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ECONOMIC ANALYSIS

ECONOMY ANALYSIS
ECONOMIC FACTORS
1. Interest rates:
Interest rate directly affects the cost of capital, if the interest rate is higher the cost of
capital will increase & if it is lower then cost of capital will be lower. This directly
affect the profit of the organization & its growth.
2. Tax charges:
If the tax charged by the government is lower then it will reduce the product price &
if it is higher then it will increase the prices of the products.
3. Exchange rates:
This shows that what is the exchange rate or foreign currency rate. If exchange rate is
higher more amounts is paid on import of goods & if it lowers less amount is to be
paid & on the other hand if it is higher the amount received will be more & if it is
lower the amount received will be low.
4. National income:
National income is important factor as if affect the growth of the organisation. If per
capita income is more the amount spend will be more & if it will be lower the amount
spent will be less.
5. Economic growth:
Economic growth is important factor in the development of the organization. If
economy grows at a higher speed it will directly affect the growth of the organization.
6. Inflation rate:
Inflation means the rise in the value of the entire product in the economy, if inflation
rate is higher the cost of products will be higher & if inflation rate is lower the cost of
product will be lower. This directly affects the growth of the organization.

7. Saving and investment pattern:


The growth of fmcg sector is also determined by the peoples saving and investment
pattern. Consumer with high disposable income will benefit the fmcg sector, more
consumption of products come from this segment. Consumer spending trends do
affect company profits. If these changes are greater than expected, then stock prices
will also be impacted.
8. Monsoon:
India is an agrarian economy; the trend in monsoon directly affects the agricultural
growth, the adequacy of rainfall ensures high production and better prospects vice
versa for insufficient rainfall. FMCG sector is widely affected by monsoon because of
its raw-materials. Crops and food grains are the main ingredients used for production
of goods by the FMCG companies.

INDUSTRY ANALYSIS

INDUSTRY ANALYSIS OF FMCG INDUSTRY


Fast Moving Consumer Goods (FMCG) goods are popularly named as consumer
packaged goods. Items in this category include all consumables (other than
groceries/pulses) people buy at regular intervals. The most common in the list are
toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish,
packaged foodstuff, and household accessories and extends to certain electronic
goods. These items are meant for daily of frequent consumption and have a high
return.
The Indian FMCG sector is the fourth largest sector in the economy with a total
market size in excess of US$ 13.1 billion.It has a strong MNC presence and is
characterised by a wellestablished distribution network, intense competition between
the organised and unorganised segments and low operational cost. Availability of key
raw materials, cheaper labour costs and presence across the entire value chain gives
India a competitive advantage. The FMCG market is set to treble from US$ 11.6
billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well as per capita
consumption in most product categories like jams, toothpaste, skin care, hair wash etc
in India is low indicating the untapped market potential. Burgeoning Indian
population, particularly the middle class and the rural segments, presents an
opportunity to makers of branded products to convert consumers to branded products.
Growth is also likely to come from consumer 'upgrading' in the matured product
categories. With 200 million people expected to shift to processed and packaged food
by 2010, India needs around US$ 28 billion of investment in the food-processing
industry.

PESTEL ANALYSIS ON FMCG'S INDUSTRY


INTRODUCTION
The term Fast moving consumer goods (FMCG) refers to those retail goods that are
generally used or replaced in short period of time i.e. a day, a week, a month, &
within one year. FMCG is also known as Consumer Packaged Goods (CPG). These
products are relatively sold at low cost.
FMCGs have a short life, either as a result of high consumer demand or because the
value of product deteriorates gradually. It comprises consumer non-durable products
that include food, beverages, personal care, & household care. Goods such as meat,
fruits & vegetables, daily products & baked goods are highly perishable.
Among all the sectors FMCGs industry is one of the fourth largest sectors in the
country & growing at a booming rate over the years. The Indian FMCG industry is
mainly classified as organized & disorganize. The FMCG sector is highly segmented
as different products are made for different segments in the society.

INDUSTRY CLASSIFICATION
The FMCG industry is characterized by low margins. The FMCG segment can be
classified under two segments
A: Premium segment:- Premium segment covers mostly to higher / upper class which
is not price sensitive but brand conscious.
B: Popular segment:- The popular or mass segment consists of consumers belonging
to the semi- urban or rural areas who are not brand conscious. Products sold in the
popular segment have lower prices than premium segment.

PESTEL ANALYSIS
Pestel analysis is a tool to understand the environment in which business operates, &
the opportunities & threats that lie within it. By understanding the environment in
which it operates, it can take advantage of the opportunities & minimizing the threats.
Specifically PESTEL analysis is useful tool for understanding risks associated with
markets growth or decline, & directing business to grow.
P Political factors
E Economic factors
S Socio-cultural factors
T Technological factors
E Environment factors
L Legal factors
A PESTEL analysis is a measurement tool, looking at all the external factors of the
organization. It is often used within a strategic SWOT analysis (strength, weaknesses,
opportunities & threats analysis).

PESTEL ANALYSIS ON FMCG INDUSTRY


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Political FactorsPolitical stability: Political stability is one of the important most factors which
influence the growth of business directly. If Political stability is higher, then it leads to
perfection in business & on the other hand if there is instability the business will have
to suffer.
Taxation policy: Tax policy of government will affect the price of inputs & it
ultimately affect the prices of final products & it will directly affect the sale of
product.
Government intervenes : This indicates that at what level the government intervences
in the economy. If the government intervence is more sometimes it helps the
organization at large extent.
Subsidies : The subsidies which are provided by government to different organisation
at different level also help it to grow at faster rate & helps the organisation in reducing
the finance which is to be funded from outside & it directly reduces interest amount
paid in favour of fund raised from outside.
Trading policies : This indicates the policies related to import & export of goods and
services from different nations. If the policies are favourable more goods & services
will be imported & exported, & on the other hand if policies are unfavourable it will
restricts the import & export.
Labour law : Labour law also affect the organisation, for example- child labour, a
child below 14 year of age can not work In factory or any hazardous place.

Economic Factors
Interest rates : Interest rate directly affect the cost of capital, if the interest rate is
higher the cost of capital will increase & if it is lower then cost of capital will be
lower. This directly affect the profit of the organization & its growth.
Tax charges : If the tax charged by the government is lower then it will reduce the
product price & if it is higher then it will increase the prices of the products.
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Exchange rates : This shows that what is the exchange rate or foreign currency rate. If
exchange rate is higher more amount is paid on import of goods & if it lowers less
amount is to be paid & on the other hand if it is higher the amount received will be
more & if it is lower the amount received will be low.
National income : National income is important factor as if affect the growth of the
organisation. If per capita income is more the amount spend will be more & if it will
be lower the amount spent will be less.
Economic growth : Economic growth is important factor in the development of the
organization. If economy grows at a higher speed it will directly affect the growth of
the organization.
Inflation rate : Inflation means the rise in the value of all the product in the economy,
if inflation rate is higher the cost of products will be higher & if inflation rate is lower
the cost of product will be lower. This directly affect the growth of the organization.

Socio Cultural Factors


Demographics : Demographics is the study of human population in the economy. It
helps the organization to divide the markets in different segments to target a large of
customers. For Example- according to race, age, gender, family, religion, & sex.
Distribution of income : This shows that how income is distributed in the economy. It
directly affect the purchasing power of the buyers. And ultimately leads to increase or
decrease in the consumption level of the products.
Changes in life style : Change in life style also leads to increase or decrease in the
demand for different commodities. For example- presently LCD & LED TVs have
replaced Digital displayed TV set, this shows that the changes in life style of
consumers.
Consumerism : This indicates that a large number of options are available while
purchasing of goods to consumers, so the choice becomes easy & quality products can
be choose by consumers. So while purchasing a consumer have different choices to
select product according to his needs.
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Education levels : Education is one of the most important factor which influence the
buying power of consumer, while selecting a particular good a consumer should know
all its features so it can differentiate them with another products.
Law affect social behaviour : Different laws are made by the government to safe
guard the rights of consumers. For example- Consumer protection act, this law
indicates that a consumer can file a case against a seller if he finds that he is cheated.

Technological Factors
Advancement in technology : New technology helps in economising the scale of
production, this means that new technology helps in increasing the level of
production, & reducing the costs of inputs, & maximising the level of profits.
Discoveries & innovation : Advancement in technology will leads to discoveries &
innovations & further improvements in technology so as to improve perfections in the
production process.
Competitive forces : Advancement in technology will also leads to competition in the
markets, more quality products will be provided to consumers to cover a large number
of market.
Automation : Change in technology will leads to automation, this means that with
new technology labour required is less as machines are automatic. All the works are
done automatically by the machines as earlier it is labour oriented. Now all the work
is machine oriented.
Obsolete rate : Day-by-day new inventions are made so the rate of obsolete is higher,
as in Computer LAPTOPS have replaced the PC. This shows that the technology
becomes obsolete very fast.
Research & development : This department plays a vital role in the development of
the organization. As this department always do research that what are the demand of
the markets & how to make advancements so the organization can survive in the
competitive world.

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Environmental Factors
Ecological : The ecological and environment aspects such as weather, climate, &
climate changes, which may especially affect industry such as tourism, farming, &
insurance. In FMCG Air conditioners demand increase in summer season.
Environmental issues : Global warming is one of the major issue now-a-days as
external factor is becoming a significant issue for firms to consider. Many remedies
have been taken to reduce Global warming.
Environmental regulations : Various regulations have been declared by government to
safe guard the environment. For example- no company should through its waste in
rivers.

Legal Factors
Employment law : Employment law provides equal opportunities to every citizen to
work & earn his livelihood. It provides equal opportunities to every citizen.
Consumer protection : This law helps to protect the rights of consumers & he can file
a case against seller if he fined that he is cheated.
Industry-specific regulations : These laws are related to industry for example- no
industry can establish in between cities i.e. it should be outside the cities.

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PORTER'S FIVE FORCES MODEL

1. Rivalry among Competing Firms


0

In the FMCG Industry, rivalry among competitors is very fierce.

There are scarce customers because the industry is highly saturated and the
competitors try to snatch their share of market.

Market Players use all sorts of tactics and activities from intensive
advertisement campaigns to promotional stuff and price wars etc. Hence the
intensity of rivalry is very high.

2. Potential Entry of New Competitors


0

FMCG Industry does not have any measures which can control the entry of
new firms.

The resistance is very low and the structure of the industry is so complex that
new firms can easily enter and also offer tough competition due to cost
effectiveness. Hence potential entry of new firms is highly viable.
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3. Potential Development of Substitute Products


0

There are complex and never ending consumer needs and no firm can satisfy
all sorts of needs alone. There are plenty of substitute goods available in the
market that can be re-placed if consumers are not satisfied with one.

The wide range of choices and needs give a sufficient room for new product
development that can replace existing goods. This leads to higher consumers
expectation.

4. Bargaining Power of Suppliers


0

The bargaining power of suppliers of raw materials and intermediate goods is


not very high.

There is ample number of substitute suppliers available and the raw materials
are also readily available and most of the raw materials are homogeneous.

There is no monopoly situation in the supplier side because the suppliers are
also competing among themselves.

5. Bargaining Power of Consumers


0

Bargaining power of consumers is also very high. This is because in FMCG


industry the switching costs of most of the goods is very low and there is no
threat of buying one product over other.

Customers are never reluctant to buy or try new things off the shelf.

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SWOT ANALYSIS OF FMCG SECTOR

1) Strength of FMCG Sector :

Its operational cost is very low.

Its distribution network is present both in Rural as well as Urban areas.

In FMCG sector there is also a presence of well known brands.

Favorable Government policy : Indian Government has passed the policies


aimed at attaining international competitiveness through lifting of the
quantitative restrictions, reducing excise duties, 100 per cent export oriented
units can be set up by government approval and use of foreign brand names
etc

Foreign Direct Investment (FDI): Automatic investment approval up to 100


per cent foreign equity or 100 per cent for NRI and Overseas Corporate
Bodies investment is allowed for most of the food processing sector except
malted food, alcoholic beverages and those reserved for small scale industries
(SSI).

2) Weaknesses of FMCG industries :

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In FMCG industries there is very less scope of investment in technology and


achieving the condition of economies of scale mostly in small sectors.

It has very low exports

3) Opportunities of FMCG industries :

Changing lifestyle of society, unused rural market.

Increase in purchasing power of consumer by increase in their income level.

Mostly in India FMCG products are used by the consumers of 25 age group so
it has large market of domestic products for that age group.

People spend high on consumer goods.

According to the investigation in the largest milk producer in the world still
there is 15 percent of milk is processed only. The organized liquid milk has a
potential that it will grow for long period.

There are also good opportunities available for those people who wants to
invest in business of value added products like desserts , puddings etc.

There are only 10-12 percent of products which are consumed in the packed
form so it shows the strength of FMCG industry.

4) Threats :

In case of FMCG if the product if failed in the market then it is very difficult
to revive it back in the market.

In case of these companies if the company launches the new product in the
market then the other competitive companies also launch the same product in
the market which results in reducing profits and increasing profits.

Due to easy availability of other options customer tolerance and satisfaction


level is very low.

Tax and regulatory structure.

Rural demand depends upon the monsoon and its cyclical nature of demand.

With the removal on the restriction on imports resulting in replacement of


domestic brands of the country.

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MARKET SEGMENT

Indian FMCG market segment

Baby Care 2%
Fabric Care 12%

Food Products
43%
Hair Care 8%
Household 4%

Here is a list of top 10 FMCG companies in India; these are the best companies in
Fast moving consumer goods sector. And ranking process of companies is frequently
being updated by our expert team.
1 .Hindustan Unilever
Corporate Office Mumbai,
Maharashtra
Turnover 4.0 BillionDollar
Employees 16000+
Business Food, Beverages and
Personal Car
Sector Private Sector |

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2 . Colgate-Palmolive
Corporate Office New York,
USA
Turnover 17.08 Billion Dollar
Employees 37000+
Business Personal Care
Sector Private Sector

3 .ITC Limited
Corporate Office Kolkata, WB
Turnover 7.0 Billion Dollar
Employees 29000+
Business Tobacco, Hotels and
Personal care
Sector Private Sector

4 .Nestl
Corporate

Office

Vevey,

Switzerland
Turnover 87.0 Billion Dollar
Employees 328000+
Business Food, dairy products
and
Sector Private Sector

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Coffee

5 .Parle Agro
Corporate

Office

Mumbai,

Maharashtra
Turnover

Billion

dollar

(Appox)
Employees 2500+
Business

Food

items

and

beverages
Sector Private Sector

6 .Britannia Industries Limited


Corporate Office Kolkata, WB
Turnover 730 Million Dollar
Employees 2000+
Business Food items and dairy
Products
Sector Private Sector

7 . Marico Limited
Corporate

Office

Bandra,

Maharastra
Turnover 850 Million Dollar
Employees 1000+
Business Oil and personal Care
Sector Private limited

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8 . Procter & Gamble


Corporate Office Cincinnati,
USA
Turnover 83 Billion Dollar
Employees 125000+
Business Food, Beverages and
Personal care
Sector Public limited

9 .Godrej Group
Corporate

Office

Mumbai,

Maharashtra
Turnover

Billion

Dollar

Employees 25000+
Business Personal care, real estate
and Engineering
Sector Private Sector

10 .Amul
Corporate Office Anand, Gujarat
Turnover 2.15 Billion Dollar
Employees 700+
Business Dairy Products

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COMPANY ANALYSIS

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COMAPANY ANALYSIS OF ITC LIMITED


ITC is one of India's foremost private sector companies with a market capitalization
of US $ 45 billion and a turnover of US $ 7 billion. ITC was incorporated on August
24, 1910 under the name Imperial Tobacco Company of India Limited. As the
Company's ownership progressively Indianised, the name of the Company was
changed from Imperial Tobacco Company of India Limited to India Tobacco
Company Limited in 1970 and then to I.T.C. Limited in 1974. In recognition of the
Company's multi-business portfolio encompassing a wide range of businesses - Fast
Moving Consumer Goods comprising Foods, Personal Care, Cigarettes and Cigars,
Branded Apparel, Education and Stationery Products, Incense Sticks and Safety
Matches, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business and
Information Technology - the full stops in the Company's name were removed
effective September 18, 2001. The Company now stands rechristened 'ITC
Limited,' where ITC is today no longer an acronym.
The company completed 100 years in 2010. ITC is rated among the World's Best Big
Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes
magazine and among India's Most Valuable Companies by Business Today. ITC
ranks among India's '10 Most Valuable (Company) Brands', in a study conducted by
Brand Finance and published by the Economic Times. ITC also ranks among Asia's
50 best performing companies compiled by Business Week.
It is a Leading Fast Moving Consumer Goods (FMCG) marketer in India and has
established several world-class brands in the last 10 years. Employs over 30,000
people directly; supports livelihoods of ~6 million people
ITCs aspiration to create enduring value for the nation and its stakeholders is
manifest in its robust portfolio of traditional and Greenfield businesses
encompassing Fast Moving Consumer Goods (FMCG), Hotels, Paperboards &
Specialty Papers, Packaging, Agri-Business, and Information Technology. This
diversified presence in the businesses of tomorrow is powered by a strategy to pursue
multiple drivers of growth based on its proven competencies, enterprise strengths and
strong synergies between its businesses.

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CORE VALUES OF ITC


VISION STATEMENT
Sustain ITC's position as one of India's most valuable corporations through world
class performance, creating growing value for the Indian economy and the Companys
stakeholders.

ITCs Vision
Make a significant and growing contribution towards :
mitigating societal challenges
enhancing shareholder rewards
By creating multiple drivers of growth while sustaining leadership in tobacco, and
focusing on Triple Bottom Line Performance

Enlarge contribution to the Nations

- Financial capital
- Environmental capital
- Social capital

ITCs MISSION
To enhance the wealth generating capability of the enterprise in a globalising
environment, delivering superior and sustainable stakeholder value

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SWOT ANALYSES

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ITC BUSINESS MODEL

One of the biggest move ITC did go for in its business model is e-chopal. ITC, among
a handful of public Indian companies to adopt triple bottom line reporting, started the
ambitious e-Choupal initiative in 2000 with the dual goal of empowering Indian
farmers and creating a unique source of competitive advantage in agro-sourcing for
the company.
Enter e-Choupal a unique hub-and-spoke intervention model that is causing a
disruption of the trader-mandi-farmer dynamic. Choupal translates to gathering place
(in Hindi). The hub-and-spoke model has two dimensions. The first dimension is the
Internet kiosk (e-Choupal) set up in villages to enable farmers to access daily
wholesale prices of soybean, wheat, tobacco, and coffee, both in the local mandis as
well as the price offered by ITC ABD which processes these crops for its sister
business unit (ITC Foods Division). The second dimension is the hub which
includes warehouses and farmer training centers to support every 40-60 e-Choupals.
About 25 percent of these warehouse hubs are full-service Choupal Sagars which
also include retail stores, fuel stations, soil testing labs, and food court

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ITC CORPORATE GOVERNANCE


ITC defines Corporate Governance as a systemic process by which companies are
directed and controlled to enhance their wealth generating capacity. Since large
corporations employ vast quantum of societal resources, ITC believe that the
governance process should ensure that these companies are managed in a manner that
meets stakeholders aspirations and societal expectations.

Core Principles
ITC's Corporate Governance initiative is based on two core principles. These are :

Management must have the executive freedom to drive the enterprise forward
without undue restraints; and this freedom of management should be exercised
within a framework of effective accountability.

ITC believes that any meaningful policy on Corporate Governance must


provide empowerment to the executive management of the Company, and
simultaneously create a mechanism of checks and balances which ensures that
the decision making powers vested in the executive management is not only
not misused, but is used with care and responsibility to meet stakeholder
aspirations and societal expectations.

The Governance Structure


Flowing from the philosophy and core principles, Corporate Governance in ITC shall
take place at three interlinked levels, namely

Strategic supervision by the Board of Directors

Strategic management by the Corporate Management Committee

Executive management by the Divisional Chief Executive assisted by the


Divisional Management Committee

It is ITC's belief that the right balance between freedom of management and
accountability to shareholders can be achieved by segregating strategic supervision
from strategic and executive management. The Board of Directors (Board) as trustees
of the shareholders will exercise strategic supervision through strategic direction and
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control, and seek accountability for effective strategic management from the
Corporate Management Committee (CMC). The CMC will have the freedom, within
Board approved direction and framework, to focus its attention and energies on the
strategic management of the Company. The Divisional Chief Executive, assisted by
the Divisional Management Committee, will have the freedom to focus on the
executive management of the divisional business.

The 3-tier governance structure thus ensures that:

Strategic supervision (on behalf of the shareholders), being free from


involvement in the task of strategic management of the Company, can be
conducted by the Board with objectivity, thereby sharpening accountability of
management.

Strategic management of the Company, uncluttered by the day-to-day tasks of


executive management, remains focused and energised; and

Executive management of the divisional business, free from collective


strategic responsibilities for ITC as a whole, gets focused on enhancing the
quality, efficiency and effectiveness of its business.

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ITCS BOARD OF DIRECTORS


Chairman
Y C Deveshwar

Nakul Anand

Executive Directors
P V Dhobale

K N Grant

A Baijal

Non-Executive Directors
S Banerjee

A Duggal

A V Girija Kumar

S H Khan

R E Lerwill

S B Mainak

S B Mathur

P B Ramanujam

S S H Rehman

Meera Shankar

K Vaidyanath

Y C DEVESHWAR
Y C Deveshwar (67) joined ITC in 1968 and is an alumnus of the Indian Institute of
Technology, Delhi and Harvard Business School. He was appointed as a Director on
the Board of the Company in 1984 and became the Chief Executive and Chairman of
the Board on January 1, 1996.
Under his leadership, ITC's Sustainability initiatives were given shape by fashioning
corporate strategies that not only enhance shareholder value but add significantly to
the development of natural and social capital. ITC is a global exemplar in sustainable
business practices and is the only company in the world, of comparable dimensions to
be 'carbon positive', 'water positive' and 'solid waste recycling' positive. The
company's businesses generate livelihoods for around 6 million people, many of
whom represent the poorest in Rural India.
The pioneering farmer empowerment initiative, ITC e-Choupal, is today the world's
largest rural digital infrastructure and is a case study at the Harvard Business School
besides receiving several global awards including the inaugural World Business
Award .

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Corporate Management Committee


Members
Y C Deveshwar
Chairman
K N Grant
Executive Director
S Sivakumar
Agri & IT Businesses
B B Chatterjee
Secretarial

Nakul Anand
Executive Director
Anand Nayak
Human Resources
K S Suresh
Legal

P V Dhobale
Executive Director
T V Ramaswamy
R&D, Projects, EH&S
Rajiv Tandon
Finance

NAKUL ANAND
Nakul Anand (58) was appointed a Director on the Board of ITC effective January 3,
2011. He holds responsibility for the Hospitality, Travel & Tourism businesses of
ITC. In a career that spans over three decades, Anand has been acknowledged for his
vision and commitment. Leveraging the significant learning of sustainable excellence
within ITC, he led the team at ITC Hotels to pioneer the concept of 'Responsible
Luxury' in the hospitality industry, securing LEED Platinum certifications for all ITC
super premium luxury hotels, making it the 'Greenest Luxury Hotel Chain in the
world'. He has formulated value-based strategies to create a unique quality control
model.

P V DHOBALE
P V Dhobale (58), was appointed a Director on the Board of ITC effective January 3,
2011. He holds responsibility for Paperboards, Paper and Packaging businesses of
ITC and also represents the Finance and IT functions on the Board.
Dhobale is credited with the successful turnaround of ITC Bhadrachalam in 2001, and
exponential growth thereafter. He spearheaded the growth involving capital infusion
of over US$ 500 million through brownfield organic growth as well as acquisitions.
Under his leadership, ITC's Bhadrachalam Mill has emerged as the largest singlelocation paper mill in the country producing more than half a million tonnes of papers
& boards.

KURUSH N GRANT
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Kurush N. Grant (57), was appointed a Director on the Board of ITC effective March
20, 2010. He holds responsibility for ITCs FMCG businesses. After completing his
MBA in 1979, he worked with DCM as a Management Trainee before joining ITC in
1980 in the Marketing function.

ANAND NAYAK
Anand Nayak, Head of Human Resource Development for ITC, has been with the
Company for 41 years. He has handled senior HR assignments in the Company's
various Divisions and has been Head of Human Resource Development since 1996.
He is also responsible for overall supervision of ITC's Social Development Initiatives.
A post-graduate in Personnel Management and Industrial Relations from XLRI,
Jamshedpur, Nayak has spent his entire professional career with ITC. He is also a
Director on the Board of ITC Infotech.

RAJIV TANDON
Rajiv Tandon, Chief Financial Officer, is a Fellow Member of The Institute of
Chartered Accountants of India with over 30 years of experience. He has held various
positions in ITC including Executive Vice President - Finance & MIS of the Tobacco
Division, Executive Vice President - Corporate Finance, Finance Advisor and
member of the Management Committee of Agri Business and Tobacco Division.

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D E V E SH W AR

N AK U L

D H O B AL E

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AN AN D

CORPORATE CULTURE
ITC is a board-managed professional company, committed to creating enduring value
for the nation and the shareholder. It has a rich organisational culture rooted in its core
values of respect for people and belief in empowerment. Its philosophy of all-round
value creation is backed by strong corporate governance policies and systems.
ITCs corporate strategies are :

Create multiple drivers of growth by developing a portfolio of world class


businesses that best matches organisational capability with opportunities in
domestic and export markets.

Continue to focus on the chosen portfolio of FMCG, Hotels, Paper,


Paperboards & Packaging, Agri Business and Information Technology.

Benchmark the health of each business comprehensively across the criteria of


Market Standing, Profitability and Internal Vitality.

Ensure that each of its businesses is world class and internationally


competitive.

Enhance the competitive power of the portfolio through synergies derived by


blending the diverse skills and capabilities residing in ITCs various
businesses.

Create distributed leadership within the organisation by nurturing talented and


focused top management teams for each of the businesses.

Continuously strengthen and refine Corporate Governance processes and


systems to catalyse the entrepreneurial energies of management by striking the
golden balance between executive freedom and the need for effective control
and accountability.

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Shareholder Information

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FINANCIAL ANALYSIS
One of the most common ways of analyzing financial data is to calculate ratios from
the data to compare against those of other companies or against the company's own
historical performance. For example, return on assets is a common ratio used to
determine how efficient a company is at using its assets and as a measure of
profitability. This ratio could be calculated for several similar companies and
compared as part of a larger analysis.
ITC is the Indias most Admired and Valuable company with Market Capitalisation:
over US$ 45 Billion. it is a A USD 8 Billion enterprise by Revenue-54% of Net
Revenue from non-Cigarette segmentsIt is the Leading Fast Moving Consumer Goods
(FMCG) marketer in India and has Established several world-class brands in the last
10 years.10 year Value addition ~ Rs. 1.9 lakh crore (US$ 39 billion) with ~75%
accruing to the Exchequer
- Among the top tax payers in the nation (Private sector)
- Excise payments represent ~7% of Indias total Excise collection

BALANCE SHEET AS ON 31ST MARCH 2014

33

34

Statement of Profit and Loss for the year ended 31st


March, 2014

35

Cash Flow Statement for the year ended 31st March,


2014

36

ITCS KEY FINANCIALS 2013-14

SEGMENT REVENUE - 2013/14

37

SEGMENT RESULT 2013 -14

SEGMENT CAPITAL EMPLOYED - 2013/14

38

Rapid scale up of FMCG businesses

Financial Statement Analysis


Financial analysis is the process of identifying the financial strengths and weaknesses
of the firm by property establishing relationships.
Users of Financial Analysis

Trade creditors

Lenders

Investors

Management

Financial Ratio Analysis

A Liquidity Ratioprovides information on a company's ability to meet its


shortterm, immediate obligations.

A Profitability Ratioprovides information on the amount of income from


each dollar ofsales.

An Activity Ratio relates information on a company's ability to manage its


resources (that is, its assets) efficiently.

39

A Financial Leverage Ratio provides information on the degree of a


company's fixed financing obligations and its ability to satisfy these financing
obligations.

A Market Ratio describes the company's financial condition in terms of


amounts per share of stock.

Liquidity Ratio

Current Ratio
1.3
1.25
1.2
1.15
liquidity ratio

1.1
1.05
1
0.95
2014

2013

2012

ITC have high liquidity ratios, the higher the margin of safety that the company
possess to meet its current liabilities. Liquidity ratios greater than 1 indicate that the
company is in good financial health and it is less likely fall into financial difficulties.
Seen in all the years above 2014,2013, 2012.
Current ratio indicates Itc's ability to meet short-term debt obligations. The current
ratio measures whether or not a firm has enough resources to pay its debts over the
next 12 month.

40

Profitability Ratio

38
37
36
35

OPERATING PROFIT
MARGIN

34

PBIT MARGIN

33
GP MARGIN

32
31
30
29
2014

2013

1012

An increase in profit margin compared to the previous period's margin signals an


improvement in both operational efficiency and profitability means the company
improved its profits and efficiency. A margin higher than those of other companies or
higher than the industry average means Itc business performed better than those
companies during that period.

Activity Ratio

41

30
25

Inventory
Turnover Ratio

20

Debtors
Turnover Ratio

15
10

Investments
Turnover Ratio

5
0
2014

2013

2012

A high debtor turnover ratio implies either that the company operates on a cash basis
or that its extension of credit and collection of accounts receivable are efficient. Also,
a high ratio reflects a short lapse of time between sales and the collection of cash,
while a low number means collection takes longer.
A low inventory turnover ratio can be seen because of rescission but it is very well
aligned with FMCG industry average.

Market Ratio

16
14
12
Dividend Per Share

10
8

Operating Profit
Per Share (Rs)

6
4
2
0
2014

2013

2012

42

EPS AND P/E RATIO


Mar '14
Earnings
Per
Share
Book
Value

P/E
RATIO

11.05

Mar '13

9.39

Mar '12

40
30

Earnings Per
Share

20

Book Value

7.88

33.02

28.21

23.97

0.334646

0.332861

0.328744

10

P/E RATIO

0
Mar '14 Mar '13 Mar '12

Generally, stocks that are expected to grow earnings will have a higher P/E, Itc
companies with high growth have a higher ratio. Itc with the higher P/E is said to be
overvalued by the market. The share price should reflect a firms future value creation
potential, greater value creation can indicate greater future dividends from the
company. A higher P/E ratio should reflect greater expected future gains because of
perceived growth opportunities and/or some competitive advantages and/or lesser
risk, but at the same time it indicates that the share price is relatively more expensive.

43

COMPANY ANALYSIS OF HINDUSTAN UNILEVER


LIMITED

HINDUSTAN UNILEVER AT A GLANCE


WHO WE ARE
Hindustan Unilever Limited is one of the leading fast-moving consumer goods
companies in India. We own some of the best-known and best-loved brands like
Dove, Surf, Kissan, Bru and Pureit. We are passionate about them and proud of the
way they help people get more out of life.

WHAT WE DO
We build our brands and develop our products through extensive consumer insight,
relentless innovation, and crystal-clear design and marketing. This is a powerful blend
that helps us excite and inspire our customers and consumers. We are committed to
making sustainable living commonplace and work to develop new ways of doing
business that will reduce our environmental footprint and increase our positive social
impact.

OPERATIONAL HIGHLIGHTS
Despite a challenging environment, we delivered broad-based growth and margin
improvement by stepping up investment in brands and innovations, while driving cost
savings and operational efficiencies with even greater rigour. We delivered
competitive and profitable growth:

Domestic consumer business grew 9% with an underlying volume growth of 4%.

Operating margin expanded +40 bps.

Strong track record of cash generation was sustained with cash from operations at
over Rs. 5,000 crores, upRs. 462 crores over the previous year.
44

Total dividend of Rs. 13.00 per share was declared for the Financial Year.

QUALITATIVE FACTORS
BUSINESS MODEL
Our business model is designed to deliver sustainable growth. For us, sustainability is
integral to how we do business. In a world where temperatures are rising, water is
scarce, energy is expensive, sanitation is poor in many areas, and food supplies are
uncertain and expensive, we have both a duty and an opportunity to address these
issues in the way we do business.

OUR COMPASS STRATEGY


We call our business strategy document the Compass, since it sets out a constant
path for Unilever for the long term. First developed in 2009, it was sharpened in2012
but its core elements remained thesame. The Compass sets out our ambitious Vision
and Purpose, and defines four non-negotiable commitments within the business that
we believe will help us achieve both: winning with brands and innovation; winning in
the marketplace; winning through continuous improvement; and winning with people.
Our Statement of Purpose is also the title of our Annual Report.
The Compass gives life to our determination to build a sustainable business for the
long term and to find new ways to operate that do not just take from society and the
environment. This is captured in the Unilever Sustainable Living Plan (USLP).

OUR BUSINESS MODEL


The inputs to our business model, like those of all major packaged goods
manufacturers, are threefold: brands; people; and operations. These map directly on to
our Compass winning with commitments with both continuous improvement and
the marketplace pillars supporting the operations strand of the model.
45

The differentiator in our business model is our USLP and the goal of sustainable
living.
The outputs of the model are threefold: sustained growth; lower environmental
impact; and positive social impact.The diagram represents our virtuous circle of
growth. It summarises, simply, how we derive profit from our business model.

SUSTAINABLE LIVING
For us, sustainable, equitable growth is theonly acceptable business model. Business
needs to be a regenerative force in the system that gives it life. For example, by
reducing waste we create efficiencies and reduce costs, helping to improve margins
while reducing risk. Meanwhile, looking at more sustainable ways of developing

46

products, sourcing and manufacturing opens up opportunities for innovation while


improving the livelihoods of our suppliers.
Our USLP is the means by which we seek to achieve sustainable growth. The USLP
has three big global goals:
IMPROVING HEALTH AND WELL-BEING
By 2020 we will help more than a billion people take action to improve their health
and well-being.
REDUCING ENVIRONMENTAL IMPACT
By 2020 our goal is to halve the environmental footprint of the making and use of our
products as we grow our business.
ENHANCING LIVELIHOODS
By 2020 we will enhance the livelihoods of millions of people as we grow our
business.

OUR PEOPLE
Sustainable, profitable growth can be achieved with the right people working in an
organisation that has a culture where performance is aligned with values. We are an
agile and diverse business with people motivated by doing good while doing well. We
are building capability and leadership among our people and attracting some of the
best talent in the marketplace.

OUR BRANDS
Strong brands and innovation are central to our ambition to deliver consistent,
competitive, profitable and responsible growth. We are investing in brand
equity,finding and strengthening the connections between consumers and the products
they buy. Strong brand equities enable us tocreate efficiencies by focusing on fewer,

47

bigger projects that enhance margins. And we are seeking superior products which
consumers will prefer, driving profitable growth.

OUR OPERATIONS
On any given day 2 billion consumers use Unilever products. We want to reach many
more, by developing innovative products that address different consumer needs at
different price points. To do this, we use our global scale to help deliver sustainable,
profitable growth by seeking to add value at every step in the value chain by
enhancing product quality and customer service and rolling out innovations faster
across markets

A VIRTUOUS CIRCLE OF GROWTH


PROFITABLE VOLUME GROWTH
Profitable volume growth is the basis of the virtuous circle of growth. Stronger brands
and innovation are the key drivers behind it. Consistently strong volume growth
builds brand equity as we reach more consumers, more often.

COST LEVERAGE + EFFICIENCY


Profitable volume growth allows us to optimise the utilisation of our infrastructure
and spread fixed costs overa larger number of units produced, reducing the average
cost per unit. It improves our profitability and allows us to invest in the business.

INNOVATION + MARKETING INVESTMENT


Lower costs and improved efficiency enable us to invest behind our brands to
strengthen our business further. New and improved products are the result of
investment in R&D and, together with effective marketing, strengthen our brand
equity. This results in profitable volume growth, self perpetuating the virtuous circle
of growth.
48

MANAGEMENT
MANAGEMENT COMMITTEE
The day-to-day management of affairs of the Company is vested with the
Management Committee which is subjected to the overall superintendence and control
of the Board.
The Management Committee is headed by Mr. Sanjiv Mehta and has functional heads
as its members representing various functions of the Company
1 Mr. Sanjiv Mehta
Managing Director and Chief Executive Officer
2 Mr. Sridhar Ramamurthy
Executive Director, Finance &IT and Chief Financial Officer
3 Mr. Hemant Bakshi
Executive Director, Home and Personal Care
4 Mr. Pradeep Banerjee
Executive Director, Supply Chain
5 Mr. Dev Bajpai
Executive Director, Legal & Corporate Affairs and Company Secretary
6 Ms. Geetu Verma
Executive Director, Foods & Refreshment
7 Mr. Manish Tiwary
Executive Director, Sales and Customer Development
8. Mr. B. P. Biddappa

49

Executive Director, Human Resources

CORPORATE GOVERNANCE
I believe that nothing can be greater than a business, however small it may be, that is
governed by conscience; and that nothing can be meaner or more petty than a
business, however large, governed without honesty and without brotherhood.
Transparency and accountability are the two basic tenets of Corporate Governance. At
Hindustan Unilever, we feel proud to belong to a Company whose visionary founders
laid the foundation stone for good governance long back and made it an integral
principle of the business, as demonstrated in the words above.
Responsible corporate conduct is integral to the way we do our business. Our actions
are governed by our values and principles, which are reinforced at all levels within the
Company. At Hindustan Unilever, we are committed to doing things the right way
which means taking business decisions and acting in a way that is ethical and is in
compliance with applicable legislation.
Our Code of Business Principles is an extension of our values and reflects our
continued commitment to ethical business practices across our operations. We
acknowledge our individual and collective responsibilities to manage our business
activities with integrity. Our Code of Business Principles inspires us to set standards
which not only meet applicable legislation but go beyond in many areas of our
functioning.
To succeed, we believe, requires highest standards of corporate behaviour towards
everyone we work with, the communities we touch and the environment on which we
have an impact. This is our road to consistent, competitive, profitable and responsible
growth and creating long term value for our shareholders, our people and our business
partners. The above principles have been the guiding force for whatever we do and
shall continue to be so in the years to come.
The Board of Directors (the Board) is responsible for and committed to sound
principles of Corporate Governance in the Company. The Board plays a crucial role in
50

overseeing how the management serves the short and long term interests of
shareholders and other stakeholders. This belief is reflected in our governance
practices, under which we strive to maintain an effective, informed and independent
Board. We keep our governance practices under continuous review and benchmark
ourselves to best practices across the globe.

THE BOARD OF DIRECTORS


The Board of Directors is entrusted with the ultimate responsibility of the
management, general affairs, direction and performance of the Company and has been
vested with requisite powers, authorities and duties. The Management Committee of
the Company is headed by the Managing Director and Chief Executive Officer and
has business / functional heads as its members, which looks after the management of
the day-to-day affairs of the Company.
Composition
The Board comprises such number of Non-Executive, Executive and Independent
Directors as required under applicable legislation. As on date of this Report, the
Board consists of eight Directors comprising one Non-Executive Chairman, four
Independent Directors and three Executive Directors.
The composition of the Board represents an optimal mix of professionalism,
knowledge and experience and enables the Board to discharge its responsibilities and
provide effective leadership to the business. The positions of the Chairman of the
Board and the Chief Executive Officer of the Company are held by separate
individuals, where the Chairman of the Board is a Non-Executive Director.
During the year, Dr. R. A. Mashelkar, Independent Director of the Company, upon
attaining the age of seventy years, retired from the Board of the Company by not
offering himself forre-appointment at the Annual General Meeting, in accordance
with the then prevailing policy of the Company.
Mr. Nitin Paranjpe, consequent to his elevation as President, Home Care for Unilever,
stepped down as the Managing Director and Chief Executive Officer of the Company.
Mr. Sanjiv Mehta was appointed as the Managing Director and Chief Executive
51

Officer succeeding Mr. Nitin Paranjpe. Mr. Sanjiv Mehta was appointed as an
Additional Director on the Board with effect from 1st October, 2013 and as the
Managing Director and Chief Executive Officer with effect from 10th October, 2013.

Mr. Harish Manwani - Chairman


Mr. Harish Manwani (60) assumed charge as the Non-Executive Chairman of the
Company with effect from 1st July, 2005. He is also the Chief Operating Officer of
Unilever and a member of Unilever Leadership Executive (ULE).

Mr. Sanjiv Mehta - CEO and Managing Director


Mr. Sanjiv Mehta (53) joined the Board of the Company in October 2013. He is also
the Executive Vice President for Unilever in South Asia and a member of Unilevers
Global Market Executive.

Mr. P. B. Balaji - Chief Financial Officer


Mr. P. B. Balaji (44) joined the Company as a Management Trainee in May 1993 and
has worked in number of roles in finance and supply chain over a period of 20 years.

52

Mr Pradeep Banerjee - Executive Director, Supply Chain


Mr. Pradeep Banerjee (55) joined the Company as a Management Trainee in 1980.

Mr. Aditya Narayan - Independent Director


Mr. Aditya Narayan (62) began his career as a Management Trainee with ICI India
Limited (now Akzo Nobel India Limited) in 1973.

Mr. S. Ramadorai - Independent Director


Mr. S. Ramadorai (69) has been in public service since February 2011, currently
acting as Chairman of National Skill Development Agency (NSDA) in the rank of a
Cabinet Minister.

Mr. O. P. Bhatt - Independent Director


Mr. O. P. Bhatt (63) is the former Chairman of SBI (State Bank of India). In the 36
years that Mr. Bhatt served at SBI, he worked on several important national and
international assignments.

Dr. Sanjiv Misra - Independent Director


53

Dr. Sanjiv Misra (66) is a retired Indian Administrative Services (IAS) officer and a
former member of the 13th Finance Commission, a constitutional position with the
rank of a Minister of State.

Ms. Kalpana Morparia - Independent Director


Ms. Kalpana Morparia (65) is Chief Executive Officer of J.P. Morgan, India. Ms.
Kalpana leads each of the firm's lines of business Corporate & Investment Banking
and Asset Management.

FINANCIAL ANALYSIS
One of the most common ways of analyzing financial data is to calculate ratios from
the data to compare against those of other companies or against the company's own
historical performance. For example, return on assets is a common ratio used to
determine how efficient a company is at using its assets and as a measure of
profitability. This ratio could be calculated for several similar companies and
compared as part of a larger analysis.
Despite the Indian economy witnessing a slowdown, HUL Company delivered
healthy results. HULs domestic consumer business grew by 9% with 4% underlying
volume growth which was ahead of the market. Profit before interest and tax (PBIT)
grew by 12% with PBIT margin improving 40 bps. Profit after tax but before
exceptional items, PAT , grew by 7% to Rs. 3,555 crores with Net Profit at Rs. 3,867
crores growing 2%. Net Profit growth was impacted by the significant property sale in
the previous year. Cash generated from operations at over Rs. 5,000 crores for the
year, was up Rs. 462 crores over the previous year.

54

BALANCE SHEET AS ON 31ST MARCH 2014

55

56

Statement of Profit and Loss for the year ended 31st


March, 2014

57

58

Cash Flow Statement for the year ended 31st March,


2014

HULS KEY FINANCIALS 2013-14

59

SEGMENT RESULT 2013 -14

KEY RATIOS SNAPSHOT

Financial Statement Analysis


Financial analysis is the process of identifying the financial strengths and weaknesses
of the firm by property establishing relationships.

60

Users of Financial Analysis

Trade creditors

Lenders

Investors

Management

Financial Ratio Analysis

A Liquidity Ratioprovides information on a company's ability to meet its


shortterm, immediate obligations.

A Profitability Ratioprovides information on the amount of income from


each dollar ofsales.

An Activity Ratio relates information on a company's ability to manage its


resources (that is, its assets) efficiently.

A Financial Leverage Ratio provides information on the degree of a


company's fixed financing obligations and its ability to satisfy these financing
obligations.

A Market Ratio describes the company's financial condition in terms of


amounts per share of stock

Liquidity Ratio
LIQUIDITY
RATIOS
Current Ratio

2014

2013

2012

0.74

0.76

0.83

Quick Ratio

0.44

0.45

0.46

0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0

Current Ratio
Quick Ratio

2014

2013

2012

61

HUL have low liquidity ratios, the higher the margin of safety that the company
possess to meet its current liabilities. Liquidity ratios less than 1 indicate that the
company is not in good financial health and it is less likely fall into financial
difficulties. Seen in all the years above 2014,2013, 2012.
Current ratio indicates Itc's ability to meet short-term debt obligations. The current
ratio measures whether or not a firm has enough resources to pay its debts over the
next 12 month.

Profitability Ratio
Profitability Ratios
2014

2013

2012

Operating Profit Margin (%)

15.97

15.51

14.88

Profit Before Interest And Tax

14.71

14.26

13.72

15.04

14.59

13.89

Margin (%)
Gross Profit Margin (%)
16
15.5
Operating Profit
Margin(%)

15
14.5

Profit Before Interest


And Tax Margin(%)

14

Gross Profit
Margin(%)

13.5
13
12.5
2014

2013

2012

An increase in profit margin compared to the previous period's margin signals an


improvement in both operational efficiency and profitability means the company
improved its profits and efficiency. A margin higher than those of other companies or
higher than the industry average means HUL business performed better than those
companies during that period.

Activity Ratio
62

Management Efficiency Ratios


2014

2013

2012

10.2

10.21

8.79

33.96

34.13

27.27

10.2

10.21

8.79

Inventory Turnover
Ratio
Debtors Turnover Ratio

Investments Turnover
Ratio

35
30
Inventory Turnover
Ratio

25
20

Debtors Turnover
Ratio

15

Investments Turnover
Ratio

10
5
0
2014

2013

2012

A high debtor turnover ratio implies either that the company operates on a cash basis
or that its extension of credit and collection of accounts receivable are efficient. Also,
a high ratio reflects a short lapse of time between sales and the collection of cash,
while a low number means collection takes longer.
A low inventory turnover ratio can be seen because of rescission but it is very well
aligned with FMCG industry average.

Market Ratio
MARKET RATIO
Dividend Per Share

2104
13

2013
18.5

63

2012
7.5

20.69

Operating Profit Per


Share (Rs)

18.51

15.23

25
20

Dividend Per
Share

15
10

Operating Profit
Per Share (Rs)

5
0
2104

2013

2012

EPS AND P/E RATIO


Earnings Per
Share
Book Value

Mar '14
17.88

Mar '13
17.56

Mar '12
12.45

15.15

12.37

16.25

1.180198 1.419563 0.766154

P/E RATIO

18
16
14
12
Earnings Per Share

10

Book Value

P/E RATIO

6
4
2
0
Mar '14

Mar '13

Mar '12

Generally, stocks that are expected to grow earnings will have a higher P/E, HUL
companies with high growth have a higher ratio. HUL with the higher P/E is said to
be overvalued by the market. The share price should reflect a firms future value
creation potential, greater value creation can indicate greater future dividends from
64

the company. A higher P/E ratio should reflect greater expected future gains because
of perceived growth opportunities and some competitive advantages or lesser risk, but
at the same time it indicates that the share price is relatively more expensive.

65

STRY ANAYSIS

66