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Premium member Presentation Transcript Project on Capital Structure in Ultratech Cements Limited: Project on Capital Structure in Ultratech Cements Limited By Chitta Ramakrishna HT No. 142210672001 Mentor : Ms. Shilpa RasuriProblem Definition Capital Structure: Problem Definition Capital Structure The assets of a company can be financed either by increasing the owners claim or the creditors claim. The owners claims increase when the firm raises funds by issuing ordinary shares or by retaining the earnings, the creditors’ claims increase by borrowing . The various means of financing represents the “financial structure” of an enterprise .The financial structure of an enterprise is shown by the left hand side (liabilities plus equity) of the balance sheet. Traditionally , short-term borrowings are excluded from the list of methods of financing the firm’s capital expenditure, and therefore, the long term claims are said to form the capital structure of the enterprise . The capital structure is used to represent the proportionate relationship between debt and equity. Equity includes paid-up share capital, share premium and reserves and surplus .The forms of funds mobilization : The forms of funds mobilization Funding mix - Sources OWNERS FUND BORROWED FUND Equity capital Retained earnings Conventional sources Non conventional sources Financial Institutions Supplier’s credit Bank Short term Cash credit Bank borrowings Debentures Hire purchase Fixed deposits ICDDeterminants of Capital structure decisions: Determinants of Capital structure decisions Determinants Financial leverage EBIT / EPS Analysis Growth & stability of sales Flexibility Control Floatation costs Capital Market Conditions Purpose of financing Operating leverage Period of finance Cost of capital Nature & size of a firm Cash flow analysis Marketability Legal constraints Asset structurePowerPoint Presentation: The value of the firm depends upon its expected earnings stream and the rate used to discount this stream. The rate used to discount earnings stream is the firm’s required rate of return or the cost of capital. Thus, the capital structure decision can affect the value of the firm either by changing the expected earnings of the firm, but it can affect the reside earnings of the shareholders. The effect of leverage on the cost of capital is not very clear. Conflicting opinions have been expressed on this issue. In fact, this issue is one of the most continuous areas in the theory of finance, and perhaps more theoretical and empirical work has been done on this subject than any other. If leverage affects the cost of capital and the value of the firm, an optimum capital structure would be obtained at that combination of debt and equity that maximizes the total value of the firm or minimizes the weighted average cost of capital. The question of the existence of optimum use of leverage has been put very succinctly by Ezra Solomon in the following words. Given that a firm has certain structure of assets, which offers net operating earnings of given size and quality, and given a certain structure of rates in the capital markets, is there some specific degree of financial leverage at which the market value of the firm’s securities will be higher than at other degrees of leverage? The existence of an optimum capital structure is not accepted by all. These exist two extreme views and middle position. David Durand identified the two extreme views the net income and net operating approaches.Objectives: ObjectivesHypothesis: Hypothesis The relationship between EBIT and Firm value The Financial leverage has a positive effect on firm value up to a point and negative effect thereafter.Research Methodology: Research MethodologyScope of the study: Scope of the studyResearch design: Research designSources of information: Sources of informationPowerPoint Presentation: International companiesPowerPoint Presentation: International companiesPowerPoint Presentation: ULTRATECH CEMENTS Company Profile Annual Capacity : - 52 million tonnes Products :- Ordinary Port land cement Port land cement Portland Blast furnace Slag Cement Portland Pozzalana Cement Ready mix Concrete (RMC) Plants :- 11 integrated plants 01 white cement plants 01 Clinkerisation plant in UAE 15 grinding units, 11 in India, 2 in UAE, 01 in Bahrain, 01 in Bangladesh 05 terminals, 04 in India, 01 in Sri Lanka.PowerPoint Presentation: Exports :- Country’s largest exporter of cement clinker. Countries around the Indian Ocean, Africa, Europe and the Middle East. UltraTech's subsidiaries are Dakshin Cements Limited, Harish Cements Limited, UltraTech Ceylinco (P) Limited and UltraTech Cement Middle East Investments Limited ULTRATECH CEMENTS Company Profile: The Aditya Birla Group is among the top 10 cement producers globally Incorporated on 24 August 2000 as L&T Cement Limited Cement business of Larsen & Toubro Limited demerged and vested in company in 2004 Grasim acquired management control in July 2004 Together with Grasim, one of the largest cement producers in India Name changed to UltraTech Cement Limited with effect from 14 October 2004 Narmada Cement Company Limited amalgamated with UltraTech in May 2006 Cement business of Grasim demerged and vested in Samruddhi Cement Limited in May 2010 Samruddhi Cement Limited amalgamated with UltraTech Cement Limited in July 2010 UltraTech Cement Middle East Investments Limited, a wholly owned subsidiary of the Company has acquired management control of ETA Star Cement together with its operations in the UAE, Bahrain and Bangladesh in September, 2010 Company Profile: Market cap of over Rs. 300 billion Approximately 364,000 shareholders Over 96 per cent of shares dematerialized 5,725,359 GDRs as on 30 June 2011 Dividend of 60 per cent EPS of Rs. 24.93 as on 30 June 2011 NECS / ECS facility available for dividends Transfer-cum-demat facility Company ProfileAnalysis: Analysis 1 . EBIT Analysis 2 . EPS Analysis 3 . Funding MixUltratech Cements Ownership Pattern: Ultratech Cements Ownership PatternUltra tech CEMENTS Industries Ltd. The Funding Mix : Ultra tech CEMENTS Industries Ltd. The Funding Mix Particulars 2005-06 2006-07 2007-08 2008-09 2009-10 Source of funds Share Holder's funds Share capital (Paid up) 12448.59 12448.59 12448.59 12448.59 12448.71 Reserves and surplus 91378.38 163929.03 257173.32 347592.85 448217.19 Deferred Tax 57700.00 56000.00 54200.00 72300.00 83100.00 Total (A) 161526.97 232377.62 323821.91 432341.44 543765.90 Loan funds Secured Loans 122192.21 115125.39 98266.17 117579.01 85418.77 Unsecured Loans 22990.11 42737.99 75783.75 96583.13 75033.18 Total (B) 145182.32 157863.38 174049.92 214162.14 160451.95 Total (A+B) 306709.29 390241.00 497871.83 646503.58 704217.85 % of S H funds in total C.E. 52.66 59.55 65.04 66.87 77.22 % of Loan Fund in total C.E. 47.34 40.45 34.96 33.13 22.78 *C.E. means Capital EmployedEBIT-EPS analysis: EBIT-EPS analysiseffectiveness of financing decision on EPS and EBIT : effectiveness of financing decision on EPS and EBIT The overall cost of capita is thus the minimum required rate of return on the assets of the firm. The above chart is an illustration for the relation between actual WACC and actual ROA which describes the return on assets are always more than WACC. So, the expectation of minimum return on assets are alive.leverage analysis : leverage analysis Debt ratio: the ratio of debt to total capital Debt-equity ratio: The ratio of debt to equity Interest coverage: the ratio of net operating income (or EBIT) to interest chargesfinancing trends : financing trends Particulars 2005-06 2006-07 2007-08 2008-09 2009-10 Source of funds Share Holder's funds Share capital (Paid up) 12448.59 12448.59 12448.59 12448.59 12448.71 Reserves and surplus 91378.38 163929.03 257173.32 347592.85 448217.19 Deferred Tax 57700.00 56000.00 54200.00 72300.00 83100.00 Total (A) 161526.97 232377.62 323821.91 432341.44 543765.90 Loan funds Secured Loans 122192.21 115125.39 98266.17 117579.01 85418.77 Unsecured Loans 22990.11 42737.99 75783.75 96583.13 75033.18 Total (B) 145182.32 157863.38 174049.92 214162.14 160451.95 Total (A+B) 306709.29 390241.00 497871.83 646503.58 704217.85 % of S H funds in total C.E. 52.66 59.55 65.04 66.87 77.22 % of Loan Fund in total C.E. 47.34 40.45 34.96 33.13 22.78 *C.E. means Capital EmployedDebit – Equity Ratio: Debit – Equity RatioFinancial Highlights: Financial HighlightsFinancial Highlights: Financial HighlightsFinancial Highlights: Financial HighlightsMeasuring Sustainable Growth: Measuring Sustainable Growth Measuring Sustainable Growth Unit 2005-06 2006-07 2007-08 2008-09 2009-10 Net Earnings Rs. Cr. 230 782 1008 977 1093 Net Sales Rs. Cr. 3299 4911 5509 6383 7050 Total Assets Rs. Cr. 3623 4658 6258 7709 8343 Equity Rs. Cr. 1038 1764 2697 3602 4609 Dividend Rs. Cr. 25 57 73 73 87 Dividend payout ratio 0.11 0.07 0.07 0.07 0.08 Retention% 0.89 0.93 0.93 0.93 0.92 Sustainable Growth Margin 0.07 0.16 0.18 0.15 0.16 Turnover 0.91 1.05 0.88 0.83 0.85 Leverage 3.49 2.64 2.32 2.14 1.81 Retention% 0.89 0.93 0.93 0.93 0.92 Sustainable Growth 0.20 0.41 0.35 0.25 0.22PowerPoint Presentation: Thank You You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.