Hindaloc Financial Positon During Last 5 Year

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TERM PAPER OF ACCONTING FOR MANAGER On Analyses of Financial Statement

OF

HINDALCO Ltd. SUBMITTED TO:Mr.

VIKAS NAIB

SUBMITTED BY :(Senior Prof.) ARUN KUMAR GULERIA Section R337 Roll No. B36 Program code 194 Reg. No. 10807166

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LOVELY PROFESSIONAL UNIVERSITY LOVELY INSTITUTE OF MANAGEMENT (LIM)

ACKNOWLEDGEMENT I take this opportunity to offer my deep gratitude to all those who have extended their valued support and advice to complete this term paper. I cannot in full measure, reciprocate the kindness showed and contribution made by various persons in this endeavor.

I acknowledge my sincere thanks to Mr. Vikas Naib (Faculty Member) who stood by me as a pillar of strength throughout the course of work and under whose mature guidance the term paper arrives out successfully. I am grateful to his valuable suggestions.

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INDEX S .No . 1. 2. 3. 4. 5.

6. 7.

8. 9.

Particular

PAGE NO.

Introduction. About the company. Profile of Company Area Profile Objective of study 1.1Profitability Position 1.2Assets Position 1.3 Liability Position

Methodology Of Study Data collection 1.1Balance Sheet 1.2Income Statement 1.3Director Report 1.4Auditor Report 1.5Corporate Governess 1.6Notes to Accounts’ Interpretation of Financial Tools Data Analysis 1. Profitability Ratio 1.1Gross Profit Ratio 1.2Net Profit Ratio 2. Assets Position 2.1Fixed Ratio 2.2Current Ratio 3. Liability Position 3.1Debt – Equity Ratio 3.2Solvency Ratio

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2 3 5 6 6 8 9 10 12 15 15 16 20 24 26 27 30 31 32 34 36 37 37 39 40 40 41

REMAR KS

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INTRODUCTION of HINDALCO Largest

vertically Integrated Aluminium Company in India Domestic market leader in Aluminium Among the low cost producers globally Sustainable strategic strengths Financial strength to take on emerging global opportunities Sustained delivery of superior shareholder value Fully integrated operations Company Certified under “OHSAS 18001 Certification” and “A unique WCM model” VISION OF HINDALCO To be a premium Metals major, global in size and reach, with a passion for excellence. To relentlessly pursue the creation of superior shareholder value by exceeding customer expectations profitably, unleashing employee potential and being a responsible corporate citizen adhering to our values.” To pursue the creation of value for our customers, share holders, employees and society at large. To actively contribute to the social and economic development of the communities in which we operate. In so doing build a better, sustainable way of life for the weaker sections of society and raise the country’s human development index. To strengthen our position as a premium aluminum company, sustaining domestic leadership and global competitiveness through innovation, quality and value added growth.

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ABOUT HINDALCO HINDALCO Industries Ltd., one of the major producers of Primary Aluminium Metal and Semis in the country, is the biggest industrial enterprise of Uttar Pradesh. It is a public limited company in the private sector having about 39000 share holders. It is the largest integrated aluminium plant in India with all its production facilities viz. alumina, aluminium and fabrication located at Renukoot near Rihand Dam in Sonbhadra (U.P.). Hindalco Power Division is situated at Renusagar about 35 Kms. from Renukoot. In September 1959, an Industrial License was granted by the Government for setting up an integrated aluminium plant at Renukoot,

with an initial installed capacity of 20,000 M.T. The construction work was completed within 18 months, a record for a major job of this kind. The dream of the great visionary Syt. G.D. Birla to locate an aluminium plant near Rihand Power House came true. The Late Prime Minister Pt. Jawaharlal Nehru formally inaugurated the plant in January 1963. Going round the extensive works, Panditji saw his dream of a ARUN GULERIA | [email protected]

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brighter future of India take shape before his eyes. From the modest beginning in 1962, Hindalco has now become an industrial giant with a capacity to produce 2, 42,000 tones of aluminium per annum. Renukoot, a fast growing and thriving industrial township, which is one humming with activities, and providing all the basics amenities of modern life to the inhabitants, was once a wild and desolate jungle infested by animals. From being one of the most backward areas of U.P. It has carved a place for itself on the industrial map of India and the world. Lying in the foothills of the Vindhya range, Renukoot is about 160 Kms. from Varanasi and 154 Kms. from Mirzapur. There is a direct train between Amritsar to Tatanagar and Ranchi via Renukoot. This part Renukoot is also connected with Calcutta by train, directly. Facing the giant man-made biggest artificial lake Govind Ballabh Pant Sagar, Renukoot is a picturesque township unscarred by the ravages of industrialization.

EXPANSION AND MODERNISATION Hindalco is India's largest Aluminium producer with a Primary Aluminium Smelting capacity of 242,000 MTPA. The company's integrated operations include Power Generation Capacity of 612 M.W and 450,000 MTPA Alumina Refinery. Hindalco's semi fabrication facilities comprise of Rolled products 80,000 MTPA, Redraw Rods 40,000 MTPA and Extrusions 13,700 MTPA. The company has opted for induction of the most modern technology and has undertaken comprehensive modernization over the past years. It includes commissioning of two Gas Suspension Claciners, three high efficiency PF/Fluidised Bed Boilers with co-generation facility and Micro Processors based Pot Control System. The Rodding Room facilities have also been modernised. In the semi-fabrication, a state-of-the-art Vertical Billet Casting and Slab Casting facility have been installed. A new Rolling Mill has been commissioned and the existing Mills have undergone a comprehensive modernisation. Hindalco has also installed a Roll Former, a Cut to Length Line, a Rewind Line and Tension Leveler in Rolling Mills Hindalco's products are well accepted in the domestic as well as international markets. The company's metal is accepted for delivery under the High Grade Primary Aluminium Contract on the London Metal Exchange. The Company's export efforts have led to recognition as a 'Star Trading House'. Hindalco is an ISO 9002 Company and has also received ISO 14001 Certification for its entire operations including Power Plant and Mines. As a part of its diversification programmers, a 5,000 MTPA Aluminium Foil Plant and an Aluminium Alloy Wheel Plant of 300,000 w.p.a. capacity has been set up at Silvassa.

BROWNFIELD EXPANSION To further augment its presence in the aluminum sector, Hindalco has initiated work on a brown field expansion at Renukoot. The expansion will increase Smelting capacity by 100,000 MTPA to 342,000 MTPA. Aluminium refining capacity will be raised by 210,000 MTPA to 660,000 MTPA. Power Generation capacity will augment by 150 MW to 769 MW.

ACQUISITION OF INDAL Hindalco has also acquired aluminium major - INDAL. Hindalco's holding in INDAL now stands at 74.62%. India strength in Aluminium and downstream aluminium products admirably dovetails Hindalco's unmatched presence in metal and collectively commands the highest meal capacity in the entire South East region.

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MISCELLANEOUS INFORMATION In 1962 when production started, the Company had on its roll about 900 staff and workmen and the present strength of Renukoot and there are Zonal Sales Offices at Bangalore, Mumbai, Delhi, and Calcutta. The Company is managed by a Board of Directors and other senior executives. Employees is about 14000. The Principal Office and Works is located at

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PROFILE OF COMPANY PRODUCT STABILITY: Hindalco Industries Limited is one of the county’s largest aluminum and copper producers. Being a part of the Aditya Birla Group, this company has made its mark in the world. It has been positioned as the sixth largest aluminum producer in Asia and the eleventh largest in the world, based on volumes of calendar year 2007. On May 15, 2007, Hindalco acquired Novelis Inc, which is the world’s largest aluminum rolled products producer. With this acquisition, Hindalco has achieved economies of scale, an increased global reach and also gotten access to advanced technology. The company also owns and operates one of the largest single location copper smelters in the world at Dahej. They receive a portion of their copper from Australia where they own mines and also purchase copper concentrate at the London Metal Exchange (LME). In 2007, Hindalco was also among the top 10 copper producers in the world by capacity. While Hindalco itself has a very good stand and has proven its stability, post Novelis acquisition, the company’s share price has seen some fluctuations. However, if one is to look at the basics of Novelis, the value addition this purchase has given the company should hold them in good stead. Novelis is the largest aluminum product producer in the Europe, South America and Asia and are also the world leaders in recycling used aluminum beverage cans. They have recycled approximately 36 billion used cans in the last financial year. Having operations in 11 countries, they produce aluminum sheets and foil products for customers in the automotive, transportation, packaging, construction and prinking industries. Their key customers include, Anheuser-Busch Companies, affiliated to the Ball Corporation, Crown Cork & Steel Company and Rexam Plc. This not only has given the company a very good triple bottom line in recent years but also shows how beneficial this strategic acquisition can prove to be. BRIDGING THE GAP The company intends to use the net proceeds of this issue to fund a part of the repayment of bridge loan availed by AV Minerals (Netherlands) BV, an overseas subsidiary of the company, for the acquisition of Novelis. The company is expected to raise Rs 5,048 crore, out of which the issue expenses would be Rs 121.6 crore leaving net proceeds of Rs 4,926 crore or $1.12 billion. The overall cost of acquiring Novelis was $3.48 billion, which was paid for by internal accruals of $0.45 billion and debt raised by their subsidiary companies worth $3.03 billion. This is the loan that needs to be repaid by November 10, 2008 in full. The company intends to do the same by taking a $1 billion loan incurred by AV Minerals ARUN GULERIA | [email protected]

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from a syndicate of banks including ABN AMRO, Citi, Deutsche Bank and SBI. However, which banks will provide how much money and from where will they be providing the same is yet to be clarified. Reports indicate that the loan will be taken with an interest of 280 base points. The company also has an unused amount of $0.40 billion from the January 2006 rights issue, and if the shareholders approve of it, they hope to change the objectives of that issue to utilize the money for repayment of loan. This gives the company a total of $2.62 billion leaving them short by approximately $0.41 billion that internal accruals should make up for. While the plans look ambitious to say the least, with the promoters planning to subscribe to their full extent being 31.43% of the issue, investors should feel secure seeing their confidence and past records. In an event that the issue is not fully subscribed for, the promoter and promoter group may apply for additional shares as long as their overall subscription does not go beyond 50% of this issue. The lead managers of the issue include five banks that will be underwriting the issue and have agreed to subscribe to any of the shares which have not been subscribed for by the shareholders, and which cannot be subscribed for by the promoters. The Aditya Birla Group also might pick up some of the unsubscribed shares, leaving the bankers to effectively underwrite approximately 16%. This was concluded since Life Insurance Corp of India Ltd, which owns 11.13% and 200 foreign institutional investors holding 12% are expected to subscribe to the maximum as well. NUMBER TALK Hindalco in this rights issue is offering 525,802,403 equity shares at a ratio of three equity shares for every seven held, thus making it the biggest ever rights issue in India. The issue is priced at Rs 96 per share, which will allow the company to raise approximately Rs 5,048 crore (approx $1.14 billion). It is rare for companies to de-leverage their finances while they are financially stable, in this instance the sheer amount of loan already been taken and the amount that needs to be repaid are so large that they have had little option but to come out with a rights issue. While the current debt-equity ratio stands at 65:35, since this issue will result in a 42.8% dilution in liquidity, the debt-equity ratio will move to 45:55. While, having lower debt is always considered better, especially in present economic conditions, the company may have to dilute their equity than taking more debt, due to uncertainty in being able to repay. However, with Hindalco’s financial stability over the years that seems hard to believe, this move will however for the short to medium run dent the companies EPS. While the current market price is only a few rupees more than the issue price, this is mainly due to falling prices amidst uncertain commodity price stability as well as the overall economic condition. However if one were to take the companies average between their 52 ARUN GULERIA | [email protected]

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week high and low, one can safely estimate a fair value of the share to be Rs. 140/share. Given this the company is offering the rights issue at a reasonable price, however many people have doubts on the subscription of this issue due to weak market sentiments and uncertain commodity prices. However most reports indicate that aluminum prices should pick up once we ride out this storm hopefully by the financial years 2010 and 2011. Also, with plans to invest almost Rs. 19,800 crore in the next three years to increase their production in different locations, the long run still looks good. By this time Novelis’s fixed income sale commitments would also be completed, giving Hindalco a fresh start.

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OBJECTIVE OF STUDY PROFITABILITY POSITION The profitability of the Hindalco in last five 5years is studding, to finding that the Hindalco get the better profit according to their objective and goals. The profitability gives the details of profit of company and gives the better data that the company is in good condition. The better material gives the better profit and expands the business and makes the business transaction smoother. By study this tool I get full detail about the company that the company is in good condition and doing the business in smooth way. The sale of product made by the company is good and the profit can be made by the company. The completion is in the market and the can face the change come in way of earning the profit. The profit of 5 years are made is sufficient to keep the position of the companies. ASSETS POSITION:Assets position means the position of assets in the business. The assets of business can defines can defined the position of the business. The purpose on which the business to calculating the assets position is to find that the business is running is in good condition on which the type better position in the economy. The position of company is good and able to pay the pay the liabilities LIABILITIES POSITION The liability position of company gives the detail of the company that what amount the company is liable to pay to outsider. The position at which the is able to pay these credit to outsider.

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AREA PROFILE

FIXED ASSETS (a) Tangible Assets are stated at cost less accumulated depreciation and impairment loss, if

any. Cost comprises of purchase price and any attributable cost of bringing the assets to its working condition for its intended use. (b) Intangible Assets are stated at cost less accumulated amortization. Cost includes any directly at attributable expenditure on making the asset ready for its intended use. (c) Machinery spares which can be used only in connection with an item of Fixed Asset and whose use is not of regular nature are written off over the estimated useful life of the relevant asset.

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DEPRECIATION AND AMORTIZATION (a) Depreciation

on Fixed Assets has been provided using Straight Line Method at the rates and manner prescribed under Schedule VI of Companies Act, 1956 of India.

(b) Leasehold

land (including mining rights) are amortized over the period of lease on straight line basis.

(c) Intangible assets are amortized over their estimated useful lives on straight line basis. (d) Depreciation on assets acquired under finance lease is spread over the lease term.

INVESTMENTS (a) Long term Investments are carried at cost after deducting provision, if any, for diminution in value considered to be other than temporary in nature. (b) Current investments are stated at lower of cost and fair value.

INVENTORIES (a) Inventories of stores and spare parts are valued at or below cost after providing for cost of obsolescence and other anticipated losses, wherever considered necessary. (b) Inventories of items other than those stated above are valued ‘At cost or Net Realizable Value, whichever is lower’. Cost is generally determined on weighted average cost basis and wherever required, appropriate overheads are taken into account. Net Realizable Value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs necessary to make the sale. (c) Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost.

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REVENUE RECOGNITION Sales revenue is recognized on transfer of significant risk and rewards of the ownership of the goods to the buyer and stated at net of trade discount and rebates. Dividend income on investments is accounted for when the right to receive the payment is established. Export incentive, certain insurance, railway and other claims where quantum of accruals cannot be ascertained with reasonable certainty, are accounted on acceptance basis. BORROWING COST Borrowing costs directly attributable to the acquisition or construction of qualifying assets are capitalized. Other borrowing costs are recognized as expenses in the period in which they are incurred. In determining the amount of borrowing costs eligible for capitalization during a period, any income earned on the temporary investment of those borrowings is deducted from the borrowing costs incurred. TAXATION Provision for current income tax is made in accordance with the Income Tax Act, 1961. Deferred tax liabilities and assets are recognized at substantively enacted tax rates, subject to the consideration of prudence, on timing difference, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Fringe benefit tax (FBT) is accounted for on the estimated value of fringe benefits for the period as per the related provisions of the Income-tax Act.

DERIVATIVE INSTRUMENTS (a) Risks associated with fluctuations in the price of the Company’s products (copper, alumina, aluminium and precious metals) are minimized by hedging on futures market. The results of metal hedging contracts /transactions are recorded at their settlement as part of raw material cost or sales as the case may be. Portion of the cash flow to the extent of underlying physical transactions having not been completed is carried in Raw Materials Inventory till the completion of the underlying physical transaction.

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©ARUN GULERIA MBA LOVELY INTERNATIONAL UNIVERSITY [email protected] (b) Transactions

covered by cross currency swap and option contracts to be settled on future dates are recognized at the yearend rates of the underlying foreign currency. Effects arising out of swap contracts are being adjusted on the date of settlement.

METHODOLOGY OF STUDY GROSS PROFIT RATIO 100

=

Gross Profit

x

Sale NET PROFIT RATIO

Net profit x 100 Net Sale

=

FIXED ASSETS RATIO depreciation)

=

Fixed Assets (after Shareholder’

s Funds CURRENT RATIO Assets

=

Current Current

Liabilities SOLVENCY RATIO Outsider

=

Total Liabilities to Total

Assets DEBT – EQUITY RATIO Funds

=

Outsider Shareholders

’ Funds

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DATA ANALYSIS AND INTERPRETATION

Balance Sheet of HINDALCO Ltd. 06

Mar ' 05

Mar ' 08 Mar ' 04

Sources of funds Owner's fund Equity share capital 122.65 92.78 92.48 Share application money 139.50 Preference share capital Reserves & surplus 17,173.67 7,573.80 6,765.42 Loan funds Secured loans 6,205.42 2,952.34 1,725.94 Unsecured loans 2,123.16 847.66 838.66 Total 25,764.40 11,466.58 9,422.49 Uses of funds Fixed assets Gross block 12,608.46 8,772.79 6,658.49 Less : revaluation reserve Less : accumulated depreciation 4,799.12 3,169.26 1,918.28

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(Rs crore)

Mar ' 07

104.33

98.57

-

Mar '

-

-

-

-

12,313.71

9,507.69

6,410.20 958.40

2,848.05 2,055.39

19,786.64

14,509.69

11,252.66 4,245.95

10,418.25 -

3,635.45

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Net block 5,603.53 4,740.22 Capital work-in-progress 1,322.98 467.67 Investments 3,702.15 Net current assets Current assets, loans & advances 4,476.43 2,911.99 Less : current liabilities & provisions 3,647.89 2,074.59 Total net current assets 828.53 837.40 Miscellaneous expenses not written 9.39 Total 14,509.6 11,466.58

7,809.34

7,006.71

1,119.87

1,476.43

14,107.99 3,377.21

832.92

8,675.32

7,926.26

3,971.31

7,846.17

5,199.0

Notes: Book value of unquoted 692.23 Market value of investments 1,696.37 Contingent liabilities 2,524.86 1,599.40 Number of equity share 924.81

6,782.80

7,315.07

5,221.15

2,727.21

4,398.41

2,625.02

-

2,916.66

3.17

6.00

25,764.40 9,422.49

12,940.29 7,537.62 5,795.68

5,159.28

17,660.42

19,786.6

940.03

811.86

1,400.23

3,474.98

1,362.42

12271.91 11593.30

2,479.24

11593.30

927.81

PROFIT & LOSS ACCOUNT OF HINDALCO LTD. Mar ' 08 05

Mar ' 07 Mar ' 06 Mar '

Mar ' 04

Income: Operating income 9,523.25 6,209.11 Expenses ARUN GULERIA | [email protected]

19,118.01

1

18,312.93 11,355.15

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Material consumed 12,344.83 10,994.42 5,879.57 4,661.94 3,340.64 Manufacturing expenses 2,026.73 2,080.80 1,972.22 1,702.44 820.62 Personnel expenses 631.07 529.58 466.26 414.13 241.67 Selling expenses 310.60 293.82 249.62 238.85 169.15 Administrative expenses 535.38 403.55 260.83 233.33 156.79 Expenses capitalized Cost of sales 15,848.60 14,302.178,828.49 7,250.69 4,728.87 Operating profit 3,269.41 4,010.772,526.65 2,272.56 1,480.24 Other recurring income 527.95 321.13 227.64 207.81 161.58 Adjusted PBDIT 3,797.36 4,331.89 2,754.29 2,480.38 1,641.82 Financial expenses 280.63 242.39 225.17 169.96 161.59 Depreciation 587.81 552.80 516.68 463.26 317.40 Other write offs 3.62 4.00 6.29 6.07 Adjusted PBT 2,925.30 3,532.70 2,006.15 1,841.09 1,162.82 Tax charges 705.34 940.30 450.15 646.39 406.74 Adjusted PAT 2,219.97 2,592.40 1,556.01 1,194.71 756.08 Nonrecurring items 43.23 -37.61 56.17 53.13 79.61 Other non cash adjustments 597.74 9.54 43.37 81.52 3.23 Reported net profit 2,860.94 2,564.33 1,655.55 1,329.36 838.93 Earnings before appropriation 2,959.38 2,619.33 1,710.55 1,384.36 893.93 Equity dividend 226.89 177.34 216.84 185.56 152.58 Preference dividend 0.02 Dividend tax 38.56 24.87 30.41 26.42 19.55 ARUN GULERIA | [email protected]

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Retained earnings 1,172.38 721.80

2,693.90

2,417.11 1,463.30

RATIOS of HINDALCO Adjusted return on net worth (%)

12.83

20.88

16.20

15.60

11.02

Reported return on net worth (%)

16.54

20.65

17.24

17.36

12.23

Return on long term funds (%)

13.56

20.03

17.77

18.34

15.01

Long term debt / Equity

0.36

0.51

0.30

0.44

0.31

Total debt/equity

0.48

0.59

0.51

0.49

0.37

67.49

62.75

66.20

66.86

72.78

1.53

1.64

1.10

1.09

0.93

Current ratio

1.52

1.50

1.66

1.23

1.40

Current ratio (inc. st loans)

1.08

1.22

1.12

1.03

1.06

Quick ratio

0.52

0.66

0.72

0.57

0.82

Leverage ratios

Owners fund as % of total source Fixed assets turnover ratio Liquidity ratios

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©ARUN GULERIA MBA LOVELY INTERNATIONAL UNIVERSITY [email protected] Inventory turnover ratio

4.32

4.89

3.22

4.76

6.43

Dividend payout ratio (net profit)

9.27

7.88

14.93

15.94

20.51

Dividend payout ratio (cash profit)

7.68

6.47

11.34

11.78

14.88

Earning retention ratio

88.05

92.20

84.11

82.26

77.24

Cash earnings retention ratio

90.56

93.58

88.11

87.27

83.97

Adjusted cash flow time total debt

2.96

2.34

2.36

2.28

2.39

Financial charges coverage ratio

13.53

17.87

12.23

14.59

10.16

Fin. charges cov.ratio (post tax)

13.30

13.88

10.68

11.58

8.16

65.31

62.46

60.88

51.63

55.69

1.62

1.60

2.19

2.50

2.72

Exports as percent of total sales

33.65

38.10

32.14

27.37

20.85

Import comp. in raw mat. consumed

90.35

89.50

84.66

79.84

75.56

0.74

0.68

0.61

0.70

0.74

40.09

47.13

49.89

53.00

53.17

Payout ratios

Coverage ratios

Component ratios Material cost component (% earnings) Selling cost Component

Long term assets / total Assets Bonus component in equity capital (%)

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DIRECTORS REPORT The Directors are pleased to present the 48th Annual Report along with the audited annual accounts for the year ended 31st March, 2008. MAJOR STRATEGIC INITIATIVES The Company has entered into a definitive agreement with Novelis Inc. on 10th February, 2007 for acquiring all outstanding common shares @ USD 44-93 per share in cash for a total consideration of approx. USD 3.5 billion. For this purpose, the Company has secured firm commitments of USD 3.1 billion bridge loan of 18 months against the corporate guarantee of the Company and the balance of USD 450 million will be financed by the Company by way of infusing equity/preferred stock/other securities in its wholly owned subsidiaries. The acquisition will be effected through one or more of its wholly owned subsidiaries. The transactions were duly completed and V1&A closure achieved as per plan. The strategic rationale for this acquisition as well as the acquisition financing process is more fully dealt with in the MD&A section of this Annual Report. COST REDUCTION INITIATIVES With the commissioning of the second 100MW power unit at Hirakud, Orissa in December, 2006 in line with schedule, there has been a substantial cost saving of operation. Growth plans underway in Aluminium. The Company is aggressively pursuing various brown field and green field growth opportunities in Aluminum as described below: BROWNFIELD EXPANSIONS The Company's brown field expansion projects are on track. The expansion of Muri Alumina Refinery from 110 KTPA to 450 KTPA is expected to be commissioned in the second quarter of the next fiscal. The commissioning of Phase 1 of Hirakud Smelting capacity from 65 KTPA to 100 KTPA has been completed with all 150 pots energized. Phase - II of the project, which will enhance smelting capacity to 143 KTPA, is on track. The conversion of Pot Line-3 commenced in Nov'06 in a phased manner. The first lot of 64 Pots ARUN GULERIA | [email protected]

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was completed ahead of schedule. The 2nd 100 MW power plant was commissioned in Dec'06 in line with the schedule while the third 100 MW plant is slated to go on stream by December 2007.

GREENFIELD PROJECTS Utkal Work on the 1,500 KTPA Alumina project is in progress. The pile foundation for the precipitation area is progressing well and will be completed by May'07. The layout of the non-plant buildings has been finalized. The Detailed engineering for Mines has started and is expected to be over by March 2009. The second phase of rehabilitation and resettlement process is on track. The joint venture partner i.e. Alcan Inc. has decided to exit the project and Hindalco is yet to exercise its pre-emption right. ADITYA ALUMINA & ALUMINUM This Greenfield integrated project of 1,500 KTPA Alumina, 325 KTPA of Aluminum smelting and a Captive Power Plant of 750 MW is on track. The proposed smelter has been accorded an SEZ status. The Rehabilitation and Resettlement plan for both the smelters and CPP sites have been submitted for statutory approval. The work on the Railway siding and Energized Grid connectivity is underway. MAHAN ALUMINUM This project envisages setting up of a 325 KTPA Smelter and 750 MW Captive Power Plant supported by Captive Coal Mine. The Coal block was allotted in April'06 in a JV with Essar. The production of coal is likely to start from April 2009. The Govt. of Madhya Pradesh has sanctioned an allocation of 1213 hectares of land and accorded an SEZ status. LATHEHAR ALUMINUM For this project entailing the setting up a 325 KTPA Aluminum Smelter with 750 MW Captive Power Plant, supported by 5 million TPA Captive Coal Mine in Jharkhand, the allotment of coal block has reached its final stages. Land acquisition is in progress. An application has also been filed for environmental clearance, water, construction power and other necessary infrastructure. PERFORMANCE The Company registered its best ever performance during the year under review. Higher capacity utilization, increased realization, product mix enrichment and improved operational efficiencies resulted in both revenues and profits surpassing their previous levels. Alumina ARUN GULERIA | [email protected]

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and Aluminum plants continued to operate at utilization levels well above their rated capacities. With the stabilization of the Hirakud Brownfield expansion, metal production rose by 3.2% to 442,686 MT. The production of Value Added-Products i.e. Rolled and Extrusions increased due to acquisitions completed in FY06 as well as higher utilization of available assets. Of the total sales volume, the share of value added products was an impressive 55%. Despite falling aluminum prices in the international market, your Company was able to maintain high realizations, largely because of its focus on Speciality business as well as a prudent mix of forward contracts and spot sales. The production of Copper cathodes went up by 38% to 290,529 MT in comparison to previous year on the back of the expanded capacity commissioned last year. Production of value added CC rods grew 23% to 109,029 MT. Sulphuric acid output was up by 40% to 892,597 MT. In view of the overall economics, Copper II operations remained suspended for a part of year with copper concentrate in international markets becoming more expensive due to supply constraints. The Company expects this situation to be transient. The Chairman's letter to shareholders and the Management's Discussion & Analysis, which form a part of this Annual Report, provide the strategic direction and a more detailed analysis on the performance of individual businesses and their outlook.

Rs. in Million

Financial Results for the year ended

31.03.2007

Net Sales & Operating Revenue Profit before Extraordinary Items and Tax Extraordinary Items Profit before Tax Provision for Current Tax Provision for Deferred Tax Provision for Fringe Benefits Tax Net Profit Appropriations Transfer to Debenture Redemption Reserve Dividend Tax on Dividend Transfer to General Reserve

ARUN GULERIA | [email protected]

183,130 35,046 35,046 9841 (551) 113 25,643 187 1,773 249 24,434

1

31.03.2006 113,965 21,027 30 21,057 3241 1160 100 16,556 751 2,168 304 14,395

©ARUN GULERIA MBA LOVELY INTERNATIONAL UNIVERSITY [email protected]

DIVIDEND The Directors have recommended interim dividend of Rs. 1.70 per share (Last Year Rs. 2.20 per share). The total outgo including tax on divided would be Rs. 2,022.2 million (Last Year: Rs. 2,472.5 million).

FINANCING An amount of Rs. 3,890 crores was drawn at an average rate of 8.62% p.a. against the 10 year Secured Rupee Term Loan facility syndicated in earlier years. The Company met its entire obligation on payment of interest and repayment of principal. As part of the bidding process under Canadian Law for undertaking the arrangement transaction for the acquisition of Novell, your Company obtained commitment letter from ABN AMRO, Bank of America and UBS of US.1 Billion with recourse to your Company and secured by Hindalco's corporate guarantee for paying the shareholders of Novelis. It also obtained back-stop facility of approximately US.4 Billion from UBS and ABN AMRO for refinancing the existing loans of the Novelis Balance Sheet with recourse limited to the cash flows and assets of Novelis. The Company was adjudged the successful bidder and all steps are being taken to complete the legal and other formalities required to draw the committed funds.

CORPORATE GOVERNANCE Consolidated Financial Statements

In accordance with Accounting Standards 21, 23 and 27 issued by the Institute of Chartered Accountants of India, your Company is presenting its consolidated financial statements. These Consolidated Financial Statements form part of the Annual Report. The Securities and Exchange Board of India (SEBI) has prescribed corporate governance standards. Your Directors reaffirm their commitment to these standards and this annual report carries a section on Corporate Governance. Environmental Protection and Pollution Control The Company is committed to sustainable development. Your company is a signatory to the Global Compact and subscribes to the principle of triple-bottom line accountability. A separate chapter in this report deals at length with your Company's initiatives and commitment to environment conservation.

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The Central Government has granted an exemption to your Company under Section 212(8) of the Companies Act, 1956, from attaching a copy of the Balance Sheet, Profit and Loss Account, Report of the Board of Directors and the Report of the Auditors to all the Subsidiary Company except AV Metals Inc. and AV Aluminum Inc. Subsidiary Companies, which will not be attached with the financial statements of your company. The Company has also applied to the Central Government for exemption from attaching copy of Balance Sheet, P&.L A/c report of the Board of Directors and report of the auditors for the remaining two subsidiaries i.e. AV Metals Inc. and AV Aluminum Inc. These documents can be requested by any member, investor of the company/subsidiary company. Further, in line with the Listing Agreement and in accordance with the Accounting Standard 21 (AS-21), Consolidated Financial Statements prepared by the Company include financial information of its subsidiaries. THE DIRECTORS FURTHER CONFIRM THAT: (i) In the presentation of the Annual Accounts, applicable Accounting Standards have been followed. (ii) That the accounting policies are consistently applied and reasonable, prudent judgment and estimates are made so as to give a true and fair view of the state of affairs of the Company at the end of the Financial Year. (iii) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. (iv) The Directors have prepared the Annual Accounts on a going concern basis. The Company's internal Auditors have conducted periodic audits to provide reasonable assurance that established policies and procedures have been followed. Details of technology imported in the past 5 years Technology imported Year of Has technology If not fully absorbed, for Import been fully areas where this has absorbed not taken place, reason thereof and future plan of action. ALUMINIUM Anode moulding

2003-04

Separations of red mud from pregnant liquor

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2004-05

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Yes Yes

N.A. N.A.

©ARUN GULERIA MBA LOVELY INTERNATIONAL UNIVERSITY [email protected]

Sheet surface treatment and flatness

2004-05

Yes

Clad sheet manufacturing

2005-06

Yes

N.A. N.A.

COPPER Ausmelt technology for Copper-II

2002-03

Yes

N.A.

Cryogenic air separation for Oxygen-III

2002-03

Yes

N.A.

Mitsubishi Technology for Copper-III

2003-04

Yes

N.A.

Cryogenic air separation for Oxygen-IV

2005-06

Yes

N.A.

Cryogenic air separation for Oxygen-V

2006-07

Yes

N.A.

FOREIGN EXCHANGE EARNINGS & OUTGO a) Activities related to Exports The Company has taken successful initiatives to increase exports during the year to Rs. 69,732.05 million. b) Total Foreign Exchange used and earned Foreign exchange used Rs. 100,831.85 million Foreign exchange earned Rs. 69,775.37 millio

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AUDITOR'S REPORT We have audited the attached Balance Sheet of HINDALCO INDUSTRIES LIMTIED as at 31st March, 2008 and also the Profit and Loss Account and the Cash Flow Statement for the year ended on that date. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our Audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As required by the Companies (Auditor’s report) Order, 2003, as amended by the Companies (Auditor’s Report)(Amendment) Order, 2004 issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose as Annexure, a statement on the matters specified in the paragraphs 4 and 5 of the said order. Further to our comments in the Annexure referred above, we report that: 1) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our audit; 2) In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; 3) The Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; 4) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956. Attention is invited to Note No 29(d) regarding non provision for mark to market losses (net) of Rs 220 million on outstanding ARUN GULERIA | [email protected]

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derivatives as on 31st March, 08 which is not in accordance with Accounting Standard-1 and announcement made by the ICAI on 29th March, 08. 5) On the basis of the written representations received from the directors and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on 31st March, 2008 from being appointed as a Director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956; 6) In our opinion and to the best of our information and according to the explanations given to us, they said accounts read with the notes in Schedule 20 give the information required by the Companies Act, 1956 (as amended) in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India; (a) In the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2008; (b) In the case of the Profit & Loss Account, of the Profit for the year ended on that date; and (c) In the case of Cash Flow Statement, of the Cash Flows for the year ended on that date. (d) According to the information and explanations given to us and on the basis of our examination of the books of accounts, the Company is generally regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and other statutory dues with the appropriate authorities. According to the information and explanations given to us no undisputed statutory dues as above were outstanding as at 31st March, 2008 for a period of more than 6 months from the date they became payable. (e) According to the information and explanations given to us, the dues of Sales Tax, Income Tax, Customs Duty, Wealth Tax, Excise Duty, Service Tax and Cess which have not been deposited on account of any dispute and the forum where the dispute is pending as on 31st March, 2008 are as under: • The Company does not have any accumulated losses and has not incurred cash losses in the current financial year and in the immediately preceding financial year. • The Company has not defaulted in repayment of dues to Financial Institutions or Banks or Debenture holders.

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• According to the information and explanations given to us, the Company has not granted any loans or advances on the basis of security by way of pledge of Shares, Debentures and other Securities. • The Company is not in the business of dealing or trading in shares. The Company has maintained proper records of transactions and contracts in respect of Shares, Securities, Debentures and other Investments and timely entries have been made therein. The Shares, Securities, Debentures and other Investments have been held by the Company, in its own name except to the extent of exemption, granted under section 49 of the Companies Act, 1956. • In our opinion and according to the information and explanations given to us, the terms and conditions on which the Company has given corporate guarantees for loans taken by its Subsidiaries and Joint Ventures from Banks and Financial Institutions (including foreign banks) are not prima facie prejudicial to the interest of the Company. • Based on information and explanations given to us by the management, term loans were applied for the purpose for which the loans were obtained though unutilized funds which were not required for immediate use for capital expenditure have been temporarily invested in securities/bank deposit. • According to the information and explanations given to us and on the basis of our overall examination of the Balance Sheet and Cash Flow Statement, we report that no funds raised on short term basis have been used for long term investment of the Company. •

During the year under Audit, the Company has made preferential allotment of equity shares and has also made preferential allotments of warrants to a Company covered in the register maintained under section 301 of the Companies Act, 1956. The price at which the shares/warrants have been issued has been determined as per the Securities And Exchange Board of India (Disclosure and Investor Protection) Guideline, 2000, which in our opinion, is not prejudicial to the interest of the Company.

• On the basis of records made available to us, the Company has created Securities in respect of Debenture issued/ outstanding during the year.

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NOTE TO ACCOUNTS OF HINDALCO (Rs. in Millions) As at 31 March, 2007

As at 31 March, 2008

1. Capital Commitments outstanding (Advance/Deposit paid Rs 6,814.17 Million, previous year Rs. 1,734.37 Millions)

9,512.31

2. Uncalled Liability on shares partly paid up

8,143.37

2,379.58

-

2. (I) Contingent Liabilities not provided for in respect of: (a) Claims/Disputed liabilities not acknowledged as debt:

Following demands are disputed by the Company and are not provided for: (i)

ii)

iii)

Demand notice by Asset. Collector Central Excise Mirzapur for excise duty on Power generated by company’s captive power plant, Renusagar Power Co. Ltd Demand of interest on past dues of the Aluminium Regulation account upto 31.12. 1987.

63.29

Retrospective Revision of Water Rates by UP Jal Vidyut Nigam Limited (April 1989 to June 1993 & Jan 2000 To Jan 2001).

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91.21

40.80

1

91.21

63.29

40.80

©ARUN GULERIA MBA LOVELY INTERNATIONAL UNIVERSITY [email protected]

iv) Transit fees levied by Divisional Forest officer, Renukoot on coal and bauxite.

444.98

v) M.P Transit Fee on Coal demanded by Northern Coal Fields Limited.

160.53

vi) Imposition of Cess on Coal by Shaktinagar Special Area Development Authority.

39.68

348.56

160.53

36.42

Company, the state has no power to tax the mineral since this field is covered under Mines and Minerals Development and Regulation Act. vii) Demand of Royalty on Vanadium by District Mining officer, Lohardaga.

84.44

viii) The demand of Excise Duty on gold.

1553.06

ix) Demand for disallowances of depreciation claim and other claim on the leased assets by Lessor. x) Tax under MPGATSVA, 2005 @ 5% on basic price of coal w.e.f. 30-9-2005 by M.P. State Government. xi) Demand raised on provisional assessment for Entry Tax. xii) Demand raised on assessment under CST Act & UP Sales Tax Act. xiii) Revision of surface rent on land by Government of Jharkhand w.e.f. 16-6-2005. ARUN GULERIA | [email protected]

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84.44 1,553.06

180.20

180.20

268.59

167.10

1,545.35

258.54

404.56

94.59

66.98

42.29

©ARUN GULERIA MBA LOVELY INTERNATIONAL UNIVERSITY [email protected]

xiv) Demand made by Nayab Tehsildar Kusmi / Collector under Chattisgarh (Adhosanrachna Vikas evam Parayavaran Upkar Adhiniyam, 2005).

17.39

xv) Service tax paid on GTA and BAS.

20.50

xvi) Demand for duty on loading and transportation charges on scrap.

-

xvii) Demand for reversal of difference between duty paid and credit taken on returned material.

-

xviii) CST demand on reopening of assessments for earlier years.

88.10

xix) Recovery of differential duty on account of Final Assessment of different B/Es. for import under Advance Licenses.

-

xx) Disallowances of Sales Tax Forms for Sales Tax Assessment year 1997-98.

12.05

xxi) Demand for Sales Tax u/s 15B for A.Y. 2001-02 & 2002-03.

12.12 13.87 16.45

65.11 758.14

16.50

81.70

81.70

104.93

95.40

xxiii) Classification dispute of Aluminium Casserole.

52.38

-

xxiv) Service tax on insurance policy attributable to Renusagar.

12.90

-

517.27

-

xxii) Demand for Stamp Duty on Imported Cargo.

xxv) Demand of Interest on differential duty on account of final assessment of Bill of Entries. ARUN GULERIA | [email protected]

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©ARUN GULERIA MBA LOVELY INTERNATIONAL UNIVERSITY [email protected]

xxvi) Disallowance of CENVAT credit.

52.89

-

xxvii) Demand for interest on claim.

53.16

-

xxviii) Demand raised on assessment under CST Act and APGST Act for various years.

26.13

-

xxix) Other Contingent Liabilities in respect of Excise, customs, Sales Tax etc. each being for less than Rs.10 millions.

100.85

101.33

(b) i) Bills discounted with Banks

765.88

1,004.16

ii) Corporate Guarantees outstanding (Rs.159,925 million (previous year Rs. 45 million) given on behalf of subsidiary companies).

160,242.10

(c) The Company has received supplementary bills on account of revision in rate of power for Main Supply from the UPSEB for the period 15th May 1976 to 30th June 1980 and the same remains unprovided for as disputed by the Company.

50.10

(d) Customs duty on Capital Goods and Raw Materials imported under Advance Licence / EPCG Scheme, against which export obligation is to be fulfilled.

1,920.27

195.00

50.10

1,833.40

During April 2007, the Company received a notice dated 24th March, 2007 from collector (Stamp) Kanpur, Uttar Pradesh alleging that stamp duty of Rs. 2,529.59 million is payable in view of order dated 18thNovember, 2002 of Hon’able High Court of Allahabad approving scheme of arrangement for merger of Copper business of Indo Gulf Corporation Limited with the Company. The Company feels that it has a strong case as there is no substantive/computation provision for levy/calculation of stamp duty on court order ARUN GULERIA | [email protected]

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approving scheme of arrangement under Companies Act, 1956 within the provisions of Uttar Pradesh Stamp Act. The Company has filed a writ petition before the Hon’able High Court of Allahabad, inter alia, on the above said ground and also that the properties in question are located in the state of Gujarat and thus the collector has no territorial jurisdiction. Sales include own manufactured items capitalized / used Rs. 318.19 million (previous year Rs. 590.20 million) at cost (inclusive of excise duty). Sale of Di-Ammonium Phosphate (DAP) and other complex fertilizers are covered under the concessional schemes for decontrolled fertilizers of the Government of India. In previous year pending claim for concession were accounted for based on current practice adopted by department of fertilizer for neutralizing the cost of input. In view of uncertainty, accounting of pending claim for concession, for which final rate has not been declared, has been done on base rate declared by the Government. Export and Other Incentives under Operating Revenues in Schedule 15:i) Includes Rs. 1,165.93 million (Previous year Rs. 1,748.55 million) being Sales Tax collected during the year and retained as sales tax incentive allowed by the Government of Gujarat to the units enjoying Sales Tax exemption on domestic sales. ii) Includes Rs. 224.62 million being benefit under Duty Free Import Entitlement Scheme received during the year in relation to export made during 2003 – 04. (a) Purchase of copper concentrate is accounted for provisionally pending finalization of content in the concentrate, price and custom duty. Variations are accounted for in the year of settlement. (b) Sale of Continuous Cast Copper Rod and Copper Cathode is accounted for provisionally pending finalization of price variations in the year of settlement. (c) Final price payable on purchase of copper concentrate for which Quotation period, price and quantity was not finalized in the previous year, were realigned at year end rate based on monthly average rate for Copper and Precious Metal quoted at LME & LMBA respectively and accordingly an additional provision for Rs.546.82 million was made. During the year final price payable was settled at Rs. 1,962.66 million and additional liabilities of Rs. 1,415.84 million has been charged to raw material consumption. Further, an additional provision for Rs. 2,520.04 million was made on realignment of such class of liabilities as

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on 31st March 2008. Actual outflow is expected on finalization of quotation period price in the next financial year. (d) Final price receivable from sale of Copper for which quotation price was not finalized in previous year were realigned at year end rate based on LME rate and provisional sales for Rs. 430.87 million were accounted for. During the year final price was settled at Rs. 490.22 million and credit for further sales of Rs. 59.35 million were taken into account. As on 31st March 2008 sales of Rs. 1,975.76 million pending for price finalization were realigned at year end rate of LME and an additional sale of Rs. 161.55 million was accounted for. Actual inflow is expected on finalization of price in next financial year. 9. A part of electricity supplied by the Company, which has been treated by Uttar Pradesh Power Corporation Limited (UPPCL) as sale, has been accounted for on the basis of provisional rates. The effect of variation in the rate will be accounted for in the year in which rates are finalized by UPPCL. Insurance claims under various policies / other claims are not accounted for, as the amounts are still unascertained pending the completion of assessment/ settlement of the claims. Income amounting to Rs. 1,499.66 million of dividend, Rs. 175.71 million of interest and Rs. 1,325.45 million of profit on sale of investments derived from temporary deployment of surplus fund out of specific borrowing for various projects have been deducted from borrowing costs incurred. Tax adjustment for earlier years (net) includes write back of provision for tax resulting from change in estimation of tax liability on progress in tax assessments. (a) The Company has acquired the shareholding of Alcan Inc. consisting of 78,564,384 equity shares of Rs 10/ - each in Utkal Alumina International Limited (Utkal). Consequently, Utkal is now a wholly owned subsidiary of the Company. During the year Utkal has issued 378,654,820 numbers of shares, Thus the Company has invested a total amount of Rs. 6,635.12 million till 31st March 2008.The project activities in Utkal are progressing well. (b) The Company has entered into a joint venture agreement with Essar Power M.P. Limited by virtue of which it holds 50% stake in Mahan Coal Limited, a new company formed for mining of coal, a part of which being the entitlement of the Company as per the agreement will be used for generating power to be captively consumed in proposed green field aluminium smelter in Madhya Pradesh. The Company has invested a total amount of Rs. 23.75 million till 31st March 2008. ARUN GULERIA | [email protected]

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(c) The Company has entered into a joint venture partnership with Almex USA Inc. (Almex), for the manufacture of high strength aluminium alloys for applications in the aerospace, sporting goods and surface transport industries. The joint venture has been named Hindalco-Almex Aerospace Limited. The Company has 70 per cent equity participation, with Almex holding the balance 30 per cent in the JV. The Company has made an equity contribution of Rs.210.00 million till 31st March 2008. It is expected that the project will go on stream during the second quarter of next year. (d) The Company has formed a joint venture company namely Tubed Coal Mines Ltd with The Tata Power Company Ltd as per the condition of allotment letter of Ministry of Coal for the purpose of exploration of the Coal block allotted by the Government in the State of Jharkhand. Hindalco holds 60% stake in the Joint venture and balance 40% is held by The Tata Power Company Ltd. The Company has invested a total amount of Rs. 12.30 million (including Rs. 0.60 Million towards advance against equity.) till 31st March 2008. (e) The Company has formed a joint venture company namely East Coast Bauxite Mining Company Private Limited with Orissa Mining Corporation Limited to mine bauxite in the State of Orissa. Hindalco holds 74% stake in the Joint venture by virtue of acquiring 7,400 numbers of equity share of Rs. 10/- each, and balance 26% is held by Orissa Mining Corporation Limited. The amount transferable to Investor Education and Protection Fund does not include any amount due and outstanding to be transferred to said fund except Rs. 0.73 million (Previous year Rs. 0.73 million) which is held in abeyance due to legal case pending The Company has not received any memorandum (as required to be filed by the suppliers with the notified authority under Micro, Small and Medium enterprises development Act, 2006) claiming their status as micro, small or medium enterprises. Consequently the amount paid / payable to the parties during the year is nil. Figures of the previous year have been regrouped / rearranged wherever necessary. Consequent upon amalgamation of Indian Aluminium Company Limited during the year, the figures of current year are not comparable with those of previous year.

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INTERPRETATION OF FINANCIAL TOOLS CURRENT RATIO Current ratio is the relationship between current assets and current liabilities. This ratio, also known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of a short – term financial position or liquidity of a firm. It is calculated by dividing the total of current assets by total of the current liabilities. INTERPRETATION OF CURRENT RATIO A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time as and when they become due. A relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liability in time without facing difficulties. A ratio equal or near to the rule of thumb 2:1 I.e., current assets. Double the current liabilities are considered to be satisfactory. The idea of having doubled the current assets as compared to currents liabilities is to provide for delays and losses in the realization of current assets. The rule of 2:1 should not be blindly followed while making interpretation of the ratio.

DEBT – EQUITY RATIO Debt – equity ratio, also known as external ratio is calculated to measure the relative claims of outsiders and the owner (i.e. shareholder) against the firm’s assets. This ratio indicates the relationship between the external equities or the outsider’s funds and the internal equities or the shareholders’ relationship between the external equities or the outsiders funds and the internal equities or the shareholders funds. INTERPRETATION OF DEBT - EQUITY RATIO The debt equity ratio is calculated to measure the extent to which debt financing has been used in a business. The ratio indicates the proportionate claims of owners and the outsiders against the firm’s assets. The purpose is to get an idea of the cushion available to outsiders on the liquidation of the firm’s assets. A ratio of 1:1 may be usually considered to be a satisfactory ratio although there cannot be any ‘rule of thumb’ or standard norm for all types of businesses. In some business a high ratio 2:1 or even more may even be considered satisfactory. A high debt – equity ratio which indicates that the claims of outsiders are greater than those of owners, may not be considered by the creditors because it given a ARUN GULERIA | [email protected]

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lesser margin of safety for then at the time of liquidation of the firm also because the firm may not conditions of the creditors.

SOLVENCY RATIO This ratio is a small variant of equity ratio and can be simply calculated as 100 – equity i.e., continuing the example taken for the equity ratio, solvency ratio = 100 -66.67 or 33.33%. The ratio indicates the relationship between the total liabilities to outsider to total assets of a firm.

FIXED ASSETS

The ratio establishes the relationship between fixed assets and shareholder’s funds i.e., share capital plus reserves, surpluses and retained earnings. the ratio of fixed assets to net worth indicates the extent to which shareholders equity including reserves, surpluses and retained earnings. If the ratio is less than 100%, it implies that owner’s funds are more than total fixed assets and a part of the working capital is provided by the shareholders. There is no rule of thumb to interpret this ratio but 60 to 65 percent is considered to be satisfactory ratio in case of industrial undertakings.

GROSS PROFIT RATIO Gross profit ratio measures the relationship of gross profit to net sale and is usually represented as a percentage. It is calculated by dividing the gross profit by sales. The two basic components of the gross profit ratio are sales and cost of goods sold since gross profit is the excess of net sales over cost of goods sold. Net sales can be found by deducting sales returns or returns inwards, out of sales. NET PROFIT RATIO Net profit ratio establishes a relationship between net profit and sale, and indicates the efficiency of the management in manufacturing, selling, administrative and other activities of the firm. This ratio is the overall measure of firm’s profitability. The two basic elements of the ratio are net profit and sales. The net profits are obtained after deducting income – tax and generally, non – operating incomes and expenses are excluded from the net profit for calculating this ratio. Incomes such as interest on investment outside the business, profit on sale of fixed assets, etc. are excluded. The ratio is very useful as if the profit is not sufficient; the firm shall not be achieving a satisfactory return on its investment. This ratio ARUN GULERIA | [email protected]

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also indicates the firm’s capacity to face adverse economic conditions such as price competition, low demand, etc.

DATA ANALYSIS 1. PROFITABILITY POSITION Gross Profit Ratio Objective of Gross Profit: - Gross profit ratio measures the relationship of gross profit to net sale and is usually represented as a percentage. It is calculated by dividing the gross profit by sales. The two basic components of the gross profit ratio are sales and cost of goods sold since gross profit is the excess of net sales over cost of goods sold. Net sales can be found by deducting sales returns or returns inwards, out of sales. Gross Profit Ratio

Gross Profit Production Cost 820.62) 1702.44) 1972.22) 2080.80) 2026.73)

In 2004 =

In 2005 =

In 2006 =

In 2007 =

In 2008 =

=

=

Gross Profit Sale

Sale

x 100

–

4728.87

–

(3340.64 +

7250.69

–

(4661.94 +

8828.49

–

(5879.57 +

14302.17

–

(10994.42 +

15848.60

–

(12344.83 +

567.61 886.31 976.70 1226.95 1477.04

GROSS PROFIT RATIO:In 2004 ARUN GULERIA | [email protected]

=

567.61

1

x 100

= 12.00%

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4728.87

In 2005

=

In 2006

=

976.70 8828.49

In 2007

=

1226.95 14302.17

In 2008

886.31 7250.69

=

1477.04 15848.60

x 100

= 12.22%

x 100

= 11.06%

x 100

x 100

= 8.57%

= 9.31%

Gross Profit ratio indicates the extent to which selling price of goods per unit may decline without resulting in losses on operations of a firm. In 2004 gross profit was Rs. 567.61 and gross profit ratio was 12% Sale was Rs.4728. In this year the profit is good because 12% return on sale. In 2005 the gross profit ratio is good i.e 12.33% but as comparison to sale the profit is not good. In 2006 gross profit ratio is 11.06% which is less than of 2005’s profit. In 2007 and 2008 gross profit ratio were 8.57% and 9.31% respectively which was decreasing year by year. The sale of Hindalco is increasing year by year but the gross profit ratio is decreasing which is not good symbol for company’s business.

Net Profit Ratio: OBJECTIVE: - Net profit ratio establishes a relationship between net profit and sale, and indicates the efficiency of the management in manufacturing, selling, administrative and other activities of the firm. This ratio is the overall measure of firm’s profitability. The two basic elements of the ratio are net profit and sales. The net profits are obtained after deducting income – tax and generally, non – operating incomes and expenses are excluded from the net profit for calculating this ratio. Incomes such as interest on investment outside the business, profit on sale of fixed assets, etc. are excluded. The ratio is very useful as if the profit is not sufficient; the firm shall not be achieving a satisfactory return on its investment. This ratio also indicates the firm’s capacity to face adverse economic conditions such as price competition, low demand, etc.

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Net Profit

= Gross Profit

In 2004

–

567.61 = 241.67 886.31 = 414.39 976.70 = 466.25 1226.95 = 529.58 1477.04 = 631.06

In 2005 In 2006 In 2007 In 2008

Net Profit Ratio

=

Net Profit

Selling Expenses –

(169.15 + 156.76.79)

–

(169.15 + 156.76.79)

–

(169.15 + 156.76.79)

–

(169.15 + 156.76.79)

–

(169.15 + 156.76.79)

x 100

Sale In 2004

=

241.67

x 100 4728.87

=

5.11 %

In 2004

=

414.39

x 100 7250.69

=

5.71 %

In 2004

=

466.25 x 100 8828.49

In 2004 In 2004

= =

=

529.58 x 100 14302.17 631.06

x 100 15848.60

5.28 % =

=

3.70 % 3.98 %

In 2004 the net profit ratio was 5.11% and in 2005 net profit is increasing to Rs. 414.39 and also increase in net profit ratio 5.71%. In 2.6 the net profit is increase but the net profit ratio is decrease to 5.28%. 2007 the net profit ratio is 3.70% and in 2008 net profit ratio is 3.98%. Net profit is increasing but the net profit ratio is decreasing means that ARUN GULERIA | [email protected]

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Hindalco increasing their sale but the profit on sale is less. Hindalco return on sale is not good.

ASSETS POSITION Fixed Assets Ratio: - The ratio establishes the relationship between fixed assets and shareholder’s funds i.e., share capital plus reserves, surpluses and retained earnings. the ratio of fixed assets to net worth indicates the extent to which shareholders equity including reserves, surpluses and retained earnings. If the ratio is less than 100%, it implies that owner’s funds are more than total fixed assets and a part of the working capital is provided by the shareholders. There is no rule of thumb to interpret this ratio but 60 to 65 percent is considered to be satisfactory ratio in case of industrial undertakings.

Fixed Assets Ratio Assets (after depreciation)

=

Fixed Sha

reholder’s Funds In 2004 In 2005

=

=

ARUN GULERIA | [email protected]

4740.21 6857.90 5703.53

1

x 100

x 100

=

69.12 %

=

74.39 %

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7666.58

In 2006

=

6782.80 9606.24

In 2007

=

7006.71 12418.04

In 2008

=

47809.34 17296.32

x 100

x 100

x 100

=

70.61 %

=

=

56.42 %

45.15 %

Fixed positions indicate the extent to which shareholders funds are sunk into the fixed assets. In 2004 fixed assets ratio is 69.12% it implies that owner’s funds are more than total fixed assets and a part of the working capital is provided by the shareholders. In 2005 it’s also less than 100% i.e.74.39%, the owner’s share in fixed assets increasing. In 2006 owner share in fixed assets increases to 70.61%. In 2007 56.42% is the share of outsider and rest of it owner which more than from last year. In 2008 the fixed assets ratio is 45.15% which is good as comparison to other years

Current Ratio: - Current ratio is the relationship between current assets and current liabilities. This ratio, also known as working capital ratio, is a measure of general liquidity and is most widely Used to make the analysis of a short – term financial position or liquidity of a firm. It is calculated by dividing the total of current assets by total of the current liabilities.

Current Ratio In 2004

=

=

Current Assets Current Liabilities

2911.99

= 1.40: 1 2074.59

In 2005

=

4476.43 = 1.22: 1 3647.89

In 2006

=

7315.07 = 1.66: 1 4398.41

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In 2007

=

In 2008

7846.17

=

= 1.5: 1 5221.15

7926.26 = 1.52: 1 5199.00

.

LIABILITY POSITION SOLVENCY RATIO Debt – equity ratio, also known as external ratio is calculated to measure the relative claims of outsiders and the owner (i.e. shareholder) against the firm’s assets. This ratio indicates the relationship between the external equities or the outsider’s funds and the internal equities or the shareholders’ relationship between the external equities or the outsider’s funds and the internal equities or the shareholders funds.

Solvency Ratio

=

Total Liabilities to Outsider Total Assets

In 2004

=

4639.19 x 100 11497.09

= 40 %

In 2005

=

7447.83 x 100 15105.09

= 49 %

In 2006

=

9301.85 x 100 18902.10

= 49%

In 2007

=

11767.01 x 100 24473.53

= 48 %

In 2008

=

13549.73 x 100 30963.46

= 43 %

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Solvency ratio in 2004 is 40% which satisfactory because the ratio is less and total assets is more than the liabilities. In 2005 solvency ratio is increased to 49% which mean that the outsider funds are increased over the assets of organization. In 2006 solvency ratio is 49% which same 2007 and in 2008 solvency ratio is 48% and 43% respectively. In 2008 solvency ratio is decrease and in 2007 is increasing as comparison to 2008 most decrease in ratio is 2008. Hindalco is on growing stage so outsiders are less than their total assets.

DEBT – EQUITY RATIO This ratio is a small variant of equity ratio and can be simply calculated as 100 – equity i.e., continuing the example taken for the equity ratio, solvency ratio = 100 – 66.67 or 33.33%. The ratio indicates the relationship between the total liabilities to outsider to total assets of a firm.

=

Debt – Equity Ratio In 2004

=

Outsider Funds Shareholders’ Funds

4639.19 6857.90

= 0.67: 1

In 2005

=

In 2006

=

9301.85 9606.24

= 0.96: 1

In 2007

=

11767.01 12418.04

= 0.94: 1

In 2008

=

7447.83 7666.58

13549.73 12418.04

= 0.97: 1

= 1.09: 1

The dept- equity ratio is calculated to measure the extent to which debt financing has been used in the business. The ratio indicates the proportionate claims of owners and the outsiders against the firm’s assets. Hindalco’s dept – equity in 2004 is 0.67:1 which is not considered to be a satisfactory. A ratio of 1:1 may be usually considered to be a satisfactory ARUN GULERIA | [email protected]

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ratio. In 2005 debt equity is 0.96: 1 which less than the satisfactory ratio is also. In 2005 0.97:1 and in 2006 0.96: 1 that are more than 2004 and 2005 but it is also less than satisfactory ratio. In 2008 the debt- equity ratio is increase and ratio is also satisfactory i.e. 1.09: 1 Hindalco now maximizing the outsider funds.

BIBLIOGRAPHY 1.

www.hindalco.com

2.

www.google.com

3.

www.moneycontrol.com

4.

www.rediffmoney.com

5.

www.wikipidia.com

6.

www.yahoofinance.com

7.

www.aol.com

8.

Business World

9.

Economic Times

10.

Business Standard

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11.

NDTV

12.

ZEE Business

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