Corporate Finance

Acknowledgment

We would like to express our sincere gratitude to Mr. Dinesh Jaisinghani our Accounting professor for providing us an opportunity to do our final term project on Orient Cement ltd. We would also like to thank him for his guidance and encouragement in carrying out this final project.

Cement industry

India is the second largest producer of cement in the world. No wonder, India's cement industry is a vital part of its economy, providing employment to more than a million people, directly or indirectly. Ever since it was deregulated in 1982, the Indian cement industry has attracted huge investments, both from Indian as well as foreign investors.

India has a lot of potential for development in the infrastructure and construction sector and the cement sector is expected to largely benefit from it. Some of the recent major government initiatives such as development of 98 smart cities are expected to provide a major boost to the sector.

Expecting such developments in the country and aided by suitable government foreign policies, several foreign players such as Lafarge-Holcim, Heidelberg Cement, and Vicat have invested in the country in the recent past. A significant factor which aids the growth of this sector is the ready availability of the raw materials for making cement, such as limestone and coal.

Market Size

Cement prices in India recorded a 6.7 per cent month-on-month growth in April 2017, thereby indicating the probability of growth in volume and profitability of cement companies in the quarter ending June 2017.

The housing sector is the biggest demand driver of cement, accounting for about 67 per cent of the total consumption in India. The other major consumers of cement include infrastructure at 13 per cent, commercial construction at 11 per cent and industrial construction at 9 per cent.

The cement capacity in India is estimated to be at 420 MT as of March 2017 with production growing at 5-6 per cent per year. The country's per capita consumption stands at around 225 kg.

The Indian cement industry is dominated by a few companies. The top 20 cement companies account for almost 70 per cent of the total cement production of the country. A total of 188 large cement plants together account for 97 per cent of the total installed capacity in the country, with 365 small plants account for the rest. Of these large cement plants, 77 are located in the states of Andhra Pradesh, Rajasthan and Tamil Nadu.

Road Ahead

The eastern states of India are likely to be the newer and virgin markets for cement companies and could contribute to their bottom line in future. In the next 10 years, India could become the main exporter of clinker and gray cement to the Middle East, Africa, and other developing nations of the world. Cement plants near the ports, for instance the plants in Gujarat and Visakhapatnam, will have an added advantage for exports and will logistically be well armed to face stiff competition from cement plants in the interior of the country.

A large number of foreign players are also expected to enter the cement sector, owing to the profit margins and steady demand. In future, domestic cement companies could go for global listings either through the FCCB route or the GDR route.

Orient cement

Orient cement was established in 1979 and is one of India’s most efficient and high margin cement companies, with a production capacity of five million tons per annum.

With a focus on resilience and durability, the quality of the company’s product has created benchmark in the industry. Orient cement is one of only two Indian cement companies to be awarded the prestigious TPM (Total plant maintenance) excellence award by the Japan Institute of Plant Maintenance. The company has also received numerous awards for green and safety practices.

Orient cement stands for strength and trust, and has established reputation for the use of a high grade raw material. Birla A1 Premium Cement is the flagship brand, and is suitable for all types of industrial, residential and commercial constructions.

Continuous research and development have made the product to create benchmark in the market. A fully integrated NABL accredited quality control lab adhering to the best standards ensure that their quality is not compromised upon.

Orient cement is certified for both ISO 14001:2008 and ISO 14001:2004 and also OSHAS 18001:2007 from Det Norske Vertas, Netherland.

The company has an aggressive plan to expand capacity to 15 million tons by 2020, and has started a green field project in Chittapur (Karnatka), with a proposed capacity of three million tons per annum.

“To achieve a market leader status they have the latest state of the art manufacturing facility and online quality control for consistency and quality of limestone.

Key Accounting Policies and Major interpretations.

Tangible Assets and Depreciation

The Company regards the Previous GAAP carrying value for all of its property, plant and equipment as deemed cost at the transition date, viz., 1 April 2015.

Tangible assets are stated as cost less accumulated depreciation thereon and impairment losses, if any. The cost

includes the cost of replacing part of the plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. Depreciation on fixed assets added during the year is provided on pro-rata basis with reference to the date of addition/disposal.Each part of an item of property, plant and equipment mainly machineries, with a cost that contributes to the total cost of the item is depreciated separately.

According to Ind AS16, tangible items held in use for the production/supply of goods &services and which are used more than one period, are classified as property, plant and equipment. Otherwise, such items are classified as inventory

Class of Asset Useful Lives estimated by the management (in years)

Factory Buildings 30

Non-Factory Buildings 5 to 60

Railway Sidings 15

Plant and Equipment 5 to 40

Furniture & Fixture 8 to 10

Computers 3

Office Equipment 5