CORPORATE FINANCE II PROJECT

SUBMITTED TO: PROF. RITESH DUBEY

SUBMITTED BY:

GROUP 8
SECTION A
ARBAZ MOHD ASHFAQ- 19A1HP038

AMITROJIT DAN- 19A1HP033

SHANTANU AGARWAL- 19A1HP005

KARTHIKEY CHAUBEY- 19A1HP013

AVIRAL SANKHYADHAR- 19A1HP035

 Introduction of the FMCG Sector:

Fast moving consumer goods (FMCG) are the 4th largest sector in the Indian economy. There are
three main segments in the sector – food and beverages which accounts for 19 per cent of the sector,
healthcare which accounts for 31 per cent and household and personal care which accounts for the
remaining 50 per cent.

The FMCG sector has grown from Rs 2, 20,852.4 crore (US$ 31.6 billion) in2011 to Rs 3, 68,669.75

Company Ratios Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

Dabur Current ratio 1.23 1.38 1.38 1.46 1.44
Quick Ratio 0.71 .77 .74 .79 .79
Cash Ratio .15 .12 .18 .16 .17
Godrej Current ratio 1.54 1.47 1.51 1.41 1.35
Quick Ratio 0.98 0.89 0.93 0.90 0.85
Cash Ratio 0.47 0.33 0.37 0.31 0.29
HUL Current ratio 1.23 1.38 1.38 1.46 1.44
Quick Ratio 0.71 0.77 0.74 0.79 0.79
Cash Ratio 0.15 0.12 0.18 0.16 0.17
P&G Current ratio 1.90 3.19 1.04 1.43 1.63
Quick Ratio 1.73 2.94 0.73 1.21 1.32
Cash Ratio 0.86 2.10 0.20 0.70 0.82
ITC Current ratio 1.658420597 3.177687964 2.373479 1.798189 1.924314
Quick Ratio 0.936032042 1.562583766 1.080674 0.906808 1.068618
Cash Ratio 0.699514214 1.069024415 0.451639 0.319605 0.425041
crore (US$ 52.75 billion) in 2017-18. The sector further expected to grow at a Compound Annual Growth
Rate (CAGR) of 27.86 per cent to reach Rs 7,24,759.3 crore (US$ 103.7 billion) by 2020.

Ratio Analysis:

 The Current Ratio of the Industry is safe to certain extent. The Individual firms
have an average current ratio of more than 1.3 and the overall industry average 1.6.
Thus, we may conclude that the firms are strong enough to cover their current
obligations.

 The cash ratio maintained by the company is tolerable. ITC AND P&G have
maintained a desirable amount of cash which may act as a shield against short-term
obligations.

 All the companies specially P&G exhibits a good quick ratio. Dabur has maintained
an average around 0.74, while P&G has it around 1.5. So, these firms are competent
enough to meet the short-term obligation.
Profitability Ratios:

Company Ratios Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

Dabur Gross Profit
Margin 13.86% 16.14% 16.63% 17.12% 15.48%
Return On Assets 26.12% 25.13% 21.45% 19.64% 20.51%
Return On Equity 32.34% 30.45% 26.12% 23.16% 23.40%
Godrej Gross Profit
Margin 11.63% 9.97% 14.22% 16.62% 16.17%
Return On Assets 13.34% 11.55% 12.80% 15.41% 15.19%
Return On Equity 22.33% 19.68% 24.86% 26.15% 22.95%
HUL Gross Profit
Margin 13.86% 16.14% 16.63% 17.12% 15.48%
Return On Assets 26.12% 25.13% 21.45% 19.64% 20.51%
Return On Equity 32.34% 30.45% 26.12% 23.16% 23.40%
P&G Gross Profit
Margin 21.7% 28.2% 29.4% 23.9% 20.8%
Return On Assets 28.10% 25.52% 74.89% 43.85% 43.01%
Return On Equity 28.17% 25.58% 82.25% 46.50% 46.11%
ITC Gross Profit
Margin 0.273274186 0.259988678 0.254868 0.276952 0.279914
Return On Assets 0.350024208 0.242934003 0.235578 0.24599 0.236285
Return On Equity 0.324591054 0.228322014 0.225344 0.218908 0.217342

Ratio Analysis:

 Basically, all the players are enjoying a positive gross profit margin, they are efficiently able
to cover the necessary cost of production. However, we see that P&G and ITC has a greater
average gross profit margin over the others that is around 24% and 26% respectively.

 The companies are also efficiently utilizing the equity to generate income. P&G as shown a
tremendous growth in utilizing its equity to generate necessary income.

 The Asset turnover Ratio is also promising meaning that the companies are properly
utilizing overall assets in generating income.
Leverage:

Company Ratios Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

Dabur Debt Equity
Ratio 0.24 0.21 0.22 0.18 0.14
Equity Multiplier 1.24 1.21 1.22 1.18 1.14

Godrej Debt Equity

Ratio 0.67 0.70 0.94 0.70 0.51
Equity Multiplier 1.67 1.70 1.94 1.70 1.51

HUL Debt Equity

Ratio 0.24 0.21 0.22 0.18 0.14
Equity Multiplier 1.24 1.21 1.22 1.18 1.14

P&G Debt Equity

Ratio 0 0 0 0 0
Equity Multiplier 1.003 1.002 1.098 1.060 1.072

ITC Debt Equity

Ratio 0.00172503 0.001015209 0.00057 0.00035 0.000192
Equity Multiplier 0.927338869 0.939852023 0.956557 0.889907 0.91983

Ratio Analysis:

 It is observable that the debt-equity ratio of most of the companies are less than one, which
means they are less dependent on debt while managing operations. Dabur has maintained
the around average of 0.20 while that if HUL is around 1.68

 Majority of the players have a equity multiplier of more than one, which signifies they are
dependent on debt to certain extent and thus, they are a bit riskier. Thus we can say that
Godrej is the most riskier among the above.
Degree of Financial Leverage:

Company Ratios Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

Dabur Operating
Leverage 33.63 -1.20 3.44 0.21
Financial
Leverage 0.95 -0.11 0.89 -0.26
Total
Leverage 31.81 0.13 3.08 -0.05
Godrej Operating
Leverage -2.74 4.21 3.22 1.06
Financial
Leverage 2.62 1.35 -1.88 -6.36
Total
Leverage -7.19 5.68 -6.07 -6.77
HUL Operating
Leverage 33.63 -1.20 3.44 0.21
Financial
Leverage 0.95 -0.11 0.89 -0.26
Total
Leverage 31.81 0.13 3.08 -0.05
P&G Operating - -
Leverage 0.626118704 10.66961914 3.183931602 2.398050199 0.218978702
Financial
Leverage 1.011421497 1.009866247 1.015511261 1.009144507 1.009023101
Total - -
Leverage 0.633269917 10.77488824 3.233318397 2.419979187 0.220954569
ITC Operating
Leverage 13.94312756 0.769329 6.761009 0.844966
Financial
Leverage 1.01 1.00 1.00 1.01 1.00
Total
Leverage 14.01273341 0.771579 6.804981 0.847625

Ratio Analysis:

 Financial leverage, which means how the company’s earnings would be impacted due to
fluctuation in operating income. For most of the companies the ratio is less than one,
signifying the fluctuation in the earnings per share would be less in contrast to change in
operating income. However in case of P&G the ratio is 1.01, indicating with every increase
in operating income by 1 the EPS will increase by 1.01.
  In case of HUL the operating profit is high thus, an increase in sale can obviously increase
the profits of the company. However lower operating profit means that there is relatively
higher variable cost thus increase in sales may not increase the profit.

Operating and Cash Cycle:

Company Ratios Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

Dabur operating cycle 123.48 127.54 135.65 137.54 136.67
cash cycle 33.26 20.57 18.83 20.87
Dividend Payout
ratio 38.30% 33.34% 17.39% 16.66% 16.75%
Godrej operating cycle 129.96 142.48 148.83 159.80 162.96
cash cycle 39.06 25.88 4.90 -21.93
Dividend Payout
ratio 19.45% 0.00% 0.00% 37.47% 73.56%
HUL operating cycle 123.48 127.54 135.65 137.54 136.67
cash cycle 33.26 20.57 18.83 20.87
Dividend Payout
ratio 38.30% 33.34% 17.39% 16.66% 16.75%
P&G operating cycle 39.40 47.51 51.20 44.76 48.18
cash cycle -95.48 -71.05 -67.41 -112.87 -83.45
Dividend Payout
ratio 28.37% 27.66% 298.56% 23.40% 61.96%
ITC operating cycle 209.6522958 182.6132 173.3441 160.9304
cash cycle 187.7727515 160.8562 146.6907 133.5505
Dividend Payout
ratio 50.21485426 52.67225173 0 0 0

Ratio Analysis:

 Companies such as Dabur, P&G and HUL are consistently paying dividend while ITC and
others are basically retaining the profits and utilizing them in the business.

 The overall Operating cycle is high as it requires time to acquire material, produce and sell
the items. For Dabur the operating cycle is around average of 130 days, P&G has a lower
operating cycle 40days. Thus, higher the operating cycle more is the time for which the
current assets of the company are blocked in contrast to lower operating cycle.

 For Dabur, Godrej and HUL the cash cycle is around 25 days. Therefore, it signifies that
these companies are more efficiently operating in terms of conversion of raw materials into
goods and thereby selling them to acquire cash. So basically, for P&G a negative cash cycle
refers that it acquires all the dues from the debtors before it is clearing the claims of the
creditors.

CONCLUSION:

As players of the FMCG sectors all the companies are playing well. However, in certain
cases Dabur, Godrej and HUL are facing competition in terms of efficiency of the other two
players. Thus, there is no doubt, that P&G is performing the best among the others.