Fundamental Analysis of Itc

FundamentalAnalysisof
SelectedFMCGCompaniesinIndia
R.AmsaveniandS.Gomathi
Investmentdecisionisapartofoureconomiclife.Everybodytakessuchdecisionatdifferent
context.Investmentdecisionsaretobemadeinasystematicmannerwithtwoapproachessuchas
technicalandfundamentalanalysis.Thepresentstudyaimstoanalysethefundamentalanalysisof
BSElistedFMCGcompaniesinIndiawithasamplesizeofsixcompaniesforaperiodfrom2006?07
to2011?12.TheobjectivesofthestudyaretoconductFundamentalanalysisforBSElistedFMCG
companiesandtheSWOTanalysisfortheFMCGindustry.TheEconomic,Industryandcompany
analysishavebeenmadetoattaintheobjectivesofthestudy.FromtheEconomicanalysis,itis
foundthatGrossNationalProduct,Inflation,Interestrates,Exchangerate,Foreignexchange
reserves,Agriculturalproduction,GovernmentReceiptsandExpenditurehasapositivegrowthrate
duringthestudyperiod.GrossDomesticProduct,GrossDomesticCapitalFormation,Gross
DomesticSavingsandBalanceofPaymentshaveanegativegrowthrateduringthestudyperiod.
TheindustryanalysisfoundthatIndiasFMCGsectoristhe4thlargestsectorwiththetotalmarket
sizeofUS$13billionduringtheyear2012.ThissectorisexpectedtogrowtoUS$33.1billionby
2015.Hence,ithasgreatpotentialinruralaswellasurbanmarketanditprovidesmoreemployment
opportunities.
Abstract
Dr R. Amsaveni, Professor, Hindusthan College of Arts and Science, Coimbatore, Tamil Nadu. E-mail: amsa_parthi@rediffmail.com
Mrs S. Gomathi, Assistant Professor, Dr. N.G.P Arts and Science College, Coimbatore, Tamil Nadu. E-mail: kavingoms@gmail.com
Keywords
fundamentalanalysis,economic,FMCGindustry,india
biggest economy in Asia in terms of gross domestic
Introduction
product. All these make investment in India a
India is one of the top five economies in the world in
lucrative option for the investors across the world.
terms of market potential and ranked as the third
The capital market of India forms an important part
Asia-Pacific Finance and Accounting Review
Vol. 1, No. 3, April J une 2013
pp. 3755, ISSN: 2278-1838
www.asiapacific.edu/far
of the development of the nation. Nowadays people for more than three million people in downstream
are showing more interest to invest in shares or activities. It grew at an average of 11 per cent over
derivatives. Investors are more conscious about the the last decade and the annual growth accelerated to
2
fluctuations in the stock market. In order to 17 per cent . In India, both urban and rural areas have
minimize the risk, the investors should know about been contributing a highest percentage of income for
the past performance of the company, market the consuming of FMCG goods which persists to
fluctuations, reason for fluctuation, economic policy strong growth of this sector. In rural India consists of
and inflation etc., before making an investment in more than 700 million consumers and provides 40
securities. Otherwise, the investors can be applied per cent of the total FMCG market. The sector has
security analysis. There are two alternative tremendous growth opportunities in the future, with
approaches for security analysis such as technical a growing population, the rising incomes, education
and fundamental analysis. Technical analysis is a and urbanization, and the growth of modern retail
method of evaluating securities by analyzing the sector. At this juncture, it is worthwhile to analyze
statistics generated by market activity, such as past the stocks of FMCG companies and for this purpose
prices and volume. BSE FMCG INDEX companies were selected.
The objective of Fundamental analysis is to
Literature Review
appraise intrinsic value of a security. The intrinsic
A brief review of literature would help the
value is the true economic worth of a financial asset.
researcher, reader and other research scholars in
The fundamental analyst has to estimate the intrinsic
gaining an insight into the studies, which were made
worth of a security by considering key economic and
in areas related to the subject of this study. The
financial variables and see whether the actual price
findings of some of the studies are briefly
is above or below its intrinsic value. Finally, the
summarized as follows.
investors take buy or sell decision depending upon

the result drawn from those analyses. The main
Jeffery Abarbanell and Brain Bushee (1977)
purpose of this analysis is for long-term perspective
Fundamental Analysis, Future Earnings and Stock
in nature.
Prices, in their study examined the relationship
between accounting based fundamental signals and
FMCG Sector: An Overview
future earnings of security prices. They applied
The fast moving consumer goods sector plays a vital
multiple regression analysis to analyse the data. The
role in Indian economy. FMCG goods are all
study found that investors are not completely relying
essential consumable items that consume at regular
on the information given by the analyst. They also
interval. It can be classified into three divisions such
found that the variables such as Gross Domestic
as household items, personal care items and food and
Product, inflation, firm specific variables are prior
beverages. Global leaders are Nestle, ITC,
earnings, expected earnings growth, relation
Hindustan Unilever Limited, Reckitt Benckiser,
between fundamental signal and future earnings,
Unilever, Procter & Gamble, Coca-Cola, Carlsberg,
revisions and forecast errors are most influencing
Kleenex, General Mills, Pepsi, Gillette, etc.
factors in fundamental analysis.
Indias FMCG sector is the fourth largest sector with
Sandip Mukherji, Manjeet, and Kim (1997),
the total market size of US$ 13 billion during the
A Fundamental Analysis of Korean Stock Returns
year 2012. This sector is expected to grow to US$
in their article examined about the relation between
1
33.1 billion by 2015 and it also creates employment
stock return and fundamental variables in Korean
Asia-PacificFinanceandAccountingReview1.3(2013):37?55
38
firms annual stock returns during the period of of a firm.
1982?83. The study found that stock returns are
Viyyanna Rao and Nirmala Daita (2012)
positively related to book-market ratio, sales-price
Fundamental Factors Influencing Investments in
ratio and debt-equity ratio. It is also found that return
Mutual Funds the EIC Approach: A Case Study of
is negatively related to firm size and not
RCAMI the study focused on fundamental analysis
significantly related to earnings price ratio. They
of mutual funds in India. The macro economic
suggested that book-market and sales-price ratios
variables taken for this study, viz., RBI Bank Rate,
are more efficient indicators than the earnings-price Domestic savings, Gross Domestic Capital
and the debt-equity ratio. Formation, Money Supply, Gross National Product,
Wholesale Price Index, and Forex Reserves.
Jiang Xia (2000) Fundamental Analysis of Price
Descriptive Statistics, Correlation, Regression,
on Chinese Steel Products in his paper considered
Augmented Dickey Fuller test and Granger test has
five fundamental factors such as price index of steel
been applied. The economic analysis results found
product, Gross National Product, exchange rates,
that all the variables were positively correlated with
interest rates, imports and exports are influencing
each other except bank rate and Wholesale price
over the price of steel products. A hedonic function
index. The industry analysis shows that Reliance,
model was applied which reflects the relation
HDFC, ICICI Prudential, UTI and Birla Sun Life
between prices of varieties of heterogeneous goods
stood in the top five positions and its contribution as
and empirical tests applied by using Chinese annual
57.02 per cent of the total assets. The remaining 33
data for the year 1978?98. The study found that the
players shared the rest of the 42.98 per cent of the
above said variables are influencing at 62 per cent
industry. The company analysis results reveal that
over the steel price. The price index and Gross
price earning ratio and price to book ratio, fund size,
Domestic Product have positive significant relation
market capitalization and Net assets value were
which depicts that higher the price index and Gross
found to be having a significant influence on the
Domestic Product, higher the steel price. The
return of the funds.
exchange rate have negative impact over the steel
Hence, the present study focused to fill the research
price, the interest rate does not have influence over
gap of the previous study and attempt to make a
the steel price and finally it is found that import and
fundamental analysis on FMCG sector in India.
export influence the steel price of the product.
Research Design and Methodology
Mehmet Sarac (2007) Does Fundamental
Methodology is the science of dealings with Analysis Matter for Foreign Investors? An
principles of procedure in research study. Empirical Analysis of Foreign Investment in the
Istanbul Stock Exchange The paper analyzed about
Research Design and Period of the Study
the buy and sell decisions of foreign investors are
This study is based on analytical nature and covers a
related to financial indicators of the firms listed on
period of six years from 2006?07 to 2011?12.
the Istanbul Stock Exchange. Based on the monthly
Sources of Data
data from J anuary 2000 to April 2006, the study
found that the operating leverage, profitability and The data has been collected from various secondary
solvency are the most important factors while sources like indiastat.com, PROWESS database of
investing in the manufacturing stocks. Foreign Centre for Monitoring Indian Economy Private
investors consider solvency is a major factor Limited (CMIE), RBI bulletins, BSE websites
Money control.com, Books and Magazines. whereas, local investors considers the profitability
39
FundamentalAnalysisofSelectedFMCGCompaniesinIndia
Figure 1: Conceptual Framework
GNP, GDP, GDCF, GDS,
SAVINGS RATE
INFLATION RATE
INTEREST RATE
EXCHANGE RATE
FOREX RESERVES
AGRI PRODUCTION
GOVT. RECEIPTS
GOVT. EXPENDITURE BOP
GROWTH RATE
AND SWOT
ANALYSIS
EPS, DPS, DP RATIO,
PE RATIO, ROE
EARNINGS YIELD RATIO
DIVIDEND YIELD RATIO
PRICE TO BOOK VALUE
RATIO
INTRINSIC VALUE
COMPANY
ANALYSIS
INDUSTRY
ANALYSIS
ECONOMIC
ANALYSIS
FUNDAMENTAL ANALYSIS
Sample Selection Criteria Tools Applied for the Study
The study is based on the secondary data. The The financial tools such as ratio analysis and
audited financial statements of the companies are the fundamental analysis were applied to analyse the
main source of data. The FMCG companies which collected data. The statistical tools, viz., Mean,
satisfied the following criteria have been selected. Skewness and Kurtosis was applied to study the
The criteria are: variations in ratios and Compound Annual Growth
Rate was used to find how much an investment
FMCG companies listed in BSE
yields on an annually compounded basis.
Availability of data for a period of six years
Conceptual Framework
Accounting year must be from April to March
Fundamental analysis was done based on past six
Companies that satisfy the above conditions are:
years data available and the ratios used are as
(i) Colgate Palmolive (ii) Dabur India (iii) Godrej
follows:
Consumer Products Limited (iv) Hindustan
A conceptual framework for the study is proposed
Unilever Limited (v) ITC Limited and (vi) Marico
and is presented in the Figure 1.
Limited.
40
Source: Compiled by Authors.
Earnings per Share (EPS) Earnings Yield Ratio =Earnings per share / Market
price per share.
This ratio indicates the profits available to equity
share holders per share, this helps to determine the Dividend Yield Ratio =Dividend per share/Market
market price of equity shares. price of share.
Earnings per Share =Profit after Tax/No. of equity Price to Book Value Ratio
shares.
The book value of a share provides a floor below
Dividend per Share (DPS) which the market price of a share is not expected to
fall. Shares which have lower PB Ratio may be
The amount of profits distributed to shareholders per
considered as a safer investment and vice versa.
share is known as DPS and may be calculated as
follows: Price to Book Ratio =Market price per share/Book
value per share.
Dividend per Share = Amount declared as
dividend/No. of equity shares. Intrinsic Value
Dividend Payout Ratio (DP Ratio) The actual value of a company or an asset based on
an underlying perception of its true value including
The DP ratio is the ratio between the DPS and EPS of
all aspects of business in terms of both tangible and
the firm, i.e., it refers to the proportion of the EPS
intangible factors. The value may or may not be
which has been distributed by the company as
same as the current market value. The true economic
dividends. Dividend payout ratio may be calculated
worth of the share is its intrinsic value. The
as follows:
fundamental analyst finds out intrinsic value of a
Di vi dend Payout Rati o = Di vi dend per
share by using the formula:
share/Earnings per share x 100
Intrinsic Value = Earnings per share x Price to
Price to Earnings Ratio (PE Ratio)
Earnings ratio.
The PE Ratio indicates the expectations of the equity
Fundamental analysis consists of three stages such
investors about the earnings of the firm. The PE ratio
as economic analysis, industry analysis and
is one of the most widely used measures of financial
company analysis. Economic analysis helps to
analysis in practice and is calculated as follows.
analyze the performance of economic status of the
Price to Earnings ratio = Market price of
country. Industry analysis examines the growth of
share/Earnings per Share.
the particular industry and demand of the product in
the market. Company analysis considers the
Return on Equity (RoE)
financial performance of the company and the
The RoE examines profitability from the perspective
earnings and dividend paying capacity of the
of the equity investors by relating profits available
company. These are all presented in the chart
for the equity share holders with the book value of
mentioned below. This may assist to the investor in
the equity investment.
choosing the security based on these factors.
Return on Equity =Profit after Tax/Net Worth x 100
Statement of the Problem
Yield
Any person who invests his hard earned money in
The yield is defined as the rate of return on the
shares and security must possess adequate
amount invested. With the reference to equity
knowledge about securities market and securities
shares, the yield may be defined as the rate of return
price. Investors should be very careful and should
on the market piece of equity shares.
exercise his skills, knowledge and experience for
41
choosing investment opportunity. Otherwise the The present study uses ratios as an important
whole of the investment may go waste. They must tool of analysis which itself has a number of
identify the under-priced and overpriced securities. limitations on its applicability.
The mispricing of securities provides an opportunity
to the investor to acquire the share or dispose of the
Results and Discussions
share profitably. Therefore the study of the securities
market and reasons for the movement of securities is
Fundamental analysis
essential for any investors who invest his money in
Fundamental analysis covers various financial and
shares. In this context, the present study becomes
non-financial aspects such as evaluation of the
highly essential on the following grounds.
economy and industry scenario, company
a) Is the investment in BSE FMCG companies is
management and company financial position and so
more rewarding or not?
on.
b) Are FMCGs shares floating steadily?
Three phase of the fundamental analysis:
A. Understanding of the Macro Economic
Objectives of the Study
environment and developments (Economic
To conduct Fundamental analysis for BSE listed
analysis)
FMCG companies and the SWOT analysis for the
B. Analysing the prospectus of the industry to
FMCG industry.
which the firm belongs (Industry analysis)
Scope of the Study
C. Assessing the performance of the company
This study provides a precise presentation of data
(Company analysis)
and guidelines that will help a fresh investor as well
Economic Analysis
as a venture investor to know vital aspects of
Economic analysis deals with the analysis of
investing. This study helps to the investors to choose
operating in the overall economy. In security
a safe investment and to identify the growth
analysis, the expected course of the economy must
opportunities in the future. FMCG industry is one of
be inquired into because overall economic
the major and important industries in the world.
conditions and economic activities affect corporate
Large numbers of foreign investors are coming and
profits and investors expectations and thereby
investing in Indian FMCG sector due to its large
affect the security prices in decisions. Investors
potential growth in future. The scope of the study is
consider those variables of the economy, which
limited to analyzing the financial statements and
affect the performance of the company in which they
periodical reports published by the company and the
tend to invest. The economic variables used in this
information from the journals and websites.
study such as, Gross National Product, Gross
Limitations of the Study
Domestic Product, Gross domestic capital
The study is confined only to the FMCG
formation, Gross domestic savings, Inflation Rates,
companies in Bombay Stock Exchange.
Interest Rates, Exchange rate, Foreign exchange
reserves, Agricultural Production, Government
External factors may adversely affect the
Receipts and Expenditure and Balance of payments.
industry as well as its share price. E.g.
Government policies, competition, tax
The following Table represents the economic factors
imposition, global market, FDI/FII etc. Hence,
of the country:
the movement of stock price is not 100 per cent
predictable.
42
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7
The Table 1 represents the economic indicators of
2009?10 to 2010?11. During the year 2008?09
our country which helps to the investors to make
inflation rate shows as 8.1 per cent which was
economic analysis towards investments. Gross
increased due to the shortfall of domestic production
National Product represents the aggregate value of vis--vis demand and hardening of international
goods and a service produced in a country which prices, prices of primary commodities, especially
shows an increasing trend at the growth rate of 13.05 rise in prices of food products.
per cent, it represents the economic condition of a
Interest rates on deposits growth rate was 1.08 per
country which is going upward. Gross Domestic
cent which shows the fluctuating trend from 7.5 to
Product indicates the rate of growth of the economy. 8
9.5 during the study period. The Interest rate is
The highest growth rate is more favorable to the
increased which helps to encourage the saving habit
stock market. Agriculture is the major source of
of an individual. The exchange rate indicates the
income in India but it has contributed only 11.01 per
stability of economic growth of a country. The
3
cent of total Gross Domestic Product . The fall in the
exchange rate shows fluctuating trend from 40.24 to
9 agricultural production and the consequent fall in
47.95. Foreign exchange reserve helps to preserve
agricultural incomes are expected to have an impact
currency stability and reduce economic distresses.
on the demand for industrial sector. The service
Foreign exchange reserve shows high trend in the
sector contributes 58.9 per cent and the industrial
year 2007?08 and 2010?11 and the Compound
sector accounts for 27.0 per cent of Gross Domestic
10
Annual Growth Rate of 6.73 per cent . Agricultural
Product. Manufacturing and electricity have played
production increased over the years, it is clear that
a major role in the Indian industrial sector.
the growth of the agricultural sector is in a
Especially the manufacturing industry contributes a
11
satisfactory position . The government expenditure
huge percentage of shares in total Gross Domestic
exceeds over the receipts, the receipts and
Product and makes it evident that the manufacturing
expenditure growth rate shows that 13.62 and
sector is performing excellently. During the year
12
13.84 , there is a small difference in between these
2008?09 and 2011?12 the growth was declined by
two; in future it can be controllable due to effective
4.3 per cent and 2.5 per cent, respectively. The
economic policy. The government spent more
overall Gross Domestic Product is also reduced in
money to develop our infrastructural activities
the same year due to the global liquidity crisis. Our
because; once the infrastructure is developed it leads
real Gross Domestic Product forecast for 2012?13 is
to potential economic growth. The Balance of
4
6 per cent .
payments shows a negative balance of payments
during the year 2008?09 and 2011?12 which depicts Gross Domestic Capital Formation and Gross
that the value of imports exceeds over the export of Domestic Savings indicate savings of individuals in
13
various sectors, viz., household, private and public our country . It is one of the major indicators of a
countrys international trade. Hence, our countries
sector. The growth rate shows at ?0.33 and ?1.92
have to improve the production of goods and
which represents the individual saving habits
services and try to increase the export in future
decreased due to high inflation trend and high cost of
5
period.
living. The savings deposits with commercial bank
shows a compound annual growth rate of 14.83 per
Industry Analysis
cent indicating a positive and safe growth of the
6
An industry described as a homogeneous group of
commercial banks. Inflation rate refers to a general
companies. It may be defined as a group of firms
rise in prices measured against a standard level of
producing reasonably similar products that serve the
purchasing power. It shows the fluctuating trend
same need of a common set of buyers. The
from 3.8 per cent to 9.6 per cent in during the year
profitability of an industry depends upon its stage of
44
growth. These externalities depend on the expenditure which represents the sector is growing
constantly, sales and profit also shows in increasing availabilities of inputs power and interrelations
trend it is evident that the sector has earned high
between the economy and industry. In India,
returns on their investments. Hence, the investor can
companies like HUL, ITC, Colgate, Dabur have
invest their money in this sector which helps to
been a dominant force in the FMCG sector well
obtain more return.
supported by relatively less competition and high
entry barriers (import duty was high). SWOT Analysis of FMCG Industry
Strengths
Growth of FMCG Industry in India
1. Lower operational costs
Indias FMCG sector reported steady sales
Compound Annual Growth Rate of 11.2 per cent 2. Existence of recognised distribution networks
in both urban and rural areas
over the financial year 2000?11 on the back of strong
annual volume growth of 8.5 per cent. Growth is
3. Existence of eminent brands in FMCG sector
being driven by increasing consumption led by a rise
4. Favorable Government policy and Foreign
in incomes, changing lifestyles and favourable
Direct Investment is permitted.
demographics. The industry is poised to grow at
Weaknesses
Compound Annual Growth Rate between 10 to 12
1. Lower scope of investing in technology of small per cent annually. The annual profit of FMCG sector
scale sectors $14.74 billion. Total market size in excess of US $30
billion in the year 2011. The market growth rate of
2. Low export levels
FMCG industry in rural and urban areas is 40 per
3. Illegal duplicate labels of the established brands
cent and 25 per cent, respectively. Average Indian
of FMCG product reduced the scope in rural and
spending on groceries and personal care is 48 per
semi-urban market.
cent. (Groceries 40 per cent and personal care 8 per
Opportunities
cent). According to FICCI-Technopark report, the
1. Untapped rural market implementation of the proposed GST and opening of
FDI is expected to fuel growth of industry size to $47
2. Increasing income levels which lead to increase
billion (` 2,25,000 crore) by 2013 and $95 billion (`
in purchasing power of consumers
14
4,56,000 crore) by 2018 . The growth of the FMCG
3. Huge domestic marketa population of over
sector is presented in the Table 2 represents the total
one billion
income, expenditure, sales and Profit earned after
4. Export potential
tax. Sales and Profit indicate the growth of the sector.
5. High consumer goods spending
FMCG industry shows that total income and sales
has increased over the years except during the last
6. Lower price and smaller packs which increases
year. The profit after tax is also showing an
the trading volume.
increasing trend which represents the industry has
Threats
attained maximum profit during the study period.
1. Removal of import restrictions resulting in
Hence, the FMCG sector has high potential growth;
replacing of domestic brands
the investors have also attained a high rate of return
2. Slowdown in rural demand and mostly depends on their investments.
upon monsoon
Table 2 indicates that the growth of FMCG sector in
3. Tax and regulatory structure. India. It is clear that the income exceeds over the
45
Source: Companies Annual Reports from 2006?07 to 2011?12.
Company Analysis Table 3
Earnings per Share
2006?07
2007?08
2008?09
2009?10
2010?11
2011?12
Mean
Skewness
Kurtosis
Year
Colgate
Palmolive
15.53
16.06
21.22
30.13
29.13
32.83
24.15
?0.14
2.47
13.29%
Dabur
1.39
1.77
2.04
2.41
2.65
2.66
2.15
?0.52
?1.24
11.42%
Godrej
Consumer
3.68
4.85
5.01
7.59
12.46
17.76
8.55
1.13
0.13
30.00%
HUL
6.99
7.76
10.87
9.74
9.84
12.45
9.60
0.03
?0.72
10.10%
ITC
3.44
3.83
4.11
5.12
6.24
7.88
5.10
0.94
?0.12
14.81%
Marico
1.88
2.40
2.95
4.02
4.07
5.47
3.47
0.42
?0.57
19.48%
Compound
annual
growth rate
46
Table 2
Growth of FMCG Sector
Year Total Income
Total Expenditure
Total Sales PAT
2006?07
2007?08
2008?09
2009?10
2010?11
2011?12
Compound
Annual Growth
Rate (%)
2,669,124.40
3,196,801.50
3,837,415.60
4,264,310.10
4,904,398.20
4,840,471.60
10.43
2,597,034.30
3,117,734
3,715,446
4,160,620
4,801,506.70
4,711,692.10
10.44
2,598,591.30
3,115,253.70
3,743,104.20
4,179,643.40
4,813,662.80
4,737,063.50
10.53
123,510
140,402.80
159,328.90
194,354.30
199,320.80
222,934.70
10.34
Source: Monthly Review of Indian Economy, CMIE Database, India, J anuary 2013.
Table 4
Dividend per Share
2006?07
2007?08
2008?09
2009?10
2010?11
2011?12
Mean
Skewness
Kurtosis
Year
Colgate
Palmolive
9.50
13.00
15.00
20.00
22.00
25.00
17.42
?.07
?1.50
17.50%
Dabur
0.70
0.74
0.87
1.00
1.15
1.30
0.96
0.40
?1.33
10.87%
Godrej
Consumer
2.62
2.87
3.18
3.89
5.04
4.75
3.73
0.36
?2.00
10.42%
HUL
6.14
9.15
7.57
6.57
6.53
7.50
7.24
1.14
1.16
3.39%
ITC
1.51
1.70
1.80
4.93
4.45
4.50
3.15
0.03
?3.16
19.96%
Marico
0.64
0.65
0.65
0.65
0.66
0.70
0.66
1.98
4.29
1.50%
Compound
annual
growth rate
The Table 3 indicates the value of EPS for the sample Dabur companies limited. All the companies shows
companies. Among the sample companies, the mean Platykurtic distribution, i.e., which are all less than
value of Colgate Palmolive Limited has highest 3. The Compound Annual Growth Rate of EPS is
EPS; HUL shows moderate EPS and Dabur shows higher for Godrej Consumer products Limited
low EPS level. All Sample companies are positively followed by Marico.
skewed distribution except Colgate Palmolive and
The Table 4 reveals the value of DPS for the sample Colgate Palmolive limited. All the companies shows
companies. The Colgate Palmolive limited have a Platykurtic distribution, i.e., kurtosis values are less
highest mean value of DPS as 17.42 and Dabur have than 3 except Marico. The Compound Annual
a lowest mean value of 0.96 during the study period. Growth Rate of DPS is higher for ITC followed by
All the companies are positively skewed except Colgate Palmolive Limited.
From the Table 5 it can be inferred that Hindustan All the sample companies show Platykurtic
Unilever Limited has made a highest mean value of distribution. ITC shows highest compound annual
DPR as 78.24 per cent during the study period. growth rate followed by Colgate Palmolive other
Maricos has a lowest mean value of DPR as 21.37. companies shows negative value of compound
All the companies are positively skewed except annual growth rate.
Colgate Palmolive and Godrej Consumer products.
47
Table 5
Dividend Payout Ratio
2006?07
2007?08
2008?09
2009?10
2010?11
2011?12
Mean
Skewness
Kurtosis
Year
Colgate
Palmolive
61.16
80.94
70.68
66.38
75.52
76.14
71.80
?0.38
?0.76
3.72%
Dabur
50.31
41.99
42.65
41.31
43.48
48.87
44.77
0.88
?1.53
-0.48%
Godrej
Consumer
71.13
59.17
63.56
51.28
40.50
26.75
52.07
?0.63
?0.43
?15.04%
HUL
87.81
117.92
69.66
67.43
66.40
60.24
78.24
1.62
2.30
?6.09%
ITC
43.81
44.47
43.88
96.32
71.37
57.11
59.49
1.30
0.97
4.52%
Marico
33.83
27.09
22.02
16.26
16.23
12.80
21.37
0.74
?0.59
?14.95%
Compound
annual
growth rate
Table 6
Price to Earnings Ratio
2006?07
2007?08
2008?09
2009?10
2010?11
2011?12
Mean
Skewness
Kurtosis
Year
Colgate
Palmolive
24.01
26.83
26.27
27.33
31.14
34.06
28.27
0.78
?0.22
6.00%
Dabur
93.11
52.74
62.51
64.15
39.45
40.08
58.67
1.04
1.17
?13.11%
Godrej
Consumer
40.18
24.79
41.5
46.4
31.66
27.03
35.26
?0.01
?2.04
?6.39%
HUL
28.35
28.16
23.78
27.67
31.05
32.94
28.66
?0.24
0.53
2.53%
ITC
51.19
48.45
51.91
45.36
28.97
28.79
42.45
?0.78
?1.91
?9.15%
Marico
32.02
27.08
28.08
30.95
35.03
32.04
30.87
?0.01
?0.64
0.01%
Compound
annual
growth rate
48
Table 7
Return on Equity
2006?07
2007?08
2008?09
2009?10
2010?11
2011?12
Mean
Skewness
Kurtosis
Year
Colgate
Palmolive
75.30
134.65
133.44
125.64
103.15
102.54
112.45
?0.74
?0.39
5.28%
Dabur
60.21
58.41
48.09
56.09
41.81
35.54
50.03
?0.53
?1.50
?8.41%
Godrej
Consumer
107.36
104.17
30.18
29.66
26.27
23.95
53.60
0.96
?1.86
?22.12%
HUL
55.44
116.49
113.85
81.41
80.67
76.61
87.41
0.20
?1.06
5.54%
ITC
25.64
24.71
23.26
28.30
30.35
32.79
27.51
0.41
?1.25
4.18%
Marico
62.92
52.55
49.27
43.27
28.62
29.94
44.43
?0.54
?1.23
?11.64%
Compound
annual
growth rate
The Table 6 shows the Price to earnings ratio it positively skewed and the rest of the companies are
indicates that, the Dabur had a highest mean value of negatively skewed. All companies show Platykurtic
the P/E ratio during the study period followed by distribution. Compound Annual Growth Rate value
ITC. The Colgate Palmolive and Dabur are is highest for Colgate Palmolive.
The Table 7 shows that Colgate Palmolive and positively skewed whereas, other companies are
Hindustan Unilever had a higher mean value of negatively skewed. All the companies show
Return on Equity. ITC had a lowest mean value of Platykurtic distribution. HUL had a highest growth
ROE as 27.51 percent. Godrej, HUL and ITC are rate of return on equity during the study period.
The Table 8 shows the relationship between positively skewed for all companies except Colgate
Earnings per share and market price of the share, Palmolive limited. All sample companies are
HUL and Colgate Palmolive had a highest mean Platykurtic distribution. The Compound Annual
value of the earnings yield ratio as 0.04 and Dabur Growth Rate is highest for Dabur.
had a lowest mean value. Earnings yield ratio is
49
Table 8
Earnings Yield Ratio
2006?07
2007?08
2008?09
2009?10
2010?11
2011?12
Mean
Skewness
Kurtosis
Year
Colgate
Palmolive
0.0416
0.0373
0.0381
0.0366
0.0321
0.0294
0.04
?0.41
?0.51
?11.64%
Dabur
0.0107
0.0190
0.0160
0.0156
0.0253
0.0250
0.02
0.04
?1.24
15.19%
Godrej
Consumer
0.0250
0.0403
0.0242
0.0215
0.0316
0.0370
0.03
0.39
?1.88
6.75%
HUL
0.0353
0.0355
0.0421
0.0361
0.0322
0.0304
0.04
0.81
0.04
?2.46%
ITC
0.0195
0.0206
0.0193
0.0220
0.0345
0.0347
0.03
0.90
?1.88
10.08%
Marico
0.0312
0.0369
0.0356
0.0323
0.0285
0.0313
0.03
0.28
?0.88
0.05%
Compound
annual
growth rate
Table 9
Dividend Yield Ratio
2006?07
2007?08
2008?09
2009?10
2010?11
2011?12
Mean
Skewness
Kurtosis
Year
Colgate
Palmolive
0.0255
0.0302
0.0269
0.0243
0.0243
0.0224
0.03
0.95
1.13
?0.07%
Dabur
0.0054
0.0080
0.0068
0.0064
0.0110
0.0122
0.01
0.66
?1.44
14.55%
Godrej
Consumer
0.0178
0.0238
0.0154
0.0110
0.0128
0.0099
0.02
0.99
0.55
?9.31%
HUL
0.0310
0.0419
0.0293
0.0244
0.0214
0.0183
0.03
0.89
0.75
?8.41%
ITC
0.0086
0.0092
0.0085
0.0212
0.0246
0.0198
0.02
0.19
?2.74
14.91%
Marico
0.0019
0.0100
0.0078
0.0053
0.0046
0.0040
0.01
0.50
?0.23
13.21%
Compound
annual
growth rate
50
The Table 11 indicates the intrinsic value of sample flatter than a normal distribution. The Compound
companies, Colgate Palmolive had a highest mean Annual Growth Rate is higher for Godrej Consumer,
value of intrinsic value and Dabur has a lowest mean Colgate Palmolive and Marico, whereas rest of the
value. All the companies are positively skewed. The companies shows moderate compound annual
skewness values of all the sample companies are less growth rate.
than 3, which indicate a Platykurtic distribution,
Table 10
Price to Book Ratio
2006?07
2007?08
2008?09
2009?10
2010?11
2011?12
Mean
Skewness
Kurtosis
Year
Colgate
Palmolive
18.08
36.13
35.06
34.34
32.12
34.92
31.78
?2.25
5.20
11.60%
Dabur
27.81
15.30
14.94
17.93
16.48
14.25
17.79
2.11
4.65
?10.55%
Godrej
Consumer
30.00
18.39
9.92
13.12
8.32
6.47
14.37
1.39
1.66
?22.56%
HUL
16.06
33.06
27.34
22.75
25.06
25.23
24.92
?0.26
1.43
7.82%
ITC
6.38
5.83
5.89
6.33
8.79
9.46
7.11
0.96
?1.43
6.79%
Marico
19.98
14.10
13.70
13.28
10.02
9.59
13.45
1.05
1.58
?11.51%
Compound
annual
growth rate
The Table 10 shows the price to book ratio, the companies are positively skewed. Colgate, Dabur
Colgate Palmolive had a higher mean value of P/B are Leptokurtic and Godrej, HUL, ITC and Marico
and ITC showed lower Price to Book Ratio. HUL are Platykurtic distributions. The compound annual
and Colgate are negatively skewed rest of the growth rate is highest for Colgate Palmolive.
The Table 9 reveals the dividend yield ratio of for Dabur and Marico. All the companies are
selected sample companies. It depicts that HUL and positively skewed and show Platykurtic distribution.
Colgate shows highest mean value of dividend The Compound Annual Growth Rate is highest for
during the study period and the mean value is lowest ITC.
51
budget with a view point that, once the infrastructure is
Findings of the Study
developed, other sectors will automatically develop
Economic Analysis which leads to economic development of our country.
Gross National Product, Savings Deposits with
Industry Analysis
commercial bank, Inflation, Interest rates, Exchange
The Indias FMCG sector reported a high growth
rate, Foreign exchange reserves, Agricultural
rate during the study period. The total income shows
production, Government Receipts and Expenditure
a growth rate of 10.43 per cent, total sales and profit
has a positive growth rate during the study period.
after tax shows a growth rate of 10.53 and 10.34 per
Hence, the above said economic indicators are
cent during the study period. Unlike other sectors,
representing the economic growth of our country is
the FMCG industry registered a healthy growth in
favorable to the investors. Gross Domestic Product,
2009 despite the economic downturn; the industry
Gross Domestic Capital Formation, Gross Domestic
did not slowdown since 2008. The profit and sales of
Savings and Balance Of Payments have a negative
this industry also show an increasing trend. Hence,
growth rate during the study period. It shows
an investor could obtain more benefit from investing
decreasing trend during the year 2011?12, because
in the FMCG sector. The SWOT analysis discloses
of economic policy and fall in production of crude
that the strength of FMCG sector in India is the low
oil and natural gas. The Government spends more
operating cost when compared to other countries.
money to the infrastructural activities. The
Lower scope of investing in technology especially of
infrastructure has played a major role in the present
small scale sectors is the major weakness of this
Table 11
Intrinsic Value
2006?07
2007?08
2008?09
2009?10
2010?11
2011?12
Mean
Skewness
Kurtosis
Year
Colgate
Palmolive
372.92
430.93
557.56
823.42
907.13
1118.19
701.69
0.29
?1.61
20.08%
Dabur
129.85
93.50
127.48
154.88
104.35
106.61
119.45
0.62
?0.27
?3.23%
Godrej
Consumer
147.88
120.13
207.85
352.02
394.33
480.05
283.71
0.19
?2.00
21.68%
HUL
198.20
218.50
258.35
269.40
305.50
410.10
276.68
1.19
1.62
12.88%
ITC
176.10
185.73
213.53
232.40
180.68
226.87
202.55
0.17
?2.60
4.31%
Marico
60.15
64.88
82.75
124.55
142.40
175.26
108.33
0.40
?1.59
19.51%
Compound
annual
growth rate
52
sector. The FMCG sectors have a great domestic Suggestions and Recommendations
market opportunity because of the huge population.
The Government could regulate inflation rate
The major threats are tax and regulatory structure of
which creates the path to the economic
our country.
development. Once the inflation rate is
controlled the people have sufficient money and
Company Analysis
they have a chance to invest their money in the
Highest mean value of earnings per share had been
securities market.
achieved by Colgate Palmolive Limited, HUL and
The FMCG sector could improve the R&D
Godrej Consumer limited during the study period.
department and implement new technology
The Compound Annual Growth Rate of Godrej
which helps to meet domestic as well as foreign
Consumer limited shows the highest value. Colgate
competition. The government could provide tax
Palmolive has paid average dividend per share of
concession for rural marketers.
` 17.42 per share and Hindustan Unilever Limited
has paid average dividend per share of ` 7.24 per
An investor should be aware about economic
share, which are the highest dividend paying
condition, market condition, government
companies among the sample companies. The
policy and industrial policy, etc., they should
Compound Annual Growth Rate of ITC shows the
analyse both internal as well as external factors
highest value. The mean value of dividend payout
before going to invest in particular securities.
ratio of HUL is highest and Marico shows the lowest
The prior analysis will help to the investor to
mean value of dividend payout ratio during the study
minimise risk and maximise their return.
period. Price to Earnings Ratio of Dabur India
Limited and ITC limited shows highest mean value
Conclusion
which indicates that the stocks were more expensive,
investors are expecting higher earnings growth in Fundamental analysis aims at finding the true worth
the future and it is treated as fundamentally strong of a security by analysing macroeconomic, industry
companies during the study period. Highest Return
scenario and company financial position and so on.
on Equity had been earned by Colgate Palmolive
An investor can make safest as well as lucrative
followed by Hindustan Unilever limited; it indicates
investment by analysing the related variables and
the efficient utilization of funds by the owners of the
ensure for optimum return. Fundamental analysis
firm. Price to Book ratio is highest for Colgate
suggests that no investor should buy or sell a share
Palmolive Limited it shows the market is willing to
on the basis of the advices of market intermediaries
pay for the company above its durable assets. ITC
or tips given by the stock dealers, websites, etc., the
shows lower P/B ratio it may be considered a safer
fundamental analysis calls upon the investor to make
investment. The study shows that share prices of all
his buy or sell decisions based on the detailed
the sample companies are below the intrinsic value
analysis of the information available. This study
and the highest increase in share price is recorded by
focuses on fundamental analysis using various tools
Colgate Palmolive and Godrej Consumer Products
which help in trading strategies for risk reduction
Limited. All companies shares are floating steadily
and maximisation of return. The objective of the
during the study period.
study is to conduct Fundamental analysis for BSE
53
listed FMCG companies and the SWOT analysis for submitted to West Virginia University,
the FMCG industry. The study revealed that through Retrieved from http://www.Proquest.com,
economic analysis the Gross National Product, UMI No. 1402126.
Savings Deposits with commercial bank, Inflation,
Mehmet Sarac (2007) Does Fundamental Analysis
Interest rates, Exchange rate, Foreign exchange
Matter for Foreign Investors? An Empirical
reserves, Agricultural production, Government
Analysis of Foreign Investment in the Istanbul
Receipts and Expenditure has a positive growth rate
Stock Exchange Journal of Economic and
during the study period. Hence, investors may
Social Research, Vol 9, No. 2, pp. 37?59.
consider these factors before going to make
Viyyanna Rao and Nirmala Daita (2012)
investment. From the industry analysis found that
Fundamental Factors Influencing Investments
the Indias FMCG sector reported a high growth rate
in Mutual Funds the EIC Approach: A Case
and its profit and sales also shows increasing trend
Study of RCAMI Indian Journal of finance,
during the study period. The SWOT analysis
Vol 6, No.6, pp. 4?13. discloses that the strength of FMCG sector in India is
the low operating cost, huge population is the
Notes
opportunity, Lower scope of investing in technology
1. FMCG industry related data retrieved from
especially of small scale sectors is the major
ht t p: / / www. i nf o. shi ne. com, I ndustry
weakness and major threats are tax and regulatory
Information FMCG industry an Overview
structure of our country. The company analysis done
retrieved on Sept. 15, 2012.
with the help of ratio analysis indicates that Colgate
Palmolive Limited and Hindustan Unilever limited
2. FMCG industry related data retrieved from
companies are financially in satisfactory position
http://www.dinodiacapital.com, The Indian
during the study period.
FMCG Industry retrieved on Sept. 15, 2012.

3. http://www.cmie.com, National Income Statistics,
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55
Estd: 1996
Asia-PacificInstituteofManagement
NewDelhi
Asia-Pacific Institute of Management, New Delhi
3 & 4 Institutional Area, Jasola, (Opp. Sarita Vihar), New Delhi -110025
Telephone: (011) 42094800 Mobile : 9711694689 Fax: (011) 26951541
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