FINANCIAL STATEMENT ANALYSIS

ULTRATECH CEMENT LIMITED

SUBMITTED TO- SUBMITTED BY-

DR. MEHA KOHLI MISHRA AAKRITI GUPTA 303/2021

TUSHAR KUMAR 318/2021
PRIYANSHU KESARWANI 322/2021
KALPIT KANDPAL 329/2021
SOUMYA SACHDEVA 349/2021
 INTRODUCTION

UltraTech Cement Limited is an Indian cement company based in Mumbai, and a part of Aditya Birla
Group UltraTech is the largest manufacturer of grey cement, ready-mix concrete (RMC) and white
cement in India with an installed capacity of 116.75 million tons per annum. It is the only company in the
world to have a capacity of over 100 million tons in a single country, outside of China.

UltraTech Cement has 23 integrated plants, 1 clinkerisation plant, 26 grinding units and 7 bulk terminals.
Its operations span across India, UAE, Bahrain, and Sri Lanka.In the white cement segment, UltraTech
goes to market under the brand name of Birla White. It has a white cement plant with a capacity of 0.68
MTPA and 2 WallCare putty plants with a combined capacity of 0.85 MTPA.With 100+ Ready Mix
Concrete (RMC) plants in 39 cities, UltraTech is the largest manufacturer of concrete in India.

Why we chose this company?

We could witness government focusing on infrastructure in the next few years which could lead to boom
in the cement industry. We decided to analyze Ultratech cement as it holds the highest market
capitalization in the cement industry with more than 30% of the overall cement industry and is expected
to be actively involved in building infrastructure in India. UltraTech has a consolidated capacity of 117.95
million Tons Per Annum (MTPA) of grey cement. UltraTech has 22 integrated manufacturing units, 27
grinding units, one Clinkerisation unit and 7 Bulk Packaging Terminals. UltraTech has a network of over
one lakh channel partners across the country and has a market reach of more than 80% across India. In the
white cement segment, UltraTech goes to market under the brand name of Birla White. It has one White
Cement unit and one Wall Care putty unit, with a current capacity of 1.5 MTPA. With 130 Ready Mix
Concrete (RMC) plants in 50 cities, UltraTech is the largest manufacturer of concrete in India. It also has
a slew of speciality concretes that meet specific needs of discerning customers. Their Building Products
business is an innovation hub that offers an array of scientifically engineered products to cater to new-age
constructions.
 SOME OF THE SIGNIFICANT ACCOUNTING ASSUMPTIONS WHICH THE
COMPANY FOLLOWS ARE -
Revenue Recognition- Revenue generated from contracts with customers. Revenue is recognized based
on approved contracts regarding the transfer of goods or services to a customer for an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services.

Revenue is measured at the fair value of consideration received or receivable taking into account the
amount of discount, incentives, volume rebates, and outgoing taxes on sales. Any amounts receivable
from the customer are recognized as revenue after the control over the goods sold are transferred to the
customer which is generally on dispatch/delivery of goods.

Inventory valuation

Inventories are valued as follows:

• Raw materials, fuel, stores & spares and packing materials: Valued at lower of cost and net realizable
value (NRV). However, these items are realizable at cost, if the finished products, in which they will be
used, are expected to be sold at or above cost. Cost is determined on weighted average basis which
includes expenditure incurred for acquiring inventories like purchase price, import duties, taxes (net of
tax credit) and other costs incurred in bringing the inventories to their present location and condition.

• Work-in- progress (WIP), finished goods, stock-in-trade, and trial run inventories: Valued at lower of
cost and NRV. Cost of Finished goods and WIP includes cost of raw materials, cost of conversion and
other costs incurred in bringing the inventories to their present location and condition. Cost of Stock-in
Trade includes cost of purchase and other costs incurred in bringing the inventories to the present location
and condition. Cost of inventories is computed on weighted average basis.

• Waste / Scrap: Waste / Scrap inventory is valued at NRV. Net realizable value is the estimated selling
price in the ordinary course of business, less the estimated costs of completion and the estimated costs
necessary to make the sale.

Depreciation policy

In case of certain classes of PPE, the Company uses different useful lives than those prescribed in
Schedule II to the Act. The useful lives have been assessed based on technical advice, considering the
nature of the PPE and the estimated usage of the asset based on management’s best estimation of
obtaining economic benefits from those classes of assets. The estimated useful life is reviewed
periodically, with the effect of any changes in estimate being accounted for on a prospective basis.

Dividend policy

Dividend will be declared out of the current year’s Profit after Tax of the Company. 2.2 Only in
exceptional circumstances including but not limited to loss after tax in any particular financial year, the
Board may consider utilizing retained earnings for declaration of dividends, subject to applicable legal
provisions. 2.3 Other Comprehensive Income’ (as per applicable Accounting Standards) which mainly
comprises of unrealized gains / losses, will not be considered for the purpose of declaration of dividend.
2.4 The Board will endeavor to achieve a dividend payout ratio (gross of dividend distribution tax) in the
range of 15% to 25% of the Standalone Profit after Tax, net of dividend payout to preference
shareholders, if any.
 ASSETS AND LIABILITIES
Assets-
Land (freehold, standalone), buildings, railway sidings, plant and equipment, office equipment, furniture
and fixtures, vehicles, capital work-in-progress
Intangible: software, mining rights, mining reserves, jetty rights, brand rights, intangible assets under
development
Right of use assets: leasehold land, leasehold building, plant and machinery, ships,
Investments, security deposits, loans to related parties, loans to employees
Derivative Assets, Interest Accrued on Deposits and Investments, Fixed Deposits with Bank with
Maturity Greater than twelve Months, Government Grants Receivable, Insurance Claims, Railway Claims
and Other Receivables,
Capital Advances, Balance with Government Authorities, Prepaid Expenses, Raw Materials, work in
progress, finished goods, packing goods, stock in trade, stores and spares, fuel, packing materials, scrap,
current investments, trade receivables, cash and cheque on hand, bank balance, FD, balance with
government authorities, prepaid expenses, advance to suppliers and related parties.

Liabilities-
Non-Current Borrowings (Secured) - Non-Convertible Debentures, Term Loans from Banks in Foreign
Currency & In Local Currency, Sales tax deferment loan.
Non – Current Borrowings (Unsecured) - Non-Convertible Debentures, Foreign Currency Bonds, Term
Loans from Banks in foreign currency, Sales Tax Deferment Loan
Other liabilities - Current maturities of long-term debt, Interest Accrued but not due on Borrowings,
Deferred Premium Payable, Liability for Capital Goods, Security Deposits, Salaries, Wages, Bonus and
Other Employee Payables, Investor Education and Protection Fund, will be credited with the following
amounts (as and when due), Lease Liability, Others (Retention money, Liquidated Damages, etc.)
Provisions - For Employee Benefits, For Mines Restoration Expenditure, For Cost of transfer of Assets

 Deferred Tax Assest - MAT Credit Entitlement, Provision allowed under tax on payment basis
 Deferred Tax liabilities - Tangible and Intangible Assets, Fair valuation of Investments
Other Non-Current Liabilities- Deferred Income on Government Grants
Current Borrowings - Unsecured: Redeemable preference shares issued, Loans repayable on demand:
From Banks - Cash Credits / Working Capital Borrowings, Others From Banks (includes commercial
paper) , From Others (commercial paper)
Trade Payables - Total Outstanding Dues of creditors other than Micro Enterprises and Small
Enterprises, Other Trade Payables, Due to Related Parties
Other Current Liabilities- Advance from Customers and Others, Deferred Income on Government
Grants, Others (including Provision for Expenses, Statutory liabilities)
 ECONOMIC POSITION AND QUALITY OF EARNINGS

The cement industry witnessed a de-growth of 10-12% due to the COVID-19 pandemic. The COVID-
induced nationwide lockdown from late March to end-April 2020 was a huge challenge for all
manufacturing industries. However, with the central and state governments taking measured steps
towards unlocking the economy, some encouraging trends were seen from the latter part of May 2020.

Since then, the industry has been on a volume growth path driven mainly by the government’s ‘Housing
for All by 2022’ mission and large infrastructure projects. Government spending on infrastructure
projects and affordable housing schemes such as the Pradhan Mantri Awas Yojana with enhanced
budgetary allocations remain the primary drivers of growth for the cement industry.

In FY21, Ultratech ltd also set new benchmarks on sustainability. Your Company raised US$ 400 million
(~` 2,900 crores), by way of issuance of senior unsecured US$ denominated notes, in the form of
sustainability-linked bonds. UltraTech is the first company in India and the second in Asia to issue
sustainability-linked bonds.

Sustainable growth is an integral part of your Company’s business ethos. It continuously strives to
enhance environmental conservation measures while ensuring that business growth and profitability are
concomitant with its contribution to societal well-being.

LEASE AGREEMENTS

The Supreme Court of India has allowed an appeal filed by the State of Rajasthan in a matter relating to
transfer of mining lease in the name of the Company’s wholly owned subsidiary, Gotan Lime Stone
Khanij Udyog Private Limited (“GKUPL”) and has directed the State of Rajasthan to frame and notify its
policy relating to transfer of mining lease and thereafter pass appropriate order in respect of the mining
lease of GKUPL. State Government has notified the new policy related to transfer of new mining lease,
based on which the Company has requested the State Government to consider reinstatement of the mines
in its favour.

Employee Benefits

Defined Benefit Plans:

(a) Gratuity

(b) Pension

(c) Post-Retirement Medical Benefits

SHAREHOLDING PATTERN OF THE COMPANY.
 FINANCIAL ANALYSIS

HORIZONTAL ANALYSIS
LEVERAGE RATIOS-

Leverage Ratios 2017 2018 2019 2020 2021

Total Debt to Equity Ratio 26.07 67.2 61.98 50.07 42.25
Total debt to Total Asset Ratio 15.89 32.04 29.79 26.7 22.77
Interest Coverage Ratio 8.71 4.94 4.28 5.24 8.62
 1. Debt to equity ratio

The debt-to-equity (D/E) ratio is used to evaluate a company's financial leverage and is calculated by
dividing a company’s total liabilities by its shareholder equity. The ratio takes a jump to a high of 67.2
in 2018, indicating higher debts. Though the ratio consistently decreases in the next years, this indicates
the company is decreasing the capital raised by debt and increasing shareholder’s fund.

2. Total debt to total assets ratio

Total-debt-to-total-assets is a leverage ratio that defines the total amount of debt relative to assets owned
by a company. The ratio takes a jump to a high of 32.04 in 2018 indicating increase in debts. Though the
ratio consistently decreases in next years, showing the company paying off its debts. Also, the ratio
remains lower than the industry average showing low amount of assets are on credit.

3. Interest coverage ratio

The interest coverage ratio is a debt and profitability ratio used to determine how easily a company can
pay interest on its outstanding debt. The interest coverage ratio is calculated by dividing a
company's earnings before interest and taxes (EBIT) by its interest expense during a given period.The
interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT)
by its interest expense during a given period.

The ratio dips down to 4.94 in 2018 but shows consistent uplifting in 2020 and 2021. The company has a
good interest coverage ratio as per the industry average.
TURNOVER RATIOS-

Turnover Ratio 2017 2018 2019 2020 2021

Debtors Turnover ratio 17.55 19.35 19.29 19.06 20.65
Debtor Days 20.79772 18.86305 18.92172 19.15005 17.67554
Inventory Turnover ratio 1.76 1.8 1.92 1.9 1.88
(Average Inventory Days) 207.96 202.82 189.87 193.08 193.9
Creditor Days 162.9464 126.7361 129.8932 155.9829 199.4536
Creditors Turnover ratio 2.24 2.88 2.81 2.34 1.83

1. Debtors turnover ratio

This indicates the average number of debtors that have been converted into cash during a year. From the
figures we see that high proportion of debtors pay their debts quickly, which means that the company’s
ability to collect from its receivables is effective.

2. Debtor Days

This ratio identifies the number of days that the company takes to collect cash from its credit sales/
debtors.

3. Inventory turnover ratio

The ratio that tells the rate at which total inventory is sold and replaced. It is total cost of goods / average
inventory for the same period. A higher ratio means less days to convert inventory to sales. As we can see
an increase in ITR we can deduce that Ultratech is able to reduce the time period to convert inventory into
sales.

4. Average inventory days

The number of days it takes for a firm to sell off its inventory in a year. We see that the inventory days
decrease persistently which means company can sell better each year.

5. Creditors turnover ratio

Explains how often a particular company is able to repay its debt in an accounting period that it took from
supplier. Formula is Net credit purchases / average trade payables. A high ratio indicates prompt payment
to creditors. We see it jump in the year 2017 to 2018. It keeps declining and ultimately the FY2020-21,
witnesses a sharp drop which we believe is because of pandemic.

6. Creditor Days

This ratio shows the amount of time the company takes to pay its creditors. A decline in the ratio can be
observed initially but then a rapid increase was observed starting FY2019-20, this could be an impact of
the pandemic,
Turnover Ratio 2017 2018 2019 2020 2021
Debtors Turnover ratio 17.55 19.35 19.29 19.06 20.65
Inventory Turnover ratio 1.76 1.8 1.92 1.9 1.88
(Average RATIOS-
LIQUIDITY Inventory Days) 207.96 202.82 189.87 193.08 193.9
Creditors Turnover ratio 2.24 2.88 2.81 2.34 1.83

liquidity ratio 2017 2018 2019 2020 2021

Current ratio 1.55 0.94 0.87 1.03 1.17
Quick Ratio 1.1 0.52 0.31 0.45 0.76

I. Current ratio

The current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations or
those due within one year. To calculate the ratio, analysts compare a company’s current assets to its
current liabilities.

The current ratio in 2017 is decent at 1.55 but it dips down in 2018 and 2019 to 0.94 and 0.87
respectively. The current ratio shows an upward trend in 2020 and 2021. Overall, the current ratio of the
company is below par, and it indicates minor liquidity crunch.

II. Quick ratio

The quick ratio is an indicator of a company’s short-term liquidity position and measures a company’s

ability to meet its short-term obligations with its most liquid assets.

The quick ratio also shows a declining trend in 2018 and 2019, whereas it increases in 2020 and 2021.
This indicates the quick liquidation of money is low as it remains below par level of the industry.

PROFITABILITY RATIOS-
Profitability Ratio 2017 2018 2019 2020 2021

1.
Return on Equity Ratio 11.53 8.95 8.15 16.12 13.34 R
Return on Assets 6.77 4.76 3.9 7.73 7.02
Retrun on investment 7.77 6.91 6.16 10.07 8.89
EBITDA Margin 21.04 20.34 18.04 21.61 25.69
Operating Margin 15.67 14.24 12.13 15.48 19.99
PE ratio 40.28 48.8 47.59 16.26 36.53
EV/EBIDTA 21.14 20.15 18.09 12.23 17.58
eturn on equity-

Return on equity (ROE) is a measure of financial performance calculated by dividing net income by

shareholders' equity. A 10 % of ROE is considered to an average roe in cement industry. And as we see
in 2017 the roe was above the avg which is good growth sign. It fell a little in 2018, 19 but the company
managed to increase its sales and hence net income which shows a positive sign of growth.

2. Return on asset-

The term return on assets (ROA) refers to a financial ratio that indicates how profitable a company is in
relation to its total assets. As we see there is a downfall in the ROA in 2018 & 19, it tells us that the new
investment in asset was not very much profitable. But in the current scenario the company is using its
assets very efficiently and has maintained a ROA of 7.02

3. Return on investment–

Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of
an investment or compare the efficiency of a number of different investments. As we see the companies
return on investment is below the sector average i.e. – 10 %. In 2020 we have seen that company had a
great return on investment of 10.07, but after that it again fell.

4. Operating ratio-
The operating ratio shows the efficiency of a company's management by comparing the total  operating
expense (OPEX) of a company to net sales. As we see from the figures company has almost maintained
an operating margin of 15 %. And if we compare that to its peers its comparatively good. So overall the
company is running very efficiently.

5. PE ratio-

The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share
price relative to its earnings per share (EPS).As we see that Ultratech has constant high pe ratio, and as
per its past records , the stock is not overvalued and its expecting high growth in future

6. EV/EBIDTA-

EV/EBIDTA is used in valuation of the company as it shows the ratio of enterprise value to the operating
income of the company. the company was undervalued in the year 2019 compared to rest of the years
under consideration.
VERTICAL ANALYSIS

MARKET DATA FINANCIAL DATA Leverage Ratio VALUATION

interest
Company Name Debt to debt to
share price Market Capitalization Net Revenue EBITDA coverage EPS P/E EV/EBITDA
Equity asset
ratio
UltraTech Cement 7546 2,18,061.86cr 43,188.34cr 12,302cr 42.25 22.77 8.62 221 36.53 17.58
Shree Cement 27046.25 97,594cr 12,588cr 4,413cr 14.14 10.25 16.1 717 45.98 23.09
Ambuja Cements 397.25 78,889.68cr 11,175cr 2,647cr 1.81 1.44 43.04 12 44.04 22.28
Indus try average 28 11.48 25.44 42.18 21
 1) Debt to equity-

The debt-to-equity ratio is a financial ratio indicating the relative proportion of shareholders' equity and
debt used to finance a company's assets. The figures tell that Ultratech cement has a larger debt than its
competitors Ambuja cement and Shree cement.

2) Debt to asset ratio-

Total debt/ total assets = debt to asset ratio. The data shows highest ratio of this ratio for Ultratech
cement, which means it has high debt. This might be either due to expansion efforts or that the company
is taking loans to cover some losses.

3) Interest coverage ratio-

The interest coverage ratio is a debt and profitability ratio used to determine how easily a company can
pay interest on its outstanding debt. The interest coverage ratio is calculated by dividing a
company's earnings before interest and taxes (EBIT) by its interest expense during a given period. A
smaller value of this ratio implies that the company is better able to repay its interest. Ultratech has the
smallest value of this ratio which means, it has a better efficiency to pay its interest.

4) EBITDA-

EBITDA, or earnings before interest, taxes, depreciation, and amortization, is a measure of a company's
overall financial performance and is used as an alternative to net income in some circumstances.
Ultratech has the highest EBITDA that shows higher profitability and long-term loan paying capacity of
the company.

5) EPS-

Earnings per share (EPS) is calculated as a company's profit divided by the outstanding shares of its
common stock. The EPS of the competitor Shree cement is higher than Ultratech. Ultratech also shows a
decent performance in eps indicating good returns on its outstanding shares.

6) P/E ratio-
The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share
price relative to its earnings per share (EPS).

P/E Ratio=Earnings per share/Market value per share

The p/e ratio of Ultratech is lower than the competition at 36.53 indicating that the stocks are not
overvalued.

7) EV/EBITDA-

EV calculates a company's total value or assessed worth, while EBITDA measures a company's overall
financial performance and profitability. The ratio is lower than the competition but is slightly on the
higher side. This shows that the stock is slightly overprices but is still more transparent than the
competition in the industry.
 PIOTROSKI F SCORE ANALYSIS

A Piotroski score is a score between 0 to 9 that helps in determining the financial strength of a firm. It
helps in determining the best value share. A score between 0-2 is a low score and suggests that the
company has weak financial position. And a company with score greater than 7 is considered financially
strong

1) PROFITABILITY
a) Net income = 5342.07 crores
b) ROA= Net income/ Total assets = 5342.07 / 80416.10 = 0.0664
c) Operating cash flows = 11551 cr.
2) LEVERAGE, LIQUIDITY AND SOURCE OF FUNDS
a) current ratio 2021 = 1.17
current ratio 2020 = 1.03
b) new shares were issued in the year 2021
3) OPERATING EFFICIENCY
a) Gross margin 2021 = (43188.34 - 8502.45) / 43188.34 = 0.803
Gross margin 2020 = (40649.17 - 7649.19) / 40649.17 = 0.812
b) Asset turnover ratio 2021 = 43188.34 / 76116.51 * 100 = 56.73
Asset turnover ratio 2020 = 40649.17 / 70543.94 * 100 = 57.62

1. PROFITABILITY
1.1. Positive net income - 1
1.2. Positive ROA - 1
1.3. Positive operating cash flows - 1
1.4. Operating cash flows greater than net income - 1
2. LEVERAGE, LIQUIDITY AND SOURCE OF FUNDS
2.1. Decreased long term debt as compared to previous year - 1
2.2. Higher current ratio than previous year - 1
2.3. Since new shares were issued - 0
3. OPERATING EFFICIENCY
c) Lower gross margin than 2020 - 0
d) Lower asset turnover ratio than 2020 – 0

ULTRATECH CEMENT’s Piotroski score in 2021 was a 6 out of 9, which could make it an
average value proposition going into 2022, according to the Piotrosky method.
 ALTMAN Z SCORE

The Altman Z score is a formula used to determine whether a company, especially manufacturing, is
headed for bankruptcy. It uses 5 ratios to predict the probability of a company going insolvent. A score
close to 0 suggests that the company is headed towards bankruptcy whereas a score greater than 3
suggests a strong financial position.

A. Working capital/ total assets = (22982.92 - 19587.76)/ 80416.10

= 0.042
B. Retained earnings/ total assets = 5893.68 / 80416.10
= 0.073
C. Earnings before interest and tax/ total assets = 8530.47 / 80416.10
= 0.106
D. Market value of equity/ total liabilities = 218000 / 37063.46
= 5.88
E. Sales/ total assets = 43188.34 / 80416.10
= 0.537

Altman z score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

= 1.2*0.042 + 1.4*0.073 + 3.3*0.106 + 0.6*5.88 + 1.0*0.537

= 4.5674

Ultratech has an Altman Z score of 4.5674, which is greater than 3. This means that the financial
position of Ultratech is strong, and it is not headed towards bankruptcy.
The Piotroski F score industry average is 6 points. Increase in cost of production of cement was

observed which led to a decrease in gross margin for the industry. UltraTech’s peer company

Ambuja Cements has 6 Piotroski, whereas Shree cement has a Piotroski score of 7, which is above

the industry average. Realization price of Shree cement is higher than that of UltraTech cement,

this explains the reason behind higher gross margin than previous year of Shree cement.

Altman Z score industry average is around 2.5 and that of Ambuja cement is 5.9. This means that

UltraTech’s score is above industry average.

 DUPONT ANALYSIS

DuPont analysis is an extended version of ROE. It helps in identifying the factors that led to the change in
ROE i.e., it helps deduce whether it is profitability, use of assets or debt that is driving ROE

2021

Net Profit Margin = Net Income / Revenue * 100

= 5455.54 / 43188.34 * 100

= 12.63%

Asset Turnover = Revenue / Average total assets

= 43188.34 / 76116.51

= 0.567

Equity Multiplier = Average total assets / Average Shareholder’s Equity

= 76116.51 / 40824.48

= 1.864

DuPont analysis = Net Profit Margin * Asset Turnover * Equity Multiplier

= 12.63% * 0.567 * 1.864

= 13.348%

2020

Net Profit Margin = Net Income / Revenue * 100

= 5342.07/ 40649.17 * 100

= 13.14%

Asset Turnover = Revenue / Average total assets

 = 40649.17 / 70543.935

= 0.576

Equity Multiplier = Average total assets / Average Shareholder’s Equity

= 70543.935 / 33102.66

= 2.131

DuPont analysis = Net Profit Margin * Asset Turnover * Equity Multiplier

= 13.14% * 0.576 * 2.131

= 16.128%

The Net Income of the company rose still the profit margins declined because there was an increase
in revenue. The reason behind is that the cost of cement increased during the year, but Ultratech
was unable to raise the price which resulted in lower net profits. The purchase of assets was funded
by the issue of new shares.
NEWS ABOUT THE COMPANY
Domestic cement industry poised for demand recovery in construction season. The cement industry
expects a surge in demand from the domestic household sector in the next construction season. The rage
of covid and transmission is expected to be lower in the year 2022 than before. Shree, Ultratech, Shriram
and Ambuja cement are some of the major domestic players for this market.

Cement volume likely to be lower in Q3FY22 on seasonal weaknesses. The market generally drops
during the quarter 3 when the season of construction goes down due to monsoons. The decline is expected
to be 4-6% in volume.

UltraTech Cement’s India Next initiative to focus on the theme ‘Build with Speed’. The theme takes up
the ambitious challenge of fulfilling the nation’s housing demand. The mission aims to integrate efforts of
India’s architects, engineers and bright students to innovate a rural or urban design for completion of
SDGs.