International Journal of Advanced Research OF ADVANCED RESEARCH    INTERNATIONAL JOURNAL in Management (IJARM), ISSN 0976 ...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324(Print), ISSN 0976 – 6332 (Online), Volu...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324(Print), ISSN 0976 – 6332 (Online), Volu...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324(Print), ISSN 0976 – 6332 (Online), Volu...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324(Print), ISSN 0976 – 6332 (Online), Volu...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324(Print), ISSN 0976 – 6332 (Online), Volu...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324(Print), ISSN 0976 – 6332 (Online), Volu...
International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324(Print), ISSN 0976 – 6332 (Online), Volu...
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Assets performance of the select cement companies in tamilnadu

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Assets performance of the select cement companies in tamilnadu

  1. 1. 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.aspJournal Impact Factor (2012): 2.8021 (Calculated by GISI) ©IAEMEwww.jifactor.com 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
  2. 2. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324(Print), ISSN 0976 – 6332 (Online), Volume 4, Issue 1, January- April 2013 © IAEMEKey words: Trend Analysis, Cement Industry, Fixed Assets, Current Assets, CashI. INTRODUCTION According to a report by Department Related Parliamentary Standing Committeeon Commerce (2011) Cement industry plays a vital position in the infrastructuraldevelopment of the country. Infrastructural development obviously gives rise to increaseddemand for cement. A variety of construction activities undertaken by the CentralGovernment, State Governments, Public Sector Undertaking and other organisations,including private sector generate huge demand for cement. Indian Cement Industry isnow the second largest cement producer in the world, next only to China. There is aninterlinking relation between cement consumption and the growth of economy. Theprincipal raw materials for cement are lime stone, gypsum and sand. Many companieshad 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 isan energy-intensive sector. All major operations of cement manufacturing critically hingeon the availability of power. Power supply from grid has been erratic and inadequate andcement units are forced to set up their own captive power plants. This adds to the cost ofproduction. Cement industry depends heavily on coal for manufacturing cement.Therefore, adequate and sustained availability of proper quality of coal is of paramountimportance for the Indian cement industry. Coal India Ltd. (CIL) and Singareni ColleriesCo. Ltd. (SCCL) are the two indigenous coal suppliers for the cement industry throughthe system of linkage and Fuel Supply Agreement. The additional requirement of coal hadto 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 continuouslyprocessed product and, therefore, processing cost is followed for maintenance of costrecords. Direct costs are absorbed to various costs centres and indirect costs centres areapportioned to different costs centres on appropriate basis. Indian cement industryappears to be the highest taxed cement industry among the selected countries such asChina/ Hong Kong, Bangladesh, Bhutan, Indonesia, Pakistan, Nepal, Singapore, SriLanka, 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 theIndustrial (Development and Regulation) Act, 1951 and the price and distribution controlof cement has been removed since 1989. It was also stated that cement has been deletedfrom the List of Essential Commodities on 5 February, 2002. Thus, presently, the pricesof cement are determined by the market forces. Hence there is a need to analyse theperformance of cement industry, in this research paper the authors made an attempt toanalyse the performance and management of assets of the select cement companies inTamilnadu with the aid of Trend analysis.II. REVIEW OF LITERATURE There are few literature related to the asset management in cement industry. In thisresearch 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
  3. 3. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324(Print), ISSN 0976 – 6332 (Online), Volume 4, Issue 1, January- April 2013 © IAEMEthe plant machinery and equipments preventing from failure and breakdowns, increasingreliability, maintainability, and availability of the operating system for maximizingproduction, but also to improve quality and boost higher productivity through improvingcapacity, faster and more dependable throughput, reducing inventory, and loweringoperating cost. A study by Mohammad Alipour (2011), under the title "Working CapitalManagement and Corporate Profitability: Evidence from Iran", the results of the researchshow that in the studied companies, there is a significant relation between working capitalmanagement and profitability and working capital management has a great effect on theprofitability of the companies and the managers can create value for shareholders bymeans of decreasing receivable accounts and inventory. A study by Talat Afza and MianSajid Nazir (2011), under the title "Working Capital Management Efficiency of CementSector of Pakistan", the aim of this paper is to test the speed of achieving the target levelof efficiency by an individual firm during the period of study using industry norms as thetarget level of efficiency. Findings of the study indicate that the cement sector as a wholedid perform well during the study period. A study by Dr. Dharmendra, S., Mistry. TheIndian cement industry is one of the oldest industries. The purpose of their study is toanalyse the financial data of 28 out of 36 listed public companies of Indian cementindustry for the financial period 2004-05 to 2008-09 with a view to examining impact ofdeterminants such as Total Assets, Liquidity, Inventory Turnover Ratio, Debt-EquityRatio and Operating Expenses Ratio on the Ratio of Return on Capital Employed thereofwith the help of techniques of correlation and regression analysis. The study found thatLiquidity is closely related with the profitability of the Indian Cement Industry ascompared to the Total Assets, Inventory Turnover Ratio, Debt-Equity Ratio andOperating Expenses Ratio. A study by Mamoun M. Al-Debie (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 workingcapital management measures for industrial companies listed on Amman Stock Exchangein Jordan during the period 2001-2010. The results show that less profitable companieswait longer to sell their products, to collect credit sales, and to pay their supplies ofgoods.III. METHODOLOGY The pooled data collection is to assess the impact of regulation on performance ofcement companies in Tamil Nadu over the time horizon viz., 1996-97 to 2005-06. Theapproach to macroeconomic variables is time series. The design of the study is based onthe secondary sources of information on financial data. T he present study includes IndiaCements Limited (ICL), Dalmia Cement (Bharat) Limited (DCL), Madras CementsLimited (MCL) and Chettinadu Cement Corporation Limited (CCCL). Data wereanalyzed by means of Trend analysis for evaluating the performance of asset ofselect cement companies with the support of Minitab software version 15. 28
  4. 4. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324(Print), ISSN 0976 – 6332 (Online), Volume 4, Issue 1, January- April 2013 © IAEMEIV. 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. Thetrend plot that shows the original data, and the fitted trend line, the output also displays the fitted trendequation 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 infigure (1) reveal the positive linearity in trend as for as land is concerned. Cement industry inTamilnadu, the value of land utilized for erecting plant and machinery storage and the requirement forexpansion show a market increase in the last ten years which is almost four times. On an analysis it isfound that cement plants taken first study have procured land not only for plant construction but alsomining lands keeping the future expansion/new plant on a long term basis. For example DCL isplanning to put a new plant near Ariyalur for which land for constructing machinery and mining limestones around Ariyalur. Similarly other cement plants have also purchase such lands. Once the newplant 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 A c c u r ac y M easu r es 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
  5. 5. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324(Print), ISSN 0976 – 6332 (Online), Volume 4, Issue 1, January- April 2013 © IAEME Trend analysis figure 2 reveals the trends in the plant of cement industry in TamilNadu. The trend plot that shows the original data, and the fitted trend line, the output alsodisplays the fitted trend equation Yt = 46599 + 26015*t and three measures help to determinethe 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 trendthat the funds invested in plant and machinery not only shows an increasing trend but alsoincreases there fold. It is found that all the four cement plants taken for the study haveundertaken capacity increase in these existing plants and also place orders for new plant andmachineries to be erected in new directions. When they had already purchased land not onlyfor erecting plant and machineries but also for mining. Some of them have already erectedplant and machinery which are expected to be commissioned shortly and few others are in theprocess of erecting equipments which perhaps will take few more months. The plantmanufacturers take not less than twenty four months to supply the entire equipmentdepending 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 A c c u r ac y M easu r es 50000 MA PE 9 MAD 3740 MSD 22664515 Stock 40000 30000 20000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 YearTrend analysis figure 3 reveals the trends in the stock of cement industry in Tamil Nadu. Thetrend plot that shows the original data, and the fitted trend line, the output also displays thefitted trend equation Yt = 22679 + 3002*t and three measures help to determine the accuracyof the fitted values: 9, 3740, and 22664515. Trend Analysis in figure (3) reveal the positivelinearity in trend as for as stock is concerned. This cannot be considering to the high becausein most of the cases the inventory is in the form of raw material (lime stone, coal). It isnatural for Tamil Nadu cement factories to hold higher inventory of limestone because ofvarious 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 higherinventory of coal. Coal is the only fuel to manufacture the cement and it has to be obtainedfrom West Bengal, Andra Pradesh involving much longer lead time. 30
  6. 6. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324(Print), ISSN 0976 – 6332 (Online), Volume 4, Issue 1, January- April 2013 © IAEME 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 TamilNadu. The trend plot that shows the original data, and the fitted trend line, the output alsodisplays the fitted trend equation Yt = 9314 – 133.237*t and three measures help to determinethe 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 cashbalance of the closer year in respect of cement industry taken for the study, show a smalldecline in the last ten years, though it is not an alarming situation an adequate cash balancewill definitely improve overall efficiency. An analysis of their financial results show thechange in policy of the cement industries in marketing cement was the main reason forreduction in their cash balance. Though there is an uptrend in demand for cement, the cementplants in Tamil Nadu in their efforts to increase their market share started offering credit tothe consumers especially for real estate builders which has resulted in low cash balance. It isexpected that change in cement customer mix will result in a comfortable cash balance infuture.Trend analysis figure 5 reveals the trends in the plant of cement industry in Tamil Nadu. Thetrend plot that shows the original data, and the fitted trend line, the output also displays thefitted trend equation Yt = 5230 + 2482*t and three measures help to determine the accuracyof the fitted values: 17, 2751, and 12296041. Trend analysis Plot in figure (5) reveals thepositive linearity in trend as for as Debtors is concerned. The trend of trade debtors at thecloser of the year in respect of cement plants under study shows steep increase in the last tenyears. As found in the Trend Analysis the cement plants had changed their marketing policyfrom “Cash and Carry” to credit sales. In addition direct marketing to a few select consumerslike real estate developers is undertaken by the cement factories, by affecting credit to theseconsumers. Their earlier policy of selling cement through dealers is changed in the recentpast and major consumers are focused by these cement plants for direct selling. This changein policy of offering credit to these large consumers is a major cause for higher debtorsbalance in the recent years. 31
  7. 7. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324(Print), ISSN 0976 – 6332 (Online), Volume 4, Issue 1, January- April 2013 © IAEMEFigure 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 YearV. FINDINGS AND CONCLUSION On an analysis it is found that cement plants taken first study have procured land notonly for plant construction but also mining lands keeping the future expansion/new plant on along term basis. It is obvious from the trend that the funds invested in plant and machinerynot only shows an increasing trend but also the increases there fold. It is found that all thefour cement plants taken for the study have undertaken capacity increase in these existingplants 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 limestonebecause of various factors involved in mining operation and location of the mining land fromthe factory. Coal has been imported from Andra Pradesh and West Bengal which leads toholding higher inventory of coal. Coal is the only fuel to manufacture the cement and it hasto be obtained from West Bengal, Andra Pradesh involving much longer lead time. Ananalysis of their financial results show the change in policy of the cement industries inmarketing cement was the main reason for reduction in their cash balance. As found in theTrend 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 ofimproper cash management. In addition direct marketing to a few select consumers like real estate developers isundertaken by the cement factories, by affecting credit to these consumers. Their earlierpolicy of selling cement through dealers is changed in the recent past and major consumersare focused by these cement plants for direct selling. This change in policy of offering creditto these large consumers is a major cause for higher debtors balance in the recent years. Thishas resulted in cash crunch as also mentioned in Cash Trend Analysis. The consumption ofcement by government increases, this trend may be expected to decline. 32
  8. 8. International Journal of Advanced Research in Management (IJARM), ISSN 0976 – 6324(Print), ISSN 0976 – 6332 (Online), Volume 4, Issue 1, January- April 2013 © IAEMEREFERENCES 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-Debie. (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. 33

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