A STUDY ON FINANCIAL ANALYSIS ON FAST MOVING

CONSUMER GOODS COMPANIES (FMCG)

Research Project Submitted in Partial Fulfillment of the Requirements

for the Degree of

BCOM Honours
by
RANU SAINI
to the
DEPARTMENT OF COMMERCE
BHOPAL SCHOOL OF SOCIAL SCIENCES

April,2021
Submitted by Guided by
Ranu Saini Vinod Kumar Advani
 CERTIFICATE

It is certified that the work contained in the project report titled “A Study on financial analysis on
FMCG Companies,” by “Ranu Saini,” has been carried out under my/our supervision and that this
work has not been submitted elsewhere for a degree*

Signature of Supervisor: …………….

Name : Vinod Kumar Advani, Assistant Professor

Department : Commerce

Bhopal School of Social Sciences

April, 2021
 DECLARATION

I hereby declare that this project report entitled “A Study On Financial Analysis On FMCG
Companies“ was carried out by me for the degree of BCOM Honours under the guidance and
supervision of Vinod Kumar Advani of Department of Commerce, BSSS College. The
interpretations put forth are based on my reading and understanding of the original texts and they
are not published anywhere in any form. The other books, articles and websites, which I have made
use of are acknowledged at the respective place in the text. This research report is not submitted
for any other degree or diploma in any other University.

Place: Bhopal

Name of the Student: Ranu Saini

Class & Section: B.Com (Honours), Final Year

Date: 15 ,April ,2021

 ACKNOWLEDGEMENT
I hereby declare that this project report entitled “A Study On Financial Analysis On FMCG
Companies’’was carried out by me for the degree of BCOM Honours under the guidance and
supervision of Vinod Kumar Advani, Assistant Professor of Department of Commerce, BSSS
College. The interpretations put forth are based on my reading and understanding of the original
texts and they are not published anywhere in any form. The other books, articles and websites,
which I have made use of are acknowledged at the respective place in the text. This research report
is not submitted for any other degree or diploma in any other University.

Place: Bhopal

Name: Ranu Saini

Class & Section: B.Com (Honours), Final Year

Date: 15, April, 2021

 INDEX

CHAPTER 1: INTRODUCTION OF THE TOPIC PAGE.NO

1.1 Rational of the study
1.2 Introduction of the study 1-9
1.3 Introduction to the company
1.4 Justification of the topic
CHAPTER 2: REVIEW OF LITERATURE 10 - 21
CHAPTER 3: RESEARCH METHODOLOGY
3.1 Objective of the study
3.2 Research Hypothesis
22 - 25
3.3 Scope of the study
3.4 Primary data study
3.5 Limitation of study
CHAPTER 4: DATA REPRESENTATION &
ANALYSIS 26 - 45
4.1 Data Representation And Interpretation
CHAPTER 5: RESULT & DISCUSSION
5.1 Finding
5.2 Suggestions 46 - 50
5.3 Conclusion
REFERENCES 51 - 56
Financial analysis on FMCG companies
 CHAPTER 1

Introduction of the Topic

1.1 Rationale of the Study

Investment decision is a very important decision of everyone’s life. Some people often get

confused as in which sector to invest or which company will give best returns in future. To solve

this problem to an extent I have done the financial Analysis of FMCG Sector. To carry out this

research, I have chosen top FMCG companies based on their market capitalization and analyzed

them over their past year data, and interpreted whether the company is fundamentally strong or

which company or a set of companies is best to invest your money.

For the analyzing purpose I have chosen Ratio analysis because it simplifies complex accounting

statements and financial data into simple and understandable ratios which makes it easy for

investor to analyze the company and also helps management to identify problem related areas so
that they can work on them.

I have compared these companies over their many years past data and commented that which

company is good and which is bad. This report also covers the overview of FMCG sector and its

journey and also its future prospects.

1.2 Introduction to the industry

Fast-moving consumer goods (FMCG) sector is the 4th largest sector in the Indian economy with

Household and Personal Care accounts for 50% of FMCG sales in India. The main growth driver

for this sector is rising awareness and change in lifestyle of consumers. The urban segment is the

largest contributor to the overall revenue generated by the FMCG sector in India (accounts for

55% revenue share) However, in the last few years, the FMCG market has grown at a faster pace

in rural India compared with urban India

Each household person spends majorly on FMCG products monthly. The volume of money that

flows against FMCG product in the economy is very high as the number of consumers of FMCG

product are huge in number and also there are large number of competitors in the market making

it impossible to earn abnormal profits.

FMCG industries work heavily on distribution network. Because they want their product to reach

every nook and corner of the country or the world. If any new player who wishes to enter the

market have to spend heavily on distribution and promoting brands as there are many other set

players in the market.

1.3 Introduction to the company

Top Players in FMCG Sector (based on their revenue)

1. Hindustan Unilever Limited (HUL)

2. ITC Limited

3. Britannia Industries Limited

4. The Godrej Group

5. Dabur

1.3.1. Hindustan Unilever Limited (HUL)

Hindustan Unilever Limited (HUL) is an Indian consumer goods company headquartered in

Mumbai, India.[3] It is a subsidiary of Unilever, a British company. Its products include foods,

beverages, cleaning agents, personal care products, water purifiers and other fast-moving

consumer goods.HUL was established in 1931 as Hindustan Vanaspati Manufacturing Co. and

following a merger of constituent groups in 1956, it was renamed Hindustan Lever Limited. The

company was renamed in June 2007 as Hindustan Unilever Limited.[4]

1.3.2 ITC Limited

Established in 1910, ITC Limited is a diversified conglomerate with businesses spanning Fast

Moving Consumer Goods comprising Foods, Personal Care, Cigarettes and Cigars, Branded

Apparel, Education & Stationery Products, Incense Sticks and Safety Matches; Hotels,

Paperboards and Packaging, Agri Business and Information Technology. The Company 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 to

India Tobacco Company Limited in 1970 and then to I.T.C. Limited in 1974. In recognition of the

ITC's multi-business portfolio encompassing a wide range of businesses, 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 or an initialised form.

1.3.3 Britannia Industries Limited

Britannia Industries is one of India’s leading food companies with a 100 year legacy and annual

revenues in excess of Rs. 9000 Cr. Britannia is among the most trusted food brands, and

manufactures India’s favorite brands like Good Day, Tiger, Nutri Choice, Milk Biscuits and Marie

Gold which are household names in India. Britannia’s product portfolio includes Biscuits, Bread,

Cakes, Rusk, and Dairy products including Cheese, Beverages, Milk and Yoghurt. Britannia is a

brand which many generations of Indians have grown up with and our brands are cherished and

loved in India and the world over. Britannia products are available across the country in close to 5

million retail outlets and reach over 50% of Indian homes.

The company’s Dairy business contributes close to 5 per cent of revenue and Britannia dairy

products directly reach 100,000 outlets.

1.3.4 The Godrej Group

Established in 1897, the Godrej Group has its roots in India's Independence and Swadeshi

movement. Our founder, Ardeshir Godrej, lawyer-turned-serial entrepreneur failed with a few

ventures, before he struck gold with a locks business.

Today, we enjoy the patronage of 1.1 billion consumers globally across consumer goods, real

estate, appliances, agriculture and many other businesses. In fact, our geographical footprint

extends beyond Earth, with our engines now powering many of India's space missions.

With a revenue of over USD 4.1 billion we are growing fast, and have exciting, ambitious

aspirations.

1.3.5 Dabur

Dabur India Ltd is one of the leading FMCG Companies in India. The company is also a world

leader in Ayurveda with a portfolio of over 250 Herbal/Ayurvedic products. They operate in key

consumer products categories like Hair Care, Oral Care, Health Care, Skin Care, Home Care and

Foods.

1.4 Justification of the topic

The Retail market in India is estimated to reach US$ 1.1 trillion by 2020 from US$

840 billion in 2017, with modern trade expected to grow at 20 per cent - 25 per cent

per annum, which is likely to boost revenues of FMCG companies. Revenues of

FMCG sector reached Rs 3.4 lakh crore (US$ 52.75 billion) in FY18 and are

estimated to reach US$ 103.7 billion in 2020. The sector witnessed growth of 16.5

per cent in value terms between July-September 2018; supported by moderate

inflation, increase in private consumption and rural income. 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 have shifted to processed and packaged

food by 2010, India needs around US$ 28 billion of investment in the food-

processing industry. At present, urban India accounts for 66% of total FMCG

consumption, with rural India accounting for the remaining 34%.

Revenues over the years (US

$billion)
120

100
103.7
80
83.3
60 68.4

40 49 52.8
43.1
35.7 38.8
20 31.6 33.3

0
2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F

Figure1: Revenues over the years

FMCG: THE INDIAN JOURNEY

The FMCG sector in India is standing like Mammoth at fourth largest sector in the

Indian economy. This sector includes global businesses, well established distribution

network and intense competition between organized and unorganized players. As

the sector is this big in India, the availability of raw material is easy and cheap labor

in India is like the cherry on the cake for Indian FMCG industry.

But this sector did not evolve overnight. It took many years to reach it to this

position. As we know, India is always been one of the most populated countries thus

giving huge customer base to FMCG companies. So India is the best place for FMCG

companies to grow. Now let’s take a look to the history of FMCG sector.

The period from 1950's to 1980's did not see a lot of a development in this segment

attributable to the low purchasing power of Indians and the government pushing for

small scale sector. HUL and Amul were one of the main organizations that stuck

around and advanced as market players. Amul metamorphosised the dairy part in

India. Built up in 1946, Amul brought white revolution in India and changed the

unorganized dairy sector to an organized one. They pioneered items like milk

powder and baby food from buffalo milk. The brand keeps on becoming stronger

continuously and sells around 3960 tons of milk items every year. And how can we

forget everyone’s all-time favorite “Amul Girl”

Another major company at that time was HUL which was then more focused on

urban sector. But then there was one more company emerged ‘NIRMA’ that focused

on giving cheap products to the consumer. For e.g., surf Excel at that time was costly

product for most of the people and not everyone was ready to spend that much

amount on washing powder. So NIRMA found this as an opportunity and started

making cheap washing powder which then became success.

Then there was the phase of Liberalization, which led to increase in choices of Indian

consumers as well as their demand. Liberalization also encouraged various MNCs

to invest in one of the most populated country on Earth. With this living standard of

Indian consumers was also rising and to cater this MNCs started producing high end

and good quality products.

Their strategy became two-pronged over the last decade —

One, invest in expanding the distribution reach far and wide across India to enable

market expansion. And two, upgrade existing consumers to value added premium

products and increase usage of existing product ranges.

So following these strategies, most of the companies fought with each other to mark

their presence in rural segment of India. Those who succeeded capturing the share

of rural market reaped more profits than other companies.

One of the biggest evolution in the FMCG Indian sector was the introduction of

‘Sachet’. Due to its introduction in the market, now even poor people or lower class

people have access to costly shampoos, detergents and hair oil. These sachets were

also purchased by middle class people and because of this now these things were

easily portable now. This innovation helped FMCG companies gain more customers

form Tier11 and Tier111 cities. These trends have tremendously evolved this sector.

Second major change was the way these companies did advertising of their products.
They shifted from traditional marketing to digital and new ways of marketing. They

have tied up with some e-commerce giants to promote their products and to entertain

the needs of younger generation they have also delivering packaged foods with less

delivering time.
 CHAPTER 2

REVIEW OF LITERATURE

Before stepping into the empirical study, a quick look through the existing

literature on the financial performance of FMCG companies seems

desirable. The following paragraphs provide very brief explanation of some

significant studies so far carried out in India on the issue.

Mallik and Sur (1999) undertook a study on working capital management of

Hindustan Lever Ltd – a well-known FMCG company during the period

from 1987 to 1996. With the help of relevant statistical techniques and tests

the study showed a very high degree of positive relationship between

liquidity and profitability.

Sur, D., Chakraborty, K. and Das, S. (2007) made a case study of Colgate-

Palmolive (India) Ltd. – a leading FMCG company in the Indian healthcare

industry for the period from 1980 to 2003-04 to analyze the efficiency of its

asset management. For analyzing the data, the technique of ratio analysis,

simple statistical tools like arithmetic mean and statistical techniques like

analysis of Kendall’s coefficient of concordance, multiple regression

analysis and multiple correlation analysis were used. The t- test, F test and

Chi-Square tests were applied at appropriate places. The study revealed that

the company failed to adapt itself to the challenging and competitive

environment by lowering efficiency of its asset management during the post-

liberalization era.

Reddy, G.S. (2010) studied the impact of dividends announcement on stock

price of the selected FMCG companies. With the use of convenience

sampling, the researcher selected four companies such as ITC Ltd, Godrej

Consumer Products Ltd., Procter & Gamble and HUL. The data required for

the study was obtained from the BSE and NSE websites and company

websites for a period of five years starting from 2002-03and ending with

2006-07. The study was exploratory in nature. The collected data was
analyzed with the help of statistical tools – trend analysis, moving average

and correlation. The study concluded that as a whole the FMCG industry

showed the increasing trend in the stock prices after the declaration of

dividend according to trend analysis.

Boardman and Vinning (1989), Commander, Fan and Schaffer (1996) and

La Porta and Lopez-de Silanes (1997). In the Historical approach, exante

and ex post privatization performance of the same enterprise is compared.

Malik and Sur (1998) examined the working capital management of HUL, a

well known FMCG company, during the period 1987-1996 using relevant

statistical techniques and tests. The results reveal a very high degree of

positive relationship between liquidity and profitability.

Nash and Randenborgh (1998) , Earle and Estrin(1999) and Dewenter and

Malatesta(1999) beginning with Beaver’s(1998) contended that standard

financial ratios can predict the financial performance of firms, many

subsequent studies have attempted to demonstrate the predictive value of

various techniques for estimating actual business performance.

Lermack, (2003) the benifits of financial ratios analysis. Financial ratios are

an important and well established technique of financial analysis.

Lasher, (2005) dept ratios show how effectively the organization uses other
people’s money and whether it is using a lot of borrowed money.

Sur et al.(2007) studied the case of Colgate- Palmolive(India) ltd. A leading

FMCG company in the Indian health care industry for the period 1980-2004

using simple statically tools like arithmetic mean, techniques like ratio

analysis, analysis of Kendall’s coefficient of concordance, multiple

regression analysis and multiple and statically tests like t- test, F-test and

chi-square test at appropriate places to analyze the efficiency of the

company’s asset management.

Ross et.(2007) expressed most researchers divide the financial ratios into

four group. Profitability, solvency, liquidity and activity ratios.

Brigham and Ehrhardt(2010) stated the financial ratios are designed to help

evaluate financial statements. Financial ratios are used as a planning and

control tool. Financial ratio analysis is used to evaluate the performance of

an organization.

Bagchi and Khamrui(2012) evaluated the financial performance of the two

leading FMCG companies, Britannia industries and Dabur India, over a

period of 10 years(2000-2010) using various accounting ratios and statically

tools.

R. Amsaveni and S. Gomathi(2013) found that through economic analysis

the GNP, Interst rate, Exchange rate, FER, Agriculture production, Govt.
Receipts and Expenses has a growth rate during the study period. The

company analysis done with the help of ratio analysis indicates that Colgate

and HUL Companies are financially in satisfactory position during the study

period.

Ms. J. Hema and V. Ariram(2016) found that Indian FMCG industry has a

high growth rate and its sales and net profit also shows increasing trend and

the company analysis revealed that its financial performance through the

financial ratio, which indicates that HUL is financially in satisfactory

position during the study period.

According to Dr. Pramod H. Patil, Assistant Professor, School of

Management Sciences, Sub-centre Latur, Volume:5, Issue:2, February 2016,

FMCG sector is recession proof and have created huge employment

opportunities in India, hence becoming one of the key pillars of Indian

economy. He says that competition coming from the unorganized sector can

be overcome by increasing brand awareness and reducing cost through

sharing resources such as distribution network and the future of FMCG

sector is bright as favorable movements in demand and supply side of this

sector.
According to Dr. N. Manicka Mahesh, Assistant Professor, school of

Management, Sri Krishna College of Engineering and Technology,

Coimbatore, Volume:6,Issue:5, may 2016, if the foundation of the

company is strong then the performance of the company will be everlasting

nature. Pricing of the scrips do not depend on the euphoria built among the

market participants, but the valuation matters. It is better to trade and invest

with the scrips which are fundamentally strong in nature.

According to Dr. G. Sudarsana Reddy, Associate Professor, Department of

Studies Research in Commerce, Volume 4, Issue 1, January 2013, while

taking the investment decision, the investor should take relevant

information. The analysis like fundamental and technical are very

important to make better decision of buying and selling shares. Investing in

share market is risky and long term investment are always more preferable

than short term investment so the investor should prefer long term

investment like equity stocks.

An article authored by Sahu(2002) shows that for the successful

functioning of a firm, the role of management is required to focus on

maintaining short term liquidity in a scientific manner. The study revealed

that the short financial position of the companies in FMCG sector was not

satisfactory. An empirical study was conducted by Vishnani and Shah

(2007) covering the Indian Consumer Electronics Industry from 1994–95

to 2004–05. From the results of regression analysis it was concluded that

working capital management plays an important role in the profitability of

an any company. Higher investments in current assets could not yield

proper return for the firm which hampered the liquidity and profitability,

because huge amount of fund became idle, which thus could not generate

any return. Bhunia(2010), In his study on paper producing companies

suggested that improper liquidity is major threat for the survival of the firm.

Payment of short term obligations reflects the liquidity position of any

company. Another study was conducted by Saleem and Rehman (2011) for

the financial year from 2004 to 2009 on selected Oil and Gas companies

which were listed on Karachi Stock Exchange. They analyzed profitability

by ROA, ROI and ROE and for the liquidity, current ratio quick ratio and

liquid ratio were used and it was found that ROA and ROI were

significantly influenced by liquidity ratios, However ROI was not

significantly affected by Liquidity ratios. Hifza Malik(2011) in the study

on determinants of profitability in insurance companies of Pakistan found

that there is no relationship between profitability and age of the company,

while there is a significant positive association between size of the

company and profitability, volume of capital is positively related to

profitability while leverage ratio shows negative but significant

relationship with profitability. Karamjeet and Firew(2011)studied 449

Indian manufacturing firms and found that there is a significant difference

in relative solvency level of firms and their sufficient working capital.

Rohit and Vipin (2012) found no relationship between size of firms and

liquidity in Indian market of 100 firms during the period 1998-2008.

According to Marimuthu(2012),The ratio analysis technique gives a clear

picture about the financial position of any firm. He has suggested in his

study that the sample companies reflect up to the mark the current and quick

ratios except the interest coverage ratio. His study concluded that the firms

should focus on their working capital management properly and maintain

receivables, liquidity and payables accordingly. Panigrahi(2013) has

suggested that small firms maintain their liquidity more properly than big

firms. He has covered a period of ten years in his study. He has focused

mainly on the short term financial position of the firms. Sandhar

et.al(2013)investigated the impact of liquidity on profitability of the India

cements making firms and found negative relationship between the two. He

has analysed the current ratio, liquid ratio, return on asset and return on

investment in order to measure the impact of liquidity on profitability. A

research on listed companies on Colombo Stock Exchange in Sri Lanka

from the food, beverages and www.pbr.co.in 03 Volume 10 Issue 6,

December 2017 www.pbr.co.in 63 tobacco sector was done by

Elangkumaran and Karthika (2013) which suggested a significant impact

of liquidity on profitability and revealed positive correlation between the

two. A study using ANOVA method in automobile companies also

suggested that there exists a significant difference between the absolute

liquid ratio of the selected sample firms (Sarvanan and Abarna ,2014)

Similar relationships were observed between liquidity profitability in the

Eljelly’s(2004) study of 929 joint stock companies of Saudia Arabia

conducted in the year 2004. His study revealed significant negative

relationship between the liquidity and profitability ratios. He also found

that cash conversion cycle was a better measure of liquidity in comparison

to the current ratio. A recent study was carried by Hetalgaglani and Smita

Rao (2015) on financial health of Sun Pharmaceutical Industry Ltd by

observing the liquidity and profitability through the application of Altman’s

Z-score test which depicted a moderate correlation between liquidity and

profitability and the sample firms were in green zone.

Brigham and Houston’s financial analysis involves comparing the firm’s

performance to that of other firms in the same industry and evaluating

trends in the firm’s financial position over time. One rich source of
information for financial statement analysis is the audited financial

statements. The financial statements are usually part of the annual report

that listed companies submit to regulatory agencies such as Securities and

Exchange Commission and Stock Exchange entities.

D.H. Kantilal studied on analysis of gross profit to sales ratio of top ten

pharmaceutical companies and shows that there is significance difference

between in the gross profit to sales ratio among different companies under

study as well as different years of each company lastly the researcher

concluded that Gross Profit to sales ratio among different companies and

among different years under study is not same. Ashok Kumar (2013)

studied liquidity position of five leading companies which cover period of

10 years from 2000-2010. It has been found that the liquidity positions of

small companies are better as compared to big ones. Lastly, it is concluded

that companies should maintain an ideal current and liquid ratio.

Sarvanan and Abarna conducted study on liquidity analysis of selected

companies in India using ANOVA and found that there is significant

difference among the absolute liquid ratios of the selected companies.

Beaver’s contented that standard financial ratios can predict the financial

performance of firms; many subsequent studies have attempted to

demonstrate the predictive value of various techniques for estimating actual

business performance.

Foster reviewed of the literature describing methods and theories for

evaluating and predicting financial performance reveals that although

methods have become increasingly complex, few researchers adequately

address the problems associated with the sample used. For example, most

ratio analysis studies use multivariate analysis that is based on the

assumptions of normal distribution of financial ratios [1]. Without

confirming the approximation of normality of ratio distribution, the

researcher is at risk of drawing erroneous inferences. When considering the

distribution of financial ratios in any database, the normality of the

distribution can be skewed by data recording errors, negative denominators

and denominators approaching zero.

Malhorta and McLeod argued that the only way to assess future financial

performance is through the inclusion of subjective measures.

 CHAPTER 3

RESEARCH METHODOLOGY

3.1 Objective of the Study

In this project, I have done the financial analysis of FMCG industry. The main objective of this

project is to find some good FMCG stocks to invest in or to make a good portfolio out of these

stocks. We are focusing on earning maximum profits by minimizing the total risk after analyzing

trends of the industry and by doing fundamental analysis. Other objectives are listed below:

• To know about the FMCG industry and its contribution towards Indian economy.

• To guide investor that in which company’s stock to invest in.

• To find out some ratios and analyze them for the purpose of investment.

• To calculate the risk of the stocks.

 3.2 Research Hypothesis

In the light of the above objectives, the hypotheses developed for the present study are as follows:

• H01: There is no significant impact of Sales on Liquidity position of selected FMCG firms.

• H02: There is no significant impact of Sales on Solvency position of selected FMCG firms.

• H03: There is no significant impact of Sales on Profitability position of selected FMCG firms.

3.3 Scope of the Study

Functional scope of this study is to analyze financial performance of Indian FMCG Companies

through Ratio Analysis. For this study researcher has selected seven Indian FMCG Companies,

which are listed in NSE Nifty. So, whole India is geographical criteria for this research study.

3.4 Primary Data Study

Financial analysis with reference to FMCG (Fast moving Consumer Goods) sector.

Assumption: -

Certain assumptions of this study are given below:

1. All the data taken is secondary and taken from internet.

2. I have taken 5 major companies of FMCG industry and have done the analysis on the basis

of those companies only.

3. In some situations, my personal judgment is involved.

Benefits:
 Fundamental analysis helps in:

1. Identifying the intrinsic value of asecurity.

2. Identifying long-term investment opportunities, since it involves real-timedata

Research Design:

Research design is a framework of techniques and methods chosen by researcher to carry out

his research in a logical manner so that he can handle the predefined research problem. In this

research, I have used descriptive research design as in this research I gathered, analyzed and

presented the collected data to show whether the company is fundamentally strong or not.

Sample Design:

I have selected few major FMCG companies to do the fundamental analysis and I have

selected them on the basis of their market capitalization.

Sample Size:

I have chosen top 5 FMCG companies on the basis of their market capitalization.

Data collection:
The data collected for the analysis is through the secondary sources like company’s annual

report, various websites etc.

3.5 Limitation of Study

The data collected is through the secondary sources hence the reliability of the data is not

100% and I have taken only past 5year financial information.

 CHAPTER 4

DATA REPRESENTATION & ANALYSIS

4.1 Data Representation and Interpretation

The study will provide a precise presentation of data and guidelines that will help an investor to

finalize his investment decision I have chosen top 5 companies as my sample. These 5 companies

are the biggest in the FMCG sector based on their market capitalization. These 5 companies are

Hindustan Unilever, ITC, Dabur, Britannia and Godrej consumer products ltd. I am going to

analyze their financial statements using ratios and will comment on them whether the company is

fundamentally strong or not.

 Market Capitalization
400000.00 377298.31

350000.00 336408.34

300000.00
Rs. (in crores)

250000.00

200000.00

150000.00

100000.00 76303.78 73510.96 67340.30

50000.00

0.00
1

HUL ITC dabur britannia godrej consumer products ltd.

P/E RATIO

Price to earnings ratio known as P/E ratio is used for valuing a company that measures its current

share price relative to its Earning per Share (EPS). This ratio is generally computed to compare

different companies of same industry or same company with its past records. A company with a

high P/E ratio usually indicated positive future performance and investors are willing to pay more

for this company’s shares.

Formula to calculate P/E Ratio:

P/E Ratio= Market Value per Share/Earning per Share

 Companies 2018 2017 2016 2015 2014

HUL 64.61 51.03 43.05 40.32 33.24

ITC 29.11 31.05 28.36 25.84 28.64

DABUR 50 40.73 38.54 43.04 33.08

BRITANNIA 33.48 25.74 20.77 21.83 16.08

Godrej Consumer

Products ltd. 47.03 45.43 55.76 41.61 35.27

P/E RATIO
70

60

50

40

30

20

10

0
2018 2017 2016 2015 2014

HUL ITC DABUR BRITANNIA Godrej Consumer Products ltd.

INTERPRETATION:
HUL: As we can see from the chart the P/E Ratio of HUL keeps on increasing over

the years and it is the only company among my sample taken that has a positive

growth of P/E ratio. This is a favorable situation for the investors. The P/E ratio of

HUL is nearly doubled over 5 years.

ITC: The P/E ratio for ITC is rather fluctuating over the years. Like in the 2015 it

declined by 3 points then for two consecutive years it rose than after this in 2018 it

again declined and it is not good for a company who is trying to retain its

shareholders.

DABUR: The P/E ratio for Dabur is not so fluctuating as it has declined only for 1

year, i.e. for 2016 and it has keeps on increasing for the rest of years. And also its

P/E ratio for 2018 is very high so investors may want to invest in this company.

BRITANNIA: the ratio of this company has shown a positive trend over years

except 2016 where it has fallen by 1 point. This ratio for the company has doubled

itself in the past 5 years so maybe we can say that company has some potential and

going on a right track.

Godrej Consumer Products: The P/E ratio of this company is good as compared

to rest of the companies but it had not shown a good trend over the years. Like from

35% in 2014 it went up to 55% in 2016 and then in 2018 it declined to 47%. So by
looking at the trend we cannot say what it is like to be in the future as it is uncertain

but this company does have a good P/E ratio so risky investors may invest in it.

In general a higher ratio means that investors anticipate higher performance and

growth in the future. So P/E ratio of HUL is highest followed by Dabur and Godrej

so according to this ratio HUL is the company in which you should invest your

money into.

DIVIDEND PAYOUT RATIO

Dividend payout ratio or DPR is the total amount of dividends the company is paying

out to the shareholders relative to its net income. It is the percentage of total earnings

paid to the shareholders in the form of dividend. This ratio indicates that how much

the company is paying to the shareholders and how much it is retaining with itself.

Formula to calculate Dividend payout ratio

Dividend payout Ratio = Dividend per Share / Earning per Share

Dividend payout ratio

 Companies 2018 2017 2016 2015 2014

HUL 74.39 79.53 81.07 75.2 72.69

ITC 51.41 67.05 69.48 52.14 54.31

DABUR 44.49 39.7 42.12 46.06 45.4

BRITANNIA 27.86 28.44 32.03 30.82 38.91

Godrej Consumer Products ltd. 61.31 23.09 26.47 28.61 31.632

Dividend Payout Ratio %

90
80
70
60
50
40
30
20
10
0
HUL ITC DABUR BRITANNIA Godrej Consumer
Products ltd.

2018 2017 2016 2015 2014

INTERPRETATION:
HUL: HUL pays a good percentage of dividend to its shareholders i.e. 74.39% in

2018 and it is more or less constant over the years which is a very good sign for

shareholders because to pay dividend you have to earn profits and cash. Paying

dividends mean the company is earning good money.

ITC: ITC is not much constant rather it is fluctuating when it comes to paying

dividend. This doesn’t surely means that company is not making profits or earning

money but it can also be the case that the company is earning money but saving it

for the future projects and because of it not giving out dividends. This will make

some shareholders upset.

DABUR: Dividend payout ratio of Dabur in 2014 was 45.4% and in 2018 it is

44.49% and there has been little ups and downs in between. The company has almost

a constant dividend payout ratio which is good for shareholders who are looking for

a steady income.

BRITANNIA: This Company is paying lowest level of dividend compared to other

companies in the sector in my sample. Aged people won’t be happy investing in this

company because generally they are looking for steady income rather than making

an investment seeking capital gains.

 Godrej Consumer Products: This Company has done very well in terms of

paying out dividend in 2018. It went straight up to 61% in 2018 from 23% in 2017.

Maybe company has earn some big profits and thus distributing to its shareholders.

Constant high dividend payout ratio will attract more shareholders.

Not all the companies who are huge money or make good profits payout higher dividend

because of the opportunity cost involved with it. They might save this money for

some future projects and pay higher dividends in future. Among above chosen

companies HUL has the highest Dividend payout ratio followed by Godrej

Consumer group.

RETURN ON EQUITY:

Return on equity ratio is a profitability ratio that tells us about the firm’s ability to

generate profits from its shareholders’ investment. In layman terms, it tells us how

much profit each rupee of common shareholders’ equity generates. It is also

considered as a measure of how effectively management is using company’s assets

or investments to generate profits.

A company which have a high ROE ratio is more successful to generate cash

internally. Generally, companies with high ROE attracts investors and it is a better

benchmark when comparing different companies of same industry.

Formula to calculate ROE:

ROE = Net Income / Shareholders’ Equity

ROE

Companies 2018 2017 2016 2015 2014

HUL 74.02 69.18 65.88 115.87 118.04

ITC 21.83 22.49 29.94 31.31 33.51

DABUR 25.36 27.29 32.71 32.64 35.33

BRITANNIA 29.29 32.67 44.05 50.37 43.33

Godrej Consumer Products ltd. 21.54 19.38 19.34 19.34 18.67

 ROE%
140
120
100
80
60
40
20
0
HUL ITC DABUR BRITANNIA Godrej
Consumer
Products ltd.

2018 2017 2016 2015

INTERPRETATION:

HUL: The ROE ratio of HUL is greater than its competitors. Actually it is nearly 3-

4 times more than its competitors. But if we look at the past trend of the company,

it is not positive over the time. As it was 118% in 2014, it declined to 65% in 2016

and then from there it is rising slowly coming back on the right track.

ITC: The ROE ratio of the ITC continuously declined over the years. It was 33.51%

in 2014 and it went down to 21.83% in 2018. This means that company is not

effectively using employing it’s investment to generate more profits which is a red

sign for the shareholders

DABUR: Just like ITC, ROE of Dabur has declined continuously over the years

except for 2016 where it has risen up by point percentage. This type of stock seems

unattractive to the investors and usually they refrain themselves from investing in

this type of stock.

BRITANNIA: ROE of Britannia has risen up by a good percentage in 2015, it went

up to 50% from 43% in 2014. But after 2015, ROE ratio of Britannia has fallen

drastically from 50% in 2015 to 29% in 2018 which is not a good sign for investors.

Godrej Consumer Products: ROE ratio for Godrej was constant for 3 years straight

from 2015 to 2017 but in 2018 it has risen up by some points which is a good sign

and shows that management has started using its assets effectively.

A company with higher ROE ratio is more favorable to investors than a company

with low ROE ratio. HUL has the highest ROE ratio in the FMCG sector which

investors find very lucrative and hence will want to invest in this company. No

company is near HUL in terms of ROE ratio but it is followed by Britannia with a

ROE ratio of 29.29%.

EV/EBITDA:
The EV/EBITDA as given by its name is computed by dividing EV (enterprise

value) by earnings before interest, taxes, depreciation and amortization. It is a

valuation technique used to compare the relative value of different businesses.

The enterprise value is a true picture of a company in terms of valuation. EV is

calculates by adding market capitalization and Debt and then subtracting cash and

cash equivalents from it. It is a very effective measure when valuing a company.

Formula to calculate this = EV/EBITDA

EV/EBITDA (X)

COMPANY 2018 2017 2016 2015 2014

HUL 36.35 29.64 29.31 31.98 25.18

ITC 17.53 20.4 16.05 16.87 20.46

DABUR 38.23 35.41 33.86 43.32 33.21

BRITANNIA 38.05 30.05 26.08 29.92 15.92

Godrej Consumer Products ltd. 52.94 47.45 45.67 38.94 36.58

 EV/EBITDA
60

50

40

30

20

10

0
HUL ITC DABUR BRITANNIA Godrej Consumer
Products ltd.

2018 2017 2016 2015 2014

INTERPRETATION:

HUL: Value of EV/EBITDA is considered better than P/E ratio because it is a more

comprehensive measure of valuing a company. EV/EBITDA of HUL is lesser when

compared to competitors but it is near other companies and have a positive trend

except in year 2015.

ITC: Value of EV/EBITDA of ITC is worst among all the companies. It stands at

17.53 which is lot lesser than its competitors so investors might want to invest in

other companies.
DABUR: EV/EBITDA of Dabur is quite good as it comes 2 nd in the industry just

after Godrej and it is increasing over the years as well except 2016 where it fell by

almost 10% but it is coming back on the right track.

BRITANNIA: This ratio for the company seems to be good as it is more than

doubled itself in past 5 years and in 2018 only it increased by 8%. Britannia is

catching up to its competitors quickly and may even outrun them in coming few

years.

Godrej Consumer Products: EV/EBITDA for Godrej is great if compared to its

competitors. It has highest ratio in the industry and has a good positive growth over

the years. Godrej in the case of this ratio is far ahead of its competitors and is going

to stay ahead because of the positive growth it is having.

Godrej Consumer Products is the clear winner when it comes to analyzing over

EV/EBITDA as other players in the industry have a big negative gap. Dabur is right

behind Godrej with having a EV/EBITDA of 38.23 followed by Britannia with 38.05
NET PROFIT MARGIN RATIO

The net profit margin ratio is calculated by dividing net income by net sales. It shows

us that how much profit is generated as a percentage of revenue. It is also said as the

best indicator of company’s financial health. Investors can look into this ratio and

see whether the company’s management is generating enough profit from its sales

that its costs and expenses are being covered.

Formula to calculate Net Profit Margin ratio:

Net Profit Margin ratio = Net Income / Net Sales

Net profit Margin %

COMPANY 2018 2017 2016 2015 2014

HUL 15.16 14.07 13.31 14 13.8

ITC 27.62 25.44 26.72 26.31 26.43

 DABUR 19.17 18.86 16.33 14.04 13.8

BRITANNIA 10.18 10.02 9.42 8.67 5.86

Godrej Consumer Products ltd. 19 17.85 15.3 14.77 13.84

Net Profit Margin %

30

25

20

15

10

0
2018 2017 2016 2015 2014

HUL ITC DABUR BRITANNIA

INTERPRETATION:

HUL: The NP ratio of HUL is not that great when compared to its other competitors

but it shows a positive trend over the years. It started from 13.18 in year 2014 and

now stands at 15.16% in year 2018. This is not a big gap but the company is

improving its net profit over the years.

ITC: The NP ratio of ITC is greatest when compared to its competitors but it is

fluctuating over the years like it is rising and falling in every alternate years and

investors generally refrain themselves from investing in these type of companies but

ITC has a great NP ratio in 2018 so investors will go for this company.

DABUR: Despite of not having greatest NP ratio if compared to its competitors,

ITC has a very positive growth over the years. Like it started with 13.8% in year

2014 as same as HUL but in 2018 it is 4% stronger than HUL. This means Dabur

has done great work for improving its net profit.

BRITANNIA: Britannia has the lowest NP ratio among its competitors but it has

shown positive growth over the years and its NP is doubled in past 5 year. Despite

of having a smaller NP number it has shown a good growth which is appreciated by

most of the investors.

Godrej Consumer Products: The NP numbers of Godrej consumer group are quite

good and it keeps on increasing year after year. It started from 13.84% in 2014 and

now it stands at 19% in 2018 which is a good sign for investors

So as can be interpreted form the above data, the Net profit ratio of the FMCG sector

is quite good and all the companies in this sector has shown positive growth over the
years except ITC but it has the greatest Net Profit ratio in the industry followed by

Dabur and Godrej consumer group.

CHAPTER 5

RESULT & DISCUSSION

5.1 Finding
The present study deals with the evaluation of financial performance of the selected

FMCG firms in India (ITC & HUL).The liquidity position of the firm has been

analyzed with the help of the current ratio and quick ratio. The solvency position of

the selected firms has been analyzed with the help of debt-equity ratio while for the

profitability analysis, return on assets has been used. The study also revealed the

impact of sales on liquidity, solvency and profitability of selected FMCG firms with

the help of simple regression analyses. The main findings of the study and the

conclusion drawn can be summarized as follows. 1. The mean value of profitability

of selected FMCG firms during the study period was 25.36 indicating sound return

for the shareholder of the company or satisfactory profitability position. 2. Liquidity

ratios i.e. quick ratio and current ratio has been a little lower than the standard norms

but still firms had a satisfactory liquidity position and have been able to meet short

term obligations. 3. Debt-Equity ratio of the selected firms has revealed that the firms

have made no use of or a little use of debt in their capital structure. The firms were

not trading on equity else they would have further increased their profitability. 4.

There has been a strong positive relation of sales with liquidity and profitability of

firms with increase in the sales. 5. Sales of the selected FMCG firms have

significantly impacted liquidity and profitability of the selected firms. However,

sales had no significant impact on their solvency.

5.2 Suggestions
Based on findings of the study and conclusion drawn some critical points emerge which are

presented in the form of suggestions to improve the financial position of the selected firms.

1. Profitability of the selected firms has been satisfactory during study period. This trend of

profitability should be maintained in the future.

2. The current ratio and quick ratio may further be improved by increasing current assets & quick

assets or by decreasing current liabilities and the firm should try to maintain the liquidity ratio near

the standard level.

3. Selected firms have not used much debt in their capital structure during study period. It is

suggested that firms should add more debt in their capital structure or should trade on equity to

increase the profit of the companies which in turn shall result in the availability of more profit for

the shareholders or owners of the companies.

4. Sales have significantly impacted the liquidity and profitability of the firms during study period.

It is suggested that the selected firms should try to increase their sales with the help of various

promotional activities by widening their distribution channels and providing proper training to

their salesman.

5.3 CONCLUSION

Fundamental analysis can be important to investor when they are looking to invest

in company. If they find the financials of the company strong enough then they will

invest in that company.

As per the analysis FMCG sector is booming with all the factors favoring it. It has a

revenue of $68.4billion in 2018 and projected revenue for 2020 is $103 billion. The

Retail market in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 840

billion in 2017, with modern trade expected to grow at 20 per cent - 25 per cent per

annum. Government initiatives are helping the FMCG sector in every way possible

like government has allowed 100 per cent Foreign Direct Investment (FDI) in food

processing and single-brand retail and 51 per cent in multi-brand retail which would

bolster employment and supply chain and also implementation of GST proved to be

a boon for FMCG industry

I have done the analysis of 5 top companies of FMCG sector and came up with the

result that HUL is the best stock according to some ratios that are: P/E ratio, Return

on Equity ratio and dividend payout ratio but when I calculated EV/EBITDA of the

companies given, Godrej Consumer Group was the clear winner and according to

net profit margin ratio, an investor should invest into ITC. Well clearly 3 major ratios

are telling us that HUL is best but rest two ratios i.e. EV/EBITDA and Net profit

margin ratio tells us some different story and hence cannot be ignored as these are

two important ratios. So according to me HUL is a good stock to pick as it pays good

returns on equity and highest dividend payout ratio in the industry and also this

company comes under the good brand name i.e. Unilever. If one is looking for couple
of stocks then HUL and GODREJ will be the best because ITC has lowest

EV/EBITDA and very bad return on equity.

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