Fundamental Analysis Of Acc

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ASSIGNMENT ON FUNDAMENTAL ANALYSIS

COMPANY: ACC LTD.

SUBJECT: Security analysis and portfolio management SUBMITTED TO: Ms. MONIKA KALANI

SUBMITTED BY: PARTEEK GUPTA ROLL NO. A-05 SECTION. Q1806 COURSE: M.B.A. (INT.)

LOVELY

PROFESSIONAL

UNIVERSITY

CONTENTS:

 COMPANY INFORMATION

 FUNDAMENTAL ANALYSIS

• ECONOMIC ANALYSIS

• INDUSTRIAL ANALYSIS

 CONCLUSION

 BIBLIOGRAPHY

COMPANY INFORMATION: Established in 1936 as a merger of 10 cement companies, ACC Limited (hereafter called ACC) is the only cement company that figures in India’s list of Consumer Super Brands. Formerly called The Associated Cement Companies Limited - (the company changed its name in 2006) - ACC’s corporate office is located in Mumbai. The company has 14 modern cement factories, more than 30 Ready Mix Concrete (RMX) plants, 20 sales offices and several zone offices. It has a workforce of about 10,000 persons and a countrywide distribution network of over 9000 dealers. The house of TATA was intimately associated with ACC up to 1999, after which the Tata Group sold all 14.45% of its shareholding in ACC in three stages to subsidiary companies of Gujarat Ambuja Cements Limited (GACL). In January 2005, the Holcim Group of Switzerland announced its plans to enter into a long-term strategic alliance with the Ambuja Group by acquiring a majority stake in Ambuja Cements India Ltd. (ACIL), which at the time held 13.8% of the total equity shares in ACC. Holcim simultaneously announced its bid to make an open offer to ACC shareholders, through Holdcem Cement Pvt Limited and ACIL, to acquire a majority shareholding in ACC. An open offer was made by Holdcem Cement Pvt. Limited along with Ambuja Cements India Ltd. (ACIL), following which the shareholding of ACIL increased to 34.69% of the Equity share capital of ACC. ACC has 12 captive power generating plants across 7 locations, with a captive power generating capacity of 241 MW. It also has wind power plants at Madukkarai and Lakheri, which together generate 16.5 MW electricity from wind power ACC plans to invest Rs. 30 billion as capital expenditure over the next two years. This would result in enhancing the total cement manufacturing capacity to 30.58 MTPA and the captive power generation capacity to 351 MW by the end of 2010. ACC has also extended its services overseas to the Middle East, Africa & South America, where it has provided technical and managerial consultancy to a variety of consumers, and also helps in the operation and maintenance of cement plants abroad. The overseas contract with YANBU Cement Company, Saudi Arabia for management and operation of its cement plants, is an ongoing relationship for the last 29 years and has been renewed up to February 28, 2011.

FUNDAMENTAL ANALSIS: Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and management. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis.

Economic analysis: Economic analysis involves impact of macroeconomic factors i.e. GDP, FII, Inflation etc on the performance of stock of the company.

YEAR

STOC K

INFLATION RATE

GDP

UNEMPLOYME NT

2006

782

4.20%

8.4

8.90%

2007

734

5.30%

9.2

7.80%

2008

825

6.40%

8.5

7.20%

2009 N.A

N.A

N.A

N.A

CRR

PLR

11.005% 11.50% 12.556% 12.50% 13.259% 14.00% 11.005% 12.00%

Analysis: In 2006, G.D.P was 8.4% and it has increased in 2007. That’s why R.B.I has also increased C.R.R by 9% in 2008. C.R.R is lagging indicator which is used after economy has changed. Similarly, when G.D.P has come down to 8.5% in 2008, C.R.R has been reduced to 5% in 2009. Reduction in cash reserve ratio in 2009 shows that it is an lagging indicator as it has been used only after economy has taken change. Similarly prime lending rates are lagging indicators. In the data given above, it is clear that changes in PLR also have been brought only after changes in economic growth. While with the growth of economy unemployment has also been reduced. Such kinds of indicators are called co-incidental indicators. Co-incidental indicators are those which tend to move in the same direction in which economy moves.

INDUSTRIAL ANALYSIS: ACC is cement industry. Therefore it comes under the definition of cyclical industries. It is cyclical industry because it is directly related to business cycles and it performs best during expansions and worst during contractions. As it clears from the following balance sheet:

Profit & Loss account of ACC

------------------- in Rs. Cr. -------------------

Mar '05

Dec '05

Dec '06

Dec '07

Dec '08

12 mths

9 mths

12 mths

12 mths

12 mths

4,549.80

3,723.51

6,467.84

7,865.11

8,300.18

651.95

539.71

736.09

970.32

1,070.21

3,897.85

3,183.80

5,731.75

6,894.79

7,229.97

Other Income

44.71

300.84

247.87

369.35

252.84

Stock Adjustments

53.44

45.26

-29.25

6.93

0.33

3,996.00

3,529.90

5,950.37

7,271.07

7,483.14

1,511.25

1,078.84

1,513.55

1,843.65

1,180.48

Power & Fuel Cost

348.48

299.52

430.98

517.56

1,598.96

Employee Cost

214.76

184.84

318.02

352.73

413.04

Other Manufacturing Expenses

183.32

157.65

262.45

344.17

362.90

Selling and Admin Expenses

939.32

838.12

1,298.32

1,547.30

1,620.65

83.16

84.88

189.08

354.51

270.99

0.00

0.00

0.00

0.00

0.00

3,280.29

2,643.85

4,012.40

4,959.92

5,447.02

Mar '05

Dec '05

Dec '06

Dec '07

Dec '08

12 mths

9 mths

12 mths

12 mths

12 mths

Operating Profit

671.00

585.21

1,690.10

1,941.80

1,783.28

PBDIT

715.71

886.05

1,937.97

2,311.15

2,036.12

Interest

95.23

66.19

75.19

73.87

39.96

PBDT

620.48

819.86

1,862.78

2,237.28

1,996.16

Depreciation

186.86

164.64

254.61

305.43

294.18

Other Written Off

19.40

6.46

6.24

1.55

0.00

Profit Before Tax

414.22

648.76

1,601.93

1,930.30

1,701.98

37.55

46.93

14.55

-0.16

35.39

451.77

695.69

1,616.48

1,930.14

1,737.37

Income Sales Turnover Excise Duty Net Sales

Total Income Expenditure Raw Materials

Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses

Extra-ordinary items PBT (Post Extra-ord Items)

Tax

66.43

140.17

369.10

491.70

524.60

Reported Net Profit

378.39

544.18

1,231.84

1,438.59

1,212.79

Total Value Addition

1,769.04

1,565.01

2,498.85

3,116.27

4,266.54

0.00

0.00

0.00

0.00

0.00

124.97

147.61

280.92

375.02

375.33

17.53

20.70

39.40

63.74

63.79

Shares in issue (lakhs)

1,785.34

1,845.08

1,872.78

1,876.24

1,876.82

Earning Per Share (Rs)

21.19

29.49

65.78

76.67

64.62

Equity Dividend (%)

70.00

80.00

150.00

200.00

200.00

Book Value (Rs)

89.46

115.76

167.81

221.33

262.56

Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised)

From the above balance sheet, we can see earning per share (EPS) and net profit are reduced by 2008. It is all because in 2008 there is increase in inflation rate and economy was going through recession. While there are some industries which are not much effected by economy or they use to move opposite direction but not perfectly e.g. Pharmaceutical industry.

Life cycle:  Maturity stage: ACC is going through its maturity stage, as its sales are at peak.

 Introductory stage: In 1936, when company was established it was its introductory stage.

 Growth stage: 2000-2008 was it growth period because its sales volume got growth year by year.

 Decline stage: It could in next 20-30 years if other alternative or technique has been developed.

PORTER’S FIVE FORCE MODEL:

THREAT OF NEW ENTRANTS: ACC has threat from new entrants like TATA; Reliance etc can enter into this industry. But there are certain barriers to their entry. These are:

•

Availability of raw material

•

Restrictions on entry by government into cement industry

•

Cement industry requires a huge investment

•

Switching costs are high in cement industry

BARGAINING POWER OF SUPPLIERS: Suppliers have very much impact on cement industry because of the following reasons: •

Raw materials used in cement are gypsum, fly ash and slag. There are few suppliers of these materials.

•

Quality of finished goods i.e. cement is very important for ACC ltd.

•

As already said, there are high switching costs in cement industry.

•

There is no substitute to the raw material used in cement.

BARGAINING POWER OF BUYER: ACC ltd plays the role of buyer. It has following bargaining powers: •

There are only few buyers of raw material of cement.

•

ACC has major stake in cement industry i.e. 11% of the world.

THREAT OF SUBTITUES: It has threat from Ambuja cements, Birla cements etc.

RIVALRY AMONG THE COMPETING FIRMS IN INDUSTRY:

In spite of huge stake in cement industry, it is difficult to be on the top because of the other competing companies i.e. Ambuja, Birla, and Binani etc. Competitor analysis ACC, with an installed capacity of 22.63 MTPA, enjoys an 11% market share in India, which with its total installed capacity of 207 MTPA, is the second largest cement producing country in the world. ACC’s nation-wide presence and brand image ensures a competitive edge and helps it to withstand regional fluctuations in prices and also to adapt its distribution to market place needs. Its key competitors are as follows: Company Capacity (in MTPA) ACC

22.63

Ambuja Cements Binani Cements Birla Corporation Limited CCI Century Textiles Grasim India Cements Jaypee Group Kesoram Industries Lafarge Madras Cements Ultratech Cement Zuari Cement

18.50 6.50 5.80 3.85 6.80 16.75 8.94 13.50 5.60 5.50 10.00 18.20 3.50

BIBLIOGRAPHY:

http://www.acclimited.com/newsite/finance.asp?tag=sp

http://www.acclimited.com/newsite/finance/profitloss05.asp

http://cmsdata.iucn.org/downloads/due_diligence_report_acc_india.pdf

http://www.indexmundi.com/g/g.aspx?v=74&c=in&l=en

http://www.rbi.org.in/scripts/WSSViewDetail.aspx?TYPE=Section&PARAM1=4%0A

http://www.moneycontrol.com/stocks/marketstats/economic_survey/display_grap h.php