A Project Study Report

On:
Traning undertaken at

SHREE CEMENT LTD.

(BANGUR NAGAR, BEAWAR, DISTT. AJMER)
Capital Structure & Cost Of Capital
Submitted in partial fulfillment for the
Award of degree of
Master of Business Administration

Submitted to
Submitted By:
Mr. Rajat

Lokendra saini
MBA (3ed Semester)

(faculty)

Apex Institute of Management & Science, Jaipur

(Approved by AICTE, New Delhi & Affiliated to University of Rajasthan, Jaipur)

(2011-2012)

PREFACE

IT IS GOOD TO HAVE GOOD KNOWLEDGE. IT IS GOOD TO HAVE GOOD

WILL BUT IT IS ESSENTISL TO HAVE A GOOD TRAINING
(PANDIT JAWHARLAL NEHRU)
About three decade ago, the scope of financial management was confined to the
raising of funds, whenever needed and little significance used to be attached to
financial decision-making and problem solving. As a consequence, the traditional
finance texts were structured around this theme and contained description of the
instruments and institutions of raising funds and of the major events, such as
promotion, re-organization, readjustment, merger, consolidation etc. when funds
were raised.
In the mid fifties, the emphasis shifted to the judicious utilization of funds. The
modern thinking in financial management accords a far greater importance to
management decision-making and policy.
Today, financial management do not perform the passive role of scorekeepers of
financial data and information, and arranging funds, whenever directed to do so.
Rather, they occupy the key position in top management areas and play a
dynamic role in solving complex management problems. They are now
responsible for the fortune of the enterprises and are involved in the most vital
management decision of allocation of capital. It is their duty to insure the funds
are raised most economically and used in the most efficient and effective
manner. Because of this change in emphasis, the descriptive treatment of the
subject of financial management is being replaced by growing analytical content
and sound theoretical underpinnings.
I am thankful to the management for assigning such as challenging project to me
to know about the :- Capital Structure & Cost of Capital

ACKNOWLEDGEMENT
A large number of individual has contributed to this project. I am thankful to all of
them for their help and encouragement. Like other reports, this report is also
drawn from the work of large number of researchers and author in the field of
finance.
I would like to express my gratitude to Mr. Rajat

(finance) for giving me the

opportunity and enough of support to undergo training, I take upon this

opportunity to thank them for encouragement and guidance in completion of
project. Their knowledge and expertise was of great help for the project study in
their organization, SHREE CEMENT LTD, BEAWER (RAJ).
I would like to give my sincere thanks to officers, managers and employees of
SHREE CEMENT LTD, BEAWER (RAJ) for providing valuable information, reports
and data that were require for the study.
The successful completion of my project has been Last but not the least I would
like to thank my parents for encouraging and supporting me whole heartedly
during the course of this project.
Finally I would like to thank the institute for giving me chance to learn and add to
my knowledge and to gain some experience through this summer training
project.

carried out under the able

guidance of Mr.Rajat (finance).

LOKENDRA SAINI

TABLE OF CONTENT

S.NO
.

PARTICULARS

1.

Introduction of industry

05

2.

Industry Profile

07

3.

Objective of study

08

The Indian Cement Industry Overview

09

5.

Growth/Marketing/Demand/Takeover

10

6.

Cement

11

7.

Portland Cement

13

8.

Cement Industry Structure

14

Major Cement Plants

Mini Cement Plants
Characteristics of Cement Industry

16

10

Major Demand Drivers

18

.
11

Major Cement Players, Region wise

19

.
12

Cement Production
Introduction about SCL: Origin of the

23

.
13

Company
Cement manufacturing

41

.
14

Future Outlook of the Sector

44

15

Business and Managerial Challenges

46

.
16

Risk and Return of Cement Companies

47

9.

.
17. Cost of Capital

49

18

Cost of Debts

54

.
19

Weighted average cost of capital

59

.
20

Merits of Weighted average cost of

67

.
21

capital
Conclusion

69

.
22

Appendics

.
23

Bibliography

70
72

INTRODUCTION TO THE INDUSTRY: -

In the beginning, man lived in thatched houses but later as his horizon of
knowledge expanded he could produce a wonderful material for construction
known as cement.
In the year 1756 Jhon Smeaton, an English engineer, erected eddy stone
lighthouse in English Channel that paved the start of the industry. Various types
of cement, roman cement and pozzolona cement also came into existence. India
too contributed to the production. In 1918 the Indian cement industry had an
overall capacity of 84000 tones per year. At the time of independence there were
23 factories in all with a capacity of 1.5 million tones per annum. The major costs
incurred come under the head of transport and energy consumption consisting of
power and fuel. The cost of production per tone of cement usually ranges
between Rs.120 to 1399. The profitability will depend upon operational and
logistical efficiency. A good image will help to command a good premium. This is
evidenced by the premium brands like Shree Ultra Cement, Ultratech Cement,
Ambuja Cement and Birla Chetak Samrat Cement.
Some multinational companies like Lafarge and Blue Circle Victor have recently
evinced interest in shifting more of their business towards Asis, especially to
India. Infact, One deal of take-over has already materialized in which Lafarge took
over the cement business of TISCO and influencing factors may make the
situation a trend. It seems imminent that more of them would take place in the
time to follow, since acquisition is always a more preferred route then
expansion/green field instllation.
According to survey by ICRA top 10 companies account for 59% of the cement
production in the country. The cement industry is dominated by private sector
according for 915 of the capacity and 9% of the production, while public sector
accounts for the rest. This has put the cement organization is shambles due to
privatization of public sector and upcoming production.

INDUSTRY PROFILE

HISTORY OF CEMENT INDUSRIES: The history of cement is the voyage of civilization from primitive caves of prehistoric times to the skyscraper of the modern age. It is said that the use of
cement is old as the knowledge of fire to man. Egyptians utilized gypsum plaster
as cementing material as early as 3000BC, building monuments.
However, it was in the 1824, roughly a period of 60-80 years after the discovery
of hydraulic properties of limestone, Joseph Aspdin patented his product, which
was called Portland Cement. The plants manufacturing Portland cement out
side England were commissioned in Belgium and Germany in 1855. The interest
that evoked in the technology of cement resulted in the development of rotary
kilns in 1886.
Modern cement is the outcome of the combined researches and development
efforts of chemists, technologists & architects as well. The cement technology is
an offshoot of the overall development in other industries, technology,
constructional activities and knowledge aided by the availability of raw material.

FOCUS OF THE PROJECT

The project is structured for the purpose of getting good insight of, Capital
Structure and Cost of Capital, theory and its implication. The Projects Focus On
Cost of Different Component of Capital and Optimal Capital Structure for
Minimizing The Cost and
Risk. It also discusses the different sources of funds, different approaches of cost
of capital.
The project is being made as a part of summer training and gives good insight of
the topic covered under

OBJECTIVE OF THE STUDY

To get a good insight of the cement industry

To understand the theory of capital and its implication in business structure

To know about the various sources of funds in the company

To find out the cost of various components of capital and how to minimize it

The Indian Cement Industry

The Indian Cement industry dates back to 1914, with first unit was set-up
at Porbandar with a capacity of 1000 tones. Currently The Indian cement industry
with a total capacity of about 170 m tones (excluding mini plants) in FY07-08, has
surpassed developed nations like USA and Japan and has emerged as the second
largest market after China. Although consolidation has taken place in the
Indian cement industry with the top five players controlling almost 50% of the
capacity, the remaining 50% of the capacity remains pretty fragmented. Per
capita consumption has increased from 28 kg in 1980-81 to 115 kg in 2005. In
relative terms, Indias average consumption is still low and the process of
catching up with international averages will drive future growth. Infrastructure
spending (particularly on roads, ports and airports), a spurt in housing
construction and expansion in corporate production facilities is likely to spur
growth in this area. South-East Asia and the Middle East are potential export
markets. Low cost technology and extensive restructuring have made some of
the Indian cement companies the most efficient across global majors. Despite
some consolidation, the industry remains somewhat fragmented and merger and
acquisition possibilities are strong. Investment norms including guidelines for
Foreign Direct Investment (FDI) are investor-friendly. All these factors present a
strong case for investing in the Indian market.
Now, the Indian cement industry is on a roll. Riding on increased activity in real
estate, cement production has registered a growth of 9.28 per cent in April, 2008,
at 14 million tones as against 11.41 million tonnes in the corresponding period a
year ago.
The growth trend has been on for some time now. If these trends are anything to
go by, it will not be long before the sector will match the demand supply gap.
During the Tenth Plan, the industry, which is ranked second in the world in terms
of production, is expected to grow at 10 per cent per annum adding a capacity of
9

40-52 million tones, according to the annual report of the Department of

Industrial Policy and Promotion (DIPP). The report reveals that this growth trend is
being driven mainly by the expansion of existing plants and using more fly ash in
the production of cement.

Growth/Marketing/Demand/Takeover
A growth of 20% in the installed capacity of cement in the past 14 months has
resulted in capacity outstripping current demand, feel analysts and
manufacturers.
They feel the cement cycle has peaked in the country and cement makers will
face pressure on prices and margins through the year and thus will be less
inclined to undertake further capacity addition. Cement industry, however, is
already on its way to add another 20 million tonne of capacity this year.
The industry has added capacity ahead of demand. Today, we have enough
capacity to meet the demand for the next one and half to two years, says shree
cement MD and Cement Manufacturers Association president HM Bangur. The
industry has added 32 mt. over the past 14 months to take the total capacity to a
little over 200 mtpa. The growth in the capacity is almost double that of the
estimated 10% growth in demand of cement in the same period.
Cement which has a weightage of 1.73% in the wholesale price index has been at
the centre of controversy for the past one year, with government accusing the
manufacturers of colluding to keep prices high. With demand-supply situation
about to change now, prices will remain under pressure this year.
Meanwhile, the production for May marginally declined to 14.89mt, as against
15.03 mt In April, although dispatches increased marginally from 14.73 mt. to
14.85 mt. in the same period. ACC and Ambuja, which reported lower dispatches
in May, blamed subdued demand for this.
Cement analyst Rupesh Sankhe says cement cycle has reached its peak. The
Market is not ready to absorb any hike in cement prices and this is a sure sign of
the cement cycle having peaked. The days of supernormal growth for the cement
sector are over. We will see growth in sales volume in this year but increase in
input cost and a downward pressure on prices will keep margins under pressure,
he said.
10

Agrees Shree Cements Bangur: margins will definitely be lower. The input cost
has sharply increased and it can not be passed on to the consumers fully.
The Economic
Times
New
Delhi, 27.06.2008

CEMENT
Cements are of two basic types- gray cement and white cement. Grey
cement is used only for construction purposes while white cement can be put to a
variety of uses. It is used for mosaic and terrazzo flooring and certain cements
paints. It is used as a primer for paints besides has a variety of architectural uses.
The cost of white cement is approximately three times that of gray cement. White
cement is more expensive because its production cost is more and excise duty on
white cement is also higher. Shree cement does not manufacture white cement at
present.
CEMENT

GREY

Portland Pozzolona Cement

WHITE

Ordinary Portland cement

(PPC)

Pozzolona used in the manufacture of Portland cement is burnt clay of fly ash
generated at thermal power plants. PPC is hydraulic cement. PPC differs from
OPC on a number of counts. Pozzolona during manufacturing consumes lot of
hydration heat and forms cementious gel. Reduced heat of hydration leads to
11

lesser shrinkage cracks. An additional gel formation leads to lesser pores in

concrete or mortar. It also minimizes problem of leaching and efflorescence.
.

Types of cement in India

The cement in India has increased over the years with the advancement in
research, development, and technology. The Indian cement industry is witnessing
a boom as a result of which the production of different kinds of cement in India
has also increased.
By a fair estimate, there are around 11 different types of cement that are being
produced in India. Some of the various types of cement produced in India are:
Clinker Cement ,Ordinary Portland Cement ,Portland Blast Furnace Slag Cement
,Portland Pozzolona Cement ,Rapid Hardening Portland Cement ,Oil Well Cement,
White Cement ,Sulphate Resisting Portland Cement
In India, the different types of cement are manufactured using dry, semi-dry, and
wet processes. In the production of Clinker Cement, a lot of energy is required. It
is produced by using materials such as limestone, iron oxides, aluminum, and
silicon oxides. Among the different kinds of cement produced in India, Portland
Pozzolona Cement, Ordinary Portland Cement, and Portland Blast Furnace Slag
Cement are the most important because they account for around 99% of the total
cement production in India.
The Portland variety of cement is the most common one among the types of
cement in India and is produced from gypsum and clinker. The Ordinary Portland
cement and Portland Blast Furnace Slag Cement are used mostly in the
12

construction of airports and bridges. The production of white cement in the

country is very less for it is very expensive in comparison to grey cement. In
India, while cement is usually utilized for decorative purposes, marble foundation
work, and to fill up the gaps between tiles of
The different types of cement in India have registered an increase in production
in the last few years. Efforts must be made by the cement industry in India and
the government of India to ensure that the cement industry continues innovation
and research to come up with more and more varieties in the near future

Portland cement
Portland cement, the basic ingredient in concrete, was first produced and
patented in 1824 by a British stonemason. Today around 1700 million tones of
cement are used every year, with different types manufactured to meet various
chemical and physical requirements. To produce these requires a clear
understanding and careful control of the manufacturing processes.
Although the terms cement and concrete often are used interchangeably,
cement is actually an ingredient of concrete. Portland cement is not a brand
name, but the generic term for the type of cement used in virtually all concrete,
just as stainless is a type of steel and sterling a type of silver. Portland cement
owes both its name and origin to Joseph Aspdin, a British stone mason. Aspdin's
quest for a manufactured counterpart to natural or Roman cement - a crude
formulation of lime and volcanic ash used as early as 27 BC - led to his discovery
and patent of Portland cement in 1824.
Aspdin heated a mixture of finely powdered limestone and clay in a small furnace
to produce hydraulic cement - one that would harden with the addition of water.
He named his invention "Portland cement" not only to distinguish it from Roman
13

cement, but also as marketing tool: Concrete made from his new cement
resembled a highly prized building stone quarried on the Isle of Portland off the
British coast. Today's Portland cement still relies on Aspdin's raw materials for its
basic components of calcium, silica, alumina, and iron. The most common
combination is limestone, clay.

The Cement Industry Structure

Presently the total installed capacity of Indian Cement Industry is more than 175
mn tones per annum, with a production around 168

mm tones . The whole

cement industry can be divided into Major cement plants and Mini cement plants.

Major Cement Plants:

Plants : 140

Typical installed capacity

Per plant : Above 1.5 mntpa

Total installed capacity : 170 mntpa

Production 07-08: 161 mntpa

All India reach through multiple plants

Export to Bangladesh, Nepal, Sri Lanka, UAE and Mauritius

Strong marketing network, tie-ups with customers, contractors

Wide spread distribution network .

Sales primarily through the dealer channel

Mini Cement Plants:

Nearly 300 plants & Located in Gujarat, Rajasthan, MP mainly

Typical capacity < 200 tpd

Installed capacity around 9 mn. Tones

Production around : 6.2 mn tones

14

Mini plants were meant to tap scattered limestone reserves. However most
set up in AP

Most use vertical kiln technology

Production cost / tonne Rs. 1,000 to 1,400

Presence of these plants limited to the state

Infrastructural facilities not the best

Regional division
The Indian cement industry has to be viewed in terms of five regions:

North (Punjab, Delhi, Haryana, Himachal Pradesh, Rajasthan, Chandigarh,

J&K and Uttranchal);

West (Maharashtra and Gujarat);

South (Tamil Nadu, Andhra Pradesh, Karnataka, Kerala, Pondicherry,

Andaman & Nicobar and Goa);

East (Bihar, Orissa, West Bengal, Assam, Meghalaya, Jharkhand and

Chhattisgarh); and

Central (Uttar Pradesh and Madhya Pradesh).

15

Characteristics of Cement Industry

This section describes the basic economic characteristics of the cement industry
by following the classical approach which consists of successively examining
demand, supply and market structure. On the basis of these characteristics are
described the main economic stakes in the sector.

Demand &Market
Demand in the cement industry is typically that of an activity which is mature,
cyclical and with low price elasticity. It is also characterized by a high degree of
horizontal differentiation in terms of location and a low degree of vertical
differentiation in terms of quality.
Cement is a homogeneous product. Most of its sales concern about half a dozen
commercial varieties, of which Portland cement is by far the leader. No brand
name exists, so that one suppliers products can easily be substituted for another.
Cement is, however, an experience good; its quality is guaranteed by standards
with which the supplier has to comply. These standards are often national but in
most cases the products of one country can easily be approved in neighboring

16

countries. Standards therefore do not constitute trade barriers as such, even if

they may hinder trade.
The demand for cement is geographically widely dispersed and corresponds
roughly to population density. Although cement is an upstream industry, it differs
from other basic industries such as aluminum, steel or glass, for which demand id
concentrated both geographically and in terms of the number of customers. In
the cement industry demand is by, by contrast, dispersed in multiple zones of
consumption, each of which comprises numerous customers. Geographical
factors thus determine the structure of the market.

Supply
Two economic considerations are important a priori in structuring supply in a
market characterized by strong horizontal differentiation:

The trade-off between fixed costs and transport costs which, depending on
the economic size of the factories, gives an initial idea of the density of the
network of production units covering the territory, in relation to the density
of demand.

The level of investment costs and the life-span of facilities which determine
the rigidity and the duration of the network.

17

Expected Demand and Supply

Major Demand Drivers

Present Demand drivers

Infrastructure & construction sector the major demand drivers. Some demand
determinants

Economic growth

Industrial activity

Real estate business

Construction activity

Investments in the core sector

Growth in mortgage business in retail housing

Higher surplus income of household

Opportunities

growth in the housing sector

central road fund established for national

highways and railway over

18

bridges to provide the necessary impetus

expansion plans, Greenfield projects on the anvil

Demand supply balance expected in the next 12 15 months

Encouraging trend in demand due to pick-up in rural housing demand and

industrial revival

Industry likely to grow at 8-10% in the next few years

Newer capacities in future

Major Players in Cement Industry

Major Players in Cement Industry:
Shree
Ambuja
ACC
The Aditya Birla Group
Binani
J.K
Others
Today India is the second largest cement producer (after China) in the world.

Shree
Shree Cements Ltd. is a Rajasthan based company, located at Beawer. The
company has installed capacity of 6.825 mn tones per annum( opc basis )in
Rajasthan. For the last 18 years, it has been consistently producing many notches
19

above the name plate capacity. The company retains its position as north Indias
largest

single-location

manufacturer.

Shrees

principal

cement

consuming

markets comprise Rajasthan, Delhi, Haryana, Punjab, Uttar Pradesh and

Uttranchal. Shree manufactures Ordinary Portland Cement (OPC) and Portland
Pozzolana Cement (PPC). Its output is marketed under the Shree Ultra Ordinary
Portland Cement and Shree Ultra Red Oxide Jung Rodhak Cement brand names.

Ambuja
GACL was set up in 1986 with 0.7 million tones. The capacity has grown 25 times
since then to 18.5 million tones. GACL exports as much as 15 percent of its
production. Thirty five per cent of the companys products transported are by sea
which is the cheapest mode. It has earned the reputation of being the lowest cost
producer in the cement industry. Ambuja cement one of GACLs well established
brands. The company plans to increase capacity by 3-4 million tones in the near
future.

ACC
Being formed in 1936, ACC has a capacity of 22.40 million ( including 0.53 million
tones of Damodar Cement and Slag and 0.96 million tones of Bargarh Cement ).
ACC Super is one of the companys well established brands. It is planning to
expand the capacity of its wholly-owned subsidiary Damodar cement and Slag at
Purulia in West Bengal. This is aimed at increasing its presence in the eastern
region.
As on FY07, ACC was the largest player with a capacity of 22.4 million tones per
annum (including 0.525 mn tones per annum of its subsidiary Damodar Cement).

The Aditya Birla Group

The Aditya Birla Group is the worlds eighth largest cement producer. The first
cement plant of Grasim, the flagship of the Aditya Birla Group, at Jawad in
Madhya Pradesh went on Stream in 1985. In total, Grasim has five integrated
grey cement
plants and six ready-mix concrete plants. The company is Indias largest white
cement producer with a capacity of 4 lakh tones. It has one of the worlds largest
20

white cement plant at Kharia Khangar (Raj.) Shree Digvijay Cement, a subsidiary
of Grasim, which was acquired in 1998, has its integrated grey cement plant at
Sikka (Gujrat). Finally Grasim acquired controlling stake in Ultra Tech Cement
Limited (Ultra Tech), the demerged cement business of L&T. Grasim has a total
capacity of 31 million tones and eyeing to increase it to 48 MT by FY 09. Grasim
has a portfolio of national brands which include Birla Supar, Birla Plus, Birla White
and Birla Ready mix and also regional brands like Vikram Cement and Rasher
Cement.

Binani
A fierce competitor with a 2.2 MTPA plant is located at Binanigram, Pindwara, a
village in Sirohi in the state of Rajasthan. Its a tough nut player which is outside
CMA (Cement Manufacturers Association) and is prime reason for driving prices
low in market. Offers a good quality product at cheap rates and has very good
brand image. Sales are focused in the North India, Gujarat and Rajasthan
markets. Holds around 14% of Rajasthan market.

JK
An entrenched competitor that has brands across the price spectrum with JK
Nembahera leading the pack. Also operates in the white cement market with Birla
as its only competitor. It lost significant market when Ambuja came to Rajasthan.

Others
Other players like Shriram have insignificant share and are highly localized.
Shriram has a small presence and that too largely in southern Rajasthan. There
are various mini plants operating too which supply cheap cement which has no
ISI certification and does not confirm BIS standards. Quite often they are supplied
in other established brands cement bags.

21

L&T is a strong player nationally and regarded as quality product. It has a

footprint but not a foothold in Rajasthan market.

Growth path of Indian cement industry

High demand growth in central, west and north regions have led demand growth
in first 8 months of 2006-07 ending Nov 2006. Boom in housing and infrastructure
in central, north and west regions have augured cement demand. Among states
Uttaranchal has witnessed demand growth of 27% followed by Chhattisgarh with
a growth of 23% and Karnataka with a growth of 21 % respectively during the
same period. In south region growth was led by pick up in construction activities
post monsoons.

Region wise demand growth

22

Capacity Addition

INTRODUCTION :
ABOUT THE ORGANISATION
Shree Cement Limited is a Beawar based company, located in Rajasthan. The
Company is a part of the Bangur Group and was incorporated on 25th
October1979, at Jaipur with a Vision: To register strong consumer surplus
through a superior cement quality at afordable price. Commercial
production commenced from 1st May1985 with a installed capacity of 6 lacs
tones per annum in Beawar dist. Ajmer, the capacity of this plant was upgraded
to 7.6 lacs tones per annum during 1994-95 by a modernization and up
gradation programme. In 1995 - The Company undertook the implementation of
new unit of 1.24 MT capacity per annum named "Raj Cement.

In 1997 The

Company commissioned its second cement plant - Raj Cement with a capacity of 12.4
lacs tones per annum adjacent to its existing plant in order to take full
advantage of its existing infrastructure and already developed captive mining
lease enough to sustain a new cement plan. The cumulative capacity was
enhanced by de-bottlenecking and balancing equipment in December 2001 to
2.6 MTPA. A product called Tuff Cemento has also launched by the company in
23

April 2007. At present company is producing over 100% capacity utilization, it is

the largest single location cement producer in north India (sixth in country).

COMPANY

PROFILE

COMPANY

SHREE CEMENT LTD.

INCORPORATION YEAR

1979
BANGUR NAGAR, BEAWAR, AJMER

REGISTERED OFFICE

(RAJASTHAN)

CORPORATE OFFICE

21, STRAND ROAD, KOLKATA

INDUSTRY

CEMENT MANUFACTURING

CHAIRMAN

B.G. BANGUR

MANAGING DIRECTOR

H.M. BANGUR

EXECUTIVE DIRECTOR

M.K. SINGHI

EQUITY CAPITAL

34.84 CRORES

FACE VALUE OF SHARE

10

EQUITY CAPITAL
Shree Cement

Limited

34.84 CRORES
is one of the

fastest

growing

Cement

Companies in India. Presently Shree Cement has 9.1 MTPA capacity in three
plants (Shree in Beawar 2.6 MTPA, Ras in Pali District 3 MT and Khushkhera
capacity is 3.5 MTPA) The organization has performed exceptionally well in the
year 2007-08 increasing the PBT by 95% the reasons for this

remarkable

achievement and key strengths of the company are discussed in the report.
For the last 18 years, it has been consistently producing many notches above the
nameplate capacity. The company retains its position as north Indias largest
single-location manufacturer. Shrees principal cement consuming markets
comprise Rajasthan, Delhi, Haryana, Punjab, Uttar Pradesh and Uttranchal. Shree
manufactures Ordinary Portland Cement (OPC) and Portland Pozzolana Cement
(PPC). It has three brands under its portfolio viz., Shree Ultra Jung Rodhak
Cement, Bangur Cement and Tuff Cemento.

SHAREHOLDING PATTERN
24

Govt. / Financial Corporate

Bodies
Institutions
4%
7%

Foreign Holdings
18%
Other including
Indian Public
7%

Directors and
their Relatives
64%

Chart 1: Shareholding Pattern of Shree Cement

EQUITY CAPITAL
34.84 Crores
FACE VALUE OF SHARE
10

25

The Shree Vision

To be one of the Indias most respected enterprise through best-in-class
performance and leading by low carbon philosophy making it a progressive
organization that all stakeholders proud to deal with.

The Shree Mission

The company continues to be one of the most operationally efficient and energy
conserving cements producers in the world. Its mission statement is

To harness sustainability through low-carbon philosophy

To sustain its reputation as one of the most efficient manufacture globally.

To continually have most engaged team.

To continually add value to its products and operation meeting expectations

of all its stakeholders.

To continually build and upgrade skills and competencies of its human

resource for growth

To be a responsible corporate citizen with total commitment to communities

in which it operates and society at large.

26

Origin of the Company:

Promoted by the Bangur Group, Shree Cements is the largest cement producer in
Rajasthan. The company has a total installed capacity of 6.825 million tonne (opc
basis)The plants are strategically located in central Rajasthan, from where it can
cater to the entire Rajasthan market as well as Delhi and Haryana. The company
has about 100 sales offices spread across the states of Rajasthan, Uttar Pradesh,
Uttaranchal, Delhi, Haryana, Punjab and Jammu & Kashmir. Its cement is
marketed under the brand name of Shree Ultra Cement with different grades
like 33, 43 and 53 and sub-brand names like "red oxide cement", "Jung Rodhak
Cement", etc.
Shree Cement Ltd (SCL) is located at Beware, Rajasthan, Indias largest cement
producing state. It was incorporated in 1979. Commercial production at its 0.6
million tones per annum (tap) cement plant in Rajasthan commenced in May
1985. Three companies of the Bangor group promoted SCL. These companies are
Shree Dig Vijay Company Ltd, Graphite India Ltd and Fort Glister Industries Ltd.
Over the years, Sculls capacity rose and touched 2 tap by 1997-98. Its current
cumulative installed capacity stands at 2.6 tap & in 2003-04 the company
produced 2.84 million tones of cement making it the largest single location
cement producer in north India. It is operating at over 100% Capacity utilization

27

Shree caters to cement demand arising in Rajasthan, Delhi, Haryana, UP and

Punjab. What is strategic for SCL is that it is located in central Rajasthan so it
can cater to the entire Rajasthan market with the most economic logistics
cost. Also, Shree Cement is the closest plant to Delhi and Haryana among all
cement manufacturers in its state and proximity to these profitable cement
markets renders the company an edge over other cement companies of the
company in terms of lower freight costs. Shrees total captive power plant
capacity today stands at 101.5 MW. In 2000-01, the company has succeeded
in substituting conventional coke with 100 per cent pet coke, a waste from
refineries, as primary fuel resulting in lower inventory and input costs. In the
past two years the price of coal has gone up. Earlier dependent on good
quality imported coal, the company's switch to pet coke could not have come
at a better time. The company also replaced indigenous refractory bricks
with imported substitutes, reducing its consumption per tonne of clinker. The
company has one of the most energy efficient plants in the world. The
captive plant generates power at a cost of Rs 4.5 per unit (excluding interest
and depreciation) as compared to over Rest 5 per unit from the grid. In
appreciation of its achievements in Energy sector, the Company has been
awarded the prestigious 'National Energy Conservation Award" for the year
1997. Shree is rated best by Whitehopleman, an international agency
specializing in the rating of cement plants.
PRODUCTS

Following are the various products of Shree Cements Ltd.

1
2
3

Shree Ultra Red Oxide Jung Rodhak Cement (ROC)

Bangur Cement
Tuf Ceme
nto

28

Market Classification of Shree

Markets classification
Markets

States

Primary

Rajasthan

Seconda Delhi, Punjab, Jammu and Kashmir, Haryana,

ry

Western U.P. and Uttaranchal

Tertiary

Gujarat, M.P. and Central U.P.

State

2006-07

2007-08

2008-09

Rajasthan

11.77%

20.36%

22.17%

Haryana

16.15%

19.03%

23.91%

Delhi

17.67%

17.94%

17.97%

Punjab

5.36%

7.32%

8.29%

U.P.

2.60%

3.98%

4.86%

Uttaranchal

7.32%

7.96%

10.13%

29

Expansion of Shree
The various units of Shree located across Northern India are:

UNIT - 1

Incorporated in 1979 at Bangur Nagar.

Put up in 1985.
Cement Production (Expected Production) 1.20 million tonnes

UNIT - 2

Put-up in 1997 at Bangur Nagar.

30

Cement Production (Expected Production) 2.10 million tonnes

UNIT 3

Incorporated in 2005 at Ras.

Cement Production (Expected Production) 1.50 million tonnes

UNIT 4

Located in Ras.
Cement Production (Expected Production) 1.50 million tonnes

UNIT - 5

Located in Ras (Construction Work in Progress).

For Clinker production only.
A grinding unit at Kuskhera in Rajasthan, to be started by September, 2007

Unit - 6

Located in Ras (Construction Work in Progress).

Production to start in 2008-09.

31

MULTIPLE COMPETITIVE BRANDS

Incisive execution of Shrees multiple competitive brand strategy has been
delivering results along anticipated lines. Consistency in brand strategy is helping
Shree to sustain its brands having lasting impression among its consumers.
The steady growth in Shrees volume especially year-on year in the last two
fiscals, testifies to the effectiveness of its multi brand marketing strategy.

32

SHREE ULTRA
Launched in 2002, Shree Ultra was the companys first brand, the first
manifestation of Shrees strategic move from commodity to brand marketing.
Its generic OPC version has been joined by a variant, Shree Ultra Jung Rodhak, on
the functional differentiator of rust prevention. Together two variance have made
Shree Ultra the flagship brand of the company, contributing half of the Shrees
total sales.
The brand was launched with powerful media and promotional support, the
imaginative advertising and the momentum has clearly sustained its growth over
time.
Today it is present all of Shree Cements market territories. In 07-08 it chalked up
its highest volumes in the home market of Rajasthan, and in the NCR, the main
focus of the construction boom in north India.
Overall, Shree Ultra volumes reflect its acceptance by professional influencers.
Which in turn facilities acceptance by domestic consumers. Their support, as well
as sustained local promotions, has helped to improve brand recall, and prepared
the ground for fresh initiatives in the market place.

BANGUR CEMENT
Bangur Cement was launched in 2006 as a premium brand, competitive with best
in the market designed to full fill user aspiration for high quality construction; the
brand tagline reflects its promise of top-of-market value: Sasta Nahi, Sabse
Achcha.
Given the premium profile design for it the brand is supported by a matching
network of business partners and business associates carefully selected for the
track record in selling to high end market segment.
Its early successes are founded on a two tier marketing and distribution
programme. At one level Shrees field forts takes the trades in to the confident
with transparent terms and tested and proven promotional offerings.
On a more exclusive level, it deploys special teams of highly professional
technical sales experts t conduct direct, one on one interaction with opinion
builders and influencers if high standing among the fraternity of respected
construction space list.

33

Bangur Cement has achieved 95% of its total sales in the trade segment. It has
made selective penetration in both urban and rural markets. Bangur cement
maintained its zero outstanding status in this year as well.

TUFF CEMENTO
This is the latest brand offering from Shree Cement, directed at a highly
competitive niche market, with aggressive and establish competitors.
It has been position as rock strong- on the promise of high performance, able to
withstand exceptionally harsh environmental conditions.
Launched in the first month of the year under review, Tuff Cemento was able to
secure a network of the 1000 dynamic and resourceful dealers in a record time of
about four months.
The brand is consolidated its position in the market, and the making further
headway in Rajasthan, Delhi, Haryana, parts of south Punjab and Western U.P.
While its current status would otherwise be regarded as reasonable. Tuff
Cemento

has an altogether more ambitious agenda: to be aggressively

competitive and become a leading brand in the coming months, and to enable
Shree Cement to achieve the maximum possible combined market share in its
market.

POLICIES:
Quality Policy:

34

To provide products conforming to national standards and meeting

customers requirements to their total satisfaction.

To continually improve performance and effectiveness of quality

management system by setting and reviewing quality objectives for:

Customer Satisfaction

Cost Effectiveness

Energy Policy:

To reduce to the maximum extent possible the consumption of energy

without imparting productivity which should help in:

Increase in the profitability of the company

Conservation of Energy

Reduction in Environmental pollution at energy producing areas Since

Energy is Blood of Industry, It is the responsibility of all of us to utilize
energy effectively and efficiently

Environment Policy:
To ensure :

Clean, green and healthy environment

Efficient use of natural resources, energy, plant and equipment

Reduction in emissions, noise, waste and greenhouse gases

Continual improvement in environment management

Compliance of relevant environmental legislation

Water Policy:

To provide sufficient and safe water to people & plant as well as to conserve
water, we are committed to efficient water management practices viz,

Develop means & methods for water harvesting

Treatment of waste discharge water for reuse

Educate people for effective utilization and conservation of water

Water audit & regular monitoring of water consumption

Health & Safety Policy:

To ensure good health and safe environment for all concerned by:
35

Promoting awareness on sound health and safe working practices

Continually improving health and safety performance by regularly setting

and reviewing objectives & Targets

Identifying and minimizing injury and health hazards by effective risk

control measures

Complying with all applicable legislations and regulations

Human Resource Policy:

We at Shree Cement are committed to

Empower People

Honour individuality

Non discrimination in recruitment process

Develop Competency

Employees shall be given enough opportunity for betterment

None of the person below the age of 18 years shall be engaged to work

Incidence of Sexual Harassment shall be viewed seriously

Statute enacted shall be honoured in letter & spirit & standard Labour
Practices shall be followed. Every employee shall be accountable to the law
of the land & is expected to follow the same without any deviation

Management will appreciate observance of Business ethics & professional

code of conduct

To follow safety & Health. Quality, Environment, Energy Policy

IT Policy:
To provide a robust IT platform suitable to the business processes and integrated
management practices of the company, resulting into better speed, efficiency,
transparency, internal controls and profitability of business

Company Performance & Awards:

Awards & Recognitions received in 07-08

Golden Peacock Awards for excellence Environment Management Practices.

36

Golden Peacock Awards for excellence in Corporate Governance in

manufacturing sector.

Greentech Environment excellence Gold Awards for excellent Environment

Management Practices.

National award for excellence in Water Management as Water efficient

Unit by CII, 2007.

National award for Energy Conservation by Bureau of Energy Efficiency.

Trade and Non-Trade Networks

There are two types of Networks: Trade and Non-trade
a) Non-trade Network
Non-trade Network:
Govt. Non-trade
-

for govt infrastructure

building
- Govt. Housing Projects
- Railways
- Airports
- Cement Roads
- Bridges
- Dams
- Canals
These are all bulk requirements

Private Non-trade
-

for Group housing / retail

housing
contractors projects on
behalf of govt.
Any industrial projects
taken up by the private
sector like bridges, roads
etc.

b) Trade Network
Company

Handling Agent

Stockiest

Retailers

Consumers

37

Advertising
Need for Advertising

Cement

has evolved into a highly commoditized product category. Due to

competitive pricing within the industry, there was not much differentiation
among the various brands on offer.

People too did not pay much attention to this product unless there was a need.
Hence people who were currently making their houses or were soon to embark
on such a project became the target market.

Because

of the product being commoditized, there was a need for

differentiation for which there was made some changes in the form of the
product.
Shree Cement ltd. was not advertising its products past few years but looking at
the competitive market and opportunities ahead it introduced a new ad campaign
which was targeted to differentiate its product from other cement brands. It
introduced an ad campaign showing the anti rusting capability of the Red Oxide
Cement of the company. But still the presence of the company has not been so
intense as other brands have like Ambuja and Grasim etc.

SWOT Analysis for Shree Cement:

Strengths

Focused strategy

Lowest cost producer of cement in north India

A secure source of raw materials

High penetration in Govt. projects

Largest single plant capacity in India

Shree power plant , which is producing electricity enough for Ras plant

Weaknesses

Less dealer incentives as compared to its competitors

Colour of the cement has not been perceived greatly, green colour was
preferred the most
38

Poor advertising and brand promotion

Opportunities

Real estate boom will lead to increased demand

International expansion

Demand from Pakistan side

Reduction in customs duties

Governments thrust on infrastructure and tax incentives on housing loans

Threats

Increased competition from domestic as well as international players

Rising input (oil) prices

Sales highly dependent on monsoons

Growth of counterfeits

Creating Multiple Brands To Increase Market Share

Company wanted to increase its share in the more remunerative markets.
Rajasthan and Haryana are the markets where Shree have high realisation. They
realized that a single brand has limited potential for faster increase in market
share in these markets. This because there are limits to the volume that a
distribution and retail network could handle. Thus there was a requirement for
increasing distribution network in these markets. To alleviate this, they studied
the brand strategy of a fast moving Consumer Goods Company. This company
had multiple brands for soaps. Each brand had a unique products differentiation
property. All bands were competing with each other. The marketing teams,
distribution channel and logistics were all different for each brand. They found
the same model could be applied in cement business as well. They realized that
they can also achieve their objective by introducing another brand in the market.
The new brand would have its own marketing strategy, distribution network and
penetration. It required deployment of almost twice the quantum of resources to
sustain two brands in the markets. An altogether new marketing team, additional
advertising cost, another set of storage and distribution logistics like godowns
and offices, thus all such costs were doubling. Yet, Shree Cement chose to go
ahead and launched Bangur Cement in 2006. The result, market share in
39

Rajasthan almost doubled in just one year. In Haryana it rose by almost 50

percent.
Encouraged by the success of having two brands, we decided to launch a third
brand-Tuff Cemento. With three brands we have further consolidated our position
in the market. Today Shree have three brands in the same market: Shree Ultra,
Bangur Cement and Tuff Cemento.
Each of these brands has been built on a unique product promise.
As a result of multiple brand strategy Companys market shares have shown
appreciable growth, as demonstrated below:

Eforts made to maintain three brands

Independent marketing team

Separate distribution and retail network

Separate storage and logistics supports

Higher advertisement cost

Achievements by maintaining three brands

Higher Dealer Density

Higher market share

Better Realisation

Lower logistics cost

SUCCESS DRIVERS AT SHREE

PEOPLE AS PROGRESS DRIVERS
Shree believes that what is present in the minds of people is more valuable
than
the assets on the shop floor. All the companys initiatives are directed to
leverage
the value of this growing asset.
40

TEAMWORK
Shree leverages effective team working to generate a sustainable
improvement.

LEADERS AT EVERY LEVEL

Shree believes in creating leaders -not just at the organizational apex but at
every
level, resulting in a strong sense of emotional ownership.

CULTURE OF INNOVATION
Shree believes that what is good can be made better -across the organization.

CUSTOMER FOCUS
Shree is committed to deliver a superior quality of cement at attractively
Affordable prices.

SHAREHOLDER VALUE
Shree is focused on the enhancement of value through a number of strategic
and business initiatives that generate larger and a better quality of earnings.

COMMUNITY AND ENVIRONMENT

Shrees community concern extends from direct assistance to safe and
dependable operations for its members and the environment.

LOWEST COST OF PRODUCTION

Its cost of production is around Rs.860 per ton, making it the lowest cost
cement
producer in India.

ENERGY EFFICIENT PRODUCER

Shree Cement is one of the most power efficient units in the country with a
power
41

consumption of 75 units per ton. The Company sources 100% of power

requirement
from its captive power plants.
The company has existing power plant capacity of 42 MW. The company is
installing additional power plant of 18 MW capacity, which would supply power
to
its new cement units, thus ensuring self-sufficiency.

ALTERNATE FUEL IN PET COKE

The Companys captive power plant as well as cement plants runs on alternate
fuel, i.e., pet coke, the first in India to do so. Until recently, it was obtaining pet
coke domestically from Reliance Industries Ltd., Jamnagar refinery. Imported
pet
coke and the future plan to source it from Panipat refinery of IOCL will further
bring
down costs by around Rs.300 per tonne.
INCREASED BLENDING
SCL is continuously trying to improve the ratio of sale of blended cement (ROC)
to
50:50 very soon. Although cost of production is lower because of addition of
cheap fly-ash, it commands higher prices due to rust-retarding properties.

CEMENT MANUFACTURING
Raw Material Preparation
Limestone of differing chemical composition is freely available in the quarries.
This limestone is carefully blended before being crushed. Red mineral is added to
the limestone at the crushing stage to provide consistent chemical composition of
42
Fig 2: Limestone Extraction

the raw materials. Once these materials have been crushed and subjected to
online chemical analysis they are blended in a homogenized stockpile. A bucket
wheel reclaimer is used to recover and further blend this raw material mix before
transfer to the raw material grinding mills.

Raw Mill
Transport belt conveyor transfers the blended raw materials to ball mills where it
is ground. The chemical analysis is again checked to ensure excellent quality
control of the product. The resulting ground and dried raw meal is sent to a
homogenizing and storage silo for further blending before being burnt in the
Fig 3: Kiln

Fig 3: Kiln

kilns.

Fuels
The heat required to produce temperatures of 1,800C at the flame is supplied by
ground and dried petroleum coke and/or fuel oil. The Petcoke is imported via the
companies' internal wharf, stored and then ground in dedicated mills. Careful
control of the mills ensures optimum fineness of the Petcoke and excellent
combustion conditions within the kilns system.

Burning
The raw meal is fed into the top of a pre-heater tower equipped with four cyclone
stages. As it falls, the meal is heated up by the rising hot gases and reaches
800C. At this temperature, the meal dehydrates and partially decarbonizes. The
meal then enters a sloping rotary kiln, which is heated by a 1,800C flame, which
completes the burning process of the meal. The meal is heated to a temperature
of at least 1,450C. At

this temperature the chemical changes required to

produce cement clinker are achieved. The dry process kiln is shorter than the wet
process kiln and is the most fuel-efficient method of cement production available.

Cooler Unit
The clinker discharging from the kiln is cooled by air to a temperature of 70C
above ambient temperature and heat is recovered for the process to improve fuel
efficiency. Some of the air from the cooler is de-dusted and supplied to the coal
grinding Plant. The remaining air is used as preheated secondary air for the main
43

combustion burner in the kiln. Clinker is analyzed to ensure consistent product

quality as it leaves the cooler. Metal conveyors transport the clinker to closed
storage areas.

Filters
Dedicated electrostatic precipitators dedust the air and gases used in the Clinker
Production Line Process. In this way, 99.9% of the dust is collected before venting
to the atmosphere. All dust collected is returned to the process.

Constituents
Different types of cement are produced by mixing and weighing proportionally
the following constituents:

Clinker

Gypsum

Limestone addition

Blast Furnace Slag

44

Fig 7: Cement manufacturing from the quarrying of limestone to the

bagging of cement.

Future Outlook for the Sector

Demand to accelerate faster with the start of construction
season
The domestic cement demand in the country is likely to accelerate faster in the
remaining part of year 2007 with the start of construction season. During 2007
good summer is expected that will be positive environment for construction
activities. The construction activities are expected to speed up as and when dip
in cold waves. With rise in construction activities volumes demand for cement is
expected to grow 10% during 2007-08.

Expected Installed Cement Capacity

Demand to surpass supply till FY08 as Robust demand

ahead
Cement demand growth is likely to surpass supply till 2008 as major capacity
addition is expected to be get streamlined after 15 months from now. During
2007-08, capacity to the extent of 22m tonnes will get streamlined.
45

Demand for 2007-08 is likely to increase by 12-15m tonnes, registering a growth

of 10-12% on YoY basis. Going further, capacity to the tune of 19m tonnes is
likely to be streamlined during FY08. The capacity additions that will take place in
2008 are likely to ease the ongoing demand-supply mismatch. Cement demand is
likely to cross 200m tonne-mark by 2010 from the current level of 160m tonnes.
Demand for cement is likely to witness growth of 8%- 10% for next five years.
Thanks to boom in housing, retail and infrastructure sectors shall fuel demand for
cement.

Demand to continues be driven by housing and infrastructure

Indias rising population has created demand for houses, both new as well as
replacement ones. The main factors driving housing industry are raising
urbanisation, rising disposable income, decline in average household and
comparatively lower interest rates. The top most item in Indian governments
agenda for achieving 10% growth is to build a strong infrastructure. The
government has planned an investment of US$350bn in 11th five year plan. The
major share of amount is to be mobilized by government either through
budgetary support or via corporate investment from public sector units.

46

Region wise Capacity Addition

Business & Managerial Challenges

Cement market is highly competitive with major players having advantage of
brand equity, capacity and early movers. The major players are Binaani, Birla
(with products like Birla Super and Birla Chetak), Grasim (with products like
Vikram and Birla Plus), Gujarat Ambuja, JK (with products like JK Nimbahera),
Laxmi, Mangalam (with products like Mangalam and Birla Uttam), ACC, DCM
Shriram, L & T and Kamdhenu. Each of these players has their dominance across
whole Rajasthan in addition to their respective regional dominance.
Another issue is that the product (cement) cannot be differentiated clearly on the
basis of quality and hence, cost plays one of the most important role in this
industry. If the company can control cost of manufacturing & distribution, then
not only would profitability of the company increase, but this benefit would also
trickle down to the customers.
Logistics is the most important cost associated with cement industry. This is the
single most important reason for strong dominance of all cement companies in in
the regions around their factory. But if this system can be improved upon, and
costs can be managed, then Shree Cements Ltd. can strengthen their hold in

47

present states of distribution as well as look forward to gaining foothold in newer

and farther regions.

Risk and Return of Cement Companies

General Risk Factors

Economic Conditions - The performance of cement companies may

be significantly affected by changes in economic conditions, and
particularly conditions which affect the cement industry, its top consumers.
These industries include the real estate sector and construction companies.
Profitability of the business may also be affected by factors such as market
conditions, interest rates, and inflation.

Geo-political Factors The companies may be affected by the impact

that geo-political factors have on the world economy or on financial
markets and investments generally or specifically. These include the
demand for cement from China, and other export destinations.

Government policies and legislation The companies may be

affected by changes to government policies and legislation, including those
relating to the real estate and construction industry in addition to the
cement sector. Taxation and the regulation of trade practices and
competition. In recent times there has been an attempt by the government
to control the price of cement by changing the tax structure. Such attempts
could cause price instability and hit on margins.
48

Currency Risk: The recent appreciation of the Indian rupee is going to

be a major hindrance to export to other countries especially china as well
as other nations. Currency risk represents a major issue facing exports
however the risk is currently less due to the robust demand for cement in
the domestic economy. However with addition to plant capacity and
increase in volume of production, such a risk would prove to be a major
challenge.

PROJECT PROFILE
Given the capital budgeting of a firm, it has to be deciding the way in
which the capital projects will be financed. Every time the firm makes an
investment decisions, it is at the same time making a decision also, E.g. a
decision to a build a new plant or to buy a new machine implies specific way of
financing that project. Should a firm employ equity or debt or both? what are
implications of the debt Equity mix ?what is an appropriate mix of debt and
equity ?
COST OF CAPITAL
The main objective of a business firm is to maximize the wealth of its
shareholders in the long-run, the Management Should only invest in those
projects which give a return in excess of cost of fund invested in the project of the
business. The difficulty will arise in determination of cost of funds, if is raised
from different sources and different quantum. The various sources of funds to the
company are in the form of equity and debt. The cost of capital is the rate of
return the company has to pay to various suppliers of fund in the company. There
are main two sources of capital for a company shareholder and lender. The cost
of equity and cost of debt are the rate of return that need to be offered to those
two groups of suppliers of capital in order to attract funds from them. The cost of
49

capital is an expected return that the provider of capital plans to earn on his
investment.
Cost of Debt is computed by taking the rate on a non defaulting
bond whose duration matches the term structure of the corporate debt than
adding a default premium. This default premium will rise as the amount of debt
increase ( since the risk rises as the amount of debt rises).
The primary function of every financial manager is to arrange adequate capital
for the firm. A business firm can raise capital from various sources such as equity
and or preference shares, debentures, retain earning etc. This capital is invested
in different projects of the firm for generating revenue. On the other hand, it is
necessary for the firm to pay a minimum return to each source of capital.
Therefore, each project must earn so much of the income that a minimum return
can be paid to these sources or supplier of capital. What should be this minimum
return? The concept used to determine this minimum return is called Cost of
Capital.

CONCEPT OF COST OF CAPITAL

Cost of capital is the measurement of the sacrifice made by investors in order to

invest with a view to get a fair return in future on his investments as a reward for
the postponement of his present needs. On the other hand form the point of view
of the firm using the capital, cast of capital is the price paid to the investor for the
use of capital provided by him. Thus, cost of capital is reward for the use of
capital. Author Lutz has called it BORROWING AND LANDING RATES. The
borrowing rates means the rate of interest which must be paid to obtained and
use the capital. Similarly, landing rate is the rate at which the firm discounts its
profits. It may also the opportunity cost of the funds to the firm i.e. what the firm
would earn by investing these funds elsewhere. In practice the borrowing rates
used indicate the cost of capital in preference to landing rates.
Technically and Operationally, the cost of capital define as the minimum
rate of return a firm must earn on its investment in order to satisfy investors and
to maintain its market value. I.e. it is the investors required rate of return. Cost of
50

capital also refers to the discount rate which is used while determining the
present value of estimated future cash flows. In the other word of John J.
Hampton, The cost of capital is the rate of return in the firm requires
from investment in order to increase the value of firm in themarket
place. For example if a firm borrows Rs. 5 crore at an interest of 11% P.A., then
the cost of capital is 11%. Hear its the essential for the firm to invest these Rs. 5
Crore in such a way that it earn at least Rs. 55 lacks i.e. rate of return at 11%. If
the return less then this, then the rate of dividend which the share holder are
receiving till now will go down resulting in a decline in its market value thus the
cost of capital is the reward for the use capital. Solomon Ezra, has called It the
minimum required rate of return or the cut of rate for capital expenditure.

FEATURES OF COST OF CAPITAL

It is not a cost in reality the cost of capital is not a cost as such, but its rate of
return which it requires on the projects.

MINIMUM RATE OF RETURN:

Cost of capital is the minimum rate of return a firm is required in order to
maintain the market value of its equity shares.

REWARDS FOR RISKS

Cost of capital is the reward for the business and financial risk. Business risks is
the measurement of variability in profits due to changes un sales, while financial
risks depends on the capital structure i.e. that equity mix of the firm.

SIGNIFICANCE OF CONCEPT OF COST OF CAPITAL

51

The cost of capital is very important concept in the financial decision making. The
progressive management always likes to consider the cost of capital while taking
financial decisions as its very relevant in the following spheres...
1. Designing the capital structure: the cost of capital is the significant factor in
designing a balanced an optimal capital structure of a firm. While designing
it, the management has to consider the objective of maximizing the value
of the firm and minimising cost of capita. I comparing the various specific
costs of different sources of capital, the financial manager can select the
best and the most economical source of finance and can designed a sound
and balanced capital structure.
2. Capital budgeting decisions: the cost of capital sources as a very useful tool
in the process of making capital budgeting decisions. Acceptance or
rejection of any investment proposal depends upon the cost of capital. A
proposal shall not be accepted till its rate of return is greater then the cost
of capital. In various methods of discounted cash flows of capital budgeting,
cost of capital measured the financial performance and determines
acceptability of all investment proposals by discounting the cash flows.

3. Comparative study of sources of financing: there are various sources of

financing a project. Out of these, which source should be used at a
particular point of time is to be decided by comparing cost of different
sources of financing. The source which bears the minimum cost of capital
would be selected. Although cost of capital is an important factor in such
decisions, but equally important are the considerations of retaining control
and of avoiding risks.
4. Evaluations of financial performance of top management: cost of capital
can be used to evaluate the financial performance of the top executives.
Such as evaluations can be done by comparing actual profitability of the
project undertaken with the actual cost of capital of funds raise o finance
the project. If the actual profitability of the project is more then the actual
cost of capital, the performance can be evaluated as satisfactory.

52

5. Knowledge of firms expected income and inherent risks: investors can know
the firms expected income and risks inherent there in by cost of capital. If a
firms cost of capital is high, it means the firms present rate of earnings is
less, risk is more and capital structure is imbalanced, in such situations,
investors expect higher rate of return.
6. Financing

and

Dividend

Decisions:

the concept

of

capital

can

be

conveniently employed as a tool in making other important financial

decisions. On the basis, decisions can be taken regarding dividend policy,
capitalization of profits and selections of sources of working capital.

CLASSIFICATION OF COST OF CAPITAL

1. Historical Cost and future Cost
Historical Cost represents the cost which has already been incurred for
financing a project. It is calculated on the basis of the past data. Future cost
refers to the expected cost of funds to be raised for financing a project.
Historical costs help in predicting the future costs and provide an
evaluation of the past performance when compared with standard costs. In
financial decisions future costs are more relevant than historical costs.

2. Specific Costs and Composite Cost

Specific costs refer to the cost of a specific source of capital such as equity
share. Preference share, debenture, retain earnings etc. Composite cost of
capital refers to the combined cost of various sources of finance. In other
words, it is a weighted average cost of capita. It is also termed as overall
costs of capital. While evaluating a capital expenditure proposal, the
composite cost of capital should be as an acceptance/ rejection criterion.
When capital from more than one source is employed in the business, it is
the composite cost which should be considered for decision-making and not
the specific cost. But where capital from only one source is employed in the

53

business, the specific cost of those sources of capital alone must be

considered.
3. Average Cost and Marginal Cost
Average cost of capital refers to the weighted average cost of capital
calculated on the basis of cost of each source of capital and weights are
assigned to the ratio of their share to total capital funds. Marginal cost of
capital may be defined as the Cost of obtaining another rupee of new
capital. When a firm raises additional capital from only one sources (not
different sources), than marginal cost is the specific or explicit cost.
Marginal cost is considered more important in capital budgeting and
financing decisions. Marginal cost tends to increase proportionately as the
amount of debt increase.

4. Explicit Cost and Implicit Cost

Explicit cost refers to the discount rate which equates the present value of
cash outflows or value of investment. Thus, the explicit cost of capital is the
internal rate of return which a firm pays for procuring the finances. If a firm
takes interest free loan, its explicit cost will be zero percent as no cash
outflow in the form of interest are involved. On the other hand, the implicit
cost represents the rate of return which can be earned by investing the
funds in the alternative investments. In other words, the opportunity cost of
the funds is the implicit cost. Port field has defined the implicit cost as the
rate of return with the best investment opportunity for the firm and its
shareholders

that

will

be

forgone

if

the

project

presently

under

consideration by the firm were accepted. Thus implicit cost arises only
when funds are invested somewhere, otherwise not. For example, the
implicit cost of retained earnings is the rate of return which the shareholder
could have earn by investing these funds, if the company would have
distributed these earning to them as dividends. Therefore, explicit cost will
arise only when funds are raised whereas implicit cost arises when they are
used.

Assumption of Cost of Capital:

54

While computing the cost of capital, the following assumptions are made:

The cost can be either explicit or implicit.

The financial and business risks are not affected by investing in

new investment proposals.

The firms capital structure remains unchanged.

Cost of each source of capital is determined on an after tax

basis.

Costs of previously obtained capital are not relevant for

computing the cost of capital to be raised from specific source.

Computation of specific costs

A firm can raise funds from different sources such as loan, equity shares,
preference shares, retained earnings etc. All these sources are called components
of capital. The cost of capital of these different sources is called specific cost of
capital. Computation of specific cost of capital helps in determining the overall
cost of capital for the firm and in evaluating the decision to raise funds from a
particular source. The computation procedure of specific costs is explained in the
pages that follow

COST OF DEBT CAPITAL

Cost of Debt is the effective rate that a company pays on its current debt.
This can be measured in either before- or after-tax returns; however, because
interest expense is deductible, the after-tax cost is seen most often. This is one
part of the company's capital structure, which also includes the cost of equity.

55

Much theoretical work characterizes the choice between debt and equity, in
a trade-off context: Firms choose their optimal debt ratio by balancing the
benefits and costs. Traditionally, tax savings that occur because interest is
deductible while equity payout is not have been modeled as a primary benefit of
debt. Large firms with tangible assets and few growth options tend to use a
relatively large amount of debt. Firms with high corporate tax rates also tend to
have higher debt ratios and use more debt incrementally. A company will use
various bonds, loans and other forms of debt, so this measure is useful for giving
an idea as to the overall rate being paid by the company to use debt financing.
The measure can also give investors an idea as to the riskiness of the company
compared to others, because riskier companies generally have a higher cost of
debt.
Cost of Debt is computed by taking the rate on a non defaulting bond whose
duration matches the term structure of the corporate debt than adding a default
premium . This default premium will rise as the amount of debt increase( since
the risk rises as the amount of debt rises).

Example-: If a company issues 12% debentures worth Rs. 5 lacs of Rs. 100 each
at par, then it must be earn at least Rs.60000(12% of Rs. 5 lacs) per year on this
investment to maintain the income available to the shareholders unchanged.

If the company earnws less than this interest rate (12%) than the income
available to the shareholders will be redused and the market value of the share
will go down. Therefore, the cost of debt capital is the contractual interest rate
adjusted further for the tax liability of the firm. But, to know the real cost of debt,
the relation of the interest rate is to be established with the actual amount
realised or net proceeds from the issue of debentures.

56

To get the after-tax rate, you simply multiply the before-tax rate by one minus the
marginal tax rate.
Cost of Debt = (before-tax rate x (1-marginal tax))
The before tax rate of interest can be calculated as below:
= Interest Expense of the company
100
---------------------------------------Total Debt

Net Proceeds:
1. At par
2. At premium
3. At Discount

= Par value Floatation cost

= Par value + Premium Floatation cost
= Par value Discount Floatation cost

COST OF PREFERENCE SHARE CAPITAL

Preference share is another source of Capital for a company. Preference Shares
are the shares that have a preferential right over the dividends of the company
over the common shares. A preference shareholder enjoys priority in terms of
repayment vis--vis equity shares in case a company goes into liquidation.
Preference shareholders, however, do not have ownership rights in the company.
In the companies under observation only India Cement has preference shares
issued.

Cost of Preference Capital = Preference Dividend/Market Value of

Preference
Shree Cement has not paid any dividend to the Preference Shareholders. Thus
the Cost of Preference Capital is 0 (Zero).

COST OF EQUITY SHARE CAPITAL

57

1. The computation of cost of euity share capital is relatively difficult

because neither the rate of dividend is predetermind nor the payment of
dividend is legally binding, therefore, some financial experts hold the opinion
the p.s capital does not carry any cost but this is not true. When additional
equity shares are issued, the new equity share holders get propranate share
in future dividend and undistributed profits of the company. If reduces the
earning per shares of excisting share holders resulting in a fall in marker
price of shares. Therefore, at the time of issue of new equity shares, it is the
duty of the management to see that the company must earn atleast so much
income that the market price of its existing share remains unchanged. This
expected minimum rate of return is the cast of equity share capital. Thus,
cost of equity sahre capital may be define as the minimum rate of return that
a firm must earn on the equity financed portion of a investment- project in
order to leave unchanged the market price of its shares. The cost of equity
can be computed by any of the following method:
1.

Dividend yield method:

Ke = DPS\mP*100
Ke= cost of equity capital
Dps= current cash dividend per share
Mp=current market price per share

2.

Earning yield method:

Ke= EPS\mp*100
Eps= earning per share

3.

Divideng yield plus growth in dividend method:

While computing cost of capital under dividend yield(d\p ratio)method, it had
been asumend that present rate of dividend will remail the same in future also.
But, if the management estimates that companies prestnet dividend will
58

increased continuisly for the year to come, then adjustment for this increase is
essential to compute the cost of capital.
The growth rate in dividend is assumed to be equal to the growth rate in earning
per share. For example if the EPS increase at the rate of 10% per year, the DPS
and market price per share would show an increase at the rate of 10%. Therefore,
under this method, cost of equity capital is computed by adjusting the present
rate of dividend on the basis of expected future increase in companys earning.
Ke= DPS\MP*100+G
G= Growth rate in dividend.
4. Realised yield method:
In case where future dividend and market price are uncertain, it is very difficult to
estimate the rate of return on investment. In order to overcome this difficulty, the
average rate of return actually relise in the past few year by the investors is used to
determine the cost of capital. Unddr this method, the realised yield is discounted at
the present value factor, and then compare with value of investment this method is
based on these assumptions.
The companys risk doe not change i.e. dividend and growth rate are stable.
The alternative investment opportuinities, elsewhere for the investor, yield the
return which is equal to realised yields in the company, and The market of equity
share of the company does not fluctuate widly.

Cost of newly issued equity shares

when new equity share are issued by a company, it is not possible to realise the
market price per share, because the company has to incur some expenses on
new issue, including underwriting commission, brokerage etc. so, the amount of
net proceeds is calculated by deducting the issue expenses form the expected
market value or issue price. To ascertain the cost of capital, dividend per share or
EPS is divided by the amount of net proceeds. Any of the following formulae may
be used for this purpose:
59

Ke= DPS\NP*100
Or
Ke= EPS\NP*100
Or
Ke=DPS\NP*100+G

COST OF RETAIN EARNINGS OR INTERNAL EQUITY:

Generally, compnays do not distribute the entire profits by way of dividend
among their share holders. A part of such profit is reatianed for future expantion
and development. Thus year by year, companies create sufficiant fund for the
fianancing thrugh internal sources. But , nether the company pays any cost nor
incur any expenditure for such funds. Therefore, it is assumed to cost free capital
that is not true. Though ratain earnings like retained earnings like equity funds
have no explicit cost but do have opportunity cost. The opportunity cost iof
retained earnings is the income forgone by the share holders. It is equal to the
income what a share holders culd have earn otherwise by investing the same in
an alternative investment, If the company would have distributed the earnings by
way of dividend instead of retaining in the busieness. Therefore , every share
holders expects from the company that much of income on ratined earnings for
which he is deprived of the income arising o its alternative investment. Thus,
income forgone or sacrifised is the cost of retain earnings which the share holders
expects from the company.

WEIGHTED AVERAGE COST OF CAPITAL

Once the specific cost of capital of the long-term sources i.e. the debt, the
preference share capital, the equity share capital and the retained earnings have
been ascertained, the next step is to calculate the overall cost of capital of the
firm. The capital raised from various sources is invested in different projects. The
60

profitability of these projects is evaluated by comparing the expected rate of

return with overall cost of apital of the firm. The overall cost of capital is the
weighted average of the costs of the various sources of the funds, weights being
the proportion of each sources of funds in the total capital structure. Thus,
weighted average as the name implies, is an average of the cost of
specific sources of capital employed in the business properly weighted
by the proportion they held in firms capital structure. It is also termed as
Composite Cost of Capital or Overall Cost of Capital or Average Cost of
Capital. Weighted average cost of capital as used in Finance to measure a firms
cost of capital .The total capital of a firm is the value of its equity plus the cost of
its debt. Notice:-That the equity in the debt to equity ratiois the market value of
all equity not the shareholders equity on the balance-sheet.

WEIGHTED AVERAGE, How to calculate ?

Calculation of the Weighted awerage cost of capital is an iterative procedure
which requires estimation of the fair market value of equity capital .
Though, the concept of weighted average cost of capital is very simple. Yet there
are many problems in its calculation. Its computation requires :
1. Assignment of Weights : First of all, weights have to be assigned to each
source of capital for calculating the weighted average cost of capital.
Weight can be either book value weight or market value weight. Book
value weights are the relative proportion of various sources of capital to the
total capital structure of a firm. The book value weight can be easily
calculated by taking the relevant information from the capital structure as
given in the balance sheet of the firm. Market value weights may be
calculated on the basic on the market value of different sources of capital
i.e. the proportion of each source at its market value. In order to calculate
the market value weights, the firm has to find out the current market price
of each security in each category. Theoretically, the use of market value
weights for calculating the weighted average cost of capital is more
appealing due to the following reasons:

The market values of securities are closely approximate to the actual

amount to be received from the proceeds of such securities.
61

The cost of each specific source of finance is calculated according to

the prevailing market price.

But, the assignment of the weight on the basic of market value is

operationally inconvenient as the market value of securities may frequently
fluctuate. Moreover, sometimes, no market value is available for the
particular type of security, specially in case of retained earnings can
indirectly be estimated by

Gitmans

method. According to him, retained

earnings are treated as equity capital for calculating cost of specific sources
of funds. The market value of equity share may be considered as the
combined market value of both equity shares and retained earnings or
individual market value (equity shares and retained earnings) may also be
determined by allocating each of percentage share of the total market
value to their respective percentage share of the total values.
For example:- the capital structure of a company consists of 40,000
equity shares of Rs. 10 each ad retained earning of Rs. 1,00,000. if the
market price of companys equity share is Rs. 18, than total market value of
equity shares and retained earnings would be Rs. 7,20,000 (40,000* 18)
which can be allocated between equity capital and retained earnings as
followsMarket Value of Equity Capital = 7,20,000*4,00,000/5,00,000
=Rs. 5,76,000.
Market Value of Retained Earnings= 7,20,000*1,00,000/5,00,000
=Rs. 1,44,000.

2. Computation of Specific Cost of Each Source :

After assigning the weight; specific costs of each source of capital, as
explained earlier, are to be calculated. In financial decisions, all costs are
62

after tax costs. Therefore, if any source has before tax cost, it has to be
converted in to after tax cost.

3. Computation of Weighted Cost of Capital :

After ascertaining the weights and cost of each source of capital, the
weighted average cost is calculated by multiplying the cost of each source
by its appropriate weights and weighted cost of all the sources is added.
This total of weighted costs is the weighted average cost of capital. The
following formula may be used for this purpose :
Kw = XW/W
Here; Kw = Weighted average cost of capital
X = After tax cost of different sources of capital
W = Weights assigned to a particular source of capital
Example : Following information is available with regard to the capital structure
of ABC Limited :
Sources of Funds

Amount(Rs.)

After tax cost of Capital

E.S. Capital

3,50,000

.12

Retained Earning

2,00,000

.10

P.S. Capital

1,50,000

.13

Debentures

3,00,000

.09

You are required to calculate the weighted average cost of capital.

Computation of Weighted Average Cost of Capital

Source

Amount

Weights

Rs.
(1)
E.S. Capital
Retained

(2)
3,50,000
2,00,000

After tax

Weighted

Cost

Cost

(4)

(5)= (3) *

(3)
.35
.20

.12
.10

(4)
.0420
.0200
63

Earning
P.S. Capital
Debentures
Total

1,50,000
3,00,000
10,00,00

.10
.09
1.00

.13
.09

.0195
.0270
.1085

0
Weighted Average Cost of Capital
(WACC)

.10850 or
10.85%

CALCULATION OF COST OF CAPITAL OF SHREE CEMENT LTD:

Cost of Debt Capital:
For the year 2007-08:
Total Debt Capital = Term loan from Banks + Debts
= 112573.18 + 800 = 113373.18 lacs
Total Interest Paid = 9636.72 lacs
Tax Rate

= 30%
Interest Expense of the company

Kd (before tax)

--------------------------------------------

100

Total Debt
9636.72
Kd (before tax)

----------------------

100

8.50%
113373.18
Kd (after tax)
Kd (after tax)

Interest Rate Before Tax Tax Rate ( 30%.)

=

8.50% - 30%

= 5.95%

For the year 2006-07

Total Debt Capital = Term loan from Banks + Debts
= 83427.02+1400 = 84827.02lacs
Total Interest Paid = 6573.02 lacs
64

Tax Rate

= 30%
6573.02

Kd (before tax)

----------------------

100

7.75%
84827.02
Kd (after tax)

7.75% - 30%

= 5.42%

For the year 2005-06

Total Debt Capital = Term loan from Banks + Debts
= 28617.33+2000= 30617.33lacs
Total Interest Paid = 2143.21lacs
Tax Rate

= 30%
2143.21

Kd (before tax)

-------------------

100

7%

30617.33
Kd (after tax)

7% - 30%

= 4.90%

COMPARATIVE CALCULATION OF Kd FOR THREE YEAR

Particular

2007-08

2006-07

2005-06
65

Total Debts (Term loan from 112573.1

83427.02

28617.33

Bank+Debts)

8+800

+1400

+2000

=113373.

=84824.0

=30617.3

Total Interest paid

18
9636.72

2
6573.86

3
2143.21

Interest Rate (Before Tax)

8.50%

7.75%

7%

Tax)= 5.95%

5.42%

4.90%

Interest

Rate

(After

Interest Rate Before Tax Tax

Rate 30%.

COST OF EQUITY CAPITAL:

EQUITY SHARE CAPITAL

Particular
No. of Shares

2006-07
348.73

2005-06
348.73

lacs)
DPS Given
8
Market Price (at the 1079.40

6
921.85

5
893.50

end of March)
Earning per equity 74.74

50.81

NA

share of rs. 10(in Rs.)

Proposed
final 2786.98

Not given

NA

321146.96

311270.61

dividend

on

2007-08
(In 348.37

equity

share (in lacs)

Market Capitalisation 376033.0
(in Lacs)

1. Dividend yield plus growth in dividend method:Ke = DPS\mP*100 + G

Dps = Current cash dividend per share

= 8 Rs.

Mp = Current market price per share

= 1079.40 Rs.

= Growth rate

= 10%
66

8
Ke

--------------------

100 + 10%

100

10.74%
1079.40
2. Earning yield method:Ke= EPS\mp*100
Eps = earning per share = 74.74 Rs.
Mp = Market prise

= 1079.40 Rs.
74.74

Ke

--------------------

6.92%
1079.40
3. Dividend per share method:Ke = Proposed final dividend on Equity Share / No. of
Equity Share
Proposed final dividend on Equity Share = 2786.98 Lacs
No. of Equity Share = 348.37 Lacs
2786.98
Ke
=

--------------------

8
348.37
COST OF EQUITY SHARE CAPITAL (KE)
Particular

2007-

Dividend Per share method

Earning Yeild Method
Dividend yield plus growth

08
8
6.92
10.74

method

67

WEIGHTED AVERAGE COST OF CAPITAL (WACC)

WACC = (We * Ke) + (Wd * Kd)
Where... We = Weight of equity
Wd = Weight of Debt.
Ke = Cost of Equity Share capital
Kd = Cost of Debt. capital
WACC =

(0.768 * 10.74) + (0.232 *5.95)

= 9.628%

WACC OF SHREE CEMENT LIMITED

Source

Amount

Weights

Rs.
(1)

(2)

(3)

After tax

Weighted

Cost

Cost

(4)

(5)= (3) *

E.S. Capital

376033.0

.768

10.74

Debentures

1
113373.1

.232

5.95

Total

8
489406.

1.00

19
Weighted Average Cost of Capital

(4)
8.248
1.379
9.628
9.628%

(WACC)

68

MERITS OF WEIGHTED AVERAGE COST OF CAPITAL

The WACC is widely used approach in determining the required return on a firms
investments. It offers a number of advantages including the followings1. Straight forward and logical : It is the straightforward and logical
approach to a difficult problem. It depicts the overall cost of capital as the
some of the cost of the individual components of the capital structure. It
employs a direct and reasonable methodology and is easily calculated and
understood.
2. Responsiveness to Changing Condition : Since, it is based upon
individual debt and equity components; the weighted average cost of
capital reflects each element in the capital structure. Small changes in the
capital structure of the firm will be noted by small changes in overall cost of
capital of the firm.

3. Accurate when Profits are Normal: During the period of normal

profits, the weighted average cost of capital is more accurate as a cut-off
rate in selecting the capital budgeting proposals. It is because the weighted
69

average cost recognises the relatively low debt cost and the need to
continue to achieve the higher return on the equity financed assets.
4. Ideal Creation for Capital Expenditure Proposals : With the
help of weighted average cost of capital, the finance manager decides the
cut-off rate for taking decisions relating to capital expenditure proposals.
This cut-off rate determines the minimum limit for accepting an investment
proposal. If an investment proposal is accepted below this limit, the firm
incur a loss. Therefore, this cut-off rate is always decided above the
weighted average cost of capital.

LIMITATION OF WEIGHTED AVERAGE COST OF CAPITAL:

The weighted Average cost approach also has some weaknesses, important
among them are as follows:
1. Unsuitable in case of Excessive Low-cost Debts: Short term
loan can represent important sources of fund for firm experiencing financial
difficulties. When a firm relies on Zero cost (in the form of payables) or low
cost short term debt, the inclusion of such debts in the calculation of cost of
capital will result in a low WACC. If the firm accepts low-return projects on
the basic of this low WACC, the firm will be in a high financing risk.
2.

Unsuitable in Case of Low Profits : If a firm is experiencing a

period of low profits, not earning profit as compared to other firms in the
industry, WACC will be inaccurate and of limited value.

3. Difficulty in Assigning Weights : The main difficulty in calculating

the WACC is to assign weight to different components of capital structure.
Normally, there are two type of weights- (i) book value weights and (ii)
70

market value weight. These two type of weights give different results.
Hence, the problem is which type of weight should be assigned. Though,
market value is more appropriate than book value, but the market value of
each component of capital of a company is not readily available. When the
securities of the company are unlisted, the problem becomes more
intricate.
4. Selection of Capital Structure : The selection of capital structure
to be used for determining the WACC is also not easy job. Three types of
capital structure are there i.e. current capital structure, marginal capital
structure and optimal capital structure. Which of these capital structure be
selected. Generally, current capital structure is regarded as the optimal
structure, but it is not always correct.

CONCLUSION

These six weeks at SCL have proved to be a greatly influential in my academic

life. In fact it Can be stated as a turn around for me, turning me from academic
myself to professional myself. Every word, theory, in Business Management
Course material turned out to be true for me . The experience pilled up slowly;
give me a total insight into the practical aspect of business. This exposure have
made me confident in my field of interest i.e. finance even with inputs of
strategic decisions.
After completing my summer training in SCL now I am very much confident in my
field that how decisions are to be made at top management level how steps are
being taken to gain competitive advantage. This was not only just summer
71

training that I carried out . I carried out with it a new dimension to my personality.
It was a great experience

for me to get industrial exposure, which will be helpful

for me to enter in corporate world. Every details of accounting & finance process
of company have been highlighted, light has been thrown on every aspect of
finance division and what are the opportunities of the company in near future.

APPENDICS

QUESTIONNAIRE 1
Cement Market Survey (Dealers/ Retailers)
Dealer / Retailer Name
Brand
Address
Phone No.

: -....
: -....
: -....
: -

1. What do you think about the brand image of following brands?

Brand / Remark
Good
Average
Ambuja
Birla Chetak
Shree Ultra
Ultratech
Other

Below Average

2. What do you think about companys service?

72

Brand / Remark

Good

Average

Below Average

Ambuja
Birla Chetak
Shree Ultra
Ultratech
Other
3. Which advertisement strategy do you suggest to the company to be adopted
(a) Ads. on T.V. (b) Ads. in News Paper (c) Wall Painting (d) Hoardings (e) Other
4. How often marketing officer visit your shop?
Brand
0-3
4 or More
Ambuja
Birla Chetak
Shree Ultra
Ultratech
Other

5. What do you think about companys current market policies?

Brand / Remark
Good
Average
Below Average
Ambuja
Birla Chetak
Shree Ultra
Ultratech
Other

6. Are you satisfied with sales promotion efforts of company?

Brand / Remark
Yes
No
Ambuja
Birla Chetak
Shree Ultra
Ultratech
Other
7. What do you think about the margin you received?
Brand / Remark
Good
Average
Ambuja
Birla Chetak
Shree Ultra
Ultratech

Below Average

73

Other

Date: -
.

Signature: -

QUESTIONNAIRE 2
Consumer Perception about Cement
Name
Address

: -
: -

: -
: -

Occupation
Phone No.

1. Which brand of cement you prefer to use?

(a) Ambuja

(b) Birla Chetak

(c) Shree Ultra

(d) Ultratech

(e) Other

2. Why do you prefer this brand?

(a) Brand Image

(b) Price

(c) Quality

(d) Availability (e) Other

74

3. Which grade of cement you prefer the most?

(a) 53

(b) 43

(c) RED-OXIDE (d) Other

4. Are you satisfied with the result?

(a) Yes

(b) No

5. If dissatisfied. What is the reason of it?

(a) Low Quality

(b) High Price

(c) Other

6. What type of advertisement attracts you the most?

(a) Ads. on T.V. (b) Ads. in News Paper (c) Wall Painting (d) Hoardings (e) Other
7. Are you satisfied with the service of dealer / retailer?
(a) Yes

(b) No

Date: -

Signature: -.

BIBLIOGRAPHY
BOOKS
Shree Cements annual reports 2006-07, 07-08,08-09
Financial management (Khan, Jain)
Financial management (I M Pandey)
Element of financial management (M R Agarwal)
Donald R Cooper and Pamela S Schindler, Business research methods 9th edition, TATA
MCGRAW-HILL publishing company page nos.138, 143,403,494, 423

ICFAI UNIVERSITY, Financial Management October, 2005 edition, page nos.89 and 91
Richard I. Levin. David S. Rubin, Statistics for Management 7 th edition, Prentice-hall
of India Private limited, page nos. 567,568,569,584

75

 Magazines Cement Manufacturing Association (CMA) weekly and monthly

reports, Annual Reports of Shree Cement Limited (2007-08, 2008-09), other reports.
Newspapers Times of India, Economic Times, Mint, Financial Express

WEBSITES REFFERED
www.shreecementltd.com
www.indiainfoline.com
The Economic Times
The Times of India
http://www.marketresearch.com
http://trak.in/Tags/Business/cdma/

www.dotindia.org

76