Indian cement industry is the second largest in the world in terms of its production capacity (1.

06 billion )tones and this constitutes 6% of the total installed capacity of the world. The demand of cement in the country can be termed as inelastic in nature. This implies that to take advantage of the market structure, cement companies constantly need to make expansions to increase its installed capacity. Below is our analysis of 5 companies in the cement sector on their capital structure and other financial information, present and expected.
Debt-Equity Ratio ACC ltd. Ultratech Cements 0.09 0.35 Birla Cements ltd. 0.36 Shree Cements ltd. 1.09 0.69 Prism ltd.

CAPITALIZATION RATIO ACC ltd. Ultratech Cements 0.917431 0.740741 Birla Cements ltd. 0.735294 Shree Cements ltd. 0.478469 0.591716 Prism ltd.

Seeing the debt equity ratio the capitalization ratio of these companies, we can say that they mainly finance their assets and expansion plans using equity rather than debt, barring Shree Cements ltd. which has used Debt and equity in almost equal proportions to finance its capital. So we can say that these companies are leveraged against the risk of changes in interest rates. Though, a small debt-equity ratio would also mean that each shareholder will have a smaller proportion of the ownership of the company which might lead to dilution in the management.

Beta for 5 years ACC ltd. Ultratech Cements Birla Cements ltd. Shree Cements ltd. Prism ltd.

0.786845

.936

1.05

.95

1.342743

By looking at the 5 year beta of these companies, we see that companies, other than acc ltd and prism ltd, are very close to the market portfolio. Which means the risk in these companies is very less .share of acc ltd, being a high cap company, is defensive as it is less sensitive to changes in market portfolio. On the other hand, prism ltds security comes across as aggressive for it being a small cap company, is more vulnerable to market shocks.

Cost of equity ACC ltd. Ultratech Cements 8.63 9.59 Birla Cements ltd. 10.32 Shree Cements ltd. 9.67 10.58 Prism ltd.

Cost of equity is least for acc ltd in comparison to other companies. One of the reasons for this is being a defensive security, investors expect less return. In comparison, prism ltd, a small cap company, has the highest cost of equity. With a beta of 1.34, the risk in this company is very high and the investors expect high returns from this security. Cost of equity for the remaining three companies is close to market return of 10% as the beta of these companies was also close to 1.

WACC ACC ltd. Ultratech Cements 9.39 8.55 Birla Cements ltd. 10.14 Shree Cements ltd. 9.68 10.19 Prism ltd.

While comparing wacc of these companies we see, that wacc of these companies is very close to their cost of capital because their capital is mostly comprised of equity. Wacc for acc ltd is the least which means that acc ltd has access to the cheapest sources to raise funds and hence can add high value to the funds of the share holders. The wacc for birla cements, a mid cap company, and prism ltd, a small cap company are almost same, despite the fact that risk is less in birla cements ltd.one of the reason for this might be that Birla cements has financed its capital from high cost debt.