Britannia Mario HUL

MARCH 17, 2015
ANALYSIS OF FMCG SECTOR

CORPORATE FINANCE PROJECT TERM III
SUBMITTED TO PROF. SHALINI KALRA SHAHI
GROUP 8 SECTION D
Analysis of FMCG sector

Contents
1 PROLOGUE ................................................................................................................................................. 3
1.1 INDUSTRY SCENARIO........................................................................................................................... 4
2 RISK AND RETURN ANALYSIS...................................................................................................................... 5
2.1 ANALYSIS ............................................................................................................................................. 5
2.1.1 Using 1-year beta ......................................................................................................................... 5
2.1.2 Using 3-year beta ......................................................................................................................... 5
2.2 COST OF CAPITAL ................................................................................................................................ 5
2.2.1 Assumptions ................................................................................................................................. 5
2.2.2 Cost of Equity ............................................................................................................................... 6
2.2.3 Cost of Debt ................................................................................................................................. 6
2.2.4 Weighted Average Cost of capital................................................................................................ 7
2.3 BUSINESS RISKS ................................................................................................................................... 7
3 INVESTMENT RETURNS .............................................................................................................................. 8
3.1 Historical Pattern ................................................................................................................................ 8
3.2 Types of Investments .......................................................................................................................... 9
3.2.1 Britannia ....................................................................................................................................... 9
3.2.2 Hindustan Unilever Ltd ................................................................................................................ 9
3.2.3 Marico Industries Ltd ................................................................................................................... 9
3.2.4 Godrej Consumer Products Ltd .................................................................................................... 9
3.3 Comparison of Cost of Equity and ROE ............................................................................................. 10
4 CAPITAL STRUCTURE CHOICES ................................................................................................................. 11
4.1 Debt/Equity Ratio.............................................................................................................................. 11
4.2 Interest Coverage Ratio .................................................................................................................... 12
5 DIVIDEND ANALYSES ................................................................................................................................ 13
5.1 Britannia Industries Ltd ..................................................................................................................... 13
5.1.1 Dividend Payout ......................................................................................................................... 13
5.1.2 Effect on Share Price .................................................................................................................. 14
5.1.3 Dividend Policy ........................................................................................................................... 15
5.2 Marico Industries Ltd ........................................................................................................................ 16
5.2.1 Dividend Payout ......................................................................................................................... 16
Group 8 - Section D
Page 1

5.2.3 Dividend Policy ........................................................................................................................... 18
5.3 Godrej Consumer Products Ltd ......................................................................................................... 19
5.3.1 Dividend Payout ......................................................................................................................... 19
5.3.3 Dividend Policy ........................................................................................................................... 21
5.4 Hindustan Unilever Ltd ..................................................................................................................... 22
5.4.1 Dividend Payout ......................................................................................................................... 22
5.4.2 Dividend Policy ........................................................................................................................... 24
6 WORKING CAPITAL ANALYSIS .................................................................................................................. 25
7 REFERENCES ............................................................................................................................................. 29
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1 PROLOGUE
The four major companies chosen from the Indian FMCG Industry for the project are:
1. Britannia Industries Ltd
2. Marico Industries Ltd
3. Godrej Consumer Products Ltd
4. Hindustan Unilever Ltd
Following analysis has been performed on the data of the financial reports, Balance Sheets,
Profit & loss account, Shareholding Pattern from various sources mentioned in the
acknowledgement appended at last:
1. Risk and Return Analysis
2. Investment Return
3. Capital Structure Choices
4. Dividend Policy Analysis
5. Working Capital Analysis
All the calculations performed and data extracted have been recorded have been consolidated
in various worksheets under the name SectionD_Group8_Project.xlxs
Group 8 - Section D
Page 3

1.1 INDUSTRY SCENARIO
The Indian FMCG market is expected to increase at a CAGR of 14.7 % to $ 110.4 Billion from $
44 Billion during 2012-20 while the total consumption expenditure is to reach $ 3600 Billion
from $ 1328 Billion. The rural FMCG market is expected to increase at a rate of 17.7% to $ 100
Billion
Growing demand: Rising incomes and growing youth population have been key growth
drivers. Brand consciousness has added demand.
Higher Investments: Industry has witnessed a healthy FDI inflow, as the sector
accounted for 3.0 % of the countrys total FDI inflow over April 2000 to October 2013.
Organized retail is expected to 14-18 % of the overall retail market by 2015
Attractive Opportunities: Low penetration levels in rural market offers room for
growth. Disposable income in rural India has increased due to direct cash transfer
scheme. Growing demand for premium products.
Investment approval of up to 100 % foreign equity in single brand retail and 51 % in
multi brand retail
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2 RISK AND RETURN ANALYSIS
The Beta values of the companies for the last 1 year daily estimates and 3 year weekly returns
have been computed in the excel sheet attached using the following methodology and the
summary of which is being presented now:
Stock price change for the past one year has been calculated and its variation is observed
with respect to the change in BSE index Sensex. Sheet for reference
SectionD_Group8_Pr
oject.xlsx
Beta values for the companies are as follows:

Company
1-Year Daily Beta
3-Year Weekly Beta
Britannia
0.321
0.995
Marico
0.103
0.762
GCPL
0.812
1.052
HUL
0.193
0.892
2.1 ANALYSIS
The beta values indicate the percentage change in the return on stock price of a company
relative to the percentage change in the total market return.
2.1.1 Using 1-year beta
Beta values for all the 4 companies is less than 1 which implies that the stock are low
risk and are therefore less sensitive to the market variation. Among the selected stocks
Godrej Consumer Products Ltd is the most risky compared to its peers with Marico Ltd
being the most stable.
2.1.2 Using 3-year beta
The stocks are observed to move in tandem with the market with GCPL carrying highest
risk amongst its peers with a beta value of 1.052 whereas Marico again has the least
Beta value of 0.762.
2.2 COST OF CAPITAL

2.2.1 Assumptions
The risk free rate is assumed to be as that of the 30-Year G-sec yield as on 10th March
2015 : 7.77%
The market premium for cost of equity is assumed as per the PWC document
mentioned in references : 7.20%
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The market value of equity (Market capitalization) and the book value of Long term
Debt of the last year, that is, FY14 is taken into consideration for calculation of cost of
capital
The Cost of Equity is calculated using the CAPM method
The tax rate is assumed as 33.99% (Source : KPMG)
The credit ratings are taken from ACE EQUITY database
Credit ratings for only long term loans are considered for calculation of cost of debt
The default spread for cost of debt is determined from the default spreads for
corporate from FIMMDA database
SectionD_Group8_Pr
oject.xlsx
Calculations for WACC:
2.2.2 Cost of Equity

The cost of equity is calculated by CAPM method using the 3-year weekly beta values as that
takes in account for any noise or fluctuations that might be present in the 1-year daily data.
SNo.
Companies
Risk Free Rate
Market
Premium
Beta Value
Cost of Equity
Britannia
7.77
7.20
0.995
14.939
Marico
7.77
7.20
0.762
13.263
GCPL
7.77
7.20
1.052
15.348
HUL
7.77
7.20
0.892
14.195
2.2.3 Cost of Debt

SNo.
Companies
Credit Rating
Spread points Tax Rate
Cost of Debt
Britannia
AAA
0.47
33.99
8.240
Marico
AA+
0.57
33.99
8.340
GCPL
AA
1.04
33.99
8.810
HUL
AAA
0.47
33.99
8.240
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2.2.4 Weighted Average Cost of capital
SNo.
Companies
D/E Ratio
Cost of Debt(with Cost of Equity Cost

tax benefit)
Capital
Britannia
0.0004
5.439
14.939
14.938
Marico
0.1275
5.505
13.263
13.121
GCPL
0.0000
5.815
15.348
15.348
HUL
0.0000
5.439
14.195
14.195
of
2.3 BUSINESS RISKS

Some of the systematic risks associated with FMCG sector are:
Since the sector includes products such as hair oil, cosmetics, dairy products
(commodities) etc. which are sold quickly and at relatively low cost, the industry is
resilient to slowdown
Rainfall or monsoon is one of the key systematic risks
In 2014, El Nino was a key risks to the consumption, which posed a threat of reduction
in rainfall by 40% though it only went to a level of 10%.
GDP and Disposable Income: Products such as hair oils and cosmetics depend on the
disposable income which depends on urbanization and GDP growth. Inflation also plays
as a systematic risk.
Taxes: The taxes such as excise duties on machinery and customs duty on raw material
plays a key role in driving the costs of FMCG products
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3 INVESTMENT RETURNS
Return on Equity
140.00%
120.00%
Britannia Industries Ltd
100.00%
80.00%
Marico Industries Ltd
60.00%
Godrel Consumer Products

Ltd
40.00%
HUL
20.00%
0.00%
FY14
FY13
FY12
FY11
FY10
Return on Capital Employed

180.00%
160.00%
140.00%
120.00%
100.00%
80.00%
60.00%

Ltd
40.00%
HUL
20.00%
0.00%
FY14
FY13
FY12
FY11
FY10
The ratios ROE and ROCE are performance ratios indicated how well the companys capital is
generating profit. It has two components namely: Profit and Investment.
3.1 Historical Pattern

The ROE and ROCE both follow the same pattern for all 4 companies taken up as clearly seen
from the charts presented above. Both have increased over the last five years for HUL and
Britannia. For GCPL and Marico they have decreased from FY10 to FY13 but have not changed
from FY13 to FY14.
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3.2 Types of Investments
3.2.1 Britannia
The investments by Britannia Industries have only been towards organic growth in launching
new products such as Nutri Choice, Masala Chaas, Dairy products, new range of breads and
other products. Though Britannia invested in setting up of manufacturing units in Bihar (2010)
and in Gujarat (2013) but the majority investment has been in new product
development/launch. There has been no significant change in the long term investments (Rs
220 Crores annually) hence the ROE/ROCE can be seen to increase over the years due to
increase in PAT/EBIT.
3.2.2 Hindustan Unilever Ltd
HUL being a very powerful brand in India has done several price raises in its products and has
majorly done new product launches(Pureit RO slim, Fair and Lovely Men) and also set up some
manufacturing units for new products such as aerosol deodorants (Maharashtra 2011) and
Magnum Ice-cream (2014). Though the long term investments have increased from Rs 99
Crores to Rs 636 but that does not change the capital employed or the equity drastically to
bring the ratios down. Moreover the profit has increased over the years.
3.2.3 Marico Industries Ltd
Marico has been very aggressive in terms of investing in acquisitions:
Code 10 brand in Malaysia
Beauty and Wellness brands in South Africa and Mid East
Acquired brands like Caivil, Black Chic, Just for Kids
In Vietnam it acquired X-men, L'oivite, Thuan Phat
This is clearly reflected in the increase in long term investments as well as the capital employed
from Rs 137 Crores and Rs 948 Crores to Rs 1132 Crores and Rs 2535 Crores respectively from
FY10 to FY14. The investments have nearly become 10 times which substantiates the decrease
in ROE and ROCE over the years. This is reflected in its balance sheet as debt component as
well. Marico is the only one among its peers to have debt.
3.2.4 Godrej Consumer Products Ltd
In the last five years GCPL has been divesting in non-core businesses such as Indonesian food
and has acquired stakes in companies such as:
60% stake in Cosmetica Nacionel
51% stake in Darling Group Kenya
Acquired Soft and Gentle brand from Colgate-Palmolive in UK
The long term investments have increased from Rs 454 to Rs 2650 from FY10 to FY14.
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3.3 Comparison of Cost of Equity and ROE

SNo.
Companies
Return on Equity (FY14)
Cost of Equity
Britannia
49.34
14.939
Marico
29.12
13.263
GCPL
19.56
15.348
HUL
131.80
14.195
The Return on Equity is greater than Cost of Equity for all 4 company but we can clearly see that
GCPLs Return on Equity is closer to its cost of equity. Since all the firms are big and are not
take-over targets and their return is higher than cost of equity and all except Marico have no
debt, they should take debt to finance new projects as that will increase the debt and also
maximize company valuation by decreasing the cost of capital. But it is clearly seen that all of
them follow the pecking order theory.
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4 CAPITAL STRUCTURE CHOICES
4.1 Debt/Equity Ratio
As the FMCG sector is relatively less capital intensive, most companies do not hold substantial
debt. Most companies work on negative working capital. Only Marico Industries Ltd. has a
positive working capital among the four companies under study. The below table indicates the
debt upon market value of equity. From this, we observe that apart from Marico Industries Ltd.,
all the others do not have any substantial debt on their balance sheet. Marico has been
aggressive on inorganic growth and is acquiring companies. It is directing funds from both cash
generated as well as debt to fund the acquisitions as it is following the pecking order theory.
Total Debt/Equity Company
Godrej Consumer Products Ltd
HUL
FY14
0.00
0.28
0.09
0.00
FY13
0.34
0.36
0.11
0.00
FY12
0.84
0.51
0.09
0.00
FY11
0.96
0.63
0.18
0.00
FY10
1.08
0.16
0.01
0.00
Total Debt/Equity
1.2
1
0.8
0.6
0.4
0.2
0
FY10
Group 8 - Section D
FY11
FY12
FY13
FY14
HUL
Page 11
4.2 Interest Coverage Ratio

Also, analyzing the EBIT interest coverage, we observe that all the four companies have a
positive and a relatively high ratio, which indicates that these companies have no difficulty in
covering their interest payments. These companies make good profits, especially Britannia
Industries Ltd. and HUL have very high ratios owing to very low interest and huge profits.
Interest Cover
Company
HUL
FY14
FY13
FY12
FY11
FY10
100.75
9.8
6.96
5.68 19.89
24.57
13.41 15.09 10.77 16.99
18.74
36.32 34.78 63.14 82.73
140.56
166.45 2798.6 12239 404.94
HUL
Interest Cover
14000
120
100
80
60
40
20
0
12000
10000
8000
6000
FY10
FY11
FY12
FY13

FY14
4000
2000
0
FY10
FY11
FY12
FY13
FY14
We believe that the industry does contribute a substantial portion of the companys decision to
not undertake debt in this sector. Fast moving goods, negative working capitals, profitable and
sustainable businesses and low capital intensive nature of the industry further influence such a
decision. Also, we think that most companies want to unknowingly apply the pecking order
theory to manage their capital structure with growth funded by internal cash, followed by debt
and at last by equity. Apart from the example of Marico Industries Ltd., the other three players
seem to be following this approach.
Group 8 - Section D
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5 DIVIDEND ANALYSES
5.1 Britannia Industries Ltd
Dividend payout Ratio

100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
54.38%
53.45%
51.26%
FY12
FY11
FY10
43.46%
38.92%
FY14
FY13
Annualised Dividend %
600.00%
425.00%
425.00%
325.00%
250.00%
FY14
FY13
FY12
FY11
FY10
5.1.1 Dividend Payout

The company has paid its shareholders by dividend payouts over the last five years. The
company has observed a CAGR of 13.39% and 26.45% in its Revenue and PAT and hence
rewarded the shareholders by offering a steady increase in its dividend per share annually. This
is because the company has shifted from a positive working capital to a negative working
capital model in FY12 and has hence freed up capital for that. In addition to that the Long term
investments every year have been more or less been constant at around INR 220 Crores which
clearly substantiates the fact that the company has free for dividend distribution (INR 65.88
Crore) which has not varied much over the last five years.
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EPS (Rs)
Dividend paid
Outstanding shares
(Crores)
DPS (Rs)
FY14
30.83
143.91
FY13
19.56
101.66
FY12
15.63
101.53
FY11
12.16
77.64
FY10
48.77
59.73
11.9926 11.9926 11.9451 11.9451 11.9451

12
8.5
8.5
6.5
25
Britannia has maintained a nearly constant payout ratio from FY10 to FY11 but has that has
dropped down because of large increase of 57.61% in EPS from FY13 to FY14 attributed to the
increase in sales which can be seen from the Profit and Loss account in the excel sheet
attached. There is no increase in dividend from FY12 to FY13 because Britannia freed up the
funds for mutual-funds investments to cash, short term advances/loans and dividend payments
to please the shareholders by not dropping the dividend amount even.
Britannia went for a stock split of 5-for-1 on 8th Sept 2010 and the stock price moved from 420
to 480 on the day of the split and face value changed from 10 to 2.
5.1.2 Effect on Share Price
The share price did have a positive or upward effect due to the dividend payout but the
splitting of the stock in FY10 eventually led to fall in the price of share as can be seen from the
chart above. If we carefully observe every year, the dividend payout has had a positive or low
positive effect on share price.
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5.1.3 Dividend Policy

Britannia is currently paying a dividend of 600% and Rs 12 per share which have been increasing
over the last five years though the payout ratio somewhat remains constant. Driven by
consumer expectation and recovery in economy present a positive view for the sector and the
delayed monsoon recovery has also eased out inflation pressures. New product launches by
Britannia (Nutrichoice and Goodday Chunkies) and a 13% revenue growth presents good
prospects for better dividends. In addition as the company has shifted to a negative working
capital model it has freed up short term funds to reward the shareholders. There have not been
any new investments or diversification and hence retaining the earning is of no use. The
companys dividend policy is to pay the shareholders once a year as a final dividend after
assessing the yearly performance.
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5.2 Marico Industries Ltd
Dividend Payout (%)

100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
39.10%
30.00%
20.00%
10.00%
15.03%
12.79%
12.86%
FY13
FY12
FY11
17.09%
0.00%
FY14
FY10
350.00%
100.00%
FY14
FY13
70.00%
66.00%
66.00%
FY12
FY11
FY10

The company has paid its shareholders by dividend payouts over the last five years. Although it
has been conservative in terms of paying its shareholders with dividends which have not been
changed both in terms of dividend payout and the percentage dividend in the last five years.
The dividend payout increased drastically in FY14 due to a payout of a one-time special silver
jubilee dividend. Even though company has had a good performance in terms of both top line
and bottom line (CAGR of 13.39% and 25.62 % respectively), the company has been
conservative in terms of paying our dividends due to inorganic growth in the last five years
which can be seen from the increase in Non-current investments from Rs 137 Crores (FY10) to
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Rs 1132 (FY14) Crores. For the same reason we may see that the company has debt while its
peers do not.
FY14
FY13
FY12
FY11
FY10
Face Value (Rs)
1
1
1
1
1
EPS (Rs)
8.95
6.65
5.47
5.13
3.86
Dividend paid
257.94
32.24
43.04
40.54
40.21
Outstanding shares
(Crores)
64.4873 64.4772 61.4934 61.4400 60.9326
DPS (Rs)
3.5
1
0.7
0.66
0.66
As seen from the above data the company has maintained its overall dividends, dividend per
share as well as the payout ratio as constant over the years with a slight increase year on year.
From the chart above we can clearly see that the share price of Marico has risen continuously
over the last five years which minor fluctuations. Though we can see a rise in share price during
the period of dividend payout but it is difficult to co-relate both as the share price has been
continuously rising attributed to the various acquisitions made by Marico during this period.
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Marico has a conservative dividend policy. Over the past years Marico has made acquisitions,
including a majority stake in International Consumer Products (ICP), Vietnam in February 2011.
The company financed the same through issue of fresh equity, borrowing from banks and
internal cash generation. It has focused on deploying its resources in avenues which will result
in maximizing the shareholder value by increasing the EPS by increasing overall earnings rather
than by issuing dividends or buying back shares. This is the reason that company gives out
interim dividends twice a year as per the performance in the quarters. The company has made
acquisitions such as Code 10 in Malaysia, X-men in Vietnam and has been focusing on other
emerging markets such as South Africa and Bangladesh.
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5.3 Godrej Consumer Products Ltd
Dividend Payout (%)

100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
52.80%
40.00%
30.00%
31.65%
33.31%
FY14
FY13
33.48%
26.75%
20.00%
10.00%
0.00%
FY12
FY11
FY10
525.00%
FY14
500.00%
FY13
475.00%
FY12
450.00%
FY11
425.00%
FY10

The company has paid its shareholders by dividend payouts over the last five years. From the
sources of funds in the balance sheet it can be seen that the company has increased its Noncurrent investments over the five years from Rs 454 Crores to Rs 2024 Crores and has been not
very rewarding in terms of dividend. From the chart we can see that Godrej pays out a dividend
which has a steady rise of 25 percentage points every year and maintaining a nearly constant
dividend payout ratio.
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Face Value (Rs)
EPS (Rs)
Dividend paid
Outstanding shares (Crores)
DPS (Rs)
FY14
FY13
FY12
FY11
FY10
1
16.59
178.7
34.0378
5.25
1
15.01
170.16
34.0327
5
1
17.76
156.63
34.0297
4.75
1
13.44
163.2
32.3590
4.5
1
8.05
125.86
30.8190
4.25
It is very evident that the company follows a strict policy of increasing the dividend per share by
Rs 0.25 every year. As compared to its peers Godrej Pays lowest but one dividend per share
with Marico being the lowest.
It is very clear from the graph that the share price is independent of the dividend payouts.
Group 8 - Section D
Page 20
The company spreads out its dividends into interim dividends in each quarter
Marico has a conservative dividend policy. This is because the company has shown inorganic
growth (acquisition of Darling group and Cosmetica Nacionel in Fy13 and FY12) and similar is
indicated in the balance sheet by the increased long term investments every year. The company
bought back shares in FY08 and FY09 to increase the shares of the its executives for a better
management control during the Global Financial Crisis and to signal positive for its share price
to the shareholders by rewarding them.
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5.4 Hindustan Unilever Ltd
Dividend Payout (%)

130.00%
110.00%
105.35%
90.00%
70.00%
72.71%
50.00%
60.24%
60.86%
FY12
FY11
67.43%
30.00%
10.00%
FY14
-10.00%
FY13
FY10
1850.00%
1300.00%
750.00%
FY14
FY13
FY12
650.00%
650.00%
FY11
FY10

The company has paid its shareholders by dividend payouts over the last five years. Though the
company has maintained a constant payout ratio during FY13 it paid more than 100% dividend
payout. This was due to a special dividend given out by the company due to profit observed
during the first two quarters due to sale of properties. The company operates on a nearly
negative working capital.
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HUL
Face Value (Rs)
EPS (Rs)
Dividend paid
Outstanding shares
(Crores)
DPS (Rs)
FY14
FY13
FY12
1
17.88
2811.43
1
17.56
3999.99
1
12.45
1620.94
FY11
1
10.68
1410.6
FY10
1
9.64
1417.94
216.2696 216.2472 216.1512 215.9472 218.1687

13
18.5
7.5
6.5
6.5
It is clear that the dividend paid out only a one-time special dividend when it observed
accumulated cash due to sale of assets. Hence the company does not want to accumulate cash
in order to avoid slacking of management and rewards its shareholders
HUL pays out dividend twice every year and from the graph it can be seen that share price
increases when dividend is paid but eventually this effect gets neutralized.
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Marico has a liberal dividend policy. The company is cash rich and has a very strong brand. It is
much larger in terms of profits and revenue as compared to its peers and pays the highest
dividends. The average dividend payout is around 70% which is very in the industry. The
company is established and is not going for inorganic growth hence utilizes the cash to pay
dividends.
The company did a share buyback in FY10 to utilize its cash effectively and also for an increased
control by increasing promoter share in ownership.
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6 WORKING CAPITAL ANALYSIS
Working capital management is one of the most important issues for an FMCG company.
Historically, we can analyze the growth in inventory vis--vis the revenue growth to get a fair
understanding of the way a company manages inventory. Below, we have the comparison of
these two:
Revenue
growth
Inventory
growth
Company
HUL
Company
HUL
FY10-11 FY11-12 FY12-13 FY13-14

24.09% 17.77% 12.89% 12.32%
16.10% 26.17% 14.94%
8.19%
97.10% 21.53% 22.21% 13.49%
13.28% 12.31% 17.70%
8.34%
FY10-11 FY11-12 FY12-13 FY13-14

15.97% 22.84% -13.29% 10.67%
22.80% 16.69% 33.76% -6.35%
82.31% 41.35% 23.86% -7.98%
28.94% -10.46%
0.41%
8.73%
From the above, we can observe that there is constant revenue growth in all the four
companies. The growth inventory is fluctuating and in FY13-14 Britannia Industries Ltd. and HUL
have shown positive growth whereas Marico Industries Ltd. and Godrej Consumer Products Ltd.
have a reduction in inventory levels. These figures do not give us a clear picture to analyze.
Assessment of inventory turnover will give us a better understanding of inventory positions.
The inventory turnover is a measure which indicates how many times the inventory has
converted into sales for the company. It is usually measured as:
Inventory Turnover = Average Inventory
Cost of Goods Sold
All the companies have taken cognition of improving their inventory days. Improving the
inventory turnover, leads to improved cash flow and thereby better financial position. Also, it
indicates a prudent approach to inventory management.
Group 8 - Section D
Page 25

Inventory
Turnover
Company
Godrej Consumer Products
Ltd
HUL
FY10
13.13
6.29
FY11
14.69
5.71
FY12
14.51
6.03
FY13
15.97
5.5
FY14
18.4
5.37
Avg.
15.34
5.78
8.78
7.74
10.76
8.27
8.39
8.7
7.82
10.82
8.35
11.21
8.82
9.35
Inventory Turnover
20
15
10
5
0
FY10
FY11
FY12
FY13
FY14
Godrel Consumer Products Ltd
HUL
The above table indicates the trend whereby, each of the companies is trying to improve their
inventory turnover. Also, from the table, we can easily observe the increased inventory
turnover Britannia Industries Ltd. and HUL as compared to Marico Industries Ltd. and Godrej
Consumer Products Ltd.
Cash Conversion Cycle is another useful working capital measure, through which we can see
how soon can a company store a product, sell it, collect money and also, pay its suppliers.
Cash Conversion Cycle (CCC) = Inventory Days + Receivable Days - Payable Days
Cash
Conversion
Cycle
Company
FY10
FY11
FY12
FY13
20.69 12.33
6.09
3.09
28.84
46.5 44.46 42.28
Godrej Consumer Products
Ltd
13.35 11.13 -3.47 -15.7
HUL
-40.26 -33.5 -23.54 -25.73
Group 8 - Section D
FY14
-3.18
43.28
Avg.
7.80
41.07
-29.38 -4.81
-30.53 -30.71
Page 26
Cash Conversion Cycle

60
50
40
30
20
10
0
-10
FY10
FY11
FY12
FY13

Ltd
FY14
-20
HUL
-30
-40
-50
From the above, we observe that apart from Marico Industries Ltd. all the other three
companies have a negative cash flow cycle. This is principally because of the delayed payments
made by these companies to the suppliers. Marico Industries Ltd. has a substantially high CCC.
This is principally because the company has to wait for quite a while to realize its cash from its
sales, leading to higher CCC. Below we have the split of each individual companys inventory
days, receivable days and payable days. Each of these metrics was calculated as:
Inventory Days =
360
Inventory turnover
Receivable Days =
360 X Average Receivables

Revenues
Payable Days =
360 X Average Payables

Cost of Goods Sold
Inventory
Days
Company
Godrej Consumer
Products Ltd
HUL
Group 8 - Section D
FY10
27.8
57.99
FY11
24.85
63.96
FY12
25.15
60.55
FY13
22.85
66.31
FY14
19.84
67.92
Avg.
24.10
63.35
41.56
47.16
33.94
44.13
43.52
41.94
46.69
33.74
43.71
32.57
41.88
39.91
Page 27
Receivable
Days
Company
Godrej Consumer
Products Ltd
HUL
Payable
Days
Company
Godrej Consumer
Products Ltd
HUL
Group 8 - Section D
FY10
4.75
14.02
FY11
4.15
16.57
FY12
3.97
13.53
FY13
4.14
12.04
FY14
3.72
13.47
Avg.
4.15
13.93
6.06
12.1
9.76
14.28
11.63
12.77
10.42
10.12
11.09
10.19
9.79
11.89
FY10
11.86
43.17
FY11
16.67
34.03
FY12
23.03
29.62
FY13
23.9
36.07
FY14
26.74
38.11
Avg.
20.44
36.20
34.27
99.52
32.57
91.91
58.62
78.25
72.81
69.59
84.18
73.29
56.49
82.51
Page 28

7 REFERENCES
Ace Equity Database

www.moneycontrol.com
www.ibef.org
www.crisil.com
Group 8 - Section D
Page 29

Britannia Mario HUL

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MARCH 17, 2015

ANALYSIS OF FMCG SECTOR

Analysis of FMCG sector

Analysis of FMCG sector

Analysis of FMCG sector

Analysis of FMCG sector

Analysis of FMCG sector

Beta values for the companies are as follows:

1-Year Daily Beta

3-Year Weekly Beta

2.2 COST OF CAPITAL

Analysis of FMCG sector

Calculations for WACC:

2.2.2 Cost of Equity

Risk Free Rate

2.2.3 Cost of Debt

Spread points Tax Rate

Analysis of FMCG sector

Cost of Debt(with Cost of Equity Cost

2.3 BUSINESS RISKS

Analysis of FMCG sector

Marico Industries Ltd

Godrel Consumer Products

Return on Capital Employed

Marico Industries Ltd

Godrel Consumer Products

3.1 Historical Pattern

Analysis of FMCG sector

Analysis of FMCG sector

3.3 Comparison of Cost of Equity and ROE

Return on Equity (FY14)

Analysis of FMCG sector

Analysis of FMCG sector

4.2 Interest Coverage Ratio

Britannia Industries Ltd

Analysis of FMCG sector

Dividend payout Ratio

5.1.1 Dividend Payout

Analysis of FMCG sector

11.9926 11.9926 11.9451 11.9451 11.9451

Analysis of FMCG sector

5.1.3 Dividend Policy

Analysis of FMCG sector

Dividend Payout (%)

5.2.1 Dividend Payout

Analysis of FMCG sector

Analysis of FMCG sector

5.2.3 Dividend Policy

Analysis of FMCG sector

Dividend Payout (%)

5.3.1 Dividend Payout

Analysis of FMCG sector

Analysis of FMCG sector

Analysis of FMCG sector

Dividend Payout (%)

5.4.1 Dividend Payout

Analysis of FMCG sector

216.2696 216.2472 216.1512 215.9472 218.1687

Analysis of FMCG sector

5.4.2 Dividend Policy

Analysis of FMCG sector

FY10-11 FY11-12 FY12-13 FY13-14

FY10-11 FY11-12 FY12-13 FY13-14

Analysis of FMCG sector