COMPANY ANALYSISAnalysis of Financial Statements1

CONTENT

Company Brief up Horizontal and Vertical Common Size

Statements Cash Flow Analysis Fund Flow Analysis Ratio Analysis SWOT Analysis

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COMPANY INFORMATION

Sector: Public

Industry: Aluminum

Companies: Hindalco & NALCO

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COMPANY INFORMATION

Hindalco An industry leader in aluminum and copper

NALCO National Aluminum Company Limited-export of

alumina and aluminum

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HORIZONTAL & VERTICAL COMMON SIZE STATEMENTS

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HINDALCO The company has consistently increased its

Equity share capital which signifies capital raising for more investments

Even though the secured loans have reduced for both years, there has been tremendous increase in the amount of unsecured loan for funding business activities

There is stable increase in the reserves of the company – (near 40 % yoy), this shows good financial stability of the company

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HINDALCO There is not much movement in the amount of

fixed assets of the company General Investments have seen a declining

growth rate As a tool to fight the recession, inventory

levels were brought down in the yr 2009-10 The management has tried to reduce the

current asset levels in the yr 09-10 as compared to 08-09

More allocation in fixed deposit However slight increase in net current assets

dues to further reduction in CL and its provisions

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NALCO The co. is not over aggressive in terms of

expansion as seen by constant equity for three years

The company is fully owned by its shareholders vis-a-vis secured or unsecured loans

Money from business seems to be transferred to other avenues of investments during recessionary period

For the year 2009, the company had highest liquidity levels.

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NALCO Consistent reduction in net current assets

show that the sector was not driving profits for the companies

Both companies saw a growth, but the slope was on the negative side

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CASH FLOW ANALYSIS 10

CASH FLOW ANALYSIS Company’s working capital requirement increased on account

of higher copper prices due to higher LME in the first half of the year

Softening interest rates resulted in lower average cost of borrowing which declined from 7.5% in FY 09 to 7.3% this year

Interest charges in consolidated accounts declined sharply from Rs. 1,849 cr. to Rs.1,232 cr. due to sharp decline in debt after the takeout of the bridge loan for Novelis

Interest & Finance charges paid for the year was almost same as in last year. Interest charged to profit and loss account is only Rs. 337 cr. net of interest capitalized.

Dividend paid including tax on dividend is Rs. 266 cr. They have put in place a permanent capital structure to support our strategic business plan.

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FUND FLOW ANALYSIS12

FUND FLOW ANALYSIS - HINDALCO

Hindalco is raising long term capital for expansion

Increase in Investments is in the form of increased holding in other subsidiary companies

Increase in Capital WIP and FA implies the company is investing in capacity expansion

STS are diverted to LTU which is not a good practice

Raising Equity has pushed down Debt to Equity Ratio further down

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FUND FLOW ANALYSIS – NALCO

Increase in FA and WIP is sign of capacity expansion

STS are used to fund LTU which may cause liquidity problems for the company

Decrease in Cash indicates better cash management

Decrease in Debtors with increase in Current liabilities can indicate the companies product is able to leverage in market in terms of collection

Increase in Inventory is due to Nalco's expectation of strong sales

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RATIO ANALYSIS15

RATIO ANALYSIS - HINDALCO Decrease in total asset turnover ratio

as well as fixed asset turnover ratio shows inefficient utilization of assets

Decrease in dividend payout ratio and increase in earning retention ratio indicates company is plowing back more of its earnings into business & also paying back its creditors to reduce debt & increase current ratio

Increase in P/E ratio is making the stock expensive over the years

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RATIO ANALYSIS - NALCO Decrease in asset turnover ratio as well as

fixed asset turnover ratio shows inefficient utilization of assets

Increase in dividend Payout ratio and decrease in retention ratio indicates company is cash rich company & also paying back its investors

P/E ratio is constantly increasing over the years from 3.8 to 7.68 which is making the stock expensive over the years

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CROSS-SECTIONAL ANALYSIS OF HINDALCO & NALCO It is possible to achieve higher profit margin for

Nalco as it has better utilization of assets as compared to the Hindalco which results in higher Return on capital employed

Inventory in hand for Hindalco is obsolete & it unnecessarily ties up more capital into inventory in sales which results in inefficient utilization of capital & hence it would result in higher financial leverage & higher interest serving costs than the desired value which would in turn decrease the profitability

Hindalco receives money after long time as compared to the Nalco so it will ties up more capital into inventory in sales which results in inefficient utilization of capital which would in turn decrease the profitability

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CROSS-SECTIONAL ANALYSIS OF HINDALCO & NALCO Revenue generated by assets of both Nalco &

Hindalco is almost same so both firms have same operational efficiency but credit policy & process management by Nalco is better as compared to the Hindalco

Short term debt coverage capacity & liquidity for Nalco is better as compared to Hindalco

long term debt coverage capacity & solvency for Nalco is better as compared to Hindalco so it will have better terms when borrowing from lenders

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CROSS-SECTIONAL ANALYSIS OF HINDALCO & NALCO It is possible to achieve higher profit margin

for Nalco as it has better utilization of assets as compared to the Hindalco which results in higher Return on capital employed

Hindalco gives less returns as compared to the Nalco, Hindalco is expensive than Nalco

Though Hindalco is 40% more leveraged as compared to Nalco, its returns are less as compared to the Nalco due to higher profitability of Nalco as the result of better asset utilization & ROCE

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SWOT ANALYSIS21

SWOT ANALYSIS-NALCO

Strength: Availability of huge Bauxite deposits “State of the art” technology Huge power production, low energy consumption Maintenance of production and quality Presently the market leader, higher profitability

Weakness: High interest burden Scattered plant sites Dependency on LME quotes

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SWOT ANALYSIS-NALCO

Opportunities Growth of the potential domestic market Widespread uses of Alumina for various purpose

Threats Instability of the LME prices. High task rate imposed on the metal Dumping of the metal at low cost Depressed LME prices resulting in more import

of metal thereby decreasing demand of product from NALCO.

Rejection of LP and CG metal continuously by the parties 23

SWOT ANALYSIS-HINDALCO

Strengths Post acquisition of Novelis, Hindalco has become

the world leader in flat-rolled aluminium products and recycling of aluminium cans

It is also the leading producer in primary aluminium and alumina in Asia

It has a strong geographical presence- North and South America, Asia and Europe

Weakness The R&D expenditure is very low compared to

industry standards

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SWOT ANALYSIS-HINDALCO

Opportunities Foreseeable strong growth in demand for

aluminium

Threats Prices of primary metals are highly volatile Disruption in production due to external factors

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THANK YOU26