundamental analysis is aboutusing real data to evaluate a securitys value. Although most analysis to value stocks, thismethod of valuation can be used for just about any type of security, more, specifically,

the present study is under taken with the following objectives:

Is the companys revenue growing?

Is it actually making a profit?

Is it in a strong enough position to beat out its competitors inthe future?

Is it able to repay its debts?


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DATA AND METHODOLOGY:

The study is mainly based on secondary data is taken from the annual reportof various components and books and trade journals maintained by the companies. Mideast investments are mainly in trading of securities.

Period of the study:

Analysis has been done on 1 year financial results of 5 companies ACC LTD,ULTRA TECH, AMBUJA CEMENT, BINANI CEMENTS, INDIACEMENTS for the year September 2010 to march 2011 has been taken.

Limitations of the study:

It is argued that fundamental analysis same as technical analysis cannot predictwhat the share price is going to do. We humans are the only ones that make thepredictions and fundamental analysis is purely and simply a way of studying companiesperformance in past expecting that it may follow the same trend.

The first reason why you should carefully look at the balance sheet is the delay.When the company releases his balance sheet, its already old news and the structurecould have changed drastically. Even if the companies have to follow the generalaccounting guide lines and are controlled for that, the balance sheet is anything else thatthe position during the last day of the quarter (or the year) and some companies do somecleaning of their balances sheet to make them look as good as possible.

As the companies have to follow the accounting guidelines and because the balancesheet is anything else but historical records, its possible that some of the assets are underor over estimated these estimations are linked to the valuation method used by thecompanies.


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FUNDAMENTAL

ANALYSIS

A CONCEPTUAL

OVERVIEW


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Fundamental analysis refers to the study of the core underlyingelements that influence the economy of a particular entity. It is a method of study thatattempts to predict price action and market trends by analyzing economic indicators,government policy and societal factors (to name just a few elements) within a business

cycle framework.

I. ECONOMIC ANALYSIS:

POLITICO-ECONOMIC ANALYSIS:No industry or company can exist in isolation. It may have splendid managers and atremendous product. However, its sales and its costs are affected by factors, some ofwhich are beyond its control - the world economy, price inflation, taxes and a host ofothers. It is important, therefore, to have an appreciation of the politico-economic factorsthat affect an industry and a company.

The political equation

A stable political environment is necessary for steady, balanced growth. If a country isruled by a stable government which takes decisions for the long-term development of thecountry, industry and companies will prosper.

Foreign Exchange Reserves

A country needs foreign exchange reserves to meet its commitments, pay for its importsand service foreign debts.

Foreign Exchange Risk

This is a real risk and one must be cognizant of the effect of a revaluation or devaluationof the currency either in the home country or in the country the company deals in.

Restrictive Practices

Restrictive practices or cartels imposed by countries can affect companies and industries.crystallizing the exposure.

Foreign Debt and the Balance of Trade

Foreign debt, especially if it is very large, can be a tremendous burden on an economy.India pays around $ 5 billion a year in principal repayments and interest payments.

InflationInflation has an enormous effect in the economy. Within the country it erodes purchasingpower. As a consequence, demand falls. If the rate of inflation in the country from whicha company imports is high then the cost of production in that country will automaticallygo up.

The Threat of Nationalization


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The threat of nationalization is a real threat in many countries the fear that a companymay become nationalized.

Interest Rates

A low interest rate stimulates investment and industry. Conversely, high interest rates

result in higher cost of production and lower consumption.

Taxation

The level of taxation in a country has a direct effect on the economy. If tax rates are low,people have more disposable income.

Government Policy

Government policy has a direct impact on the economy. A government that is perceived

to be proindustry will attract investment.

THE ECONOMIC CYCLE:

It affects investment decisions, employment, demand and the profitability of companies.

The four stages of an economic cycle are:

DepressionRecovery

BoomRecession

Depression

At the time of depression, demand is low and falling. Inflation is high and so are interestrates. Companies, crippled by high borrowing and falling sales, are forced to curtailproduction, close down plants built at times of higher demand, and let workers go.

Recovery

During this phase, the economy begins to recover. Investment begins anew and thedemand grows. Companies begin to post profits. Conspicuous spending begins once

again.

Boom

In the boom phase, demand reaches an all time high. Investment is also high. Interestrates are low. Gradually as time goes on, supply begins to exceed the demand. Prices thathad been rising begin to stabilize and even fall. There is an increase in demand. Then asthe boom period matures prices begin to rise again.


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Recession

The economy slowly begins to downturn. Demand starts falling.. Interest rates andinflation are high. Companies start finding it difficult to sell their goods. The economyslowly begins to downturn.

II. INDUSTRY ANALYSIS

The importance of industry analysis is now dawning on the Indian investor as neverbefore.

Cycle

The first step in industry is to determine the cycle it is in, or the stage of maturity of theindustry. All industries evolve through the following stages:

1. Entrepreneurial, sunrise or nascent stage2. Expansion or growth stage3. Stabilization, stagnation or maturity stage, and4. Decline or sunset stage to properly establish itself. In the early days, it may actuallymake losses.


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TheEntrepreneurial or Nascent Stage

At the first stage, the industry is new and it can take some time for it to properly establishitself.

The Expansion or Growth Stage

Once the industry has established itself it enters a growth stage. As the industry grows,many new companies enter the industry.

The Stabilization or Maturity Stage

After the halcyon days of growth, an industry matures and stabilizes. Rewards are lowand so too is the risk. Growth is moderate. Though sales may increase, they do so at aslower rate than before. Products are more standardized and less innovative and there areseveral competitors.

The Decline or Sunset Stage

Finally, the industry declines. This occurs when its products are no longer popular. This

may be on account of several factors such as a change in social habits The film and videoindustries.

1. BARRIER TO ENTRY

New entrants increase the capacity in an industry and the inflow of funds. The questionthat arises is how easy is it to enter an industry ?There are some barriers to entry:

a) Economies of scale

b) Product differentiationc) Capital requirement

d) Switching costse) Access to distribution channels

f) Cost disadvantages independent of scale

g) Government policy

h) Expected retaliation

j) International cartels

2. THE THREAT OF SUBSTITUTION


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New inventions are always taking place and new and better products replace existingones. An industry that can be replaced by substitutes or is threatened by substitutes isnormally an industry one must be careful of investing in. An industry where this occursconstantly is the packaging industry -bottles replaced by cans, cans replaced by plasticbottles, and the like. To ward off the threat of substitution, companies often have to spend

large sums of money in advertising and promotion.

3. BARGAINING POWER OF THE BUYERS

In an industry where buyers have control, i.e. in a buyer's market, buyers are constantlyforcing prices down, demanding better services or higher quality and this often erodesprofitability. The factors one should check are whether:a) A particular buyer buys most of the products (large purchase volumes). If such buyerswithdraw their patronage, they can destroy an industry. They can also force prices down.b) Buyers can play one company against another to bring prices down.

4. BARGAINING POWER FOR THE SUPPLIERS

An industry unduly controlled by its suppliers is also under threat. This occurs when:a) The suppliers have a monopoly, or if there are few suppliers.b) Suppliers control an essential.c) Demand for the product exceeds.d) The supplier supplies to various industries.e) The switching costs are high.f) The supplier's product does not have a substitute.g) The supplier's product is an important input for the buyer's.h) The buyer is not important to the supplier.i) The supplier's product is unique.

5. RIVALRY AMOUNG COMPETITORS

Rivalry among competitors can cause an industry great harm. This occurs mainly by pricecuts, heavy advertising, additional high cost services or offers, and the like. This rivalryoccurs mainly when:a) There are many competitors and supply exceeds demand. Companies resort to pricecuts and advertise heavily in order to attract customers for their goods.b) The industry growth is slow and companies are competing with each other for agreater market share.c) The economy is in a recession and companies cut the price of their products and offerbetter service to stimulate demand.d) There is lack of differentiation between the product of one company and that ofanother. In such cases, the buyer makes his choice on the basis of price or service.e) In some industries economies of scale will necessitate large additions to existingcapacities in a company. The increase in production could result in over capacity & pricecutting.f) Competitors may have very different strategies in selling their goods and in competingthey may be continuously trying to stay ahead .


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III. COMPANY ANALYSIS:

At the final stage of fundamental analysis, the investor analyzes the company. Thisanalysis has two thrusts:How has the company performed vis--vis other similar companies andHow has the company performed in comparison to earlier years

It is imperative that one completes the politico economic analysis and the industryanalysis before a company is analyzed because the company's performance at a period oftime is to an extent a reflection of the economy, the political situation and the industry.What does one look at when analyzing a company?The different issues regarding a company that should be examined are:The ManagementThe CompanyThe Annual ReportRatios Cash flow

THE MANAGEMENT:

The single most important factor one should consider when investing in a company andone often never considered is its management.In India management can be broadlydivided in two types:Family Management

x Professional Management

THE COMPANY:

An aspect not necessarily examined during an analysis of fundamentals is the company.A company may have made losses consecutively for two years or more and one may notwish to touch its shares - yet it may be a good company and worth purchasing into. Thereare several factors one should look at.

1. How a company is perceived by its competitors?

One of the key factors to ascertain is how a company is perceived by its competitors. It isheld in high regard. Its management may be known for its maturity, vision, competence

and aggressiveness. The investor must ascertain the reason and then determine whetherthe reason will continue into the foreseeable future.

2. Whether the company is the market leader in its products or in its segment

Another aspect that should be ascertained is whether the company is the market leader inits products or in its segment. When you invest in market leaders, the risk is less. The


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shares of market leaders do not fall as quickly as those of other companies. There is amagic to their name that would make individuals prefer to buy their products as opposedto others.

3. Company Policies

The policy a company follows is also important. What is its plans for growth? What is itsvision? Every company has a life. If it is allowed to live a normal life it will grow upto apoint and then begin to level out and eventually die. It is at the point of leveling out that itmust be given new life. This can give it renewed vigour and a new lease of life.

4. Labour Relations

Labour relations are extremely important. A company that has motivated, industriouswork force has high productivity and practically no disruption of work. On the otherhand, a company that has bad industrial relations will lose several hundred mandays as aconsequence of strikes and go slows.

5. Where the company is located and where its factories are?One must also consider where the companies Plants and Factories are located..

THE ANNUAL REPORT:

The primary and most important source of information about a company is its AnnualReport. By law, this is prepared every year and distributed to the shareholders. AnnualReports are usually very well presented. A tremendous amount of data is given about theperformance of a company over a period of time.The Annual Report is broken down into the following specific parts:A) The Director's Report,B) The Auditor's Report,C) The Financial Statements, andD) The Schedules and Notes to the Accounts.

A. The Directors Report

The Directors Report is a report submitted by the directors of a company to itsshareholders, advising them of the performance of the company under their stewardship.1. It enunciates the opinion of the directors on the state of the economy and the politicalsituation vis--vis the company.2. Explains the performance and the financial results of the company in the period underreview. This is an extremely important part. The results and operations of the variousseparate divisions are usually detailed and investors can determine the reasons for theirgood or bad performance.3. The Directors Report details the company's plans for modernization, expansion anddiversification. Without these, a company will remain static and eventually decline.4. Discusses the profit earned in the period under review and the dividend.Recommended by the directors. This paragraph should normally be read with some


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skepticism, as the directors will always argue that the performance was satisfactory. Ifadverse economic conditions are usually at fault.5. Elaborates on the directors' views of the company's prospects in the future.6. Discusses plans for new acquisition and investments. An investor must intelligentlyevaluate the issues raised in a Directors Report. Industry conditions and the

management's knowledge of the business must be considered.

B. The Auditor's Report

The auditor represents the shareholders and it is his duty to report to the shareholders andthe general public on the stewardship of the company by its directors. Auditors arerequired to report whether the financial statements presented do, in fact, present a trueand fair view of the state of the company. Investors must remember that the auditors aretheir representatives and that they are required by law to point out if the financialstatements are not true and fair..

C. Financial Statements

The published financial statements of a company in an Annual Report consist of itsBalance Sheet as at the end of the accounting period detailing the financing condition ofthe company at that date, and the Profit and Loss Account or Income Statementsummarizing the activities of the company for the accounting period.

BALANCE SHEETThe Balance Sheet details the financial position of a company on a particular date; of thecompany's assets (that which the company owns), and liabilities (that which the companyowes), grouped logically under specific heads. It must however, be noted that the BalanceSheet details the financial position on a particular day and that the position can bematerially different on the next day or the day after.

SOURCES OF FUNDS

SHAREHOLDERS FUNDS

SHARE CAPITAL

(i) Private Placement(ii) Public Issueiii) Rights issuesRESERVES

i) Capital Reservesii) Revenue ReservesLOAN FUNDS

i) Secured loans:ii) Unsecured loansFIXED ASSETS

INVESTMENTS

STOCK OR INVENTORIES

i) Raw materials


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ii) Work in progressiii) Finished goodsCASH AND BANK BALANCES

LOANS AND ADVANCES

PROFIT AND LOSS ACCOUNTThe Profit and Loss account summarizes the activities of a company during anaccounting period which may be a month, a quarter, six months, a year or longer, and theresult achieved by the company. It details the income earned by the company, its cost andthe resulting profit or loss. It is, in effect, the performance appraisal not only of thecompany but also of its management- its competence, foresight and ability to lead.

RATIOS:

Ratios express mathematically the relationship between performance figures and/orassets/liabilities in a form that can be easily understood and interpreted.

No single ratio tells the complete storyRatios can be broken down into four broad categories:

(A) Profit and Loss Ratios

These show the relationship between two items or groups of items in a profit and lossaccount or income statement. The more common of these ratios are:1. Sales to cost of goods sold.2. Selling expenses to sales.3. Net profit to sales and4. Gross profit to sales.

(B) Balance Sheet RatiosThese deal with the relationship in the balance sheet such as :1. Shareholders equity to borrowed funds.2. Current assets to current liabilities.3. Liabilities to net worth.4. Debt to assets and5. Liabilities to assets.

(C) Balance Sheet and Profit and Loss Account Ratios.

These relate an item on the balance sheet to another in the profit and loss account such as:1. Earnings to shareholder's funds.

2. Net income to assets employed.3. Sales to stock.4. Sales to debtors and5. Cost of goods sold to creditors.

(D) Financial Statements and Market Ratios


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These are normally known as market ratios and are arrived at by relative financial figuresto market prices:1. Market value to earnings and2. Book value to market value.(a) Market value

(b) Earnings(c) Profitability(d) Liquidity(e) Leverage(f) Debt Service Capacity(g) Asset Management/Efficiency(h) Margins.

The major ratios that are considered:(i) Market value(ii) Price- earnings ratio

(iii) Market-to-book ratio(iv) Earnings(v) Earning per share(vi) Dividend per share(vii) Dividend payout ratio(viii) Leverage ratios(ix) Return on investments/total assets

CASH FLOW:

A statement of sources and uses begins with the profit for the year to which are added theincreases in liability accounts (sources) and from which are reduced the increases inasset accounts (uses). The net result shows whether there has been an excess or deficit offunds and how this was financed. Investors must examine a company's cash flow as itreveals exactly where the money came from how it was utilized. Investors must beconcerned if a company is financing either its inventories or paying dividends fromborrowings without real growth as that shows deterioration.


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CHAPTER 2


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ORGANIZATION

PROFILE OFMIDEAST

INVESTMENT PVT

LTD.


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I FUNDAMENTAL ANALYSIS OF STOCKS

Basically fundamental analysis is covered in 3

parts :

1. Market/ economy analysis

2. Industry Analysis

3. Company Analysis

I Market/ Economy Analysis

It covers the macro economy analysis and the various macro economic factors on thenational level like GDP, Monetary policies of India, Fiscal Policies and Inflation andmoney supply etc.

GDP

India's economy grew 8.2% compared to the same period a year earlier between Octoberand December, government data showed on March 1.

Quarterly GDP at factor cost at constant (2004-05) prices for Q3 of 2010-11 is estimatedat Rs. 12,61,664 crore, as against Rs. 11,66,145 crore in Q3 of 2009-10, showing agrowth rate of 8.2 per cent over the corresponding quarter of previous year.


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The economic activities which registered significant growth in Q3 of 2010-11 over Q3 of2009-10 are: agriculture, forestry & fishing at 8.9 per cent, construction at 8.0 percent,trade, hotels, transport and communication at 9.4 per cent, and financing, insurance, realestate and business services at 11.2 per cent. The growth rate in mining& quarrying,

manufacturing and community, social and personal services is estimated at 6.0 per cent,5.6 per cent and 4.8 per cent respectively in this period.

According to the second advance estimates of production of crops released on 9.2.2011by the Department of Agriculture and Cooperation (DAC), which has been used incompiling the estimate of GDP from agriculture in Q3 of 2010-11, production of rice,coarse cereals and pulses during the Kharif season of 2010-11 is estimated to haveincreased by 5.6 per cent, 28.2 percent and 52.8 percent, respectively over thecorresponding season in the previous agriculture year. Among the commercial crops, theproduction of oilseeds and sugarcane is estimated to have increased by 15.8 per cent and15.2 per cent, respectively during the Kharif season of 2010-11, while the production of

cotton is expected to grow by 40.0 per cent during the agriculture year 2010-11.However, horticultural crops and livestock products are expected to grow at 5.6 per centand 4.7 per cent, respectively during 2010-11.

According to the latest estimates available on the Index of Industrial Production (IIP), theindex of mining, manufacturing and electricity, registered growth rates of 5.8 per cent,5.1 per cent and 6.5 per cent, respectively in Q3 of 2010-11, as compared to the growthrates of 10.3 per cent, 14.4 per cent and 3.8 per cent in these sectors in Q3 of 2009-10. Inthe mining sector, production of coal, crude oil and natural gas registered growth rates of1.5 per cent, 15.5 per cent and 3.7 percent in Q3 of 2010-11, as against the growth ratesof 4.6 per cent, (-)0.9 percent and 50 per cent in Q3 of 2009-10.

Among the services sectors, the key indicators of railways, namely, the net tonnekilometers and passenger kilometers have shown growth rates of 4.0 per cent and 6.2 percent, respectively in Q3 of 2010-11, as against the growth rates of 12.5 per cent and 6.7per cent, in the corresponding period of previous year. In the transport andcommunication sectors, the production of commercial vehicles, cargo handled at majorports, cargo handled by the civil aviation and the total stock of telephone connections(including WLL and cellular) registered growth rates of 22.1 per cent, 0.86 per cent, 12.2per cent and 40.0 per cent, respectively in Q3 of 2010-11 over Q3 of 2009-10. The keyindicators of banking, namely, aggregate bank deposits and bank credits have showngrowth rates of 18.8 per cent and 27.9 per cent, respectively during April-December,2010-11 over the corresponding period in 2009-10.

Strengths of India today are:

A well diversified industrial base which profits from self-reliance in all core industries .A

large & sophisticated financial architecture - The robust capital Markets today have over

9000 listed companies and boast of a massive Market capitalization.


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A healthy GDP composition with agriculture contributing 22%, Industry 22% and

services, which have gone strength to strength, accounting. For 56% of the GDP an

acknowledged strength in knowledge driven industries like Information technology,

biotechnology, entertainment Software etc

India has Over 3 million scientific & technical manpower, Over 0.6 million S&T post

graduates, Over 0.7 million graduate engineers, Over 3500 doctorates in sciences every

year.

Assuming trend growth in agriculture under normal monsoon conditions and barring

domestic or external shocks, the Reserve Bank in its Annual Policy Statement for 2007-

08 (April 2007) placed real GDP growth, for policy purposes, in the range of 7.5-8.0 per

cent during 2008-09. Growth prospects are, however, subject to a number of downside

risks. The risks emanating from the global economy are: potential escalation and

volatility in international crude oil prices, firming up of overall inflationary pressures and

expectations, and a hardening of international interest rates along with the withdrawal of

monetary accommodation.

Indias demographic advantage In contrast to developed Countries, India will have a

younger population for the next 50 years. Hence India would be the hub for R&D.

INDIA INFLATION RATE

The inflation rate in India was last reported at 9.3 percent in January of2011. From 1969 until 2010, the average inflation rate in India was7.99 percent reaching an historical high of 34.68 percent in Septemberof 1974 and a record low of -11.31 percent in May of 1976. Inflation

rate refers to a general rise in prices measured against a standard levelof purchasing power. The most well known measures of Inflation arethe CPI which measures consumer prices, and the GDP deflator, whichmeasures inflation in the whole of the domestic economy. This pageincludes: India Inflation Rate chart, historical data and news .

Country Interest Rate Growth Rate Inflation Rate Jobless Rate Current Account Exchan


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India 5.50% 8.90% 9.47% 8.00% -16 45.

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

2011 9.30

2010 16.22 14.86 14.86 13.33 13.91 13.73 11.25 9.88 9.82 9.70 8.33

2009 10.45 9.63 8.03 8.70 8.63 9.29 11.89 11.72 11.64 11.49 13.51

2008 5.51 5.47 7.87 7.81 7.75 7.69 8.33 9.02 9.77 10.45 10.45

II INDUSTRY ANALYSIS

Indian Cement Industry: Break-even Cushion to anchor fall in cement

prices ..

The Indian cement industry has witnessed a phenomenal capacity addition to the tune ofabout 52 mn tonnes in the last two financial years which accounted for about 24% of theindustrys capacity of 218 mn tonnes at the end of FY09. In the last two financial years,the cement industry has registered a double-digit growth in capacity addition compared tomoderate growth of 3-7% registered during period FY 03-07. As a result, industrys

capacity utilisation rate which showed a rising trend upto FY07, has dropped to a level of83% in FY09.

In FY09, the GDP growth slowed down to 6.7% compared to the 9% growth reported inFY08. However, cement consumption growth in FY09 at 8.4% has been able to maintainits multiplier factor with GDP growth at 1.25 times.

In FY09, all the regions except the Western and the Northern region have outperformedthe industry in consumption growth. The Eastern region continued its buoyantperformance and registered the highest cement consumption growth of 11.3% on yoybasis. The Southern and Central regions also reported impressive double-digit growth of10.4% in cement consumption. But, the Northern region has registered the lowest growthin the cement demand on yoy basis. Comparatively, poor demand growth registered bythe Western region was on account of high base of the last year and also slightly subdueddemand.

With focus on capacity addition, many small/medium players have been able to capturemore market share and consolidate their position in the industry in the last two years.
http://www.tradingeconomics.com/Economics/Currency.aspx?symbol=INRhttp://www.tradingeconomics.com/Economics/Interest-Rate.aspx?symbol=INRhttp://www.tradingeconomics.com/Economics/GDP-Growth.aspx?symbol=INRhttp://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?symbol=INRhttp://www.tradingeconomics.com/Economics/Unemployment-rate.aspx?symbol=INRhttp://www.tradingeconomics.com/Economics/Current-Account.aspx?symbol=INRhttp://www.tradingeconomics.com/Economics/Currency.aspx?symbol=INRhttp://www.tradingeconomics.com/Economics/Currency.aspx?symbol=INRhttp://www.tradingeconomics.com/Economics/Interest-Rate.aspx?symbol=INRhttp://www.tradingeconomics.com/Economics/GDP-Growth.aspx?symbol=INRhttp://www.tradingeconomics.com/Economics/Inflation-CPI.aspx?symbol=INRhttp://www.tradingeconomics.com/Economics/Unemployment-rate.aspx?symbol=INRhttp://www.tradingeconomics.com/Economics/Current-Account.aspx?symbol=INRhttp://www.tradingeconomics.com/Economics/Currency.aspx?symbol=INR


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Market share of top five individual companies taken together show a decline to a level of44.3% in FY09 from 46.3% in FY08.

Eventhough the utilisation rate dropped, average cement prices in FY09 rose by about 5%on yoy basis. But, the growth in cement prices remained slightly subdued compared to

21% and 14%, registered in FY07 and FY08, respectively. On the regional front, prices inthe Southern region were firm and ruling consistently at the highest level amongst all theregions in FY09. However, due to slowdown in the cement offtake and relatively lowoperating rate, prices in the Northern region remained at the lowest levels compared toother regions.

In FY09, the cement industry witnessed a fall in profitability. Eventhough, averagerealisation for the industry increased by about 4% on yoy basis, cost of production hasincreased by 18.5% on yoy basis. Power and fuel cost for many cement companiesincreased in FY09 mainly on account of substantial increase in coal prices. As a result,the operating profit margin of the industry dropped by about 8-9% in FY09. Also, higher

interest rates and depreciation provided on expanded capacities took its toll on the netprofit margin of the industry which witnessed a decline by about 5% in FY09.

Going forward, cement companies would be benefited by their focus on captive powergeneration which would help them to reduce power & fuel cost. With reduction in coalprices, CARE Research has estimated that per tonne power & fuel cost of the industrywill decline by about 12% in FY10 on yoy basis.

CARE Research has estimated that break-even cushion (defined as the ratio of overallcapacity utilisation rate of the industry to the utilisation rate at the breakeven point in aparticular year) of the industry has notably increased to 2.4 times in FY09 compared to an

average level of 1.1 times in the period FY 02-05. With comfortable break-even cushionvalue, the cement industry is in better position to operate at lower utilisation rate andavoid substantial price cuts. CARE Research does not foresee a notable drop in averagerealisation of the industry in FY10.

CARE Research has estimated the domestic cement demand to grow at a CAGR of about8.8% in the next two years. Cement demand in the next year would largely be driven bylow-cost housing segment in rural & semi-urban regions and governments focus oninfrastructure development in the country.

The level of consolidation in the cement industry had slowed down in the last couple of

years. However, one analysis suggests that the Net Present Value (NPV) of a Greenfieldplant is still higher than the NPV of an acquired unit, leading us to the conclusion thatfurther consolidation in the industry is still away.

The report elucidates facts on the Indian Cement industry, supplemented by the lateststatistics. The report is divided into two sections. Section I mainly covers performance ofthe industry in the last financial year and also analysis of past five years data. Section IIcovers information on some technical aspects about the product and basics of the cement


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industry alongwith exhaustive database. Following are the few points with areemphasised to accomplish the report:

INDUSTRY LIFE CYCLE:

CEMENT

The word Cement has come from the Roman word Opus Caementicium. In

general, the

word cement means binder- a substance, which when gets set and hardens, binds itself

independently with other substances. Joseph Aspdin, a British stonemason, invented

cement way

back in 1824.(Portland Cement Association 2010)

INTRODUCTION TO THE INDIAN CEMENT INDUSTRY

In 1914, the first licensed cement-manufacturing unit in India was set-up by the

India

Cement Company Ltd. With the boom in the economy-growth rate of India, the cement

industry

is seeing a great future. India has now become the second largest cement producer in the

world

after China, with a total capacity of 151.2 Million Tones, contributed by around 125 large

and

300 mini cement plants. Further growth in the Indian cement industry is expected in the

coming

years. It is expected that by FY12, the cement production capacity will rise upto 262.61


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Million

Tones.

The cement industry in India is dominated by around 20 companies, some of the major

Cement players in India are.

Cement industry in India comprises of 125 large cement plants and over 300 mini cement

plants having total installed capacity of 148.28 million tonnes and 11.10 million tonnes

per annum respectively. In addition to this, there are 10 large cement plants owned by

various State Governments. So, the total installed capacity of the country as a whole

stands at 159.38 million tonnes. The export

Of cement in 2003-2004 was 6.92 million tones.

Major Players: Ambuja cement, Aditya Cement, J K

Cement, L & T Cement, and Acc Cement.

Opportunities and Threats

To plan marketing and management strategies forbusinesses, it is important to perform a

situations analysis. One such analysis, a SWOT analysis, examines "strengths,
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weaknesses, opportunities and threats" within a particularbusiness or field. The cement

industry is an example of a field for which a SWOT analysis would enhance marketing

and management strategies.Strengths

1. The cement industry has many strengths to be considered. Cement is, literally, the

building block of the construction industry. Almost every building constructed

relies on cement for its foundation. The cement business is a $10 billion industry,

measured by annual cement shipments. There is also a strong reputation behind

the cement industry. Cement is a solid material and consumers rarely have

complaints about the product. Regional distribution plants have also made cement

widely available to any type of buyer.Weaknesses

2. The cement industry is not without its drawbacks. The cement industry relies on

construction jobs to create a profit. But the cement industry heavily relies on

weather. About two-thirds of cement production takes place between May and

October. Cement producers often use the winter months to produce and stockpile

cement, to meet demand. Another weakness is the cost of transport; the cost of

transporting cement is high and this keeps cement from being profitable over long

distances. In other words, shipping cement costs more than the profit from selling

it.Opportunities

3. The cement industries has opportunities as well. One such opportunity is the

cement industry's efficiency. The cement industry has recently streamlined its

production efforts, using dry manufacturing instead of wet, which is heavier and

more time-consuming. The cement industry has also invested about $6 billion in

expansion efforts to meet unmet cement needs. Projections show that by 2012, the

cement industry will have 25 percent more production capabilities.Threats

4. The nature of the economy have uncovered a number of threats to the cement

industry. The cement industry greatly relies on construction. The current economy

has lessened the number of construction jobs, which in turn hurts the cement

industry. The cement industry controls the majority of the Indian market, but not

all of it. About 11.5 metric tons of cement are imported annually to support the

unmet need. If other countries can produce and ship cement for a reduced price,

the U.S. cement industry is in danger. The U.S. government is also attempting to

regulate the cement industry's waste. The Environmental Protection Agency has

introduced regulations for the cement industry to cut down emissions.
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III Company Analysis

Consumption Growth & Capacity Addition

Consumption in Million Tonnes and Capacity addition in

Million Tonnes P A

Region Consumption AdditionCapacity

Sep08

Sep 07 Aug 08

South 4.43 3.8 4.49 27.6

North 2.85 2.75 2.41 15.0

West 2.4 2.35 2.4 11.3East 1.91 1.74 1.86 7.5

Mergers and Acquistions

The cement sector contributing to 7 percent to the total deal value

Holcim strengthened its position in India by increasing its holding in Ambuja Cement

from 22 per cent to 56 per cent.

Leading foreign funds have together bought around 7.5 per cent in Indias third-largestcement firm, India Cements (ICL), for US$ 124.91 million

Cimpor, the Portugese cement maker, paid US$ 68.10 million for Grasim Industries53.63 per cent stake in Shree Digvijay Cement


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Cement Industry

Entry barriers: Economies of scale

Capital requirement

Avg gestation period of 2-3 years

Access to distribution channels

Threat of new entrants: low

Bargaining power of suppliers: High Large and few sellers

No substitutes

Sellers product important input for buyer

Bargaining power of buyers: low/mediumStandard product

No substitute

Intensity of competition: MediumEqually balanced competitorsAverage industry growthHigh fixed costs

Lack of switching costCapacity augmentation in large incrementsHigh exit barriers

Substitutes: None

CHALLENGES

Cement industry currently has one of the highest inventory levels in recent times.Growth rates have slowed.Capacity additions putting pressure on prices.

As a result the cement companies are looking for cutting production


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--------------------------------------------------------------------------

CALUCLATION OF EARNING PER SHARE(EPS)

= Net Income Dividends an preferred stockAverage Outstanding Shares

ACC LTD

Sep 09-Mar 10 =

Mar 09-Sep 10 =

Sep 09-Mar 10 =

Mar 09-Sep 10 =

Ultra Tech

Sep 09-Mar 10 =

Mar 09-Sep 10 =

Sep 09-Mar 10 =


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Mar 09-Sep 10 =

Ambuja Cement

Sep 09-Mar 10 =

Mar 09-Sep 10 =

Sep 10-Mar 10 =

Mar 10-Sep 10 =

Binani Cement

Sep 09-Mar 10 =

Mar 10-Sep 10 =

Sep 10-Mar 10 =

Mar 10-Sep 10 =

India Cement

Sep 09-Mar 10 =

Mar 10-Sep 10 =

Sep 10-Mar 10 =

Mar 10-sep 10 =


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GRAPHICAL REPRESENTATION OF

EPS

ParticularSep09-Mar10

Mar10-Sep10

Sep10-Mar11

Mar11-Sep11

ACCCEMENT

ULTRACEMENT

AMBUJACEMENT


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BINANICEMENT

INDIACEMENT

Plot a graph here

INTERPRETATIONS


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CALCULATIONS OF PRICE TO EARNINGS

RATION (P/E)

= Market value per shareEarnings per share(EPS)

ACC LTD

Sep 09-Mar 10 =

Mar 09-Sep 10 =

Sep 09-Mar 10 =

Mar 09-Sep 10 =

Ultra Tech

Sep 09-Mar 10 =

Mar 09-Sep 10 =

Sep 09-Mar 10 =

Mar 09-Sep 10 =

Ambuja Cement

Sep 09-Mar 10 =


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Mar 09-Sep 10 =

Sep 10-Mar 10 =

Mar 10-Sep 10 =

Binani Cement

Sep 09-Mar 10 =

Mar 10-Sep 10 =

Sep 10-Mar 10 =

Mar 10-Sep 10 =

India Cement

Sep 09-Mar 10 =

Mar 10-Sep 10 =

Sep 10-Mar 10 =

Mar 10-sep 10 =


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GRAPHICAL REPRESENTATION OF P/ERATIO


Mar10-Sep10

Sep10-Mar11

Mar11-Sep11

ACCCEMENT

ULTRACEMENT

AMBUJACEMENT

BINANICEMENT

INDIACEMENT

Plot a graph here


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INTERPRETATIONS

CALCULATION OF PRICE TO SALES(P/S)

P/S = Marketcap / Revenues

OR P/S = Stock Price/ Sales Price Per Share

ACC LTD

Sep 09-Mar 10 =


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Mar 09-Sep 10 =

Sep 09-Mar 10 =

Mar 09-Sep 10 =

Ultra Tech

Sep 09-Mar 10 =

Mar 09-Sep 10 =

Sep 09-Mar 10 =

Mar 09-Sep 10 =

Ambuja Cement

Sep 09-Mar 10 =

Mar 09-Sep 10 =

Sep 10-Mar 10 =

Mar 10-Sep 10 =

Binani Cement

Sep 09-Mar 10 =


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Mar 10-Sep 10 =

Sep 10-Mar 10 =

Mar 10-Sep 10 =

India Cement

Sep 09-Mar 10 =

Mar 10-Sep 10 =

Sep 10-Mar 10 =

Mar 10-sep 10 =

GRAPHICAL REPRESENTATION OF PRICE TOSALES (P/S)


Mar10-Sep10

Sep10-Mar11

Mar11-Sep11

ACC

CEMENT

ULTRACEMENT


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AMBUJACEMENT

BINANI

CEMENT

INDIACEMENT

Plot a graph here

INTERPRETATIONS


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CALCULATIONS OF DIVIDENT YEILD

= ANNUAL DIVIDEND PER SHARESTOCKS PRICE PER SHARE

ASSUME ANNUAL DIVIDENT PER SHARE TO BE 1.

ACC LTD

Sep 09-Mar 10 =

Mar 09-Sep 10 =

Sep 09-Mar 10 =Mar 09-Sep 10 =

Ultra Tech

Sep 09-Mar 10 =

Mar 09-Sep 10 =


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Sep 09-Mar 10 =

Mar 09-Sep 10 =

Ambuja Cement

Sep 09-Mar 10 =

Mar 09-Sep 10 =

Sep 10-Mar 10 =

Mar 10-Sep 10 =

Binani Cement

Sep 09-Mar 10 =

Mar 10-Sep 10 =

Sep 10-Mar 10 =

Mar 10-Sep 10 =

India Cement

Sep 09-Mar 10 =

Mar 10-Sep 10 =

Sep 10-Mar 10 =


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Mar 10-sep 10 =

GRAPHICAL REPRESENTATION OF PRICE TOSALES (P/S)

ParticularSep09-

Mar10

Mar10-

Sep10

Sep10-

Mar11

Mar11-

Sep11

ACCCEMENT

ULTRACEMENT

AMBUJA

CEMENT

BINANICEMENT

INDIACEMENT

Plot a graph here


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INTERPRETATIONS

BIBLOGRAPHY

Documents

CALUCLATION OF EARNING PER SHARE