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EVAbreaksITbarrier,entersFMCGbooks
By,TNN|Aug06,2002,12.32AMIST

Moveoverpowerbrandsanddistributionsynergies.ThenewestmantraisEVA(economicvalueadded).Innovationsinreportingof
accountingtermslikeEVAarenormallyassociatedwithneweconomycompaniesfromtheinformationtechnologysector.
However,overthepastfewyearssuchtermsarebeingincreasinglyusedbycorporatesacrossdifferentsectors,withtheFMCGsector
emergingasoneoftheleadersintheEVAdisclosuregame.
EVAmeasureshowmuchacompanyhasearnedoverandaboveitscostofcapital,whichincludesbothdebtandequity.
EVArepresentsthevalueaddedtoacompany'sinvestors,producedbygeneratingoperatingprofitsinexcessofthecostofcapital
employed.
This,EVAproponentsargue,givesabetterallroundpictureascomparedtojustnetprofitsdeclaredinthefinancialresults.
CheckouttheannualreportsofFMCGcompanieslikeHLL,GodrejConsumerProducts(GCPL)andMaricoandonefindsthatEVAfigures
prominently.GodrejConsumerhasgoneastepfurtherandrevealedtheEVAforthefirstquarterof'0203alongwithitsrecentlydeclared
financialresults.
Aquarterlydisclosureisnotsomethingthatonenormallyseesforsuchmeasures.
SignificantlytheriseinEVAforthecompanyoverthecorrespondingperiodofthelastyear(49%)ismoreinpercentagepointsthantherise
innetprofits(39%).
Thecompanyfortheyear'0102hadan18%weightedaveragecostofcapitalanditearnedanEVAofRs30.1crore.SaysHKPress,
executivedirectorandpresident,GCPL,"Weevaluateperformanceandalsogiveremuneration/rewardsbasedonEVAperformance.Thisis
thereasonwhywetrackEVAonamonthlybasisandpublishitalongwithourquarterlyresults.EVAhasbeenadoptedbyGCPLtomotivate
andrewardemployees."
HLLsawitsEVAfigureriseduring'01toRs1,080crorefromRs858croreayearearlierwhichrepresentsa25.9%jump.
AnalystssaythatratherthancomparingtheabsoluteEVAfigurewithnetprofit,theincreaseinthetwofiguresgivesabetterpictureofthe
situation,asitwouldshowhowtheentityhasactuallyperformedduringtheperiod.
Doubtlessly,HLLhasundertakenaseriesofconcentratedactions,likeinvestmentsinIT,reducingstockwhiledivestmentshavewithdrawn
cashfromnoncorechannelsandhavebeenreinvestedintopowerbrands,whichhasbeenofgreathelp.
MaricotoohasshownhowitsEVAcalculationshavemovedoverthelastfewyears,andhasrisenfromRs188crorein'98toRs291crore
in'02.
Overthelastoneyear,therisehasnotbeenverysignificantmainlyduetoitscostofequityrisingfrom13.1%to15%.Overthepastfour
years,thisfigurehas,however,grownatacompoundedannualgrowthrate(CAGR)ofmorethan11%.
SaysMilindSarwate,CFO,Marico,"EVAisacomprehensivemetricitaddressallthecausals.Thismeanswemustaccountforall
aspectsofourbusinessmargins,expansions,investmentsinITandsoon.
AtMarico,wepracticeSEVAsimplifiedEVA,thecomponentsofwhichareintegratedintoourMIS.It'samatterofgettingmorejuiceout
ofthesamecapital."
2016Bennett,Coleman&Co.Ltd.Allrightsreserved.
www.economictimes.com

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