Introduction:

The Ramco Cements Ltd is a subsidiary of business conglomerate Ramco Group, based in
Chennai. The company’s primary line of business is in cement production, but it also has a
minor presence in wind-power generation. The cement products produced by the company
are Portland cement, blast furnace slag cement, white cement and Pozzolana cement. Out of
these, Portland cement is most important product. The company is one of the largest players
in the cement industry in south India, with 55% market share in Tamil Nadu and Kerala. It’s
market capitalisation stands at Rs. 19,725 crores.
The Ramco Cements- Financial Performance:
Years 2017 and 2018 were relatively stable in terms of financial performance as opposed to
2019 and 2020. Many financial indicators show a fall in financial performance in FY20. Fall
in Return on Assets, Return on Equity and Return on Capital Employed indicates at the firm’s
fallen capability to harness its resources efficiently. On one hand, fall in Current and Quick
Ratio indicates at the company’s reduced short-term liquidity. On the other hand, increase in
solvency ratios such as Financial Leverage Ratio and Interest Coverage Ratio makes the
company come to a better condition to pay off long term debts.
11) Identification and discussion of key factors that have caused the firm’s ROIC to
change over the years (max 100 words; use financial ratios, trend analysis and common
size statements).

Invested Capital
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2017 2018 2019 2020

In case of Ramco Cements Ltd., the Return On Invested Capital has shown a steady decline
over the observed period of 4 years (2017-2020). An obvious reason behind this drop is the
steady decline in Net Oncome of the company, which has precisely decreased by 17%. And
the firm has also made payouts in the form of dividends, which has impacted overall returns.
Another significant factor contributing to the falling ROIC is the stable raise in the invested
capital. The magnitude of Invested Capital has expanded by close to 15% over these years,
which coupled with lowering returns, hampered ROIC.
12) Comparative analysis of the financial performance of the firm vis-à-vis its
competitors over the three years (use financial ratios and trend analysis) and
identification of the financial strengths and weaknesses.
In a wide variety of ratios, key ratios are analysed here, to give a broad picture of Ramco’s
operations.
Profitability-
Ramco has below average profitability. It has tried to improve it recently, but trend analysis
shows it to be lagging in next 5 years.

Net Profit Ratio Comparison

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
2017 2018 2019 2020

Ramco Birla JK
Shree Ultratech AVG

Investment Performance-
Returns on Capital Employed show poor performance of Ramco. It is much below the
average trend. Also, forecast is not positive for the firm.
 ROCE Comparison
25

20

15

10

0
2017 2018 2019 2020

Ramco Birla JK
Shree Ultratech AVG

Operational Efficiency
Inventory Turnover Ratio is less than half for Ramco, vis-à-vis others. It means the
operations are highly inefficient, with excess inventory for years. This is a major area of
improvement for Ramco.

Inventory Turnover Ratio Comparison

8

0
2017 2018 2019 2020

Ramco Birla JK
Shree Ultratech AVG

Solvency-
Financial Leverage is much lower than the average value. It means that debt utilisation is
less. It can benefit in avoiding insolvency.
 Financial Leverage Ratio Comparison
4

3.5

2.5

1.5

0.5

0
2017 2018 2019 2020

Ramco Birla JK
Shree Ultratech AVG

Strengths of Ramco-
1. Low leverage, can borrow more to improve operational efficiency by modernising plant,
introducing technology etc.
2. Good Current Ratio, indicating liquidity is good. It also shows that the collections and
repayments are streamlined
Weaknesses of Ramco-
1. It has poor operational efficiency seen in low Turnover ratios, low Profitability
2. Investor performance is declining, as seen in EPS as well as PE ratio.

15. Equity Beta- Beta of equity basically measures the volatility of the stock w.r.t. the
market. So, for our company we calculated the beta of the stock by taking data of stock and
nifty from capitaline and then using the formula of beta i.e. Correlation (A, M)/Std. A *
Std. M
Cost of equity- It is the rate the firm pays to its equity investors. For its calculation we used
the basic formula i.e. Ke= Rf +Beta ( Rm-Rf). Here Rf was taken to be 5.82% which was
taken from the 10 year GOI bond yield (Trade Economics). Market return Rm was assumed
to be 8% from the 10 yrs. CAGR nifty + Dividend yield.
Cost of Debt- It is the effective interest rate a company pays on its debts. It was calculated
and it came around to be 7%.
WACC- It is the rate of return that a company is expected to pay to all its security holders to
finance its assets. It was also calculated by the formula and it came out to be 7.9%
WACC= We* Ke + Wd * Kd