Chapter 1

Company Details

1

1.1 Introduction to Cement Industry

The cement industry is one of the main beneficiaries of the infrastructure boom. With robust demand and adequate supply, the industry has bright future. The Indian Cement Industry with total capacity of 165 million tonnes is the second largest after China.

Cement consumption in India has increased by over 22% in 2009-10 from 2007- 08.Among the states, Maharashtra has the highest share in consumption at 12.18%,followed by Uttar Pradesh, In production terms, Andhra Pradesh is leading with 14.72% of total production followed by Rajasthan.

Cement industry has contributed around 8% to the economic development of India. Cement industry has a long way to go as Indian economy is poised to grow because of being on verge of development.

The company continues to emphasize on reduction of costs through enhanced productivity, reduction in energy costs and logistics expenses.

As per the Working Group report on Cement Industry for the formulation of the 11th Plan, the cement demand is likely to grow at 11.5 per cent per annum during the 11th Plan and cement production and capacity by the end of the 11th Plan are estimated to be 269 million tones and 298 million tones, respectively, with capacity utilization of 90 per cent.

Foreign cement companies are also picking up stakes in large Indian cement companies. Swiss cement major Holcim has picked up 14.8 per cent of the promoters' stake in Gujarat Ambuja Cements (GACL). Holcim's acquisition has led to the emergence of two major groups in the Indian cement industry, the Holcim-ACC-Gujarat Ambuja Cements combine and the Aditya Birla group through Grasim Industries and Ultratech Cement.

2

1.2 Introduction to Ambuja Cement

Ambuja Cements was set up in 1986. In the last decade the company has grown tenfold. The total cement capacity of the company is 18.5 million tonnes. Its plants are some of the most efficient in the world. With environment protection measures that are on par with the finest in the developed world.

Ambuja Cements Limited, formerly known as Gujarat Ambuja Limited is a major Cement producing company in India. The Group's principal activity is to manufacture and market cement and clinker for both domestic and export markets.

The Company also operates a hotel through its subsidiary GGL Hotel and Resort Company. It has shown innovation in utilizing measures like sea transport, captive power plants, and imported coal and availing of govt. sops and subsidies to constantly check the costs.

The company's most distinctive attribute, however, is its approach to the business. Ambuja follows a unique homegrown philosophy of giving people the authority to set their own targets, and the freedom to achieve their goals. This simple vision has created an environment where there are no limits to excellence, no limits to efficiency. And has proved to be a powerful engine of growth for the company.

As a result, Ambuja is the most profitable cement company in India, and one of the lowest cost producers of cement in the world.Its focus:-

Best quality cement Good packaging Logistic management - strong distribution network Customer service

Capacity built up from 0.7 Mn tonnes in 1986 to 18.0 Mn tonnes as of today at CAGR of 18%

Organic growth and growth through acquisitions

2001 - Private equity investors (American International Group & Government of Singapore) invested in ACIL

2005 - ACIL restructured as a joint venture with Holcim

3

2006 - Founder promoters sold part of their holding in ACL in favour of Holcim

ACL is a Holcim Group company since May 2006Capacity built up from 0.7 mn. Tonnes in 1986 to 16.0 mn. Tonnes today.

Sea transportation of bulk cement from Gujarat to 3 terminal ports at Surat, Mumbai & Sri Lanka.

A captive port at Muldwarka (Gujarat) for inward / outward movement of goods.

1.3 Plant Location:

4

Ambuja Cement – 2009Capacity to increase from 16 mn. Tonnes to 22 mn.

tonnes

5

Clinker

Capacity

(mn tonne)

Cement

Capacity

(mn tonne)

Western India

Northern India

Eastern India

7.0

6.3

3.2

8.0

10.0

4.0

Total Capacity

16.5 22.0

6

1.4 Goals and Objectives

MISSION:

Delighted customers, Inspired employees, Empowered partners, Energized

society

VISION:

To be India’s most admired company

OBJECTIVE OF COMPANY:

The management of Gujarat Ambuja decided some objectives to become

topper in the market. And the objectives are:

Better quality then other company.

Fair returns to share holders.

A higher productivity to cover maximum market.

Maximum customer satisfaction.

Clean & healthy Environment for employee’s growth.

Try to lower pollution to fulfillment of social responsibilities

7

1.5 Broad Strategies Applied by the Management

in Functional Areas

COMPANY’S STRATEGY:

Captive Infrastructure: Ports & Power Plants

Presence in the growing markets of North & West

Retail Focus – Premium pricing

Largest Exporter of cement

35% Cement transport by sea - Cheapest Mode

One of the Lowest Cost Cement Producer

MARKETING STRATEGY:

Emphasis was on Quality

High Advertisement for BRANDING-3 times than ACC at one time

Improvement in Packaging by information provided by suppliers

Extensive & primarily exclusive distribution network-Over 6,000

dealers and 20,000 retailers

Promotion through seminar, workshops for masons, architects,

contractors etc by providing info on use of AMBUJA CEMENT

Advertising and Publicity campaign

HUMAN RESOURCE POLICY:

Unlocking Potential of Employees

Employed Experienced people from other companies

More stress was on enthusiasm not on experience

Motivating factor was empowerment to perform than monetary

factor

Free access to senior official including VP

8

Communication Meetings on regular basis to discuss and sort out

grievances

Preference to existing employees for higher position

EXPANSION STRATEGY:

Starting with a plant with a capacity of 0.7 MT in Gujarat, GACL is now

having plants at different place with total 16.5 MT. It has adopted organic

growth. To participate in the growth of the cement industry, the company

has planned capital expenditure programmes aggregating to about Rs

3500 crore. This would help the company maintain its market share going

forward.

CLINKER CAPACITY EXPANSIONS:

The company is setting up new clinker capacity at Bhatapara in

Chattisgarh and Rauri in Himachal Pradesh, each having a capacity of 2.2

million tonnes per annum. The project work is progressing well. The

clinker unit at Bhatapara is slated to be commissioned in mid 2009 while

the unit in Rauri is expected to go on stream in the second half of 2009.

9

1.6 Impact of Internet or Other Technological

Innovation on the Company

To being echo friendly "GUJARAT AMBUJA CEMENT LTD" installed pollution control equipments, by M/s. ABB & M/s. Thermex. The plant achieved 148% productivity with lowest consumption of raw material & electricity after innovation of plant.

Computerized process control system Zero error electronic equipments

SAP IMPLEMENTATION:

The company is implementing a project - Connect India Plus”, which aims at connecting all the plants, business places across India online, under a standardized business template to run on SAP software. The implementation of “Project CONNECT” India Plus started in June, 2007 & is expected to go live in August, 2008. After the Go Live, all operations, locations and transactions will become fully integrated in a manner that is in line with the updated data and information. The new system will greatly enhance the company’s capability to capture and process a comprehensive range of data to be used for decision-making and day-to-day operations, while automating some processes which were not part of the IT legacy system.

10

Chapter 2

Competitors and Strategies

11

2.1 Corporate Level Strategy

UNRELATED DIVERSIFICATION:

Ambuja Cements Limited, formerly known as Gujrat Ambuja Limited is a major Cement producing company in India. The Group's principal activity is to manufacture and market cement and clinker for both domestic and export markets.

The Company also operates a hotel through its subsidiary GGL Hotel and Resort Company. It has shown innovation in utilizing measures like sea transport, captive power plants, and imported coal and availing of govt. sops and subsidies to constantly check the costs.

12

2.2 Business Level Strategy

A) BCG Matrix

Ambuja Cement enjoys the position of STAR in the BCG Matrix i.e. high

market share & high market growth.

Compared to others, Ambuja has highest Net Profit having market share

of 18.12% in the cement industry. Overall it has 3rd largest sales turnover.

Secondly, if we look at the overall cement industry it is having high

market growth as cement industry depends on infrastructure, housing,

roads, irrigation, etc which are currently in the booming stage.

13

So the strategy to be followed is to HOLD the position of STAR by

reinvesting their profits and using this profits to increase their turnover

and gain the highest market share.

B) Porter’s Five Forces

14

C) SWOT Analysis

Strength

Growth at approx CAGR of 9% in last 5 years Growing Domestic cement consumption at approx CAGR of 8% in last 3

years Highly Capital Incentive so difficult for small entrant Not much restriction by govt. Market consolidation taking place

Weakness

High Oil Prices, Cost of Power increase production cost Supply exceeds Production lead to competition in price Low Quality as compared to international standard but improving.

Opportunity

High Mortgage Penetration - Low Interest Rates Easy loan availability for housing finance Increased investments in Infrastructure Increased govt. outlay on BHARAT NIRMAN, GOLDEN QUADRILATERAL,

BRTS etc.

Threat

Further Hike in Oil Prices Use of plastic engineering in construction Sub prime market loss may affect

2.3 Competitors

15

Market Share of Major Players of Cement Industry (April 2008)

 ParticularsLast Price

Market Cap.

SalesNet

ProfitTotal

Assets% Market

share(Rs. cr.)

Turnover

ACC 792.75 14,880.42 7,474.15 1,212.78 5,409.76 21.57

Ambuja Cements

92.414,070.

766,281.

711,402.

275,961.

5418.12

UltraTechCement

839.6 10,451.83 6,436.96 977.02 5,743.73 18.57

Shree Cements1,598.5

05,568.73 2,740.57 577.97 2,644.31 7.91

India Cements 124.75 3,524.81 3,470.78 432.18 5,619.41 10.01

Madras Cements

114.8 2,731.89 2,538.50 363.52 3,723.65 7.32

Birla Corp 304.65 2,345.97 1,809.70 323.51 1,515.48 5.22

Prism Cement 49.95 1,489.76 629.86 96.23 661.65 1.82

Dalmia Cement 179.7 1,454.48 1,778.68 158.63 3,606.48 5.13

Binani Cement 67.3 1,366.87 1,497.32 108.66 1,254.73 4.32

16

2.4 Competitive Advantage

COMPETITIVE ADVANTAGE: Low Cost Producer

Ambuja Cement is the lowest cost producer of cement in the world

due to following factors:

o Freight: The most successful of GACL’s innovative strategies

of cost cutting was idea of Sea Transportation.

o Fuel: Fuel strategy was also cost cutting factor

o Power: They have established their own captive power plant of

178 MegaWatts

2.5 Informal Forces Affecting the Organization -

External and Internal Factors17

EXTERNAL FACTOR:

Government Policies:

Government policies have affected the growth of cement plants in

India in various stages. The control on cement for a long time and

then partial decontrol and then total decontrol has contributed to

the gradual opening up of the market for cement producers. The

stages of growth of the cement industry can be best described in

the following stages:

Price and Distribution Controls (1940-1981):

During the Second World War, cement was declared as an essential

commodity under the Defense of India Rules and was brought under

price and distribution controls which resulted in sluggish growth.

The installed capacity reached only 27.9 MT by the year 1980-81.

Partial Decontrol (1982-1988):

In February 1982, partial decontrol was announced. Under this

scheme, levy cement quota was fixed for the units and the balance

could be sold in the open market. This resulted in extensive

modernization and expansion drive, which can be seen from the

increase in the installed capacity to 59MT in 1988-89 in comparison

with the figure of a mere 27.9MT in 1980-81, an increase of almost

111%.

Total Decontrol (1989):

In the year 1989, total decontrol of the cement industry was

announced. By decontrolling the cement industry, the government

relaxed the forces of demand and supply. In the next two years, the

industry enjoyed a boom in sales and profits. By 1992, the pace of

overall economic liberalization had peaked; ironically, however, the

economy slipped into recession taking the cement industry down

18

with it. For 1992-93, the industry remained stagnant with no

addition to existing capacity.

Government Controls:

The prices that primarily control the price of cement are coal, power

tariffs, railway, freight, royalty and cess on limestone. Interestingly,

all of these prices are controlled by government

Demand Drivers:

The demand from the housing sector is ~53% of the total Indian

cement demand.

There are fears of a slowdown in the demand from the housing

sector due to a drop in real estate prices in the country. The worry is

that builders may postpone construction of new buildings if the

property prices were to correct.

Infrastructure to give demand a big boost:

Analysis shows that Infrastructure should be the biggest growth

driver for cement demand in the country. If we were to look only at

order books of the top eight construction and manufacturing

equipment companies in India, we find that their combined order

book has virtually doubled over the last two years from INR1,000bn

19

(USD25bn) to INR1,950bn (USD48.75bn) for completion over the

next 24-30 months.

INTERNAL FACTORS

Code of Business Conduct and Ethics

1. ApplicabilityThe Code of Conduct will apply to all the members of the Board of Directors andall the employees of the Company in M grade. clause 25 of this Code requiring annual confirmation is applicable to Directors and employees in grades MOA and above.

2. Honest and Ethical ConductThe Company expects all the Directors and the Employees to act in accordance with highest professional standards, integrity and high morals and ethics.

3. Conflict of InterestThe Company expects that the Directors or Employees of the Company shall not engage in any business relationship or activity which might conflict with the interest of the Company. The following are examples of situations, which may constitute a conflict of interest:

When a Director or an Employee engages in a business relationship or activity which is or is perceived to be in conflict with the interest of the Company with anyone who is party to a transaction with the Company.

When a Director and Employee or a member of his or her immediate family receives personal benefits by making or influencing decisions relating to any transaction.

In case it is likely that a conflict of interest might exist, the concerned Director or Employee must at the earliest opportunity make full disclosure of all facts and circumstances that reasonably could be expected to give rise to any violations of this Code of Conduct and the Board shall ensure that Company’s interests are protected. An Employee other than a Director shall make such disclosure to the Head of the Department and/or to the Unit Head. The Head of the Department and/or the Unit Head shall look into the merits of the transaction and ensure that the Company’s interests are protected.

4. Accounting & Financial Reporting20

The Management shall ensure that all business transactions shall be recorded in true, fair and timely fashion in accordance with the accounting and financial reporting standards, as applicable to the Company. They will ensure the reliability and accuracy of its accounts, records and reports.

5. Confidentialitya. The Directors and Employees shall strive to protect confidential information acquired, generated, gathered or which otherwise comes into their possession during the course of business. All such information should be maintained in strict confidence, except when disclosure is expressly authorised by the Company or required by the law.

b. Confidential information includes all non-public information, intellectual property rights such as trade secrets, business research, new products, new projects and plans, business strategies, customer, employee and suppliers’ lists and any unpublished financial or price sensitive information.

c. The obligation to protect the Company’s proprietary and confidential information continues even after Directors and Employees leave the Company. The Directors and Employees must return all proprietary information in her/his possession upon leaving the Company.

d. The Directors and Employees should respect the rights of other competitors and their confidential information. They should not attempt to obtain a competitor’s confidential information by improper means.

6. Compliance with Laws, Rules and RegulationsThe Directors and Employees shall keep themselves updated in relation to laws/statutory compliances applicable to their scope of work. The Directors and employees of the Company shall comply with all laws, rules and regulations and shall not commit any illegal or unethical act. 7. Fair CompetitionThe Company is committed to respect the principles and rules of fair competition prohibiting anticompetitive behaviour and abuse of a dominant market position.

8. Bribery and CorruptionThe Directors and Employees shall not be involved in bribery and corruption while conducting the Company’s business. They are prohibited from offering or providing any undue pecuniary or other advantage for the purpose of obtaining, retaining, directing or securing any improper business advantage or for personal gain.

9. Customers, Suppliers and StakeholdersThe Company is committed to create value for each of its stakeholders. The Directors and Employees shall treat the Company’s customers,

21

suppliers and stakeholders with respect and dignity. There should not be any coercive measures used while dealing with any of the stakeholders.

10. Corporate OpportunitiesThe Directors and Employees are prohibited from taking for themselves business opportunities that arise through the use of corporate property, information or position. They shall not use corporate property, information or position for personal gain, or to compete with the Company.

11. Gifts, Hospitality and DonationsThe Company will not utilize bribery and corruption in conducting business. The Directors and Employees are prohibited from receiving, soliciting or offering any illegal or undue pecuniary or other advantage, (e.g. payments, remuneration, gifts, donations, hospitality of any kind or comparable benefits) which are intended to obtain any improper business advantage. Directors and Employees, however, may honour, accept and offer nominal gifts which are customarily given and are of a commemorative nature, for special events.

12. Corporate Social Responsibility, Health and SafetyThe Company recognizes its social responsibility and aim to improve the quality of life of its workforce, their families and the communities around its operations. The Company pursues a clear policy dealing with employment practices, occupational health and safety, community involvement as well as customer and supplier relations.

13. Sustainable Environmental PerformanceThe Company strives to preserve the environment for future generations by striking a balance between economic growth and continuously improving environmental performance and social responsibility. The Directors and employees must adhere to the policy.

22

2.6 Formal Forces Affecting the Organization

Internal Control System

The company has instituted a robust internal control system to support smooth and efficient business operations and effective statutory compliance. In order to improve the reliability and efficiency of business processes having an impact on financial reporting, the company has established an internal control systems project by standardizing and documenting major processes and associated key controls. Responsibilities have been assigned to specific individuals to correctly and timely perform the controls. The formalized systems of control help discharge the obligations as per Clause 49 of the SEBI Listing Agreement, and article 728 (a) of the Swiss Code of Obligations applicable to the Holcim Group from 2008. The company's Internal Audit department is responsible to independently test the design and operating effectiveness of the internal control system across the company. This facilitates an objective assurance to the Board and Audit Committee regarding the adequacy and effectiveness of the system.

The Internal Audit function, established since company's inception, not only monitors the effectiveness of controls but also provides an independent and objective assessment of the overall governance

23

processes in the company, including the application of a systematic risk management framework.

The scope and authority of the function are governed by the Internal Audit Charter, approved by the Audit committee. Internal Audit plays a key role by providing an assurance to the Board of Directors, and value adding consultation service to the business operations

2.7 Structure of the Company

24

25

Chapter 3

Financial Details

3.1 Risk Involved in the Business:

26

Coal: Coal is a wild card for the cement industry. Coal is used by the company both as a fuel in the cement manufacturing process as well as in captive power generation. This entails the effective sourcing of coal, both in terms of quality and pricing, which is very critical for the overall performance of the company. Domestic coal: The distribution, allocation and pricing are controlled by the Government. The deterioration in the quality and the timely availability is a major concern for the company. With the shrinkage in coal linkage, the company needs to source coal from e- auctions and through spot buying at significantly higher rates, generally 30% to 40% more than the notified prices. Imported coal: Prices for imported coal have raised sharply during the year, from less that US per tonne (CIF) in December 2006 to US 0 per tonne in December 2007. The company has drawn plans to meet the coal requirements in a planned and cost- effective manner. Freight: International crude prices are ruling consistently at very high levels resulting in higher cost of Indian crude basket. This continues to be a source of anxiety, as any increase in diesel prices would adversely affect road freights. Timely availability of rakes from the Indian Railways is also a cause of concern. Incidence of Taxes: The incidence of taxes on cement is extremely high, despite the fact that cement is an essential infrastructure commodity. The overall tax is as high as over 50% of the ex-works realization. Project Execution: The capital goods and engineering industries have their order books full for a couple of years. The delivery periods quoted for equipment are growing longer. The boom in the construction industry has further compounded the problem. There is a scarcity of experienced civil contractors – a necessity for timely completion of projects. All these factors may increase the challenge to execute projects on time and also impact the cost. Efforts are being made to motivate civil contractors by additional financial incentives to speed up construction.

Bunching of Capacity: The setting up of newer capacities by the cement manufacturers could lead to bunching of cement capacity in the short term. This could bring pressure on cement prices, affecting the bottom lines.

27

3.2 Profitability and its impact & Shareholder’s Value

Profitability Statement

Particulars

Current

year

Previous

Year

31.12.200

8 31.12.2007

     

Sales (Net of excise duty) 6234.65 5631.36

Profit before Interest and Dep. 2261.66 3024.54

Less: Interest 32.06 75.85

Gross Profit 2229.6 2948.69

Less: Depreciation 259.76 236.34

Profit Before Tax 1969.84 2712.35

Provision for Tax 567.57 943.25

Profit after Tax 1402.27 1769.1

Add: Balance Brought forward

from previous year 348.2 272.06

Add: Credit Balance of P&L A/C

as on 01.07.2005 of erstwhile INSCL 0 0.21

Proft available for appropriation 1750.47 2041.37

 

Appropriations

 

Debenture redumption reserve NET 0 -30

Transfer from exchange fluctuation

reserve on cessation of subsidiary 0 0

General Reserve 1000 110028

Dividend on equity share (Incl

Interim) 334.97 532.65

Corporate dividend tax 56.92 90.52

  391.89 623.17

Balance Carried Forward 358.58 348.2

 

 Net Proft 1750.47 2041.37

Capital Structure

PERIOD INSTRUMEN

T

CAPITAL (Rs. cr) PAID U P

Fro

m

To Authoris

ed

Issued Shares

(nos)

Face

Value

Capita

l

200

8

200

8 Equity Share 214.75 214.75

15225994

24 2

214.7

5

200

7

200

7 Equity Share 214.75 214.75

15223754

22 2

214.7

5

200

5

200

6 Equity Share 214.75 214.75

15168285

90 2

214.7

5

200

4

200

5 Equity Share 214.75 214.75

13518826

23 2

214.7

5

200

3

200

4 Equity Share 214.75 179.45

17939995

1 10 179.4

Implications of Profitability Statement

The adjusted net profit declined by 3.1% YoY due to a sharp decline in margins. Higher clinker purchase pulled down the margins of the company. Ambuja Cement is trading at a steep premium to its peers despite the fact that it does not have the best return ratios and best margins in the industry.

Highlights

Net sales grew 18.2% YoY.

29

The EBITDA margin fell YoY by 26%.

The adjusted net profit has declined by 3.1% YoY.

Shareholder’s Value

Competitors Comparison

Particulars Last Price

Market Cap. Sales

Net Profit

Total Assets

(Rs. cr.)Turnov

er

ACC 792.75 14,880.42

7,474.15

1,212.78

5,409.76

Ambuja Cements 92.414,070.7

66,281.7

11,402.2

75,961.5

4

UltraTechCement 839.610,451.8

36,436.9

6 977.025,743.7

3

Shree Cements1,598.5

0 5,568.732,740.5

7 577.972,644.3

1

India Cements 124.75 3,524.813,470.7

8 432.185,619.4

1

Madras Cements 114.8 2,731.892,538.5

0 363.523,723.6

5

Birla Corp 304.65 2,345.97 1,809.70

323.51 1,515.48

Prism Cement 49.95 1,489.76 629.86 96.23 661.65

Dalmia Cement 179.7 1,454.481,778.6

8 158.633,606.4

8

Binani Cement 67.3 1,366.871,497.3

2 108.661,254.7

3

Increase in Dividend over the Previous Years

30

31

Comparative Valuations

3.3 Return on Investment Calculations for the Last Five Years

32

  Jun '04

Jun

'05

Dec

'06

Dec

'07

Dec

'08

Investment Valuation Ratios

Face Value 10 2 2 2 2

Dividend Per Share 8 1.8 3.3 3.5 2.2

Operating Profit Per Share (Rs) 30.54 5.4 14.25 13.49 11.72

Net Operating Profit Per Share (Rs) 109.37 19.21 41.05 37.25 40.6

Free Reserves Per Share (Rs) 75.8 12.08 19.66 27.48 34.13

Bonus in Equity Capital 58.27 71.98 64.15 63.92 63.91

Profitability Ratios

Operating Profit Margin(%) 27.92 28.12 34.71 36.2 28.85

Profit Before Interest And Tax

Margin(%) 18.72 20.39 29.13 31.35 24.04

Gross Profit Margin(%) 25.01 25.44 33.74 36.26 24.65

Cash Profit Margin(%) 24.95 25.29 29.04 34.61 21.17

Adjusted Cash Margin(%) 22.19 23.41 28.29 23.44 21.17

Net Profit Margin(%) 16.63 17.85 23.86 30.53 22.11

Adjusted Net Profit Margin(%) 13.83 15.93 23.09 19.35 22.11

Return On Capital Employed(%) 13.4 16.94 43.76 38.84 28.19

Return On Net Worth(%) 16.66 21.5 43.05 37.95 24.73

Adjusted Return on Net Worth(%) 13.91 19.24 41.77 24.09 19.06

Return on Assets Excluding

Revaluations 8.3 11.45 27.56 26.94 17.88

Return on Assets Including

Revaluations 8.3 11.45 27.56 26.94 17.88

Return on Long Term Funds(%) 13.76 16.94 43.77 38.84 28.19

33

Liquidity And Solvency Ratios

Current Ratio 0.63 0.76 1.08 1.03 1.26

Quick Ratio 0.31 0.35 0.7 0.64 0.74

Debt Equity Ratio 0.63 0.52 0.25 0.07 0.05

Long Term Debt Equity Ratio 0.59 0.52 0.25 0.07 0.05

Debt Coverage Ratios

Interest Cover 4.24 6.28 17.61 26.02 52.66

Total Debt to Owners Fund 0.63 0.52 0.25 0.07 0.05

Financial Charges Coverage Ratio 5.35 8.24 19.73 28.68 60.58

Financial Charges Coverage Ratio

Post Tax 5.43 8.24 17.17 27.45 52.89

Management Efficiency Ratios

Inventory Turnover Ratio 7.96 8.28 15.41 9.96 7.54

Debtors Turnover Ratio 44.27 58.66 91.7 48.14 33.39

Investments Turnover Ratio 9.07 9.55 17.19 11.13 7.54

Fixed Assets Turnover Ratio 0.87 1.07 2.28 1.68 1.1

Total Assets Turnover Ratio 0.6 0.79 1.43 1.14 1.05

Asset Turnover Ratio 0.54 0.7 1.37 1.09 1.1

Average Raw Material Holding 35.99 30.85 43.45 30.93 36.96

Average Finished Goods Held 6.47 7.58 6.26 7 8.01

Number of Days In Working Capital -41.58 -26.2 7.99 2.53 28.24

Profit & Loss Account Ratios

Material Cost Composition 17.19 16.76 16.17 16.8 20.23

34

Imported Composition of Raw Materials

Consumed -- -- 5.05 11.01 8.41

Selling Distribution Cost Composition 19.01 17.91 19.08 20.95 19.2

Expenses as Composition of Total

Sales 11.02 10.48 8.36 4.9 3.69

35

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 47.62 46.06 34.98 35.22 27.94

Dividend Payout Ratio Cash Profit 31.69 32.45 28.73 31.06 23.55

Earning Retention Ratio 42.75 48.4 63.85 44.44 63.75

Cash Earning Retention Ratio 64.32 64.89 70.49 54.13 70.81

Adjusted Cash Flow Times 2.82 1.84 0.49 0.24 0.22

3.4 Balance Score Card

36

The grouping of performance measures in general categories

(perspectives) is seen to aid in the gathering and selection of the

appropriate performance measures for the enterprise. Four general

perspectives have been proposed by the Balanced Scorecard:

Financial perspective;

Customer perspective;

Internal process perspective;

Innovation and learning perspective.

37

Financial Perspective

FIVE YEAR PERFORMANCE:

 (Rs.

Crores)

  2004 20052006 (18

Months)

2007 (12

Months)

2008 (12

Months)

Sales 1968 2606 6286 5705 6235

Operating Profit 587 799 2247 2239 1954

Cash Profit 509 714 2168 2163 1922

Profit before Tax 384 519 1842*** 2712*** 1970***

Profit after Tax 337 468 1503 1769 1402

Gross Block 3782 3827 5177 5928 7654

Net Worth 2013 2172 3484 4655 5669

Debt 1270 1127 865 330 289

Cash EPS (Rs.) 28 5.28 14.29 14.26 12.62

EPS (Rs.) 19 3.46* 10.09* 11.61* 9.21*

Dividend (%) 80 90** 165 175 110

Capacity-Million

Tons

12.8

6

13.30 16.30 18.50 22.00

Production- Million

Tons

10.3

7

12.80 22.63 16.88 17.75

Note:

*   On Face Value of Rs. 2 per share

** Includes 30% on enlarged captial after issue of Bonus Shares in the

ratio 1:2

***Includes exceptional items of Rs 308.33 crores, Rs 785.89 crores

previous year 2007.Rs 47.52 crores previous period 2006 (18 months)

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KEY NUMBERS:

Cement production up 5%, at 17.8 million tonnes.

Domestic cement sales up 9%, at 16.8 million tonnes.

Average Net Sales Realisation up 5%, at Rs. 3,544 per tonne.

Net Sales up 11%, at Rs. 6,235 crore.

EBITDA down 12%, at Rs. 1,833 crore.

Profit before Tax down 27%, at Rs. 1,970 crore.

Net Profit down 21%, at Rs. 1,402 crore.

Exceptional Income Rs. 308 crore compare to Rs. 786 crore in 2007.

Cash Position Rs. 852 crore at 31 December 2008.

Internal Process Perspective

The internal process perspective is concerned with the processes that

create and deliver the customer value proposition. It focuses on all the

activities and key processes required in order for the company to excel at

providing the value expected by the customers both productively and

efficiently. These can include both short-term and long-term objectives as

well as incorporating innovative process development in order to

stimulate improvement.

The clusters for the internal process perspective are operations

management (by improving asset utilization, supply chain management,

etc), customer management (by expanding and deepening relations),

innovation (by new products and services) and regulatory & social (by

establishing good relations with the external stakeholders).

Utilization of waste resource

Fly ash - The waste product that helped them to produce larger volumes of cement. The disposal of fly-ash, a hazardous waste from power plants is a major national concern. To tide over the power shortage in the country, large coal based thermal plants are being set up by power companies, leading to more fly-ash. Over the years, they have spent time and capital at their R&D cell, to see how they could use this waste in manufacturing cement without compromising on the quality.

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Regulatory and Social

The company places great emphasis on the maintenance of effective internal controls, both from the point of view of compliance with statutory requirements as well as supporting the smooth and efficient running of the business. This formalized system of controls helps to meet the statutory requirements of both Clause 49 of the SEBI Listing Agreement, and the equivalent Swiss Stock Exchange Code, with which the Holcim Group is required to comply from 2008.

Supply Chain Management

The company has initiated various activities at our plants and corporate offices. All these activities are geared towards awareness generation and prevention. They recognize that their workplace programme must reach out to those in supply chain. They have a large programme for their truckers who are an important part of this chain. Since the railways also form a significant part of the cement supply chain, they have initiated an awareness programme for the labourers working at their cement yards. They began with the yards in Mumbai and are gradually expanding it to include other yards across Maharashtra. In course of time, they are sure this will have a multiplier impact on other railway yards across the country.

Innovation and Learning Perspective

The innovation and learning perspective is the foundation of any strategy and focuses on the intangible assets of an organization, mainly on the internal skills and capabilities that are required to support the value-creating internal processes. The Innovation & Learning Perspective is concerned with the jobs (human capital), the systems (information capital), and the climate (organization capital) of the enterprise.

Training Programmes

Holcim aims to be recognized as one of the most attractive employers within the industry. It has implemented various programs, including Leadership Development Program and development program for senior management, introduction of variable compensation scheme, cross border transfers, talent assessment program to evaluate people so they could take up higher responsibilities. Through intensive training programmes, they have introduced farmers to better technologies and cropping techniques, increasing their yield in

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agro-based livelihoods. Expansion into alternative livelihood options meant sustained incomes for the families, which in turn directly influenced the standard of living of the family. Systems

The three guiding principles of “Value Creation”, “Sustainable Environmental Performance” and “Corporate Social Responsibilities” are well anchored in the Holcim Business Model and enshrined in the Management Systems. They can also be found in our company’s business model and management systems.

Climate of organization The health and safety of the people at Holcim is a key priority. This not only includes its own employees but also for the personnel of sub-contractors and for visitors. The implementation of the Holcim Safety Pyramid – “Passion for Safety” encompasses events, which on successful implementation would help us achieve our goal of “no harm” environment within the company Environment Management: We won the Environment Excellence Gold Award for outstanding achievement in environment management

They are also very conscious about noise pollution. They follow sophisticated method of blast control using delayed detonators in mines and hence there is minimal noise during blasting. This also ensures that the surrounding areas are not affected as the vibrations are of lower intensity.

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3.5 Expense Centers

ENGINEERED EXPENSES

Engineered costs are those for which the right or the proper amount can be estimated with reasonable reliability.

Manufacturing And Other Expenses Clinker Freight and Handling Charges Stores and Spares Consumed Packing Materials Consumed Power and Fuel Mines reclamation expenses Repairs and Maintenance Excise duty On captive consumption of clinker Employees' Remuneration and Benefits Salaries, Wages, Contribution to Provident and other Funds Welfare Expenses Rent Insurance Freight and Forwarding charges on exports Miscellaneous Expenses Directors' Fees and Expenses Capital Projects written off

DISCRETIONARY EXPENSE

Discretionary costs are those for which no such engineered estimate is feasible.

Commission to Managing Director Rates and Taxes

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Provision for doubtful advances Loss on Assets sold, scrapped or discarded and written off Commission to Non-executive Directors Commission on sales Discount on sales Selling and Distribution Expenses Advertisement and Publicity Bonus, Allowances, etc Turnover Tax, Additional Tax and Purchase Tax R&D Expenses

The Future Looks Bright for Ambuja Cement

The momentum of growth in the infrastructure and housing industry is a good sign for the cement industry. The government has set a growth target of 9 % for the economy during XIth Plan (2007 – 2012). The cement demand growth is projected at 9.5% CAGR for the XIth plan. Further, the government has emphasized on public-private partnerships for removing bottle-necks for developing the infrastructure in the country. We see that the private sector is poised to play a very major role in the development of this infrastructure. Given the overall economic growth, inflow of foreign investments, thrust on infrastructure development and boom in the housing construction, we believe the cement demand should display strong growth in the next 3 to 5 years. In view of this robust growth, many cement companies have announced fresh capacity expansion. It is expected that over the next 5 to 7 years, new capacities of over 110 million tonnes would be set up across the country. While there are high growth opportunities, there also lie big challenges ahead. Bunching of new capacity in a short span could lead to pressure on prices and distribution network in 2009. We are gearing up to meet these challenges. The ominous signs of recession in US economy, accentuated by 75 bps cut in interest rate, and the emerging signs of domestic inflation rate going up may generally impact overall economic growth.

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Bibliography

www.gujaratambuja.com

www.moneycontrol.com

www.motilaloswal.com

www.icicidirect.com

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