Ratio Analysis and Risk and Return of Fmcg Industry Essay Sample
Companies – ITC. HUL. Nestle India. Dabur. Godrej Consumer Products The Indian FMCG sector is the 4th largest sector in the economic system with an estimated size of Rs. 1. 300 billion. The sector has shown an mean one-year growing of about 11 % per annum over the last decennary. Unlike the developed markets. which are conspicuously dominated by few big participants. India’s FMCG market is extremely disconnected and a considerable portion of the market comprises of unorganised participants selling unbranded and unpackaged merchandises. There are about 12-13 million retail shops in India. out of which 9 million are FMCG kirana shops.
Index concentration degree:
The index is mostly driven by ITC and HUL. as they contribute about 75 % to the entire index. Both companies have posted good consequences. therefore assisting the index to turn despite weak domestic market. If both these companies are excluded so the index comes out to be overvalued by merely 7. 82 % . Therefore. the index has high dependence on these two companies. The Union Budget 2012-13 proved to a assorted bag for the FMCG industry. On one manus. minor addition in the revenue enhancement freedom bounds and some inducements on equity investings were positives as this would increase the disposable income degrees. But on the other manus. the addition in excise responsibility more or less offset the above consequence. We feel that smaller participants would happen it hard to go through on the responsibility hikes to stop consumers and will take to take the brunt of this hiking in a command to keep and turn market portion. On the other manus. deep-pocket participants like Nestle. ITC and HUL with their leading place and strong trade names will be able to go through on the hiking to consumers. Traveling frontward. the moderation of natural stuff monetary values and grasp of rupee against dollar would assist the FMCG companies to keep their borders in future. With addition in disposable income and favorable authorities policies. net gross revenues growing is expected to stay robust in coming quarters.
Sing ongoing economic uncertainness. we expect that FMCG industry will stay an attractive industry for investing. being a safe oasis for investors. FMCG industry. as an investing: FMCG index has systematically given good return to investors over the old ages. Infact. FMCG index has given a return of 12 % in 2011 despite negative returns from Sensex. Traveling frontward. HUL and ITC are expected to enter good public presentation. which could take to positive impact on the rating of the overall FMCG index. In FY-11. HUL has changed its concern scheme and started concentrating on rural market through addition in ad-spends. new launches and spread outing distribution web. As a consequence. it posted good consequences so far and is expected to present good consequences in coming quarters every bit good.
ITC. market leader in coffin nails. has benefitted by favorable proclamation in the Union Budget-13 wherein the Government increased the excise responsibility on bidi and other baccy merchandises which could take to consumers switching to coffin nails. With favorable authorities policies and its focal point on turning nutrient processing class. ITC is expected to post good consequences in approaching old ages. Therefore. FMCG index. being a defensive sector. will stay a safe stake for investors. But. as the [ electronic mail protected ]figure indicates. most of the companies are merchandising at a premium to their MRPs. Despite this. there are a few basically sound companies in FMCG industry. which are presently available at a good price reduction from their MRPs ( intrinsic value ) . With the overall economic state of affairs non expected to alter much in the coming quarters. investors would be well-advised to:
Current Ratio for all the houses is below the criterion ratio 2:1. All the houses are following the same tendency as they have proportionally same difference between current ratio and speedy ratio. Companies have a immense stock list base that holds a major portion of current assets.
GCP performed better than wholly as there is a net addition in hard currency flow. increasing the company’s liquidness to run into its short term liability.
ITC and Nestle India has a really low hard currency ratio. As Nestle has negative hard currency flow -44 Crores. although ITC performed good this twelvemonth with a net hard currency flow of Rs 55 Crores but they invested in fixed assets and other investings resulted in really low hard currency.
HUL and Dabur besides has a positive hard currency flow of Rs 694 Crores and Rs 98 Crores severally. But HUL made investings and dabur has shown an addition over the old old ages but non good as compared to its rivals.
Quick ratio of Dabur and GCP has increased over the old twelvemonth. GCP’s hard currency ratio is increased from. 05 to. 4 besides the current ratio is improved over old twelvemonth.
Employee turnover Ratios
Inventory Turnover Ratio
Fixed Asset Turnover Ratio
Entire Assets Turnover Ratio
Debtor Turnover Ratio
Nestle has the highest stock list turnover ratio of 11. 4 and inventory keeping period of 31 yearss. A good stock list turnover ratio indicates that stock lists are traveling fast and that is required in FMCG industry. All the houses have an stock list ratio above 7 that is a good indicant.
HUL has the highest entire Assets turnover ratio and fixed assets turnover. GCP. ITC. Nestle made immense investing in 2011-12 that increased their entire assets and fixed assets. The gross revenues has besides increased but due to investing and increase in fixed assets. Fixed assets and entire assets turnover ratio are lower this twelvemonth but we may see an betterment in the approaching old ages where the investing made in fixed assets may assist in increasing gross revenues doing the good use of assets.
Debtor Turnover ratio is high for Nestle 83 times doing the mean aggregation period near to 4 yearss which shows that companies recognition policy are good and they are able to bring forth net capital in a really short clip for daily operating activities. The high value shows that direction might be rigorous towards the debitors and playing safe by hard currency minutess.
Debtor turnover ratio for HUL is 28. Dabur is 17. ITC has 39 and GCP has 35 which shows they are able to roll up the hard currency in maximal 21 yearss for Dabur. which is a good indicant for FMCG industry. As stock lists moves fast they need hard currency for operating activities.
All the houses have plus direction ratio’s near to industry norm. Nestle has outperformed both the old ages 2010-11 and 2011-12 as their Debtor turnover ratio is twice of the industry norm.
Debt – Management Ratio
Debt- Equity ratio is 0 for HUL and ITC and GCP has 7 times and Nestle has 10 times. As all these houses has really low debt and equity. but higher militias.
Nestle financed its activities through loan this twelvemonth and took Rs. 976 Crores as loan and low equity of Rs. 96 Crores made the debt-equity ratio really high. Similarly GCP besides took debt in 2011-12 of Rs. 237 Crores but the low equity of Rs. 34 Crores made the debt-equity ratio higher.
So higher value of debt-equity ratio does non intend that the companies are trusting chiefly on debt.
Debt-Assets ratio / Gearing ratio is below 0. 5 for all the houses indicates that companies are less hazardous. As they have more assets than debts. In future they can run into their long term liabilities with the value of assets they have.
ITC and HUL has 0 debt-assets ratio. which indicates their strong place in industry. As they are the major participants in FMCG industry and are capable plenty to run into their assets with militias and excess. non trusting on debts/equity.
Nestle had 0 debt in 2010-11 and in 2011-12 they financed through loan. which increased debt-eqity ratio from 0 to 10. GCP had a higher debt-equity ratio in 2010-11 but it is reduced to 7 in 2011-12. All the other houses maintained low debt ratio and debt-equity ratio in both old ages.
Net income Margin Ratio
Gross Profit Margin
Operating Net income Margin
Net Net income Margin
All the houses has Gross net income border above 45 % . but ITC has the highest gross net income border of 59 % which indicates good control of cost-of-goods sold and runing net income border 35 % . But GCP has the highest net net income border of 20 % . For both old ages 2010-11 and 2011-12 ITC has highest gross net income border and operating net income border ratio which indicates their efficient production procedure. The gross net income border indicates the efficiency of production and pricing. a higher gross net income border indicates the houses production procedure are good working. All the houses have a net net income border over 10 % which shows that industry is executing good.
Tax return on Equity
Tax return on Assetss
ROE and ROA is higher for all the houses. GCP leads with 1800 % returns. HUL has 1200 % . Dabur 200 % . ITC 700 % . Nestle 1000 % return. which is a good mark for investing. As Rs. 1 investing would give a Rs. 18 return. But the companies are non trusting much on equity.
ROA is highest for HUL. as the house is using its assets and has an ROA of 1700 % . Other houses besides have ROA above 500 % . which indicates that they are using the assets really good. As a consequence the houses are intensively puting in fixed assets as to bring forth more volumes.
GCP has highest Roe for both old ages and much above industry norm. Hazard and Return
Average day-to-day Market Return| 9. 0381E-05|
Average Annual Return| 2. 28 % |
Geometric Mean Return| 1. 000017478|
Discrepancy of Index| | 0. 0001462|
| | | |
Risk Free Return. Rf| | 8. 09 % |
Average Daily Return of Stock| 0. 001163679|
Average Annual Return| 29. 32 % |
Standard Deviation of Daily Stock Return| 0. 014864983|
Discrepancy of Daily Stock Return| 0. 000220968|
Covariance of Stock and NIFTY| 3. 3892E-05|
Geometric Mean Return| 1. 001053876|
BETA ( utilizing incline fn ) | 0. 232281744|
Required Rate of Return| 6. 74 % |
Systematic Hazard of Stock| 0. 001987823|
Unsystematic Risk| 0. 053696042|
Average Daily Return of Stock| 0. 00017751|
Average Annual Return| 4. 47 % |
Standard Deviation of Daily Stock Return| 0. 026776465|
Discrepancy of Daily Stock Return| 0. 000716979|
Covariance of Stock and NIFTY| 6. 83846E-05|
Geometric Mean Return| 0. 999678281|
BETA ( utilizing incline fn ) | 0. 468678957|
Required Rate of Return| 5. 37 % |
Systematic Hazard of Stock| 0. 008092792|
Unsystematic Risk| 0. 172585932|
Average Daily Return of Stock| -0. 000291509|
Average Annua Return| -7. 35 % |
Standard Deviation of Daily Stock Return| 0. 027196376|
Discrepancy of Daily Stock Return| 0. 000739643|
Covariance of Stock and NIFTY| 4. 95522E-05|
Geometric Mean Return| 0. 999201699|
BETA ( utilizing incline fn ) | 0. 339609723|
Required Rate of Return| 6. 12 % |
Systematic Hazard of Stock| 0. 004249205|
Unsystematic Risk| 0. 182140793|
Average Daily Return of Stock| 0. 001214306|
Average Annual Return| 30. 60 % |
Standard Deviation of Daily Stock Return| 0. 015235535|
Discrepancy of Daily Stock Return| 0. 000232122|
Covariance of Stock and NIFTY| 4. 02109E-05|
Geometric Mean Return| 1. 001098493|
BETA ( utilizing incline fn ) | 0. 275588703|
Required Rate of Return| 6. 49 % |
Systematic Hazard of Stock| 0. 002798145|
Unsystematic Risk| 0. 055696483|
Godrej Consumer Merchandises:
Average Daily Return of Stock| 0. 001382|
Average Annual Return| 34. 83 % |
Standard Deviation of Daily Stock Return| 0. 020148|
Discrepancy of Daily Stock Return| 0. 000406|
Covariance of Stock and NIFTY| 2. 7E-05|
Geometric Mean Return| 1. 001183|
BETA| 0. 185288|
Required Rate of Return| 7. 01 % |
Systematic Hazard of Stock| 0. 001265|
Unsystematic Risk| 0. 101034|