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MCS Assignment on Calculation of EVA for ACC Company {draw:frame} Group members: *Company Profile*: The corporate and registered offices are at Cement House, Mumbai. The company has two subsidiaries namely Bulk Cement Corporation India which caters to bulk cement requirements and ACC Machinery Company which manufactures machinery and equipment for use in chemicals and cement industries. It has associations with Yanbu Cement Company, Saudi Arabia for operating and managing their cement plant and Dangote Industries for engineering consultancy for setting up new cement plants for them.
The company has rich experience in mining, being the largest user of limestone. As the largest cement producer in India, it is one of the biggest customers of the domestic coal industry, of Indian Railways, and a considerable user of the country’s road transport network services for inward and outward movement of materials and products. ACC has won several prizes and accolades for environment friendly measures taken at its plants and mines.
It is amongst the first companies in India to include commitment to environmental protection as one of its corporate objectives, the company installed sophisticated pollution control equipment as far back as 1966, long before pollution control laws came into existence. Today each of its cement plants has state-of-the art pollution control equipment and devices. Financials: Share Holding pattern: Promoters own 46% stake in the company followed by FIs, banks and mutual funds which own 23% stake. Individuals, FIIs and Others own 17%, 9% and 5% stake in company respectively.
The company disclosed a steady growth in standalone net profit for the quarter ended September 2009. The Company has posted a net profit of Rs 4356. 339 million for the quarter ended September 30, 2009 whereas the same was at Rs 2834. 349 million for the quarter ended September 30, 2008. Total Income is Rs 20202. 463 million for the quarter ended September 30, 2009 whereas the same was at Rs 18489. 919 million for the quarter ended September 30, 2008. The EPS was Rs 23. 18. {text:bookmark-start} 02-APR-09 The Company reported a rise of 5. 85% for the month of March 2009.
During the month, the company produced 1. 99 million tons of cement as against 1. 88 million tons produced in March 2008. 09-OCT-08 The Company has acquired 40% stake in Goa-based Alcon Cement Company, having a capacity of 500 tons a day, for Rs 222. 5 million, reports Business Standard. 17-SEP-08 The company has proposed to delist its global depository receipts (GDRs) from the London Stock Exchange (LSE). 11-MAR-08 ACC divested its wholly owned subsidiary ACC Machinery (AMCL) to HNG Group for a consideration of Rs 450 million on Mar. 11, 2008. 09-OCT-07
ACC started its first wind energy farm located in Udayathoor in Tirunelveli district, Tamil Nadu. This initiative is part of the company`s efforts to adopt clean and green technologies to reduce dependence on conventional fossil fuel based energy sources. The wind power plant comprises six modern wind turbines of capacity 1. 5 MW each made by Suzlon Energy. The project was executed in a record time of three months from start to finish 22-AUG-07 ACC is planning to import cement from the operations of Holcim Bangladesh, its associate company, to keep pace with the rise in demand.
Beta Calculation: Beta (? ) is a measure of systematic risk and it is the ratio of variance between market return and security’s return to market return variable where, j = stock and m = market Procedure for calculating ? is: Calculate average return on market and average return on stock. Calculate deviation of returns on market from average returns Calculate deviation of returns on stock from average returns Multiply deviation of market return and deviation of stock return. Take the sum and divide by number of observations.
Divide covariance of market and stock by market variance to get ? Following are the ? calculations for ACC: *For detailed calculation please refer to annexures. Cost of Capital Calculation: Cost of Equity Shareholders supply capital to a firm, and in return expect to receive dividends. They can also realise cash by selling these shares. If dividends distributed, shareholders have an opportunity to invest cash so receive in securities in capital market and earn a return. When firm retains profits, there is loss of opportunity for which shareholders need to be compensated.
The firms needs to at least earn this rate on capital invested in project. This from firm’s point of view is Cost of Equity. Rj=ke=Rf+(Rm-Rf) ? j Where, Rf = Risk free rate Rm = Market premium ?j = Beta of firm’s share Cost of Equity for ACC: Cost of debt The COD is the rate of return required by lenders. Debt can be issued at premium, par or discount. Cost of debt for ACC is as follows: Cost of Capital is the weighted average of cost of equity and cost of debt. Cost of capital for ACC is as calculated below: NOPAT & ROI Calculations. Calculation for* NOPAT* (Net* Operating Profit *After* Tax) Calculation for ROI (Return on Investment) EVA calculation In some business units, profit compared to assets employed in earning it, known as investment centres. Investment centre is a special type of profit centre. Two methods of relating profit to investment base:1)ROI 2)EVA EVA is also known as ‘residual income’. EVA is trademark of Stern Stewart & Company. EVA is a dollar amount, rather than a ratio. Found by subtracting a capital charge from net operating profit.
This capital charge is found by multiplying amount of assets employed by a rate which is 10%. Advantages of EVA With EVA, all business units have same profit objective for comparable investments. Decisions that increase centres ROI may decrease its overall profits. Different interest rates may be used for different types of assets. EVA has strong positive correlation with changes in a company’s market value. Significance of EVA: Strategic Direction Acquisitions Operational improvements Product Line Discontinuation Working Capital Focus Incentive Compensation
Calculation of EVA for ACC is done by both the methods. A positive EVA means that the company is operating efficiently. The reasons of increase in EVA are:- Improvement in operating performance Profitable Investment Withdrawal of unproductive Capital Reduction in cost of capital. ACC has a positive EVA of approximately 600 crore Rs. It means that the cost of capital is less than the revenue it generates. In other words the company earns more revenue than the cost of capital. This indicates that ACC is utilizing its capital resources well to earn revenues in excess of the capital employed.