Financial Accounting for Managers

PGDM 2014-16

PGDM Trimester 1, 2014

Assignment: Report on Cement Industry

Group 8

Submitted To:
Dr. Pawan Jain

Submitted By:
Rakesh Kumar Choudhary 2014220
Rashi Sharan 2014221
Rashi Srivastava 2014222
Rasika Dhuley 2014223
Bhavya Khamesra 2014337
Pratul Mahajan 2014338
Himanshu Dawra 2014344

Introduction............................................................................................................................ 3
Page | 1

YKey Performance Indicators.................................................................................................. 3

YProfitibility..................................................................................................................... 3
Asset/Fund EfficiencyY..................................................................................................... 4
YLong Term Solvency....................................................................................................... 4
YShort Term Liquidity...................................................................................................... 4
YBusiness Model..................................................................................................................... 5
YRevenue Model..................................................................................................................... 6
YMajor Expense Heads........................................................................................................... 7
Assets and Liability Formulation8
Reference11

Introduction
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Cement is the most essential raw material in any kind of construction activity. Accordingly, cement
industry plays a crucial role in the infrastructural development of the country. Given the vast
geographical size and massive population of the country, various construction activities undertaken by the
Central Government, State Governments, Public Sector Undertaking and other organizations, including
private sector generate huge demand for cement. In addition, provision for housing is the first and
foremost requirement of every household and, therefore, market demand of cement for private
consumption is increasing constantly. [1]
The manufacturing process of cement consists of mixing, drying and grinding of limestone, clay and
silica into a composite mass. The mixture is then heated and burnt in a pre-heater and kiln to be cooled in
an air-cooling system to form clinker, which is the semi-finished form. This clinker is cooled by air and
subsequently ground with gypsum to form cement.
There are three types of processes to form cement - the wet, semi-dry and dry processes. In the wet/semidry process, raw material is produced by mixing limestone and water (called slurry) and blending it with
soft clay. In the dry process technology, crushed limestone and raw materials are ground and mixed
together without the addition of water. [2]

Key Performance Indicators

Profitability

[3]

Profitability for a firm is the state or condition of yielding a financial profit or gain. In regard to cement
industry profitability indicators keep on changing according to economic conditions and market
scenarios. Profitability of cement industries basically depends on utilization rate / capacity utilization,
price increase/ decrease, cost, volume of production, government policies etc.
Earlier during 2008, cement industry was experiencing a boom on account of the overall growth of the
Indian economy primarily because of increased industrial activity, flourishing real estate business,
growing construction activity, and expanding investment in the infrastructure sector. The performance of
the industry, under different policy regimes, truly establishes that the control of the industry and
liberalization of the economy led to remarkable improvement in the indicators such as installed capacity,
capacity utilization, per capita consumption and exports. The industry experienced a complete shift in the
technology of production, from wet process to dry process.
Currently, the cement production has remained subdued growing by a modest 3.7% during Apr-Dec 2013
primarily due to weak demand from end-user industries. Delays in environmental clearances for
industrial and infrastructure projects and sand unavailability in some states contributed to slow growth.
The demand was sluggish during Q2 FY14- a seasonal phenomenon- due to a slowdown in construction
activities during the monsoon season. Contrary to expectations, cement demand failed to pick up even in
the post monsoon season due to continuing weak demand from infrastructure and real estate sector, issues
with respect to sand availability in some states and shortage of labor due to festive season.
There has been pressure of rising input costs. Cement companies have witnessed significant increase in
freight costs over the past two years, due to increase in freight rates by railways, consistent increase in
diesel prices and increased dependence on costlier road transport due to shortage of railway wagons.
Apart from this, the prices of key raw materials limestone and gypsum have also increased. Further,
increase in domestic coal prices by CIL in May 2013, declining availability of low cost linkage coal have
increased power & fuel costs. However, declining international coal and pet coke price have provided
some benefits to Indian cement companies; but the extent of this benefit has partly been offset by rupee
depreciation.

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All

these

factors

together

contribute

to

the

profitability

of

the

cement

industry.

Asset / Funds Efficiency

Asset efficiency can be explained as when a company that generates more revenue from fewer assets is
better than one that requires huge assets to generate little revenue. Asset Efficiency is all about how well
industry manages its asset to retain maximum profit. [4]
Long Term Solvency

[5]

Company analyze this key performance indicator to know their capability to pay all its long term debts
like loans from banks, debentures etc. Long term solvency is taken into consideration by banks, again
investors and company to see the companys standing and whether they can be further provided by the
loans or not.
In case of cement industry the loan is taken mostly on the mortgage so it becomes mandatory to have a
look of this key indicator. It is analyzed by keeping in mind that they are to be paid in long run, so all the
things which are to be considered in cement industry are enlisted below:
1. Loans: All the loans taken by the company are mostly large sum of money taken from different banks
for different duration.
2. Debentures: Debentures are the companys way to raise funds through external means but these are
taken in form of a loan and interest is paid on it. All debenture holders are the liability of the
company.
3. Fixed assets: all the assets are taken into consideration as in long run money can be arranged from
them also. E.g. Plant and machinery which consists of 80% of fixed assets in this sector.
4. Investments: Even investments are also analyzed so that performance of the company can be
determined in the long run whether it is able to meet its long term liability.
Short Term Liquidity

[5]

It is companys efficiency to pay its all short term debts from the funds available at a given point of time
or within a month. While analyzing the short term liquidity following points are kept in mind:
1. Cash and Cash equivalence: All the funds which are available in the form of easily transactional
assets such as Cash in hand, Cash with Bank, Cheque, Demand Draft etc.
2. Raw material: All those products bought in ready form to be transformed in the other product, such
as Calcium, aluminum, iron, silicon etc.
Work in Progress: The raw material which is in the process of converting.
Finished Goods: After completing all the necessary processes, the product that can be used by the
end user in this case cement.
3. Debtors: Includes trade receivables, other debtors etc.
4. Creditors: Includes trade suppliers, other creditors etc.

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For every investor and even for company this key performance indicator is important as it tells the
position of the company whether it is able to meet its short term liability or not. Therefore it is
considered as a determining factor for a company performing well.

Business Model
Raw Material

[6]

Cement is usually used in mortar or concrete. It is mixed with inert material (called aggregate), like sand
and coarse rock. Portland cement consists of compounds of lime mixed with oxides like silica, alumina
and iron oxide. These are the major raw materials for cement:

Lime

Silica

Alumina

Chalk

Clay

These raw materials are found in different parts of India like: Madhya Pradesh, Tamil Nadu, Uttar
Pradesh, Karnataka, Rajasthan, Haryana, Orissa, etc.
Production Phase

[7]

All the sourced raw materials are crushed by a big crushing machine

Crushin
g

After crushing the mixture is grounded in a rotating cylindrical ball or

tube mills containing a charge of steel grinding balls
This process includes thorough mixing of the components like gypsum
This includes the burning of the mixture at very high temperature. Which
results in formation of clinkers.
The material is passed through the mill for further grinding

Grindin
g
Blendin
g
Burning
Grindin
g

Above process results in different varieties of cement based on different compositions according to
specific end uses namely Ordinary Portland Cement, Portland Pozolona Cement, Portland Blast Furnace
Slag Cement, White Cement and Specialized Cement. The basic difference lies in the percentage of
clinker used. The produced cement is pumped to storage silos from which it is drawn to the bags or for
dispatch in bulk containers.
Distribution
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[8]

The distribution of cement industry is highly dependent on roadways as railways do not have
adequate facilities.
The transportation accounts for about 17% of the production cost

Warehou
se

Distribut
ors

Subdealers

End
Users

Revenue Model
It can be defined as, all the sources that can help a company in generating money.
For Indian cement industry there are various sources of generating revenue. First we will categorize them
and then discuss them in detail.

Classification of income sources

Revenue From Operation
Details of products
sold/Services
Cement
Ready Mix Concrete
Clinker
Traded goods
Sale of raw materials
and stores

Details of other
operating revenue
Sale of surplus
generated power
Sale of scrap
Income from repairs &
maintenance
Incentives and subsidies

[9]

Revenue From Non-Operation

Other Income
(Financial)
Interest income
Dividends
Gain on securities
transactions, sale of invst.

Other Income (NonFinancial)

Income from leasing, hire
purchase
Bad debts recovered
Profit on sale of fixed
assets

Bill discounting

Gain on change in
accounting policies

Gain relating to forex

transactions

Insurance claims

Pumping and
conveying charges
We will discuss some of the elements listed in the table and try to understand, how Indian Cement
Companies utilize them and thereby increase their revenue.
1. Cement: Total cement production in India is approx. 270 million tons. Indian cement companies
manufactures and markets ordinary Portland cement, Portland blast furnace slag cement, white
cement and Portland pozzolana cement etc. [10]

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2. Ready Mix Concrete: Concrete is basically a mixture of Portland cement, water and aggregates
comprising sand and gravel or crushed stone. In traditional construction sites, each of these materials
is procured separately and mixed in specified proportions at site to make concrete. Ready Mix
Concrete, or RMX as it is popularly called, refers to concrete that is specifically manufactured
elsewhere and transported in a Transit Mixer for delivery to the customer's construction site in a
ready-to-use freshly mixed state. RMX can be custom-made to suit different applications. Ready Mix
Concrete is bought and sold by volume - usually expressed in cubic meters.[11]
3. Clinker: In the manufacture of Portland cement, clinker is lumps or nodules, usually 3 mm to 25 mm
in diameter, produced by sintering (fused together without melting to the point of liquefaction)
limestone and alumino-silicate materials such as clay during the cement kiln stage.[12]
4. Traded Goods: It constitutes Cement and Ready Mix Concrete exported by the Indian Cement
Companies to other countries.
5. Sales of Surplus Generated Power: Power consumption is one of the major expense head for the
cement industry. To reduce the power expense most of the Indian Cement Companies has captive
power plants to meet their demand. If they generate more than required electricity then sold the
surplus power to others.

Major-Expense Heads
Types of
Expenses

[13]

Expenses

Types of
Expenses

Raw materials consumed

Packing material consumed
Stores and spares consumed
Manufacturin
g Expenses

Rent, rates and taxes

Insurance
Fuel consumed
Power consumed

Distributio
n Expenses

Auditors' remuneration
Annual audit
Other
Operating
Expenses

Half yearly review

Out of pocket expenses
Workers' (Profit) Participation
Fund
Workers' Welfare Fund

Administrativ
e Expenses

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Salaries, wages and benefits

Travelling and entertainment
Vehicle running and maintenance
Insurance
Rent, rates and taxes

Expenses
Salaries, wages and benefits
Export freight and other charges
Travelling and entertainment
Vehicle running and maintenance
expenses
Rent, rates and taxes
Repairs and maintenance
Printing and stationery
Depreciation
Insurance
Advertisement and sale promotion
expenses

Travelling and conveyance

Selling
Expenses

Financial
Expenses

Communication and establishment

expenses
Outsourced manufacturing jobs
Outsourced professional jobs
Non-executive directors' fees

Financial charges on instruments

Exchange loss on revaluation of loan

Repairs and maintenance

Printing and stationery
Communication, establishment
and other expenses
Legal and professional charges
Depreciation/Amortization
Donations

ASSETS AND LIABILITIES FORMULATION

Bank charges and commission

Changes in fair value of derivative
Swap fee
Interest paid

[14]

ASSETS

FIXED ASSETS

NON-CURRENT INVESTMENTS

NON-CURRENT ASSETS
a) Tangible Assets Computers and Office Equipment
Furniture and Fixtures
Mobile Phones
Company Vehicles
Motor Cars given to the employees
Freehold land and Leasehold land
Expenditure incurred on Jetty
Roads, Culverts, Walls.
Transit Mixtures
Concrete Pumps
b) Intangible Assets Mining Rights
Computer Software
Investment in equity shares
Investment in preference shares
Investment in mutual funds
Investment in debt instruments
Investment in approved securities
Investment in assisted companies
Investment in others
CURRENT ASSETS

Page | 8

a) Inventories Raw Materials:

Limestone
Fly Ash
Gypsum
Aggregates
Sand
Work-in-Progress
Finished Goods
Stock-in-trade
Stores & Spare Parts and Packing Material
Fuels
b)Cash and Cash Equivalent
Cash in hand
Cash on cheque
Cash in Bank current account
Other Bank balances
-Fixed deposits in Bank
-Earmarked balance with bank for unpaid dividends
c) Trade Receivables
Trade receivables outstanding for a period exceeding six
months from the date they are due for payment
-Unsecured, considered good
-Unsecured, considered Doubtful
Other Trade receivables Secured, considered good
Unsecured, considered good
Unsecured, considered Doubtful
d)Short Term Loans and Advances
Security deposits
Loans and advances to related parties
Advances recoverable in cash or kind
Other loans and advances Balances with statutory /
government authorities
e)Current Investments
f) Other Current Assets
Interest accrued on investments
Other Accrued Interest
Fixed assets held for sale
EQUITY AND LIABILITIES
SHAREHOLDERS FUNDS

Page | 9

a) Share Capital
b) Reserve & Surplus

c)Money Received against share warrants

NON-CURRENT LIABILITIES

CURRENT LIABILITIES

References
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a)Long Term Borrowings

- Secured
Privately placed Non-Convertible Debentures
-Unsecured
b)Deferred Tax Liabilities
Deferred Tax Liabilities arising on account of Depreciation and amortisation differences
Deferred Tax Assets arising on account of:
-Provision for employee benefits
-Expenditure debited in Statement of Profit and Loss but
allowed for tax purposes in the following years
-Provision for obsolescence of spare parts
-Others
c) Other Long Term Borrowings
-Deposit from dealers and others
d) Long Term Provisions
Provision for employee benefits
Provision for gratuity and staff benefit schemes
Other Provisions Provision for Mines Restoration
a) Short Term Borrowings
b) Trade Payables
Due to Micro and Small Enterprises
Due to other
c)Other Current Liabilities
Current maturities of long-term borrowing
Interest accrued but not due on borrowings
Investor Education and Protection Fund
Unpaid dividend
Unpaid Matured Deposits
Statutory dues Advance from customers
Deposits Liability for capital expenditure
Other payables (including Rebates to customers,
Employees dues, etc.)
d) Short Term Provisions
Provision for employee benefits
Provision for gratuity and staff benefit schemes
Provision for compensated absences
Other Provisions Provision for Income Tax
Proposed Final Dividend
Tax on proposed dividend

1. http://www.consultmcg.com/blog/the-indian-cement-industry/
2. http://newsletters.cii.in/newsletters/mailer/trade_talk/pdf/Cement%20Industry%20in%20India%20Trade%20Perspectives.pdf
3. http://hal-polytechnique.archives-ouvertes.fr/docs/00/91/56/46/PDF/Boyer_Ponssard_131209.pdf
4.https://www.google.co.in/?
gfe_rd=cr&ei=ehjfU4DzKqnV8gfgu4HYCg#q=assets+in+cement+industry+
5. http://en.wikipedia.org/wiki/Cement
6. http://www.britannica.com/EBchecked/topic/101833/cement/76640/Extraction-andprocessing#toc76646
7. http://www.britannica.com/EBchecked/topic/101833/cement#toc76638
8. http://en.wikipedia.org/wiki/Cement#Types_of_modern_cement
9. http://www.acclimited.com/newsite/finance.asp?tag=fra
http://industryoutlook.cmie.com/kommon/bin/sr.php?
kall=wshreport&&kall=wshreport&repcode=5050050050000000000000000000000000000
00000000&repnum=14&frequen
Prowess Database

10. http://www.consultmcg.com/blog/the-indian-cement-industry/
11. http://www.acclimited.com/newsite/cement_services_rmc_en.asp
12. http://en.wikipedia.org/wiki/Clinker_%28cement%29
13. http://www.costexcel.com/products_cement.html
http://economictimes.indiatimes.com/ambuja-cements-ltd/profitandlose/companyid-13643.cms
http://www.acclimited.com/newsite/annual_report_12/fin_analysis12.pdf
14. http://www.acclimited.com/newsite/finance/annual_report_2013.pdf

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