SECURITIES AND PORTFOLIO

MANAGEMENT

CIA-3

ASSIGNMENT ON
EIC ANALYSIS & PORTFLOIO

By
Dominic George 1927206
Jaydeep Bairagi 1927207
Rohini S Kumar 1927442

Submitted to
DR. ANIRBAN

Institute of Management
CHRIST (DEEMED TO BE UNIVERSITY)
Bengaluru
 FMCG
INDUSTRY

(ITC)
ECONOMIC ANALYSIS
India is the fastest developing trillion-dollar economy across the world. The Indian economy was
simply $189.438 billion of every 1980, positioning thirteenth on the rundown all-inclusive.
India's development rate is slightly improved from 7.3% in 2018 to 7.5% in 2019. The reason for
the drag is the currency exchange initiative and the introduction of the goods and services tax
fade, according to the IMF.

Its service sector is contributing more than 60% to its economy and providing 28% of
employment opportunities.

The economy's strength lies in exports, high saving rates, favorable demographics, and a rising
middle class but it is limited. Indian economic growth is poised to bounce back after slipping to a
more than six-year low of 4.5% in the July-September quarter as the government has taken
measures to prop up investments and consumer demand
The economy should grow at a faster pace in FY 2020 due to accommodative fiscal and
monetary policy. However, the coronavirus outbreak created a short-term risk for exports. High
levels of bad debt in India’s banking sector has affected lending, which in turn affected
consumption and fixed investment growth.

Leading Indicators

 Stock Market
The main challenge the markets are facing is certain stocks kept on becoming expensive
and cheaper stocks become more and cheaper. The stock market is currently having
anadverse impact due to the outbreak of coronavirus. Nifty 50 indexes have dropped 5%
to below 10,400. The Sensex finished 1942 points or 5.2% lower at 35635.

 Capacity Utilization
Capacity utilization is increasing every quarter as Indian factories are running at 77% of
their capacity. But still, the slowdown is happening. It may be due to the reason that only
selected manufacturing units are working in its full capacity and these units may not be
contributing much to the overall growth.
  Bank credit growth
Credit growth has slowed down in 2019 due to consumption slowdown. Muted economic
growth, lower working capital requirement and risk aversion are some other factors
contributing to slow credit growth. India’s Domestic credit growth shown a slight
improvement from 2304303.6 in December 2019 to 2335498.1 in January 2020. The
value of the loan has increased by 6.4% from 2019 to 2020.

 Bond yields
Currently, India’s 10-year bond yield collapses due to the fall in oil prices eased inflation
and fiscal deficit. Another reason for the collapse is the outburst of coronavirus. The
expectation of a rate cut by RBI has arisen which is further pressurizing bond yields.

 Housing Market
In 2019, despite the economic slowdown, Indian real estate remained stable. With the
expectation of economic growth, real estate also will boom or at least it will maintain its
momentum. In most of the metropolitan cities, the price has dropped or remained flat but
supply increased due to new launched. But demand did not keep pace with supply.

 Levels of New business Startup

Indian startups are growing at a rapid speed. As of November 2019, over 1300 startups
are added along with 8900 tech-startups. It is the third largest startup ecosystem in the
world.

Lagging Indicators

 GDP
India has a nominal GDP of $3.202 trillion. India has become the fifth-biggest economy
in 2020. It has overtaken United Kingdom and France. The nation positions were third
when GDP is looked at as per Purchasing Power Parity at $11.33 trillion as of 2019.
 India’s GDP per capita reached 2044.586 USD in March 2019. Due to India's high
population, GDP per capita is not improving at a very good pace.

 Wages
By the end of 2020, wages in India are estimated to reach 356.30INR/Day according to
Trading Economics global macro models and analytics expectations. It will gradually
increase in coming years. The minimum wage, as on 2019, is 178 INR/Day.

 Unemployment rate
Increased unemployment rate is not a good sign. In February 2020, the unemployment
rate rose to 7.8% from 7.2% in October 2019. In rural areas unemployment rate increased
whereas in urban areas the rate fallen.

 Consumer price index (Inflation)

CPI increased to 7.59% in January 2020 from 7.53% in December. After May 2014, it is
the second time that the inflation in rising continuously for 6 months. Rising vegetable
prices are probably pushing this inflation.

 Currency strength
Indian rupees was showing a better performance in mid-2019. But it is affected by
economic slowdown and is now further plunged by coronavirus-led economic recession.
Forex traders said that the rupee is depreciating.

 Balance of trade
India’s Trade Balance is showing an increased deficit in January 2020 compared to last
year. Both import and export has decreased by 0.8% and 1.7%, respectively, in January.
Export decreased at a higher rate as compared to import which is not a good sign. In
2020, both import and export is expected to improve by 4.8% and 5.1% respectively. This
will further reduce the deficit of Indian economy. But the current widespread coronavirus
has affected trade. It is among the 15 most affected economies.
Coincident Indicators

 Manufacturing Activity
From being an agrarian nation, India is now strongly emerging in service sector and
manufacturing sector. The introduction of Make In India is boosting the manufacturing
sector in India.

 Industrial production
Industrial production fell by 0.3% in 2019. But it is slowly showing expansion in India’s
Industrial Production from November 2019. It shows a sharp growth in intermediate
goods.

 Personal Income
The country’s per capita monthly income is estimated to have risen from Rs. 10534 in
2018-19 to Rs. 11254 in 2019-20. Per-capita income indicates the prosperity of a country.
Budget 2020 cut down the personal tax. This increased the Disposable Income.

INDUSTRY ANALYSIS
FMCG INDUSTRIES

 FMCG is the 4th largest sector in India. This sector includes food and beverages,
healthcare and household and personal care. This sector has grown from USD $31.6
billion in 2011 to US$ 103.7 billion by 2020.
 With the increase in private consumption and rural income, this sector will further grow.
 Key Growth Drivers:- growing awareness, easier access and changing lifestyles-
increasing working women and growing nuclear families, habit of tobacco consumption.
 The urban segment contributes highest revenue generation (55%) in this sector. Even
rural segment is contributing a significant percentage (45%) of revenue. Demand for
quality products and improved distribution channels of manufacturing is creating demand
in rural areas.
  The Indian Government has approved 100% FDI in single brand retail and 51% FDI
(Foreign Direct Investment) in multi-brand retail.
 The revised GST further helped FMCG to boost. Many of FMCG products that was
initially in 23%-34% is now in 28% tax bracket.
 Although there is economic slowdown, it is less impacted in FMCGs as it deals with food
and consumer products of frequent consumption.
 Entering into FMCG industry has few barriers like huge investments in establishing
brand and distribution networks.
 Suppliers have less bargaining power due to the small portion hold by each supplier. On
contrary, buyers have good bargaining power due to increased competition including e-
commerce.

COMPANY ANALYSIS
ITC

ITC Ltd. is a public sector FMCG company. It is an Indian multinational conglomerate with
headquarter located in Kolkata, West Bengal. It was founded in @4the August 1910, 109 years
ago. As of 2019, ITC has a Net Income of $1.8 billion. It has total 27,279 employees. The
company has diversified presence in FMCG, hotels, packaging, paperboards & specialty papers
and agri-business. It believes in sustainable development and provides sustainable livelihoods for
millions of people, mainly from rural areas. After the budget 2020, ITC’s cigarette business was
adversely affected. But overall its performance was good. The FMCG business performed very
well as a matter, ITC posted revenue growth of 5% even during this economic slowdown. Along
with high tax on cigarettes and ban on e-cigarettes, climate change, geo political issues also lead
to the disrupted consumption. The company’s FMCG shows a sluggish performance in this
quarters. Still the company registered moderate growth rates in urban as well as rural markets

Analysis on the basis of Financial Statement

 Sales Growth: Sales growth of ITC is slowing down from 2019.

 Earnings per share is improving year by year.
 EBITDA is also showing a steady growth.
  Company reduced the debt by 29.1% in the year 2019. It reduces the burden from
overwhelming debt repayment along with the interest.
 Company has enough cash to carry out its day to day operations. Cash flow from
investing activities is Rs-55 billion in March 2019. It means company has done a lots of
investment. Similarly, cash flow from Financing Activities are also negative. It is due to
the repayment of debt and dividend payments.

Analysis on the basis of ratios

PROFITABILITY RATIOS 2018  

2019

Operating Profit Margin(%) 38.46 38.25  

Profit Before Interest And Tax 33.68 33.66  

Margin(%)

Gross Profit Margin(%) 35.54 35.43  

Adjusted Cash Margin(%) 29.01 27.96  

Net Profit Margin(%) 27.70 27.62  

Adjusted Net Profit Margin(%) 26.25 26.24  

Return On Capital Employed(%) 31.88 32.14  

Return On Net Worth(%) 22.27 21.83  

Adjusted Return on Net Worth(%) 22.27 21.03  

Return on Long Term Funds(%) 33.02 32.14  

LIQUIDITY AND SOLVENCY RATIOS  

Current Ratio 1.80 1.68

Quick Ratio 1.16 1.02

DEBT COVERAGE RATIOS 20 2018  

19

Interest Cover 540.46 190.71  

Total Debt to Owners Fund 0.00 0.00  

Financial Charges Coverage Ratio 578.83 203.93  

Financial Charges Coverage Ratio Post 403.93 143.74

Tax

 ITC has a higher P/E ratio as compared to the average company as of 2019.
 Current ratio of the company has improved. It shows the company’s ability to pay short
term and long term obligations has improved.
 Company is having a good interest coverage ratio, which shows it ability to pay interest
expense on outstanding debt.
 ROE for the company has declined. It show a decline profits on company’s equity.
Return on Capital Employed has also declined which shows decline in profits on
company’s total capital.
 ITC’s share price is continuously falling down especially after budget 2020.
AVIATION
INDUSTRY
(INDIGO)
ECONOMIC ANALYSIS
India is the fastest developing trillion-dollar economy across the world. The Indian economy was
simply $189.438 billion of every 1980, positioning thirteenth on the rundown all-inclusive.
India's development rate is slightly improved from 7.3% in 2018 to 7.5% in 2019. The reason for
the drag is the currency exchange initiative and the introduction of the goods and services tax
fade, according to the IMF.

Its service sector is contributing more than 60% to its economy and providing 28% of
employment opportunities.

The economy's strength lies in exports, high saving rates, favorable demographics, and a rising
middle class but it is limited. Indian economic growth is poised to bounce back after slipping to a
more than six-year low of 4.5% in the July-September quarter as the government has taken
measures to prop up investments and consumer demand
The economy should grow at a faster pace in FY 2020 due to accommodative fiscal and
monetary policy. However, the coronavirus outbreak created a short-term risk for exports. High
levels of bad debt in India’s banking sector has affected lending, which in turn affected
consumption and fixed investment growth.

Leading Indicators

 Stock Market
The main challenge the markets are facing is certain stocks kept on becoming expensive
and cheaper stocks become more and cheaper. The stock market is currently having
anadverse impact due to the outbreak of coronavirus. Nifty 50 indexes have dropped 5%
to below 10,400. The Sensex finished 1942 points or 5.2% lower at 35635.

 Capacity Utilization
 Capacity utilization is increasing every quarter as Indian factories are running at 77% of
their capacity. But still, the slowdown is happening. It may be due to the reason that only
selected manufacturing units are working in its full capacity and these units may not be
contributing much to the overall growth.

 Bank credit growth

Credit growth has slowed down in 2019 due to consumption slowdown. Muted economic
growth, lower working capital requirement and risk aversion are some other factors
contributing to slow credit growth. India’s Domestic credit growth shown a slight
improvement from 2304303.6 in December 2019 to 2335498.1 in January 2020. The
value of the loan has increased by 6.4% from 2019 to 2020.

 Bond yields
Currently, India’s 10-year bond yield collapses due to the fall in oil prices eased inflation
and fiscal deficit. Another reason for the collapse is the outburst of coronavirus. The
expectation of a rate cut by RBI has arisen which is further pressurizing bond yields.

 Housing Market
In 2019, despite the economic slowdown, Indian real estate remained stable. With the
expectation of economic growth, real estate also will boom or at least it will maintain its
momentum. In most of the metropolitan cities, the price has dropped or remained flat but
supply increased due to new launched. But demand did not keep pace with supply.

 Levels of New business Startup

Indian startups are growing at a rapid speed. As of November 2019, over 1300 startups
are added along with 8900 tech-startups. It is the third largest startup ecosystem in the
world.

Lagging Indicators

 GDP
 India has a nominal GDP of $3.202 trillion. India has become the fifth-biggest economy
in 2020. It has overtaken United Kingdom and France. The nation positions were third
when GDP is looked at as per Purchasing Power Parity at $11.33 trillion as of 2019.
India’s GDP per capita reached 2044.586 USD in March 2019. Due to India's high
population, GDP per capita is not improving at a very good pace.

 Wages
By the end of 2020, wages in India are estimated to reach 356.30INR/Day according to
Trading Economics global macro models and analytics expectations. It will gradually
increase in coming years. The minimum wage, as on 2019, is 178 INR/Day.

 Unemployment rate
Increased unemployment rate is not a good sign. In February 2020, the unemployment
rate rose to 7.8% from 7.2% in October 2019. In rural areas unemployment rate increased
whereas in urban areas the rate fallen.

 Consumer price index (Inflation)

CPI increased to 7.59% in January 2020 from 7.53% in December. After May 2014, it is
the second time that the inflation in rising continuously for 6 months. Rising vegetable
prices are probably pushing this inflation.

 Currency strength
Indian rupees was showing a better performance in mid-2019. But it is affected by
economic slowdown and is now further plunged by coronavirus-led economic recession.
Forex traders said that the rupee is depreciating.

 Balance of trade
India’s Trade Balance is showing an increased deficit in January 2020 compared to last
year. Both import and export has decreased by 0.8% and 1.7%, respectively, in January.
Export decreased at a higher rate as compared to import which is not a good sign. In
2020, both import and export is expected to improve by 4.8% and 5.1% respectively. This
 will further reduce the deficit of Indian economy. But the current widespread coronavirus
has affected trade. It is among the 15 most affected economies.

Coincident Indicators

 Manufacturing Activity
From being an agrarian nation, India is now strongly emerging in service sector and
manufacturing sector. The introduction of Make In India is boosting the manufacturing
sector in India.

 Industrial production
Industrial production fell by 0.3% in 2019. But it is slowly showing expansion in India’s
Industrial Production from November 2019. It shows a sharp growth in intermediate
goods.

 Personal Income
The country’s per capita monthly income is estimated to have risen from Rs. 10534 in
2018-19 to Rs. 11254 in 2019-20. Per-capita income indicates the prosperity of a country.
Budget 2020 cut down the personal tax. This increased the Disposable Income.

INDUSTRY ANALYSIS

Aviation Industry

 In India, the civil aviation industry is one of the fastest growing industry. India is
considered the third largest domestic civil aviation market in the world.
 The rise in working group and middle-class demography will generate more demand.
 One of the highest expense in aviation industry is that of fuel. After that comes MRO
(Maintenance, Repair and Overhaul). This will create opportunities for MRO industry.
  Aviation industry receives foreign investment up to 49%. This is under automatic route in
scheduled air transport service, regional air transport service and domestic scheduled
passenger airline.
 Aviation industry faces frequent government intervention. This is a great obstacle for its
better performance. Airport Authority of India charges higher High Airport charges.
 India’s aviation industry shows huge growth potential in coming years.
 But recent corona outbreak has affected Aviation industry adversely.

COMPANY ANALYSIS
INDIGO

Indigo is India’s low cost airline which is headquartered in Gurugram, Haryana. It is the largest
airline in India. It has 47.5% domestic market share as of November 2019. The airline operates
1500 flights everyday. It travels to 87 destinations – 63 domestic and 24 international. It has a
fleet size of 257. It has 23531 employees as of March 2019.

Analysis on the basis of Financial Statement

 Revenue from operations has improved from Rs. 230208.87 millions in 2018 to Rs.
284967.72 millions in 2019. But the expenses has increased more than the revenue
generated. Thus, profit before tax become negative. The main expense that increased
drastically is that of fuel.
 The stock price of Indigo is falling drastically. Reasons for this is aviation regulator,
Director General of Civil Aviation (DGCA), asked Indigo to replace its faulty engines.
Then the outburst of Coronavirus has affected the aviation industry in large scale.
 EPS of Indigo has fallen from Rs. 59.90 to Rs.4.06 which is not a good sign.
 Although there is an increase in assets in 2019, liabilities also increased at a much higher
rate.
 There is fall in long term debt. It shows company is trying to payback debts.
  Although cash flow receive from operating Activities is positive, it is reduced from 2018.
It is mainly due to negative PBT in 2019. The cash flow from investing activities also
reduced. This is because company has reduced its investment in Mutual funds, shares and
debt. The cash flow from Financing activities also gone down. It shows it is repaying
loans and other obligations. Overall cash flow is still in positive. It is a good sign.

Analysis on the basis of ratios

PROFITABILITY RATIOS 2019 2018  

Operating Profit Margin(%) -0.72 12.84  

Gross Profit Margin(%) -3.38 10.94  

Net Profit Margin(%) 0.54 9.74  

Return On Capital Employed(%) 3.93 37.19  

Return On Net Worth(%) 2.26 31.68  

LIQUIDITY AND SOLVENCY RATIOS  

Current Ratio 0.81 0.86  

Quick Ratio 0.79 0.85  

Debt Equity Ratio 0.32 0.32  

Long Term Debt Equity Ratio 0.32 0.32  

DEBT COVERAGE RATIOS  

Interest Cover 0.71 10.20  

Total Debt to Owners Fund 0.32 0.32  

Financial Charges Coverage Ratio 2.20 11.49  

Financial Charges Coverage Ratio Post 2.80 8.88  

Tax
MANAGEMENT EFFICIENCY RATIOS  

Inventory Turnover Ratio 134.77 125.64  

Debtors Turnover Ratio 96.80 119.58  

Investments Turnover Ratio 134.77 125.64  

Fixed Assets Turnover Ratio 3.82 4.01  

Total Assets Turnover Ratio 3.13 2.48  

Asset Turnover Ratio 3.09 2.97

 There is a decline in ROA, ROE and ROCE. It shows decline in profit generated though
assets, equity and overall capital employed. There is a decline in the interest coverage
ratio. It means company is not able to pay the interest properly.
 Asset Turnover Ratio is improved. It means company is more efficient in generating
revenue from its assets.
 P/E ratio is improved from 22.05 in 2018 to 351.35 in 2019. It means investors still has
hope on the company. It indicates the future growth prospects of company.