Assets performance of the select cement companies in tamilnadu

International Journal of Advanced Research OF ADVANCED RESEARCH
INTERNATIONAL JOURNAL in Management (IJARM), ISSN 0976 – 6324
(Print), ISSN 0976 – 6332 (Online), Volume 4, Issue 1, January- April 2013 © IAEME
IN MANAGEMENT (IJARM)
ISSN 0976 - 6324 (Print)
ISSN 0976 - 6332 (Online)
Volume 4, Issue 1, January- April 2013, pp. 26-33
IJARM
© IAEME: www.iaeme.com/ijarm.asp
Journal Impact Factor (2012): 2.8021 (Calculated by GISI)
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ASSETS PERFORMANCE OF THE SELECT CEMENT COMPANIES
IN TAMILNADU

1 2 3
Dr.V.Sarangarajan Dr.S.A.Lourthuraj Dr.A.Ananth
1
Director, Christhuraj Institute of Management, Panjappur,Trichy- 620 012
2
Asst. Professor, Jamal Institute of Management, Jamal Mohammed College,Trichy – 20
3
HOD, Dept.of Management Studies, C.K.College of Engg.& Technology,Cuddalore – 03

ABSTRACT

Indian cement industry is the second largest cement industry in the world. The paper
attempts to examine the performance and management of assets of the select cement
companies in Tamilnadu with the support of Trend analysis. Data employed in this study are
all secondary in nature which is frequently inspected by Institute of Charted Accountants of
India and Security Exchange Board of India. . The pooled data collection is to assess the
impact of regulation on performance of asset of cement companies in Tamil Nadu over the
time horizon viz., 1996-97 to 2005-06. The variables used in this study are Land, plant, stock,
cash and debtors. The authors have chosen four cement companies in Tamilnadu and using a
statistical technique as Trend analysis with the aid of Minitab software version 15. On an
analysis it is found that cement plants taken first study have procured land not only for plant
construction but also mining lands keeping the future expansion/new plant on a long term
basis. It is natural for Tamil Nadu cement factories to hold higher inventory of limestone
because of various factors involved in mining operation and location of the mining land from
the factory. As found in the Trend Analysis the cement plants had changed their marketing
policy from “Cash and Carry” to credit sales. This change in policy of offering credit to large
consumers is a major cause for higher debtors balance in the recent years. The cement plants
in Tamil Nadu in their efforts to increase their market share started offering credit to the
consumers especially for real estate builders which has resulted in low cash balance. It is
expected that change in cement customer mix will result in a comfortable cash balance in
future. It is found that so many small cement industries have been closed because of improper
cash management. This has resulted in cash crunch in Cash Trend Analysis. The consumption
of cement by government increases, this trend may be expected to decline.

26

International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324

Key words: Trend Analysis, Cement Industry, Fixed Assets, Current Assets, Cash

I. INTRODUCTION

According to a report by Department Related Parliamentary Standing Committee
on Commerce (2011) Cement industry plays a vital position in the infrastructural
development of the country. Infrastructural development obviously gives rise to increased
demand for cement. A variety of construction activities undertaken by the Central
Government, State Governments, Public Sector Undertaking and other organisations,
including private sector generate huge demand for cement. Indian Cement Industry is
now the second largest cement producer in the world, next only to China. There is an
interlinking relation between cement consumption and the growth of economy. The
principal raw materials for cement are lime stone, gypsum and sand. Many companies
had got limited reserves of lime stone which may last only for another 15-20 years.
Another raw material, gypsum, due to its shortage is imported from abroad. Similarly,
natural sand is obtained through mining, which leads to soil erosion. Cement industry is
an energy-intensive sector. All major operations of cement manufacturing critically hinge
on the availability of power. Power supply from grid has been erratic and inadequate and
cement units are forced to set up their own captive power plants. This adds to the cost of
production. Cement industry depends heavily on coal for manufacturing cement.
Therefore, adequate and sustained availability of proper quality of coal is of paramount
importance for the Indian cement industry. Coal India Ltd. (CIL) and Singareni Colleries
Co. Ltd. (SCCL) are the two indigenous coal suppliers for the cement industry through
the system of linkage and Fuel Supply Agreement. The additional requirement of coal had
to be procured at a huge cost from various other sources like purchase from open market,
imports, use of pet coke etc. to supplement the requirement. Cement is a continuously
processed product and, therefore, processing cost is followed for maintenance of cost
records. Direct costs are absorbed to various costs centres and indirect costs centres are
apportioned to different costs centres on appropriate basis. Indian cement industry
appears to be the highest taxed cement industry among the selected countries such as
China/ Hong Kong, Bangladesh, Bhutan, Indonesia, Pakistan, Nepal, Singapore, Sri
Lanka, Thailand and Vietnam. This makes prices of Indian cement non-competitive vis-à-
vis other countries in international market. The cement industry was de-licensed under the
Industrial (Development and Regulation) Act, 1951 and the price and distribution control
of cement has been removed since 1989. It was also stated that 'cement' has been deleted
from the List of Essential Commodities on 5 February, 2002. Thus, presently, the prices
of cement are determined by the market forces. Hence there is a need to analyse the
performance of cement industry, in this research paper the authors made an attempt to
analyse the performance and management of assets of the select cement companies in
Tamilnadu with the aid of Trend analysis.

II. REVIEW OF LITERATURE

There are few literature related to the asset management in cement industry. In this
research paper the authors review related literature relating the current asset management.
Khan and Darrab [2010) reported that the purpose of maintenance is not only to upkeep
27


the plant machinery and equipments preventing from failure and breakdowns, increasing
reliability, maintainability, and availability of the operating system for maximizing
production, but also to improve quality and boost higher productivity through improving
capacity, faster and more dependable throughput, reducing inventory, and lowering
operating cost. A study by Mohammad Alipour (2011), under the title "Working Capital
Management and Corporate Profitability: Evidence from Iran", the results of the research
show that in the studied companies, there is a significant relation between working capital
management and profitability and working capital management has a great effect on the
profitability of the companies and the managers can create value for shareholders by
means of decreasing receivable accounts and inventory. A study by Talat Afza and Mian
Sajid Nazir (2011), under the title "Working Capital Management Efficiency of Cement
Sector of Pakistan", the aim of this paper is to test the speed of achieving the target level
of efficiency by an individual firm during the period of study using industry norms as the
target level of efficiency. Findings of the study indicate that the cement sector as a whole
did perform well during the study period. A study by Dr. Dharmendra, S., Mistry. The
Indian cement industry is one of the oldest industries. The purpose of their study is to
analyse the financial data of 28 out of 36 listed public companies of Indian cement
industry for the financial period 2004-05 to 2008-09 with a view to examining impact of
determinants such as Total Assets, Liquidity, Inventory Turnover Ratio, Debt-Equity
Ratio and Operating Expenses Ratio on the Ratio of Return on Capital Employed thereof
with the help of techniques of correlation and regression analysis. The study found that
Liquidity is closely related with the profitability of the Indian Cement Industry as
compared to the Total Assets, Inventory Turnover Ratio, Debt-Equity Ratio and
Operating Expenses Ratio. A study by Mamoun M. Al-Debi'e (2011),under the title,
"Working Capital Management and Profitability: The Case of Industrial Firms in Jordan",
the aim of this paper is to examining the relationship between profitability and working
capital management measures for industrial companies listed on Amman Stock Exchange
in Jordan during the period 2001-2010. The results show that less profitable companies
wait longer to sell their products, to collect credit sales, and to pay their supplies of
goods.

III. METHODOLOGY

The pooled data collection is to assess the impact of regulation on performance of
cement companies in Tamil Nadu over the time horizon viz., 1996-97 to 2005-06. The
approach to macroeconomic variables is time series. The design of the study is based on
the secondary sources of information on financial data. T he present study includes India
Cements Limited (ICL), Dalmia Cement (Bharat) Limited (DCL), Madras Cements
Limited (MCL) and Chettinadu Cement Corporation Limited (CCCL). Data were
analyzed by means of Trend analysis for evaluating the performance of asset of
select cement companies with the support of Minitab software version 15.

28


IV. RESULTS AND DISCUSSION

Figure 1: Trend Analysis Plot of land for the Sample Total of Tamil Nadu Cement Industry

T r e n d A na l y s i s o f L a n d f o r the S a m p l e C e m e nts Ind us tr i e s
Lin e a r T r e n d M o d e l
Yt = 1 1 4 5 0 + 6 5 8 1 * t
80000 V ar iab le
A c tu al
70000 F its

A c c u r ac y M easu r es
60000 MA PE 8
MA D 3240
MSD 15761152
50000
Land

40000

30000

20000

10000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Year

Trend analysis figure 1 reveals the trends in the Land of cement industry in Tamil Nadu. The
trend plot that shows the original data, and the fitted trend line, the output also displays the fitted trend
equation Yt = 11450 + 6581*t and three measures help to determine the accuracy of the fitted values:
8, 3240, and 1576112. The trend model appears to fit well to the overall trend. Trend Analysis in
figure (1) reveal the positive linearity in trend as for as land is concerned. Cement industry in
Tamilnadu, the value of land utilized for erecting plant and machinery storage and the requirement for
expansion show a market increase in the last ten years which is almost four times. On an analysis it is
found that cement plants taken first study have procured land not only for plant construction but also
mining lands keeping the future expansion/new plant on a long term basis. For example DCL is
planning to put a new plant near Ariyalur for which land for constructing machinery and mining lime
stones around Ariyalur. Similarly other cement plants have also purchase such lands. Once the new
plant and machinery comes into production the utilization of this land will improve.

Figure 2: Trend Analysis Plot of plant for the Sample Total of Tamil Nadu Cement Industry

T r e nd A na ly s is o f P la nt fo r the S a mp le C e me nts Ind us tr ie s
Line a r T re nd M o de l
Yt = 46 59 9 + 26 01 5 * t
V ar iab le
3 0 00 00 A c tu al
F its

2 5 00 00 MAPE 7
MAD 12166
M SD 293930023
2 0 00 00
Plant

1 5 00 00

1 0 00 00

1 99 6 1 99 7 1 99 8 1 99 9 2 00 0 2 00 1 2 00 2 2 00 3 2 0 04 2 0 05
Year

29


Trend analysis figure 2 reveals the trends in the plant of cement industry in Tamil
Nadu. The trend plot that shows the original data, and the fitted trend line, the output also
displays the fitted trend equation Yt = 46599 + 26015*t and three measures help to determine
the accuracy of the fitted values: 7, 12166, and 293930023. Trend Analysis in figure (2)
reveal the positive linearity in trend as for as Plant is concerned. It is obvious from the trend
that the funds invested in plant and machinery not only shows an increasing trend but also
increases there fold. It is found that all the four cement plants taken for the study have
undertaken capacity increase in these existing plants and also place orders for new plant and
machineries to be erected in new directions. When they had already purchased land not only
for erecting plant and machineries but also for mining. Some of them have already erected
plant and machinery which are expected to be commissioned shortly and few others are in the
process of erecting equipments which perhaps will take few more months. The plant
manufacturers take not less than twenty four months to supply the entire equipment
depending on the design and first come first served basis.

Figure 3: Trend Analysis Plot of stock for the Sample Total of Tamil Nadu Cement Industry

T r e n d A na l y s i s o f S to c k f o r th e S a m p l e C e m e n ts Ind us tr i e s
Line a r T re n d M o d e l
Yt = 2 2 6 7 9 + 3 0 0 2 * t
V ar iab le
60000
A c tu al
F its

50000 MA PE 9
MAD 3740
MSD 22664515
Stock

40000

30000

20000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Year

Trend analysis figure 3 reveals the trends in the stock of cement industry in Tamil Nadu. The
trend plot that shows the original data, and the fitted trend line, the output also displays the
fitted trend equation Yt = 22679 + 3002*t and three measures help to determine the accuracy
of the fitted values: 9, 3740, and 22664515. Trend Analysis in figure (3) reveal the positive
linearity in trend as for as stock is concerned. This cannot be considering to the high because
in most of the cases the inventory is in the form of raw material (lime stone, coal). It is
natural for Tamil Nadu cement factories to hold higher inventory of limestone because of
various factors involved in mining operation and location of the mining land from the factory.
Coal has been imported from Andra Pradesh and West Bengal which leads to holding higher
inventory of coal. Coal is the only fuel to manufacture the cement and it has to be obtained
from West Bengal, Andra Pradesh involving much longer lead time.

30


Figure 4: Trend Analysis Plot of Cash for the Sample Total of Tamil Nadu Cement Industry

Trend Analy sis of Cash for the S ample Cements Industries
Linear T rend Model
Yt = 9314 - 133.237* t
10500 Variab le
A c tu al
10000 F its

A c cu rac y M easu res
9500 MA PE 11
MAD 966
9000 M SD 1142275
Cash

8500

8000

7500

7000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Ye ar

Trend analysis figure 4 reveals the trends in the Cash of cement industry in Tamil
Nadu. The trend plot that shows the original data, and the fitted trend line, the output also
displays the fitted trend equation Yt = 9314 – 133.237*t and three measures help to determine
the accuracy of the fitted values: 11, 966, and 1142275. Trend Analysis Plot in figure (4)
reveal the positive linearity in trend as for as cash is concerned. The Trend Analysis of cash
balance of the closer year in respect of cement industry taken for the study, show a small
decline in the last ten years, though it is not an alarming situation an adequate cash balance
will definitely improve overall efficiency. An analysis of their financial results show the
change in policy of the cement industries in marketing cement was the main reason for
reduction in their cash balance. Though there is an uptrend in demand for cement, the cement
plants in Tamil Nadu in their efforts to increase their market share started offering credit to
the consumers especially for real estate builders which has resulted in low cash balance. It is
expected that change in cement customer mix will result in a comfortable cash balance in
future.

Trend analysis figure 5 reveals the trends in the plant of cement industry in Tamil Nadu. The
trend plot that shows the original data, and the fitted trend line, the output also displays the
fitted trend equation Yt = 5230 + 2482*t and three measures help to determine the accuracy
of the fitted values: 17, 2751, and 12296041. Trend analysis Plot in figure (5) reveals the
positive linearity in trend as for as Debtors is concerned. The trend of trade debtors at the
closer of the year in respect of cement plants under study shows steep increase in the last ten
years. As found in the Trend Analysis the cement plants had changed their marketing policy
from “Cash and Carry” to credit sales. In addition direct marketing to a few select consumers
like real estate developers is undertaken by the cement factories, by affecting credit to these
consumers. Their earlier policy of selling cement through dealers is changed in the recent
past and major consumers are focused by these cement plants for direct selling. This change
in policy of offering credit to these large consumers is a major cause for higher debtors
balance in the recent years.

31


Figure 5: Trend Analysis Plot of Debtors for the Sample Total of Tamil Nadu Cement Industry

Trend Analysis of Debtors for the S ample Cements Industries
Linear Trend Model
Yt = 5230 + 2482* t
Variab le
30000
A ctu al
F its

25000 A ccu racy M easu res
M A PE 17
MA D 2751
MSD 12296041
Debtors

20000

15000

10000

5000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Year

V. FINDINGS AND CONCLUSION

On an analysis it is found that cement plants taken first study have procured land not
only for plant construction but also mining lands keeping the future expansion/new plant on a
long term basis. It is obvious from the trend that the funds invested in plant and machinery
not only shows an increasing trend but also the increases there fold. It is found that all the
four cement plants taken for the study have undertaken capacity increase in these existing
plants and also place orders for new plant and machineries to be erected in new directions.
It is natural for Tamil Nadu cement factories to hold higher inventory of limestone
because of various factors involved in mining operation and location of the mining land from
the factory. Coal has been imported from Andra Pradesh and West Bengal which leads to
holding higher inventory of coal. Coal is the only fuel to manufacture the cement and it has
to be obtained from West Bengal, Andra Pradesh involving much longer lead time. An
analysis of their financial results show the change in policy of the cement industries in
marketing cement was the main reason for reduction in their cash balance. As found in the
Trend Analysis the cement plants had changed their marketing policy from “Cash and Carry”
to credit sales. It is found that so many small cement industries have been closed because of
improper cash management.
In addition direct marketing to a few select consumers like real estate developers is
undertaken by the cement factories, by affecting credit to these consumers. Their earlier
policy of selling cement through dealers is changed in the recent past and major consumers
are focused by these cement plants for direct selling. This change in policy of offering credit
to these large consumers is a major cause for higher debtors balance in the recent years. This
has resulted in cash crunch as also mentioned in Cash Trend Analysis. The consumption of
cement by government increases, this trend may be expected to decline.

32


REFERENCES

1. Dharmendra, S., Mistry. (2011). Determinants of Profitability of Indian Cement
Industry, the Journal of Sri Krishna Research & Educational Consortium ASIA
Pacific Journal of Research in Business Management, Volume 2, Issue 3.
2. Khan, M.R.R. and Darrab, I.A., “Development of analytical relation between
maintenance, quality and productivity,” Journal of Quality in Maintenance
Engineering, 16: 341–353, 2010.
3. Mamoun, M., Al-Debi'e. (2011). "Working Capital Management and Profitability:
The Case of Industrial Firms in Jordan", European Journal of Economics, Finance and
Administrative Sciences, Issue 36, pp. 75-86.
4. Mohammad, Alipour. (2011). "Working Capital Management and Corporate
Profitability:Evidence from Iran", World Applied Sciences Journal 12 (7), pp. 1093-
1099.
5. Ninety Fifth report on Performance of cement Industry, Department Related
Parliamentary Standing Committee on Commerce, 2011, India
Talat, Afza., and Mian, Sajid. Nazir. (2011). "Working Capital Management
Efficiency of Cement Sector of Pakistan", Journal of Economics and Behavioural
Studies, Vol. 2, No. 5, pp. 223-235.
6. Arunkumar.O.N and T.Radharamanan, “Working Capital Management and
Profitability: An Empirical Analysis of Indian Manufacturing Firms” International
Journal of Management (IJM), Volume 4, Issue 1, 2013, pp. 121 - 129, Published by
IAEME.

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Assets performance of the select cement companies in tamilnadu

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