Investment, profits and capacity utilisation in the Indian cement industry

Abstract

This thesis studies various indicators of performance in the lndian Cement Industry like investment, profit and profitability and capacity utilization. An attempt was also made to explain the behavior of these performance indicators with the help of certain theoretically defensible propositions, which were then tasted for the empirical validity. While the period o f the study is restricted to 1962-1977 period, recent developments have also been discussed.

Data on seventeen firms were collected from Bombay stock Exchange directory for studying investment and profit behavior. The data for studying the capacity utilization was drawn from various sources. Analysis was carried out with the help of various statistical and econometric methods.

The principal findings of the research can be classified under three broad headings, they are - 1 .Investment Behavior 2. Profitability and Dividends 3. Capacity Utilization

Given below are the main conclusions palling within the realm of each of the three headings:-

1. Investment Behavior a) The importance of accelerator is not brought out well in determining the investment either in fixed assets or in plant and machinery. b) External finance plays a major role in explaining the investment behaviour both in fixed assets as well as plant and machinery. c) There is, no significant difference in the mean profitability of the 'units which are investing’ and the ‘units with less investment’.

2. Profitability and Dividends a) Size-profit hypotheses do not hold good in the case of the lndian Cement Industry. The industry, however, is not experiencing 'penrose’ effect. b) The dividend behavior in the Indian Cement Industry conforms to Linter’s model in a restricted sense,

3. Capacity Utilization a) Availability of coal, power and limestone are significant causal determinants of capacity utilization in the cement industry while another important raw material Gypsum is not influencing capacity utilization significantly. b) Industrial relations as measured by the mondays lost due to strikes and lockouts, although bear a negative relationship with the utilization of existing capacity, is not significant enough in determining capacity utilization.