PROJECT REPORT

ON
FUNDAMENTAL ANALYSIS OF FAST MOVING CONSUMER GOODS INDUSTRY
Submitted in partial fulfilment of the requirements for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
To
Guru Gobind Singh Indraprastha University, Delhi

Under the Guidance of:

Submitted By:

Prof. Rasheeqa Tabassum

SAKSHI BEHL
13517903910

Session 2013 15
PERIYAR MANAGEMENT AND COMPUTER COLLEGE
Periyar Centre, FC33, Plot No. 1&2, Institutional Area, Jasola, New Delhi 110025

TABLE OF CONTENTS
Particulars

Pg. no.

Certificate

Acknowledgement

Executive Summary

Chapter-1 Introduction

Chapter-2 Literature Review

17

Chapter-3 Research Methodology

19

Chapter-4 Data Analysis and Interpretation

21

Chapter-5 Conclusion and Recommendation

76

Bibliography

78

Appendices

79

CERITFICATE

I SAKSHI BEHL Enrolment No.13517903910 from MBA-IV Semester of the Periyar

2

Management and Computer College hereby declare that the Project Dissertation (MS-202)
entitled FUNDAMENTAL ANALYSIS OF FMCG INDUSTRY is an original work and the
same has not been submitted to any other Institute for the award of any other degree.

Date:

Signature of the Student

Certified that the Project Dissertation Report submitted in partial fulfilment of Master of
Business Administration (MBA) to be awarded by G.G.S.I.P. University, Delhi by SAKSHI
BEHL, Enrolment No. 13517903910 has been completed under my guidance and is satisfactory.

Date:

Signature of the Guide

Name of the Guide:
Designation:

ACKNOWLEDGEMENT

I am thankful to my College Periyar Management and Computer College" for giving me the
opportunity to present this project. I am especially thankful to the Director of our college Dr. S.
3

Aramvalarthan and faculty in charge Prof. Rasheeqa Tabassumfor the valuable guidance and
co-operation throughout the project.
I am grateful to all faculty members of Periyar Management and Computer College and who
have helped me in the successful completion of this project.

( SAKSHI BEHL)

EXECUTIVE SUMMARY

The Fast Moving Consumer Goods (FMCG) sector in India has been growing at a healthy
CAGR of 11% over the last decade
4

Riding on the back of increasing demand and changing consumer preferences, thanks to
higher disposable incomes and the retail revolution, the sector has been posting double-

digit growth over the past couple of years

The industry is volume driven and is characterized by low margins. The products are
branded and backed by skilled marketing, heavy advertising, slick packaging and strong
distribution networks. Also, raw material prices play an important role in determining the

pricing of the final product

Modern retail formats too have contributed in a major way in pushing the growth in the
FMCG sector. With rising income levels and the spread of modern retail, the FMCG

industrys future prospects look bright which is expected to further boost sales
Growth in the sector is led by higher urban and rural demand. Going forward ,the
governments growing support to agriculture will drive long-term growth in consumption

from the rural sector

In my view, amongst all the FMCG segments, the food segment will outperform over the

coming years
The Indian food industry is a significant part of the Indian economy,(food constitutes

about 36% of the consumer wallet)

The Indian food industry is poised to grow by a whopping 63.5% from Rs788,100crs now
to Rs.1,288,900crs in next 5 years and by 137.8% to Rs.1,874,100crs in next 10 years,

throwing up huge opportunities for investments across the entire value chain
India faces contrasting problems of having one of the highest malnutrition cases and also
being the diabetes capital of the World. In our view, both of these are an opportunities for
Food companies. The Health foods segment is likely to see one of the highest growth in

the Food segment

To exploit this trend many companies have launched health based, Dabur introduced a

juice with fiber and HUL introduced Soya and multigrain Atta, iodized salt, energy drinks
We believe that the demand for these products is going to outpace the overall Food
Category growth for the years to come.

CHAPTER 1-INTRODUCTION
1.1 Overview
Products which have a quick turnover, and relatively low cost are known as Fast Moving
Consumer Goods (FMCG). FMCG products are those that get replaced within a year. These
products are purchased by the customers in small quantity as per the need of individual or family.
These items are purchased repeatedly as these are daily use products. The price or value of the
products is not very high. These products are having short life also. It may include perishable and
non-perishable products, durable and non-durable goods. Examples of FMCG generally include
a wide range of frequently purchased consumer products such as toiletries, soap, cosmetics, tooth
cleaning products, shaving products and detergents, as well as other non-durables such as
glassware, bulbs, batteries, paper products, and plastic goods. FMCG may also include
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pharmaceuticals; consumer electronics, packaged food products, soft drinks, tissue paper, and
chocolate bars. A subset of FMCGs are Fast Moving Consumer Electronics which include
innovative electronic products such as mobile phones, MP3 players, digital cameras, GPS
Systems and Laptops. These are replaced more frequently than other electronic products. White
goods in FMCG refer to household electronic items such as Refrigerators, T.Vs, Music Systems,
etc. The Indian FMCG sector is explained below in detail:
Indian market is a big market and its population is nearly 115 crores. The markets are of different
types and can be segmented as urban, sub- urban and rural markets. The rural market is very
wide and still it is difficult to cover. Nearly 70 percent of Indian population is living in rural
areas. There is a great opportunity for FMCG companies in Indian markets. Further due to
liberalization a good number of MNCs have entered in India market and mainly in FMCG sector
also. They have entered in skin care, toothpaste, toiletries, fast-food, chocolates, cosmetics and
many other products. The FMCG sector is flooded by companies from India and abroad. In
future the level of competition would increase further. The situation in Indian economy is very
favorable for foreign companies. The major factors attractive them are availability of raw
materials, low labor cost, market potential for consumption and more disposable income of
Indian customers. More over the GDP in Indian economy is increasing every year so per capita
income increasing and there is scope for further development.

This study is focused on the fundamental analysis of FMCG industry from investments
point of view. Fundamental Analysis helps to decide upon the right investment strategy in
a particular sector through analysis of economy, industry and a company. With regard to
automobile industry there are various factors which affect the performance of the
company as well as shareholders' return. Success of an investor depends upon the criteria
of selection opted by him to select the investment option that leads to creating wealth
over the long term and earning maximum return with minimum risk. A genuine investor
prefers to invest in that company which may endow maximum return with low degree of
risk to him. This study aims to recognize the effect of various financial ratios on the
shareholder's return and to evaluate the past performance, profitability position and the
expected future performance of companies. For this purpose performance of five Indian

FMCG companies have been analyzed on the basis of their financial ratios .This study
will prove to be supportive for an investor in portfolio construction.
TOOLS FOR ANALYSIS:
Ratio Analysis: The financial ratios which have been used for comparative analysis of five
automobile companies are : Earning Per Share (EPS), Operating Profit Margin (OPM), Net Profit
Margin (NPM), Debt Equity Ratio (DER), Dividend Per Share(DPS), Dividend Pay Out(DPO),
Current Ratio(CR), Return On Investment(ROI), PB ratio and Return on equity ratio(ROE).

At the end conclusion and recommendations have been specified so as to make the research work
more meaningful and purposeful.

1.2 OBJECTIVE OF THE STUDY

This study is an attempt to throw a light on the growth of FMCG industry in India by analyzing
economic and industrial factors affecting the growth of the industry. The core objective of this
study is to evaluate the past performance and the expected future performance of companies, to
analyze the profitability position of the companies and to analyze the various ratios of the past
five years (2008-2012) of sample companies.
The present study adopts analytical and descriptive research design with convenience sampling
based on the secondary data collected from the annual reports and the balance sheet, published
by the companies' respective websites. Top five FMCG are chosen for the study on the basis of
Companies listed on Bombay Stock Exchange (B.S E).
The main objectives of the Project study are:

Detailed analysis of FMCG industry which is gearing towards international standards

Analyze the impact of qualitative factors on industrys and companys prospects
Comparative analysis of five tough competitors ITC,HUL NESTLE,DABUR AND

COLGATE PALMOLIVE.
Application of various Fundamental tools (like Financial and Nonfinancial statements).

1.3 Scope of the study

The project covers the following:

Introduction to the Indian FMCG Industry
Introduction to fundamental and technical analysis
Fundamental analysis of the companies including the analysis of FMCG industry
Findings, Conclusions and Recommendations.

1.4 Limitations of the Study

The data used in the study has been taken from the annual report, Income Statement

and other sources of the companies.

Some data are grouped and sub-grouped.
Information and secondary data required for the study is also limited.
9

Some of the information that was essential for this study has not been covered due to
their confidential nature.

1.5 Introduction to FMCG Industry

The fast moving consumer goods (FMCG) segment is the fourth largest sector in the Indian
economy. The market size of FMCG in India is estimated to grow from US$ 30 billion in 2011 to
US$ 74 billion in 2018.
Food products is the leading segment, accounting for 43 per cent of the overall market. Personal
care (22 per cent) and fabric care (12 per cent) come next in terms of market share.
Growing awareness, easier access, and changing lifestyles have been the key growth drivers for
the sector.

What are FMCG goods?

FMCG goods are popularly known as consumer packaged goods. Items in this category include
all consumables (other than groceries/pulses) people buy at regular intervals. The most common
in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish,
packaged foodstuff, and household accessories and extends to certain electronic goods. These
items are meant for daily of frequent consumption and have a high return.
Rural set to rise
Rural areas expected to be the major driver for FMCG, as growth continues to be high in these
regions. Rural areas saw a 16 per cent, as against 12 per cent rise in urban areas. Most companies
rushed to capitalise on this, as they quickly went about increasing direct distribution and
providing better infrastructure. Companies are also working towards creating specific products
specially targeted for the rural market.

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The Government of India has also been supporting the rural population with higher minimum
support prices (MSPs), loan waivers, and disbursements through the National Rural Employment
Guarantee Act (NREGA) programme. These measures have helped in reducing poverty in rural
India and given a boost to rural purchasing power.

Hence rural demand is set to rise with rising incomes and greater awareness of brands.

Urban trends

With rise in disposable incomes, mid- and high-income consumers in urban areas have shifted
their purchasing trend from essential to premium products. In response, firms have started
enhancing their premium products portfolio. Indian and multinational FMCG players are
leveraging India as a strategic sourcing hub for cost-competitive product development and
manufacturing to cater to international markets.

Top Companies

According to the study conducted by AC Nielsen, 62 of the top 100 brands are owned by MNCs,
and the balance by Indian companies. Fifteen companies own these 62 brands, and 27 of these
are owned by Hindustan UniLever.

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The top ten India FMCG brands are:

1. Hindustan Unilever Ltd.
2. ITC (Indian Tobacco Company)
3. Nestl India
4. GCMMF (AMUL)
5. Dabur India
6. Asian Paints (India)
7. Cadbury India
8. Britannia Industries
9. Procter & Gamble Hygiene and Health Care
10. Marico Industries

What the millenniums expect

According to a study by TMW and Marketing Sciences that surveyed 2,000 people across
different age groups ranging, young consumers are the most rational and likely to spend more
time weighing up potential purchases. The survey also suggests that younger people are using
recommendations from their peers about products and services in order to make rational
purchase decisions. According to the study, shoppers aged 18 to 24 are 174 per cent more likely
to use recommendations on social media than shoppers aged 25 and over.

Another key factor today is speed. Today's consumer wants packaged goods that work better,
faster, and smarter. The need for speed" trend highlights the importance of speed as a
potentially decisive purchase factor for packaged goods products in a world where distinctions
between products are shrinking.

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Younger consumers express the greatest need for speed, not a huge surprise for the smartphone
generation. Datamonitor's 2013 Consumer Survey found that younger consumers those in the 1524 year old age group were twice as likely to say that "results are achieved quickly" has a "very
high amount of influence" on their health and beauty product choices than consumers in the
oldest age group, those aged 65 or older. Speed matters, and 2014 will almost certainly see the
introduction of new game-changing timesavers.

Road Ahead

FMCG brands would need to focus on R&D and innovation as a means of growth. Companies
that continue to do well would be the ones that have a culture that promotes using customer
insights to create either the next generation of products or in some cases, new product categories.

One area that we see global and local FMCG brands investing more in is health and wellness.
Health and wellness is a mega trend shaping consumer preferences and shopping habits and
FMCG brands are listening. Leading global and Indian food and beverage brands have embraced
this trend and are focused on creating new emerging brands in health and wellness.

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According to the PwC-FICCI report Winds of change, 2013: the wellness consumer, nutrition
foods, beverages and supplements comprise an INR 145 billion to 150 billion market in India, is
growing at a CAGR of 10 to 12%.

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1.6 Introduction to Fundamental Analysis

Fundamental analysis is the study of a companys financial strength, based on historical data;
sector and industry position; management; dividend history; capitalization; and potential for
future growth. It is a stock valuation method that uses financial and economic analysis to predict
the movement of stock prices. The analysis attempts to find the intrinsic value of a security that
helps investors to make decisions.
The fundamental information that is analyzed can include a company's financial reports, and
non-financial information such as estimates of the growth of demand for products sold by the
company, industry comparisons, and economy-wide changes, changes in government policies
etc.
The various steps involved in the fundamental analysis are:
1. Macroeconomic analysis, which involves considering the overall health of the
economy and its future.
2. Industry analysis, which involves the analysis of the industry in which the company is
operating.
3. Situational analysis of the company, studying their business model, management,
products and services, its current position, its future, etc.
4. Financial analysis of the company, which involves analyzing the financial statements
like balance sheets, income statements, cash flows and ratios.
5. Valuation, which attempts to find the intrinsic value of the securities of the company.
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The approach to fundamental analysis is often referred to as E-I-C Approach. The E-I-C
denotes the three parts of the fundamental analysis. The three distinctive parts of fundamental
analysis are:
1. Economic Analysis
2. Industry Analysis and
3. Company Analysis

CHAPTER-2 LITERATURE REVIEW

Fundamental analysis is widely applied by the majority of equity investors on the developed
stock markets. However, it is still of questionable value on the emerging markets due to certain
market constraints (e.g. low liquidity, small number of investors, weak transparency). The
present research is the continuation of the study made by the authors in 2009. Value creation of
fundamental analysis was tested within Baltic equity market context by applying key
fundamental analysis ratios: PE, ROE, equity ratio, PB etc. to the stock selection. Liquidity,
plausibility of earnings as well as dividend payments were checked whether they could be
performance creation sources. These concepts were tested during three market phases: pre-crisis,
crisis and post-crisis. One of the key conclusions drawn was that fundamental analysis gains
popularity and is more often employed by Baltic investors, particularly in the post-crisis period.

David.L.Scott and William Edward4 (1990) reviewed the important risks of owning common
stocks and the ways to minimize these risks. They commented that the severity of financial risk
depends on how heavily a business relies on debt. Financial risk is relatively easy to minimise if
an investor sticks to the common stocks of companies that employ small amounts of debt.
They suggested that a relatively easy way to ensure some degree of liquidity is to restrict
investment in stocks having a history of adequate trading volume. Investors concerned about
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business risk can reduce it by selecting common stocks of firms that are diversified in several
unrelated industries.
Lewis Mandells (1992) reviewed the nature of market risk, which according to him is very much
'global'. He revealed that certain risks that are so global that they affect the entire investment
market. Even the stocks and bonds of the well-managed companies face market risk. He
concluded that market risk is influenced by factors that cannot be predicted accurately like
economic conditions, political events, mass psychological factors, etc. Market risk is the
systemic risk that affects all securities simultaneously and it cannot be reduced through
diversification.
L.C.Gupta8 (1992) revealed the findings of his study that there is existence of wild speculation
in the Indian stock market. The over speculative character of the Indian stock market is reflected
in extremely high concentration of the market activity in a handful of shares to the neglect of the
remaining shares and absolutely high trading velocities of the speculative counters. He opined
that, short- term speculation, if excessive, could lead to "artificial price". An artificial price is one
which is not justified by prospective earnings, dividends, financial strength and assets or which is
brought about by speculators through rumours, manipulations, etc. He concluded that such
artificial prices are bound to crash sometime or other as history has repeated and proved.
Sunil Damodar'o (1993) evaluated the 'Derivatives' especially the 'futures' as a tool for short-term
risk control. He opined that derivatives have become an indispensable tool for finance managers
whose prime objective is to manage or reduce the risk inherent in their portfolios. He disclosed
that the over-riding feature of 'financial futures' in risk management is that these instruments tend
to be most valuable when risk control is needed for a short- term, ie, for a year or less. They tend
to be cheapest and easily available for protecting against or benefiting from short term price.
Their low execution costs also make them very suitable for frequent and short term trading to
manage risk, more effectively.
Philippe Jhorion and Sarkis Joseph Khouryl6 (1996) reviewed international factors of risks and
their effect on financial markets. He opined that domestic investment is a subset of the global
asset allocation decision and that it is impossible to evaluate the risk of domestic securities
without reference to international factors. Investors must be aware of factors driving stock prices
17

and the interaction between movements in stock prices and exchange rates. According to them
the financial markets have become very much volatile over the last decade due to the
unpredictable speedy changes like oil price shocks, drive towards economic and monetary
unification in Europe, the wide scale conversion of communist countries to free market policies
etc. They emphasized the need for tightly controlled risk management measures to guard against
the unpredictable behavior of financial markets.
V.T.Godse.19 (1996) revealed the two separate but simultaneous processes involved in risk
management. The first process is determining risk profile and the second relates to the risk
management process itself.
Deciding risk profile is synonymous with drawing a risk picture and involves the following
steps.
1. Identifying and prioritizing the inherent risks
2. Measuring and scoring inherent risks.
3. Establishing standards for each risk component
4. Evaluating and controlling the quality of managerial controls.
5. Developing risk tolerance levels.
He opined that such an elaborate risk management process is relevant in the Indian context. The
process would facilitate better understanding of risks and their management.
Mukul Gupta 37 (1999) described the risk management framework as the building blocks for
Enterprise Risk Management ERM is the systems and procedures designed to deal with multiple
types of risks. The objectives of E.R.M are to obtain information and analyse data so that
uncertainty is turned into quantifiable risk and appropriate management action can be taken to
mitigate the risk. He opined that it is necessary to understand the three main building blocks to
the risk measurement and management process that are Analytics, Business process and
Technology. By analytics is meant the capability of developing the mathematical tools to
measure various forms of risks. By processes is meant the knowledge of business opportunities
and the way business is conducted. Technology is the experience in implementing the hardware
18

and software required to facilitate the risk management information system. He concluded that a
successfully implemented E.R.M could be used both for a defensive or an offensive approach.
Mitra.S.K." (2000) commented on the increasing volatility of the bourses, which forces an
investor to shift away from the equity market. He observed that analysts profess to the investors
the virtue of long-term time horizon for the equity investment. But sharp volatility has become a
feature of the capital market worldwide, resulting in frequent, sharp, downward corrections. In
this scenario it is proving difficult to convince the investors to think long-term. He opined that
the risk of obsolescence and failure have increased enormously in the highly valued economy
companies, resulting in huge loss on investments. Investors with long outlook are real losers in
this new paradigm of stock market gambles. He argued that, in this scenario, investors are
shifting away from the equity market to cash and debt. Long-term vision in the equity
investments has given way to short term trading.
Ajay Jaiswal (2001) evaluated the implications of 'Equity Risk Premium'. He opined that
investors look for a certain level of return for assuming the 'risk of equities volatile return'. This
level can be measured through the equity risk premium. Equity risk premium is the sum of the
dividend yield and earnings growth less current bond annual yield. He observed that the risk
premium rose very sharply towards the end of the last decade. The expectations of the earnings
growth had moved up dramatically since 1998. But in the last year we saw a fall of the long-term
growth expectations. He opined that a downturn is associated with a fall in the profitability of the
corporate sector. He argued that the equity investments are not for the weak hearted, as the equity
holders cannot escape the impact of the movements in the capital market. We are headed for a
period of lower returns to the investors. He concluded that the scaling down of the return
expectations would reduce the chances of wild swings. And this would be better for the health of
the bruised equity investors.

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CHAPTER-3 RESEARCH METHODOLOGY

a) Research Objective

To apply the concept of ratio analysis to do a comparative analysis of five tough

competitors: HUL, ITC, COLGATE PALMOLIVE, DABUR AND NESTLE.

Spot a trend in financial items of income statement and make predictions for the future.
To study the growth of FMCG industry in India by analyzing economic and industrial

factors affecting the growth of the industry

To evaluate the past performance and the expected future performance of companies
To analyze the profitability position of the companies in the industry.

b) Research Problem
To understand the criticality of expected future performance and comment on health of the
companies based on the past years.

c) Research Design
The present study adopts analytical and descriptive research design with convenience sampling
based on the secondary data.

d) Sources of data collection

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 Annual reports and the balance sheet, published by the companies' respective websites.
Information from other records & internet
e) Research Techniques
Ratio Analysis: The financial ratios which have been used for comparative analysis of
five automobile companies are : Earning Per Share (EPS), Operating Profit Margin
(OPM), Net Profit Margin (NPM), Debt Equity Ratio (DER), Dividend Per Share(DPS),
Dividend Pay Out(DPO), Current Ratio(CR), Return On Investment(ROI), PE Ratio, PB
ratio and Return on equity
Time period 5 years(2008-2012)

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CHAPTER-4 DATA ANALYSIS AND INTERPRETATION

ECONOMIC ANAYSIS
The Indian FMCG sector is the fourth largest in the Indian economy and has a market size of
$13.1 billion. This industry primarily includes the production, distribution and marketing of
consumer packaged goods, that is those categories of products which are consumed at regular
intervals. The sector is growing at rapid pace with well-established distribution networks and
intense competition between the organized and unorganized segments. It has a strong and
competitive MNC presence across the entire value chain. The FMCGs promising market
includes middle class and the rural segments of the Indian population, and give brand makers the
opportunity to convert them to branded products. It includes food and beverage, personal care,
pharmaceuticals, plastic goods, paper and stationery and household products etc.
Economic analysis is the analysis of forces operating the overall economy a country. It is a
process whereby strengths and weaknesses of an economy are analyzed and is important in order
to understand exact condition of an economy. The various factors considered are:
The Economic Cycle
Countries go through the business or economic cycle and the stage of the cycle at which a
country is in has a direct impact both on industry and individual companies. It affects investment
decisions, employment, demand and the profitability of companies. It is very important to
determine the stage of the cycle into which the economy is passing through. The four stages of
economic cycle are depression, recovery, boom and recession.

22

Investors should attempt to determine the stage of the economic cycle the country is in. They
should invest at the end of a depression when the economy begins to recover, and at the end of a
recession. Investors should disinvest either just before or during the boom, or at the worst, just
after the boom. Investment and disinvestments made at these times will earn the investor the
greatest benefits.
The Political Equation
A stable political environment is necessary for steady, balanced growth. If a country is ruled by a
stable government which takes decisions for the long-term development of the country, industry
and companies will prosper.
Foreign Exchange Reserves
A country needs foreign exchange reserves to meet its commitments, pay for its imports and
service foreign debts. If the reserves are not managed properly it may pose foreign exchange
risks.
Foreign Debt and the Balance of Trade
Foreign debt, especially if it is very large, can be a tremendous burden on an economy. India
pays around $ 5 billion a year in principal repayments and interest payments.

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Inflation
Inflation has an enormous effect in the economy. Within the country it erodes purchasing power.
As a consequence, demand falls. If the rate of inflation in the country from which a company
imports is high then the cost of production in that country will automatically go up.
Interest Rates
A low interest rate stimulates investment and industry. Conversely, high interest rates result in
higher cost of production and lower consumption.
Taxation
The level of taxation in a country has a direct effect on the economy. If tax rates are low, people
have more disposable income.
Government Policy
Government policy has a direct impact on the economy. A government that is perceived to be
pro-industry will attract investment.
GDP (GROSS DOMESTIC PRODUCT)
The Economy of India is the seventh-largest in the world by nominal GDP and the thirdlargest by purchasing power parity (PPP).The country is one of the G-20 major economies, a
member of BRICS and a developing economy among the top 20 global traders according to
the WTO.
According to the Indian Finance Ministry the annual growth rate of the Indian economy is
projected to have increased to 7.4% in 2014-15 as compared with 6.9% in the fiscal year 201314. In an annual report, the IMF forecast that the Indian Economy would grow by 7.5% percent
in the 2015-16 fiscal year starting on April 1, 2015, up from 7.2% (201415)

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Current Scenario
FMCG industry facilitates extensive series of consumables and it circulates high amount of
money in the economy. The intense competition in the FMCG manufacturers is resulting in
increase in investment in FMCG industry. Nielsen's study shows that out of the total $ 28 billion
in FMCG sales last year, products worth about $ 6 Billion were consumed in these smaller
towns. This number makes up more than 20% of overall FMCG sales, and 30% of the urban
FMCG sales. Since 2002, the FMCG sector grew 3.5 times in these smaller towns of 1-10 lakh
population, compared to 3.2 times at the all-India level.
At present high burden of local taxes is likely to have an adverse impact on disposable income
and purchasing power as a whole. The growth of imports constitutes another problem area and
while so far imports in this sector have been confined to the premium segment. FMCG
companies estimate they have already cornered a four to six per cent market share. However,
most of the companies are concentrating on cost reduction and supply chain management. This
should yield positive results for them.

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Market size
The growing purchasing power and the rising influence of the social media have helped the
Indian consumers to splurge on good things. A study done by a leading industry body and Yes
Bank has stated that the consumer spending in India is expected to quadruple to US$ 4.2 trillion
by 2017.
As per GSMA's study 'Smartphone forecasts and assumptions, 2007-2020' India ranks fourth in
the top 10 global smartphones markets. The country had 111 million smartphone connections in
the April-June quarter of 2014, behind leader China, US and Brazil.
India could become the world's largest middle class consumer market with a total consumer
spend of nearly US$ 13 trillion by 2030, as per a report by Deloitte titled 'India matters:
Winning in growth markets'.
On the back of better incomes and increasing affordability, the consumer durables market is
anticipated to expand at a compound annual growth rate (CAGR) of 14.8 per cent to US$ 12.5
billion in FY15 from US$ 7.3 billion in FY12.
Online retailing, both direct and through marketplaces, will grow threefold to become a Rs
50,000 crore (US$ 8.06 billion) industry by 2016, as per rating agency Crisil. Also, the growth
of internet retail is expected to boost offline retail stores.

Trends in FMCG Revenue over the Years

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2) NET PROFIT MARGINNet profit margin indicates how much a company is able to earn after all direct and indirect
expenses to every rupee of revenue. This ratio is calculated using the following formula and
expressed in percentage terms:
Net Profit Margin= (Net Profit/Total Revenue)*100
(in%)
Year
2008
2009
2010
2011
2012
Avg.

HUL
12.00
12.32
11.54
12.02
11.97

ITC
21.43
20.50
21.65
22.68
23.70
21.992

DABUR
14.76
15.31
14.99
14.23
12.15
14.288

NESTLE
14.60
12.25
12.68
13.00
12.75
13.056

COLGATE
14.87
16.18
20.54
17.30
16.27
17.032

25
20
15
10
5
0
HUL

ITC

DABUR

NESTLE

COLGATE

As shown in Table 2, the NPM of ITC has outperformed all the other companies in terms of Net
Profit Margin. Where the NPM of ITC is (21.992%) is substantially higher than that of other
companies at every year during the study period. On an average HUL generated NPM of 11.97
which is lowest among the five companies. This suggests that ITC is the most efficient company
in terms of Net Profit Margin

27

3) Earnings Per Share (EPS)

An earnings per share is the measure of the company's ability to generate after tax profits per
equity share. This ratio is computed with the help of the following formula and expressed in
percentage terms:
EPS= (Earning after tax and preference dividend/Total number of equity shares outstanding)*100

Year
2008
2009
2010
2011
2012
Avg.

HUL
9.64
11.45
10.09
10.68
12.45
10.862

ITC
8.28
8.65
10.64
6.45
7.88
8.38

NESTLE
16.61
55.39
67.93
84.91
99.73
64.914

DABUR
3.67
4.32
4.99
2.71
2.66
3.67

COLGATE
17.04
21.34
31.12
21.34
17.04
21.576

As shown in the Table 3, the average EPS of NESTLE is greater than all other companies
during the entire study period.. On an average NESTLE earned EPS of 64.914 which is highest
and DABUR has EPS 3.64 which is least among the five companies. This suggests that NESTLE
is the most efficient company in generating earning per share.

28

4. Dividend Per Share (DPS)

Dividend per share is similar to earnings per share. DPS shows how much the shareholders were
actually paid by the way of dividends. The DPS is computed by the following formula and
expressed in percentage terms:
Dividend per share = (Dividend Paid/Total number of equity shares outstanding)*100
( in crore)
Year
2008
2009
2010
2011
2012
Avg.

HUL
9.00
7.50
6.50
6.50
7.50
7.4

ITC
3.50
3.70
10.00
4.45
4.50
5.23

NESTLE
33
42.50
48.50
48.50
48.50
44.2

29

DABUR
1.50
1.75
2.00
1.15
1.30
1.54

COLGATE
13
15
20
22
25
19

45
40
35
30
25
20
15
10
5
0
HUL

ITC

NESTLE

DABUR

COLGATE

As shown in the Table 4, the average DPS of NESTLE is greater than all other companies during
the entire study period. On an average NESTLE paid DPS of 44.2 which is the highest and
DABUR paid DPS of 1.54 that is the lowest. This suggests that NESTLE is the most efficient
company in terms of payment of dividends.

\
5. Dividend Pay Out Ratio (DPO)
Dividend payout is the measure of the dividends paid by the company rather than retained by the
company. The ratio is computed by the following formula and ex pressed in percentage terms
Dividend payout ratio= Dividend/ net income
(in %)
Year
2008

HUL
131.80

ITC
49.45

NESTLE
89.50
30

DABUR
47.86

COLGATE
98.24

2009
2010
2011
2012
Avg.

76.47
75.20
71.20
69.99
84.932

50.06
109.63
80.24
66.35
71.146

89.76
83.52
66.54
56.74
77.212

47.41
46.86
49.40
56.81
49.668

82.05
75.08
86.65
88.50
86.104

90
80
70
60
50
40
30
20
10
0
HUL

ITC

NESTLE

DABUR

COLGATE

As shown in the Table 5, the DPO ratios of. On an average DPO ratio of COLGATE that is
86.104, is the highest and DABUR has 49.668 which is the lowest. This suggests that COLGATE
is the most efficient company in generating dividend payout ratio.

6) Return on Net Worth (RONW)

31

Return on net worth of a company measures the

ability of the management of the company to generate returns on capital invested. The ratio is
calculated by the following formula and is expressed in percentage terms:
Return on net worth = {Net profit (after interest and tax) / Share holder's fund} 100]
Year
2008
2009
2010
2011
2012
Avg.

HUL
122.97
121.34
85.25
87.57
76.62
98.75

ITC
25.99
23.85
28.98
31.36
32.88
28.776

NESTLE
98.99
112.83
112.68
95.70
75.47
99.164

DABUR
61.58
51.20
58.04
46.29
37.09
50.84

COLGATE
142.84
134.17
129.78
104.82
102.54
122.83

140
120
100
80
60
40
20
0
HUL

ITC

NESTLE

DABUR

COLGATE

As shown in the Table 6, The average RONW of COLGATE is greater than all other companies
during the entire study period. RONW of COLGATE is substantially higher than NESTLE and
ITC. On an average COLGATE has 122.83 RONW and ITC. has 28.776 RONW, the lowest.
Thus the analysis reveals that COLGATE is most efficient company in generating return on net
worth.

7) Current Ratio (CR)

Current Ratio is the measure of current assets to current liabilities of the company. The ratio is
computed by the following formula and is expressed in terms of times:
32

Current Ratio= (Current Assets/ Current Liabilities)

Year
2008
2009
2010
2011
2012
Avg.

HUL
0.69
1.01
0.83
0.85
0.83
0.842

ITC
1.39
1.44
0.92
1.08
1.08
1.182

NESTLE
0.66
0.66
0.60
0.62
0.60
0.628

DABUR
0.94
1.40
1.03
1.23
1.28
1.176

COLGATE
0.80
1.01
1.10
1.12
1.09
1.024

1.4
1.2
1
0.8
0.6
0.4
0.2
0
HUL

ITC

NESTLE

DABUR

COLGATE

As shown in the Table 7, the CR of ITC, DABUR, and COLGATE. showed almost similar trend
during the study period. The average CR of ITC is greater than all other companies during the
entire study period. On an average, ITC has CR of 1.182 which is the highest, and NESTLE has
CR of 0.628 which is the least. This suggests that ITC is most efficient company in terms of
current ratio
8) Debt Equity Ratio (DER)
Debt equity ratios shows how much a company is leveraged (in debt), by comparing what is
owed to and what is owned. The ratio is calculated by the following formula and is expressed in
terms of times:
33

Debt Equity Ratio= Total Debt/Total Equity

Year
2008
2009
2010
2011
2012
Avg.

HUL
0.06
0.20
0.052

ITC
0.01
0.01
0.01
0.01
0.008

NESTLE
0.01
0.76
0.154

DABUR
0.03
0.18
0.14
0.23
0.20
0.156

COLGATE
0.02
0.02
0.01
0.01

0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
HUL

ITC

NESTLE

DABUR

COLGATE

As shown in the Table 8, the average DER of DABUR is greater than all other companies during
the entire study period. DER of DABUR is 0.156 which is highest and ITC with 0.008 DER is
the least. This suggests that DABUR is most efficient company in terms of debt equity ratio.

9) PB RATIO : This ratio expresses the relationship between the market price and book value of
a share. It is calculated as follows:
PB ratio= market price per share/book value per share
Company Name
HUL
ITC
NESTLE
DABUR

PB RATIO
33.37
12.85
36.40
17.36
34

COLGATE

43.74

45
40
35
30
25
20
15
10
5
0
HUL

ITC

NESTLE

DABUR

COLGATE

As shown in the Table 9, the PB of COLGATE is greater than all other companies during the
entire study period. PB of COLGATE is 43.74 which is highest and ITC with 12.85 PB is the
least. This suggests that COLGATE is most efficient company in terms of PB ratio.

10)Return on equity : it examines the profitability from the perspective of the equity investors
by relating profits available for the equity shareholders with the book value of equity
investments. It is calculated as follows:
Return on equity= PAT-Preference dividend/ net worth *100
With the help of these two ratios we can identify the overvalued and undervalued shares.
Company Name
HUL

ROE (in%)
87.2
35

ITC
NESTLE
DABUR
COLGATE

35.6
90.3
38.5
109

120
100
80
60
40
20
0
HUL

ITC

NESTLE

DABUR

COLGATE

As shown in the Table 10, the ROE of COLGATE is greater than all other companies during the
entire study period. ROE of COLGATE is 109 which is highest and ITC with 35.6 ROE is the
least. This suggests that COLGATE is most efficient company in terms of ROE ratio.
IMPLICATIONS
Industry Paradigms in 2020-The FMCG industry in 2020 will be characterized by:
Large Size: The Indian FMCG industry in 2020 is expected to reach a size of INR 3700
billionINR 5200 billion. As a major contributor to economic growth in the next decade it will
contribute close to 3 per cent of the GDP.
Increased Product Complexity: The market for FMCG products is becoming increasingly
heterogeneous with evolution of different consumer segments which have very different needs.
36

One product will not be able to successfully target all consumer segments and companies will
have to make very difficult choices. They will either focus on one / a few niche segment(s) or
straddle various consumer segments with a basket of product variants.
Evolving Consumers: Consumers are becoming more aware about products and associated
functions / benets. They are taking out time to learn more about the products they should
choose. This trend therefore can be expected to change buying behavior and consumption
patterns signicantly and rapidly.
Increased Competitive Intensity: Competition in the industry is expected to further intensify
with regional players targeting national expansion, and more global players targeting the Indian
Moderate operating costs
Presence of established distribution
networks in both urban and rural areas
Presence of well-known brands in FMCG
sector
Favorable government policies

STRENGHT

market.

Channel Evolution: The channel choices in the industry are expected to widen with increasing
penetration of organized retail and internet / B2C commerce. While FMCG companies will need
Lower scope of investing in technology
and achieving economies of scale,
especially in small sectors
Low exports levels
Counterfeit Products

to develop a detailed sales and marketing strategy for these channels, they will have to renew
focus on
traditional trade which will continue to retain its position as the dominant channel.
WEAKNESS

Environmental Concerns: With increasing pressure from government, NGOs, and consumers
untapped rural market
Rising income levels, i.e. increase in
purchasing power of consumers
Large domestic market- a population of
over one billion
Export potential
High consumer goods spending

for efficient and prudent use of environment and natural resources, the FMCG industry will need
to signicantly increase its efforts to drive sustainability as a core business strategy.

OPPORTUNITIE
S

Signicant among these factors are those that can force a complete break from existing

paradigms. In addition, the conuence of these change driversconsumers, technology,

Removal of import restrictions resulting

in replacement of
domestic brands
Slowdown in rural demand
Tax and regulatory structure

government policy, and channel partnerswill have a multiplier impact and magnify both the
magnitude
as well as the pace of change.
THREATS

As with any transformational change here too there will be winners and losers. Many product
categories will grow rapidly (30-40 per cent annually) given fast adoption rates across large
market. Other categories may mature and slow down to single digit growth rates. Similarly, the
37

competitive intensity will increase signicantly. There will be an urgency to grab a share of what
will, in ten years, be amongst the largest consumer markets of the world leading to a proliferation
of products and services. New leaders will emerge by leveraging tailored business models,
relevant products, nimble marketing, fast time-to-market, and efficient supply chains.

OPPORTUNITIES

Untapped Rural Market

Food-Processing Industry

Lack of Infrastructure and

storage facilities

38

 The fragmented and

Penetration level as well as

Huge shortage of

untapped huge rural market,

per capita consumption in most

infrastructure facilities and

which houses

product categories like jams,

storage facilities in

2/3rdof the total Indian

toothpaste, skin care, hair wash

rural areas of the country, which

population, is vital for the

etc in India is low, indicating

makes it difficult for FMCG

growth

the

companies to market their

of FMCG sector as a whole

untapped market potential

products

In order to reduce the

With 200 million people

Huge investments in

marketing costs and raise

expected to shift to processed

developing rural infrastructure

efficiency

and packaged food, India needs

and efficient

through van sales or by creating

around US$ 30 billion of

utilization of resources like our

rural supermarkets, the FMCG

investment in the food

coast line, solar energy and vast

companies should join forces in

processing industry

human resources is imperative

targeting the fragmented and

for FMCGs overall growth in

broken rural market

India

Government Policies & Regulatory Framework

39

Investment Approval: Automatic investment approval up to 100 per cent foreign equity
for NRI and overseas corporate bodies. These investments are allowed in food processing
segments such as coffee and tea

FDI in organized retail: India currently allows 100 per cent FDI in Cash &Carry segment
and 51% in single-brand retail, which is expected to be further increased to 100%. India
is also expected to allow 51% FDI in multi-brand retail, which will boost the nascent
organized retail market in the country

Priority Sector: The Government of India recognizes food processing and agro industries
as priority sectors

Relaxation of license rules: Industrial licenses are not required for almost all food and
agro-processing industries, barring certain items such as beer, potable alcohol and wines,
cane sugar, and hydrogenated animal fats and oils as well as items reserved for exclusive
manufacturing in the small-scale sector

Statutory Minimum Price: In October 2009, the government amended the Sugarcane
Control Order, 1966, and replaced the Statutory Minimum Price(SMP) of sugarcane with
Fair and Remunerative Price (FRP) and the State Advised Price (SAP)

CHAPTER -5 CONCLUSION& RECOMMENDATION

The burgeoning middle class Indian population, as well as the rural sector, presents a huge
potential for this sector. The FMCG sector in India is at present, the fourth largest sector with a
total market size in excess of USD 13 billion as of 2012. This sector is expected to grow to a
USD 33 billion industry by 2015 and to a whooping USD 100 billion by the year 2025

40

This sector is characterized by strong MNC presence and a well established distribution network.
In India the easy availability of raw materials as well as cheap labor makes it an ideal destination
for this sector. There is also intense competition between the organised and unorganised
segments and the fight to keep operational costs low.
This sector will continue to see growth as it depends on an ever-increasing internal market for
consumption, and demand for these goods remains more or less constant, irrespective of
recession or inflation. Hence this sector will grow, though it may not be a smooth growth path,
due to the present world-wide economic slowdown, rising inflation and fall of the rupee. This
sector will see good growth in the long run and hiring will continue to remain rob

RECOMMENDATIONS
By analyzing the industry on various parameters with the help of implementing Fundamental
tools we came to know that this industry has a lot of potential to grow in future. So
recommending to invest in FMCG Industry have no doubt is going to be a good and smart option
because this industry is booming like never before not only in India but all around the world. The
returns which came out of this industry were very impressive recently
41

Based on analysis of FMCG Industry the following are the worth considerations:
1. The investors who are risk averse may invest their capital in HUL as they have the
highest portion of self owned funds in their capitals structure.
2. The investors with long term perspective of investment should invest their riches in the
company which is registering high profit margins constantly. Nestle and
Colgate resolve this rationale of the investors.
3. An investor might analyze the resources and capabilities within each company to identify
those companies which are capable of creating and maintaining a competitive advantage.
4. Dabur has registered negative earning capacity in a year, high fluctuation in performance
and negative yield over its assets; therefore investment in the same should be avoided.

Fundamental analysis is good for long-term investments based on study of long-term trends. The
ability to identify and predict long term economic, demographic, and technological or consumer
trends can benefit the potential investors who pick the right industry groups or companies like
Colgate and Nestle. An investor should be familiar with the key revenue and profit drivers
behind a company. Earnings and earnings expectations can be potent drivers of equity prices. For
example if operating profit margin is higher it does not necessarily mean that it is good rather it
may also due to higher \idle stock
On the basis of the fundamental study undertaken two companies Colgate and Nestle out of the
five sample companies are better investment destinations.

BIBLIOGRAPGHY

1. David. L. Scott and William Edward, Ulzderstrrrldilzg and Managing lnz?estr~rerrt rlsk
and rettrrn, MC. Graw Hill Book Co. (U.K.) Ltd., London 1990.
2. Lewis Mandell, Inz?estnlerlts, Macmillan Publishing Company, New York, 1992.
3. L.C.Gupta., "Stock Trading in India", Society for Capital Market Research and
Development, Delhi, 1992.
42

4. Sunil Bamodar, An Introduction to Derivatives and Risk Management in Financial

Markets", State Bank of India, Monthly Review Vol. XXXII No. 8, August 1993.
5. Philippe Jorion & Sarkis Joseph Khoury, Fiiznncinl Risk Mnnngeiizeizt Doriresfic nnd
lr~ferr~ntio~~ol Diii~er~sioirs, Black Well Publishers, Basil Blackwell, Cambridge,
Massachusetts 1996.
6. V.T.Godse., "Conceptual Framework for Risk Management", I.B.A. B~~lletiil, July 1996,
p.22.
7. Mukul Gupta, "Looking Back, Looking Forward, Tlze Ecoizoi~iic Tiiiles, Vol. 39, No.
27, March 319' 1999, p.15.
8. Mitra. S. K., "It's roller coaster ride", Tlze Econoiiric Times, Daily, Vol. 40, No. 289,
December 11th 2000, p.11.
9. Ajay Jaiswal, "Is there light at the end of the tunnel" The Hindu, Daily, Vo1.8, No.35,
February 5th, 2001, p.14.
10. www.ibef.org
11. http://www.dinodiacapital.com/pdfs/Indian%20FMCG%20Industry,%20September
%202012.pdf
12. http://www.indiainfoline.com/
13. http://money.rediff.com/

APENDICES
LIST OF TABLE AND CHART

43

Pg. no.
Particulars
Contribution of various sectors to GDP

13

Trend Of GDP

14

Indias Position in the world

18

Segmentation of industry

19

Industry life cycle

21

Operating profit margin

44

Net profit margin

45

Earnings per share

46

Dividend per share

47

Dividend Payout ratio

48

Return on net worth

49

Current Ratio

50

Debt equity ratio

51

Price earning ratio

52

Market to book value ratio

53

Return on equity

54

44