B.

COM 4TH SEM

REPORT ANALYSIS

SUBMITTED TO: DR. SANDEEP SUNRANGEE

SUBMITTED BY: SAKSHI PRIYA

ENROLLMENT NO: SBU200596
SUBMISSION DATE:
SIGNATURE OF THE STUDENT:
 DECLARATION CERTIFICATE

This is to certify that the work presented in the project entitled “REPORT
ON COMPARISON OF FINANCIAL REPORT OF HUL AND ITC
LIMITED” in partial fulfillment of the requirement for the awards of
degree of Bachelor Of Commerce (hons) of Sarala Birla University,
Ranchi is an authentic work carried out under my supervision and
guidance. To the best of my knowledge, the content of this project does
not form a basis for, the award of any previous degree to anyone else.

Date- Guide’s name

Department & Management
Sarala Birla University

Head
Dept. of Management
Sarala Birla University, Ranchi

1
 DECLARATION BY THE STUDENT

I hereby declare that this project report on “ COMPARISON OF

FINANCIAL REPORT OF HUL AND ITC LIMITED ” has been
prepared by me during the month of June-July 2022 under the guidance of
Dr. Sandeep Surangee, Assistant Professor department of commerce of
Sarala Birla University , Ranchi.
I also hereby declare that this project report is an original work and has not
been submitted at any time to any other university or institute for the award
of any degree or diploma.

Place: Signature
Date Sakshi Priya
B.COM 4th semester
Roll no: BCOM20R082
Reg no: SBU200596
Sarala Birla University

2
 ACKNOWLEDGEMENT
I gratefully acknowledge my profound gratefulness towards my
esteemed guide, Dr. Sandeep Surangee, Professor, Sarala Birla
University , SBU, for her invaluable guidance, excellent supervision and
constant encouragement during the entire duration of the project work. I
am thankful to him to provide me with useful references and
information, which were of significant importance for the completion of
this study. Her valuable insights and attention to detail made this
exercise a great learning experience. I perceive this achievement a
milestone in my career development. I strive to use the skills and
knowledge gained here in the best possible way and will continue to
work on further improvement, in order to attain my desired career
objectives. The project would never have been possible without his
guidance and supervision.
I also express my sincere thanks to Dr Karan Pratap Singh
,Head of Department and all the faculty members of Sarala Birla
University , SBU, ranchi. I extend my sincere gratitude and thanks to my
friends and family for their help and assistance during my training,
without whom it would not have been possible for the project to take its
final shape. Apart from above, I would like to extend my sincere thanks
to all those who filled my questionnaire and helped me in my research.

Sincerely,
Sakshi Priya

3
 EXECUTIVE SUMMARY

The report which is based on the Financial Statement Analysis of Hindustan

Unilever Limited (HUL) and ITC Limited. By going through all the financial
statements it is known that overall ITC Limited is working so well if compared to
Hindustan Unilever Limited (HUL).

But by going through the financial ratio analysis the facts were that Hindustan
Unilever Limited (HUL) is much more competitive than ITC Limited. HUL
generates high sales for every unit of investment in operating assets whereas ITC
has a better profit margin as compared to HUL.

Low turnover for ITC may be due to the other businesses it is in which requires
high investment in operating assets. HUL earns very high on its assets and has
better usage of operating efficiency.

This is analyzed through financial analysis that ITC Limited is working so

efficiently and effectively and is coming up with new features and advanced
technology that others are not using. In the report summery of both companies,
financial statements, financial ratios, financial ratio analysis, cash flow are shown
and finally the report is concluded and recommendations are given at the end.

4
 TABLE OF CONTENTS
S.no Content Page no
Declaration certificate 1
Declaration by student 2
Acknowledgement 3
Executive summary 4
1. Introduction 6-10
1.1 Hindustan Unilever Limited 6
1.2 ITC Limited 9
2. Segment Reporting 11-16
2.1Hindustan Unilever Limited: 11
Segment Reporting
2.2 ITC limited: segment reporting 14
3. Financial analysis 17-26
3.1 balance sheet of HUL 17
3.2 Profit and loss of HUL 19
3.3 Balance sheet of ITC 21
3.4 profit and loss of ITC 24
4. Comparative analysis 27-31
4.1 HUL vs ITC: The Differences 27
4.2 ITC vs HUL Stock Price 28
Performance:
4.2 ITC vs HUL Stock Price 30
Performance:
5. Incorporate investment 32-33
6. Foreign Currency Translation 34
7. Reference 35

5
 1. INTRODUCTION
India is a consumer driven market, with consumer spending in the country projected to
more than double by 2025. These days, the Indian consumer segment, broadly
categorized into urban and rural markets, is attracting marketers from across the globe.

Global corporations see India as a key market for the future. The growth in the
country's consumer market is largely driven by a young demographic and rising
disposable income. If India sustains its current pace of growth for the foreseeable
future, average household incomes will likely triple over the next twenty years and the
country will become the world's fifth largest consumer economy by 2025, as per a
study by the McKinsey Global Institute (MGI).

The Government of India has also played a significant role in the growth of the Indian
consumer segment. It has brought about policies which have attracted foreign direct
investment (FDI) and consequently boosted economic growth.

Here are 2 biggest FMCG brands are HUL and ITC with alone 70% market cap in
FMCG. So lets see these companies performance in details.

1.1 Hindustan Unilever Limited

Hindustan Unilever Limited (HUL) is the Indian wing of the Multinational consumer
goods company Lever International. It is based in Mumbai, Maharashtra and is owned
by Anglo-Dutch Company. Unilever which owns a 67% controlling share in HUL as
of March 2015 and is the holding company of HUL.

HUL's products include foods, beverages, cleaning agents, personal care products and
water purifiers. It is also among the biggest polluters in India. HUL was established in
1933 as Lever Brothers and, in 1956, became known as Hindustan Lever Limited, as a
result of a merger among Lever Brothers, Hindustan Vanaspati Mfg. Co. Ltd. and
United Traders Ltd.

6
It is headquartered in Mumbai, India and employs over 16,000 workers whilst also
indirectly helping to facilitate the employment of over 65,000 people. The company
was renamed in June 2007 as "Hindustan Unilever Limited" HUL is the market leader
in Indian consumer products with presence in over 20 consumer categories such as
soaps, tea, detergents and shampoos amongst others with over 700 million Indian
consumers using its products. Sixteen of HUL's brands featured in the ACNielsen
Brand Equity list of 100 Most Trusted Brands Annual Survey (2014), carried out by
Brand Equity, a supplement of The Economic Times.

1.1.1 Company’s vision

We meet every day needs for nutrition, hygiene and personal care with brands that
help people feel good, look good and get more out of life.Sustainability is at the heart
of our business, and through our brands, we seek to inspire people to take small
everyday actions that can add up to a big difference for the world. Our deep roots in
local cultures and markets around the world give us our strong relationship with
consumers and are the foundation for our future growth. We will bring our wealth of
knowledge and international expertise to the service of bocal consumers a truly multi-
local multinational.

Our long-term success requires a total commitment to exceptional standards of

performance and productivity, to working together effectively, and to a willingness to

7
embrace new ideas and learn continuously. To succeed also requires, we believe, the
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 sustainable. profitable growth, creating long-term value for our shareholders,
our people, and our business partners.

1.1.2 Purpose & principles

Our corporate purpose states that to succeed requires "the highest standards of
corporate behavior towards everyone we work with, the communities we touch, and
the environment on which we have an impact."

 Always working with integrity

Conducting our operations with integrity and with respect for the many people,
organizations and environments our business touches has always been at the
heart of our corporate responsibility.

 Positive impact
We aim to make a positive impact in many ways: through our brands, our
commercial operations and relationships, through voluntary contributions, and
through the various other ways in which we engage with society.

 Continuous commitment
We're also committed to continuously improving the way we manage our
environmental impacts and are working towards our longer-term goal of
developing a sustainable business.

 Setting out our aspirations

Our corporate purpose sets out our aspirations in running our business. It's
underpinned by our code of business Principles which describes the operational
standards that everyone at Unilever follows, wherever they are in the world.
The code also supports our approach to governance and corporate
responsibility.

8
  Working with others
We want to work with suppliers who have values similar to our own and work
to the same standards we do. Our Business partner code, aligned to our own
Code of business principles. comprises ten principles covering business
integrity and responsibilities relating to employees, consumers and the
environment.

1.2 ITC limited

Indian Tobacco Company Limited (“ITC” or the “Company”) was incorporated on 24

August 1910 under the name of Imperial Tobacco Company of India Limited and its
name was changed to ITC Limited in 1974. Today, the Company is rated among
world’s most reputable companies by Forbes magazine and among India’s most
valuable companies by Business Today.

It ranks among India’s ’10 Most Valuable (Company) Brands’, in a study conducted
by Brand Finance and published by the Economic Times. The Company employs over
31,000 people at more than 60 locations across India and has a diversified presence in
FMCG (Cigarettes, food, retail, personal care, education and stationary), Hotels,
Paperboards & Specialty Papers, Packaging, Agri-Business, and Information
Technology.
9
1.2.1Company Vision

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 Company's
stakeholders Core Principles.

1.2.2 Purpose & 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.

10
 2 SEGMENT REPORTING

Ind AS-108 (Indian Accounting Standards) mandates companies to provide some

minimal segmental information. This includes information relating to segmental
assets, liabilities, income, expenses, profits or losses and accounting policies. The
quality of segment reporting is comparable across both companies. Both the
companies report primary and secondary segments as required. Both the companies
operate in the FMCG space.

2.1 Hindustan Unilever Limited: Segment Reporting

The Chief Operating Decision Maker (CODM), who is responsible for allocating
resources and assessing performance of the operating segments, has been identified as
the Management Committee.

The Group dominant risk, return and growth profile is manifested through business
segmentation (product area) as against geographical segmentation. Hence the primary
segment is the business segment.

A business segment is a distinguishable component of an enterprise that is engaged in

providing an individual product or service or a group of related products or services
and that is subject to risk and returns that are different from those of other business
segments.

The CODM has determined the following reporting segments:-

1. Home Care include detergent bars, detergent powders, detergent liquids, scourers,
water business etc.

2. Personal Care include products in the categories of oral care, skin care (including
soaps), hair care, deodorants, talcum powder, color cosmetics, salon services etc.

3. Foods include branded staples (atta, salt, bread, etc.) and culinary products (tomato
based products, fruit based products, soups, etc.)

4. Refreshment include tea and coffee and frozen desserts.

11
5. Others include exports, infant care products etc.

The above business segments have been identified considering: a) the nature of
products and services b) the differing risks and returns c) the internal organization and
management structure, and d) the internal financial reporting systems.

Table 2.1: Shares of each segment of HUL (2016-17)

Table 2.2: Share of each segment of HUL (2015-16)

Although the Group’s operations are managed by product area, they have provided
additional information based on geographies which has been classified as: India and
Outside India.

12
The group is not reliant on revenues from transactions with any single external
customer and does not receive 10% or more of its revenues from transactions with any
single external customer.

The Y-o-Y Growth over the period 2016-17 is given in the below table:
Y-O-Y Growth Home Care Personal Care Foods Refreshment Others

Segment 4.9% 1.9% 2.6% 8.3% -5.1%

revenue

Segment 6.2% 24.5% -6.0% -7.3% -11.1%

Assets
Segment 14.3% 11.1% -10.8% 3.9% 2.7%
Liabilities

Segment 19.7% 1.3% -23.4% 11.2% -14.9%

Profit

Segment 48.6% 141.4% 9.5% -6.8% 18.5%

capex
Table 2.3 : Y-O-Y growth of HUL over the period 2016-17

Analysis

• The segment reporting is oriented towards product approach (line of business

approach).

• The dominant segment is Personal Care as it contributes approximately 50 percent

share of revenue and profits. It is followed by Home Care, Refreshment and Foods.

• There has been a significant increase in investment in Personal Care portfolio ( Y-o-
Y growth in total assets north of 20 percent) as can be seen by the 141.4 percent
increase in capital expenditure over the last year.

• Investment in Refreshment division has reduced as can be seen by declining capex

and asset share.

• Revenue from the personal care division has seen a muted 1.9 percent growth in
revenue. It can be inferred that the benefits of the increased investment is yet to accrue
to the company is the form of increased sales.

13
• Asset turnover ratio in refreshment segment has improved as seen by increasing
revenue and declining asset share. This prima facie indicates increase in operating
efficiency.

2.2 ITC Limited: Segment Reporting

The Company’s corporate strategy aims at creating multiple drivers of growth
anchored on its core competencies. The Company is currently focused on four
business groups: FMCG, Hotels, Paperboards, Paper and Packaging and
AgriBusiness.

The Company’s organizational structure and governance processes are designed to

support effective management of multiple businesses while retaining focus on each
one of them. The Operating Segments have been reported in a manner consistent with
the internal reporting provided to the Corporate Management Committee, which is the
Chief Operating Decision Maker.

The business groups comprise the following:

FMCG: Cigarettes – Cigarettes, Cigars etc. Others – Branded Packaged Foods

Businesses (Staples; Snacks and Meals; Dairy and Beverages; Confections); Apparel;
Education and Stationery Products; Personal Care Products; Safety Matches and
Agarbattis.

Hotels – Hoteliering.

Paperboards, Paper and Packaging – Paperboards, Paper including Specialty Paper

and Packaging including Flexibles.

Agri Business – Agri commodities such as soya, spices, coffee and leaf tobacco.

The geographical information considered for disclosure are – Sales within India, Sales
outside India.

Segment results of ‘FMCG : Others’ are after considering significant business

development, brand building and gestation costs of the Branded Packaged Foods
businesses and Personal Care Products business.

As stock options are granted under ITC ESOS to align the interests of employees with
those of shareholders and also to attract and retain talent for the enterprise as a whole,

14
the option value of ITC ESOS do not form part of the segment performance reviewed
by the Corporate Management Committee.

The Company is not reliant on revenues from transactions with any single external
customer and does not receive 10% or more of its revenues from transactions with any
single external customer.

Table 2.4: Share of each segment of ITC (2016-17)

Table 2.5: Share of each segment of ITC (2015-16)

15
The Y-O-Y growth over the period 2016-17 is given in the below table

Y-O-Y FMCG FMCG Hotels Agri Papreboards

Cigarettes Others business Paper,
packaging
Segment -8.85% 1.97% -1.53% 4.62% -4.98%
revenue
Segment -12.65% 12.56% 14.92% 23.05% 15.28%
Liabilities
Segment -7.16% 7.78% -2.69% -7.00% -3.25%
Assets
Segment -0.08% -62.58% 86.96% -8.97% -0.14%
Profit
Segment -24.11% 2.65% -10.62% -18.90% 4.73%
capex
Table 2.6 Y-O-Y growth of ITC over the period 2016-17

Analysis

• The segment reporting is oriented towards product approach (line of business

approach).

• The dominant segment is FMCG (cigarettes plus others) as it contributes

approximately 80 percent share of revenue and profits. It is followed by Hotels and
Paper products.

• There has been a significant increase in growth in profit of Hotel segment and a
significant decrease in FMCG-other products.

• Capital expenditure has increased for other FMCG and Paper while Assets have
increased only for FMCG-other segment

• Revenue has seen muted downward effect from all segments other than FMCG-other
and Agri business

16
 3. FINANCIAL ANAYSIS

3.1 Hindustan Unilever Limited

3.1.1Balance sheet as on 31ST march
Particular Mar 2021(Rs .cr) Mar 2020 (Rs .cr) Mar 2019(Rs .cr)

Source of fund

Share Capital 235.00 216.00 216.00

Reserves Total 47199.00 7815.00 7443.00

Equity Share 0.0 0.00 0.00

Warrants
Equity Application 0.00 0.00 0.00
Money
Total Shareholders 47434.00 8031.00 7659.00
Money
Secured Loans 0.00 0.00 0.00

Unsecured Loans 943.00 0.00 0.00

Total Debt 943.00 0.00 0.00

Other Liabilities 3176.00 2467.00 1853.00

Total Liabilities 51553.00 10498.00 9512.00

Application of
Funds
Gross block 54192.00 7375.00 5959.00

Less: Accumulated 3165.00 2319.00 1616.00

Depreciation
Less: Impairment of
0.00 0.00 0.00
Assets
Net Block 5056.00 4343.00 4142.00
17
Lease Adjustment 0.00 0.00 0.00

Capital Work 623.00 513.00 373.00

In Progress
Producing 0.00 0.00 0.00
Properties
Investment 2995.00 1500.00 2949.00

Current Assets,
Loans and Advances
Inventories 3383.00 2636.00 2422.00

Sunday Debtors 1648.00 1046.00 1673.00

Cash and Bank 4321.00 5017.00 3688.00

Loans and Advance 1961.00 1961.00 898.00

Total Current Asset

Less: Current 10957.00 10660.00 8681.00

Liabilities and
provision
Current Liabilities 10086.00 8686.00 7852.00

Provision 491.00 418.00 501.00

Total Current 10577.00 9104.00 8353.00

Liabilities

Net current assets 380.00 1556.00 328.00

Miscellaneous 0.00 0.00 0.00

Expenses not
written off
Deferred Tax 655.00 534.00 778.00
Assets
Deferred Tax 6641.00 273.00 439.00
Liabilities
Net -5986.00 261.00 339.00

18
Deferred Tax
Other Assets 2514.00 1612.00 1180.00

Total Assets 51553.00 10498.00 9512.00

Contingent 2086.00 2260.00 1726.00

Liabilities
Table 3.1: Balance sheet of HUL

3.1.2 Profit and Loss Statement

Particular Mar 2021(Rs .cr) Mar 2020(Rs .cr) Mar 2019(Rs .cr)
Income

Sales turnover 45996.00 38785.00 38224.00

Excise duty 0.00 0.00 0.00

Net sales 45996.00 38785.00 38224.00

Other income 630.00 805.00 664.00

Stock 391.00 121.00 -12.00

adjustment

Total Income 47017.00 39711.00 38876.00

Expenditure

Raw material 22398.00 19784.00 15378.00

Power and fuel 277.00 304.00 263.00
Cost

Employee cost 2229.00 1691.00 1747.00

Other manufacturing 2847.00 2860.00 3018.00

Cost
Selling and
Administration
Expenses
19
Miscellaneous 2460.00 1860.00 1639.00
expenses
Less: Pre- 0.00 0.00 0.00
operative Expenses
capitalized
Total 35407.00 29575.00 29802.00
Expenditure
Operating 11610.00 10136.00 9074.00
Profit
Interest 108.00 106.00 28.00

Gross profit 11502.00 10030.00 9046.00

Depreciation 1012.00 938.00 524.00

Profit Before 10490.00 9092.0 8522.00

Tax
Tax 2458.00 2202.00 2565.00
Fringe Benefits 0.00 0.00 0.00
Tax
Deferred Tax 78.00 152.00 -79.00

Reported net 7954.00 6738.00 6036.00

Profit

Extraordinary items -172.12 -145.99 -155.45

Adjusted Net 8126.12 6883.99 6191.45

profit
Adjusted below -2.00 -1134.00 -534.00
Net profit
P&L balance 7664.00 7303.00 4539.00
brought forward
Statutory 0.00 0.00 0.00
Appropriations
Appropriations 8811.00 5243.00 2738.00

P&L balance 6805.00 7664.00 7303.00

Carried down

Dividend 0.00 0.00 1948.00

20
Preferred 0.00 0.00 0.00
dividend
Equity dividend 4050.00 2500.00 2200.00

Earning per 33.85 31.19 27.94

Share-unit curr

Earning per 33.85 31.19 27.94

share adjusted
unit curr
Book Value 201.85 37.18 35.46
unit curr

Table 3.2 profit and loss of HUL

21
3.2 ITC Limited
3.2.1Balance Sheet as per march 31st
Particular Mar 2021(Rs .cr) Mar 2020 (Rs .cr) Mar 2019(Rs .cr)

Source of
fund
Share Capital 1230.88 1229.22 1225.86

Reserves Total 57773.74 62799.94 56723.93

Equity Share 0.00 0.00 0.00

Warrants
Equity Application 0.00 0.00 0.00
Money
Total Shareholders 59004.62 64029.16 57949.79
Money
Secured Loans 0.00 0.00 0.00

Unsecured Loans 329.35 332.01 11.13

Total Debt 329.35 332.01 11.13

Other Liabilities 396.35 234.26 174.54

Total Liabilities 59730.39 64595.43 58135.46

Application of
Funds
Gross block 29477.82 26341.38 22852.69

Less: Accumulated 7290.03 5823.38 4366.29

Depreciation
Less: Impairment of
0.00 0.00 0.00
Assets
Net Block 22187.79 20517.55 18486.40

Lease Adjustment 0.00 0.00 0.00

Capital Work 3333.47 2780.20 3401.36

22
 In Progress
Producing 0.00 0.00 0.00
Properties
Investment 26984.13 30630.61 26578.00

Current Assets,
Loans and Advances
Inventories 9470.87 8038.07 7587.24

Sunday Debtors 2090.29 2092.00 3646.22

Cash and Bank 4001.53 6843.27 3768.22

Loans and Advance 2205.84 2358.55 2060.22

Total Current Asset 17768.53 19331.89 17062.41

Less: Current
Liabilities and
provision
Current Liabilities 9736.13 8767.63 9248.38

Provision 386.11 254.65 369.94

Total Current 10122.29 10309.61 7444.09

Liabilities

Net current assets 0.00 0.00 0.00

Miscellaneous Expenses286.28 296.44 397.04

not
written off
Deferred Tax 2014.01 1914.09 2441.18
Assets
Deferred Tax -1727.73 -1617.65 -2044.14
Liabilities
Net 1306.44 1975.11 4269.75
Deferred Tax
Other Assets 1306.44 1965.00 4825.00

Total Assets 59730.39 64505.43 58135.46

23
Contingent 1825.92 794.41 1572.79
Liabilities
Table 3.3 : balamce sheet of ITC

3.2.2 Profit And Loss

Particular Mar 2021(Rs .cr) Mar 2020(Rs .cr) Mar 2019(Rs .cr)
Income

Sales turnover 48524.56 46807.34 45784.39

Excise duty 3039.43 1187.64 788.74

Net sales 45485.13 45619.70 44995.65

Other income 3250.99 3013.66 2484.54

Stock 526.86 176.34 180.14

adjustment

Total Income 49262.98 48809.70 47660.33

Expenditure

Raw material 20501.48 17411.47 17485.29

Power and fuel 672.11 744.55 714.88
Cost

Employee cost 2820.95 2658.21 2728.44

Other manufacturing 1482.64 1805.34 1788.28

Cost
Selling and
Administration
Expenses
Miscellaneous 1094.10 1347.68 1083.78
expenses
Less: Pre- 0.00 0.00 0.00
operative
Expenses capitalized

24
Total 30478.02 27999.08 27846.43
Expenditure
Operating 18784.96 20810.52 19813.90
Profit
Interest 58.94 80.44 58.04

Gross profit 18726.02 20730.08 19755.86

Depreciation 1561.83 1563.27 1311.70

Profit Before 17164.19 19166.81 18444.16

Tax
Tax 4035.36 4441.97 5849.24
Fringe Benefits 0.00 0.00 0.00
Tax
Deferred Tax 97.15 -411.21 130.60

Reported net 13031.68 15136.05 12464.32

Profit

Extraordinary items -42.55 -143.21 -62.14

Adjusted Net 13074.23 15279.26 12526.46

profit
Adjusted below -10.86 -1487.06 -1196.10
Net profit
P&L balance 33596.14 26978.13 21991.24
brought forward
Statutory 0.00 0.00 0.00
Appropriations
Appropriations 18406.33 7030.98 6281.33

P&L balance 28210.63 33596.14 26978.13

Carried down

Dividend 6152.68 0.00 0.00

Preferred 0.00 0.00 0.00

dividend
Equity dividend 1075.00 1015.00 575.00

25
Earning per 10.59 12.31 10.17
Share-unit curr

Earning per 10.59 12.31 10.17

share adjusted
unit curr
Book Value 47.94 52.09 47.27
unit curr

Table 3.4 profit and loss of ITC

Analysis:

1. The HUL have shown enormous growth in the financial year 2021 where as the
ITC limited have shown some loss in the year.
2. Like HUL, ITC Limited also has net financial assets, instead of net financial
obligations. Its ROE is reduced by the presence of NFA. Its return on NFA is
low (5%) as compared to return on assets (35%).
3. Sales turnover of both the company increased in the financial year 2021.
4. By seeing their consecutive three year financial report we can easily say that
they both have an good performance but In comparison the HUL have given
more profit .
5. Asset Turnover for the company has improved slightly from 2021 a slight or no
change in operating efficiency of the company. It may be due to the reason that
the company s already operating at higher levels of efficiency.

26
 4. COMPARATIVE ANALYSIS

4.1 HUL vs ITC: The Differences

 As of May 2020, HUL is 5 times more expensive than ITC.
 However, the Net Profit over the last 12 months of ITC is 2.2 times more than
HUL. Yet, the market has valued HUL 2.3 times more than ITC.
 While sales growth of the two companies is similar over a period of 5 years, the
Net Profit of HUL has compounded at the rate of 11.5% – significantly higher
than the 7.88% of ITC.
 HUL and ITC are the top FMCG companies in India. However, the tobacco
business of ITC is its cash-cow, contributing more than 80% to its earnings
before taxes.
 ITC doesn’t get the valuation it deserves because of poor capital allocation. It’s
FMCG business has shown excellent growth over the last few years, but the
ROCE (return on capital employed) is poor.
 ITC’s Hotel business too is capital-intensive – requiring more capital than its
Tobacco and FMCG business, but generating significantly lesser earnings
before tax.
 The issue for ITC lies in two areas mainly – its Hotel business and the
unallocated capital, which it plans to distribute as dividend.

4.2 ITC vs HUL Stock Price Performance:

 As you can clearly see from the graph below, HUL has clearly outperformed
ITC in the last 5 years.
 If you invested ₹ 1 lakh in HUL in May 2015, it would be around ₹ 2.41 lakhs
today. A gain of 141% in 5 years.
 Whereas, if you invested ₹ 1 lakh in ITC in May 2015, it would be around ₹
80,000 today. A loss of 20% in 5 years. Fixed deposit would give siginificantly
better returns.

However, the past performance does not guarantee future returns. Far from it. HUL
today is over-valued, quoting a price-to-earning ratio of 71 times. In other words,
you are currently paying 71 times for each rupee earned by the company.

The current stock price of ITC paints a completely different picture. ITC is at
historically low valuations.
27
4.3 SWOT analysis of HUL and ITC
1. HUL

 Strength:- innovative FMCG company, CSR activities of the company

 Weakness:- Stiff competition, limited market share
 Opportunities:- Increase peneteration in urban areas, metrger and aquicisition to
strengthen the brand.
 Threat:- competitors and price of commodities.

2. ITC

 Strength:- portfolio of business and strong brands in various business.

 Weakness:- association with tobacco products and an increase in tax on
tobacco affects revenue.
 Opportunities:-growth in purchasing products and tap opportunities created in
rural market.

28
 Threat :- growing competition in FMCG business , increasing taxation in cigratte
business and increasing awareness on health.

Downside Risk

 Amid the current uncertain market as well as economic outlook due to COVID
pandemic, an investor need to evaluate the downside risk of a stock before
investing in it.
 Basically, Downside risk of a stock is the estimation / probability of the stock to
suffer decline in value if market conditions changes unfavorably. Up to how
much extent the share price of any stock can fall under eroding market
conditions.

ITC

 As far as ITC Ltd is concerned, there is very limited downside risk for the ITC
stock. How?
 The current Price to Earnings Ratio (PE ratio) of ITC is at 15.6. While
Historical Median PE Ratio of ITC is 33.1.
 Thus, ITC stock is currently trading at a very Good Discount to its Historical
Valuations.
 The current PE ratio (15.6) is at discount to even 2008 Financial crisis, where
the PE ratio of ITC was around 19-20.
 Thus, we can say that there is very limited downside risk.

HUL

 Whereas downside risk for HUL Ltd considerably higher than that of ITC Ltd.
 HUL is currently trading at PE Ratio of 68 and its Historical Median PE Ratio is
33.1.
 Thus, HUL is trading at a premium valuation to its historical valuations.
 So, amid the current COVID uncertainties, there is a high chance that the stock
may get corrected, posing a comparatively higher downside risk than ITC.

Upside Potential

The upside Potential of a stock can be explained as the amount by which the
stock is expected to rise in the short-term.

ITC

29
 Since ITC is currently trading at a discounted valuation to its historical average,
there is very high upside potential for the stock.
 It is rapidly scaling up its FMCG business portfolio in a profitable manner with
the recent announcement of acquiring Sunrise Foods, a Spices Manufacturer.
 Sunrise is a clear market leader in eastern India in the fast-growing spices
category with a rich heritage and brand legacy of over 70 years
 This deal will augment ITC’s product portfolio and is also aligned to its
aspiration to significantly scale up its spices business and expand its footprint
across the country.

HUL

 The upside potential of HUL is also very good due to its expanding product
portfolio, recent merger with GSK Consumer Healthcare.
 However, being a premium stock already, the upside potential of HUL is lower
than that of ITC Ltd.

Comparing HUL & ITC Based on Financial Parameters

1. Revenue

HUL

 A robust outlook of HUL is driven by recovery in rural consumption and the

company’s brand reach and leadership are expected to keep the volume
momentum strong.
 For Trailing Twelve Months (TTM), HUL’s Revenue = Rs.40,000 Cr

ITC

 Similarly, ITC has a footprint in a diversified business segments – Cigarettes,

FMCG, Hotels, Agri, Paper and Packaging etc. It has been achieving a
leadership in all the business ventures it had explored in India.
 ITC’s TTM Revenue = Rs.52,000 Cr
 Around 41% of the total consolidated revenue comes from its Cigarettes/
Tobacco business. Over last 15 years, the revenue share of Cigarettes/ Tobacco
business has been declining consistently from 80% to 41%.
 While, Other segments in FMCG like food, apparel, consumer goods and
stationary witnessed a phenomenal sales growth.
 This gives a clear indication that ITC stock in future is sure to rise high, as the
company continue diversifying its products.

30
  This, in turn, will help the investors to derive benefits from ITC for a long
term investment.

2.Net Profit (TTM)

 HUL = Rs.6,700 Cr
 ITC = Rs.15,000 Cr

3. Dividend Yield

 HUL = 1.10%
 ITC is providing a good dividend yield of 3.02%.

4. Valuation

 HUL’s Current Market Capitalization = Rs.4.72 Lakh Ct

 ITC’s Current Market Capitalization = Rs.2.33 Lakh Crore

Lets try to decode the valuation of ITC’s FMCG Business.

 Segment Revenue from ITC FMCG Business (TTM) = Rs.13,000 Cr

 If we consider ITC’s FMCG business to have the same premium valuation as
that of HUL, then the valuation of ITC’s FMCG Business comes at around
Rs.1.55 Lakh Crore.
 If ITC’s FMCG business list seperately, it will surely get the same premium
valuation of other FMCG players.
 The main drag for the dampened and lower PE ratio of ITC Ltd is its Cigarettes/
Tobacco business. The company’s Cigarette business is clearly not giving the
higher valuation to its FMCG business it deserves.
 Institutional Investors (FIIs & DIIs) highly prefer the stocks which qualify well
on ESG parameters (Environmental, Social and Governance).
 And because of the Cigarettes/ Tobacco business, ITC does’t get qualified on
Social parameter.
 If ITC’s FMCG business is listed seperately, its valuation would definitely
shine over other FMCG players.

31
 5. INTERCORPORATE INVESTMENT

5.1 HUL
• The Company’s interest in the Joint Ventures is reported as asset held for sale and
is stated at lower of cost or fair value
• All investments in equity instruments classified under financial assets are initially
measured at fair value , the group may, on initial recognition, irrevocably elect to
measure the same either at FVOCI or FVTPL
• The fair values of investment in treasury bills, government securities and quoted
investment in equity shares is based on the current bid price of respective
investment as at the Balance Sheet date.
• Share of net loss from JV is recorded using Equity method

5.2 ITC
 Investment in subsidiaries, associates and joint ventures are carried at cost less
accumulated impairment.
 Market prices are not disclosed.

32
33
 6.FOREIGN CURRENCY TRANSLATION

6.1 HUL
• Functional currency for the company is INR in which the statements are
reported
• Items included in the financial statements of the Company are recorded using
the currency of the primary economic environment in which the Company
operates (the ‘functional currency’)
• Foreign currency transactions are translated into the functional currency using
exchange rates at the date of the transaction
• Foreign exchange gains and losses from settlement of these transactions, and
from translation of monetary assets and liabilities at the reporting date exchange
rates are recognised in the Statement of Profit and Loss.

6.2 ITC
• The functional and presentation currency of the Company is Indian Rupee.
• Transactions in foreign currency are accounted for at the exchange rate
prevailing on the transaction date.
• Gains/ losses arising on settlement as also on translation of monetary items are
recognised in the Statement of Profit and Loss.
• Exchange differences arising on monetary items that, in substance, form part of
the Company’s net investment in a foreign operation (having a functional
currency other than Indian Rupee) are accumulated in Foreign Currency
Translation Reserve.

34
 7.Reference

 https://www.capitalmarket.com/Company-Information/Financials/Balance-
Sheet/Hindustan-Unilever-Ltd/255
 https://www.capitalmarket.com/Company-Information/Financials/Balance-
Sheet/ITC-Ltd/301
 https://www.itcportal.com/about-itc/index.aspx
 https://www.learnstockmarket.in/versus/hul-vs-itc-stock-business/
 https://blog.investyadnya.in/itc-vs-hul-which-one-is-better-valuation-
angle/#:~:text=It%20is%20the%20most%20valued,2.33%20Lakh%20Crore.
 https://www.slideshare.net/pradeepreddypresentations1/hul-introduction-
and-history
 https://www.hul.co.in/our-company/introduction-to-hul/

35