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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

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Analysis of FMCG sector


5.2.2 Effect on Share Price .................................................................................................................. 17
5.2.3 Dividend Policy ........................................................................................................................... 18
5.3 Godrej Consumer Products Ltd ......................................................................................................... 19
5.3.1 Dividend Payout ......................................................................................................................... 19
5.3.2 Effect on Share Price .................................................................................................................. 20
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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Analysis of FMCG sector


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

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Analysis of FMCG sector


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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Analysis of FMCG sector


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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Analysis of FMCG sector

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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Analysis of FMCG sector


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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Analysis of FMCG sector


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%
Britannia Industries Ltd

140.00%
120.00%

Marico Industries Ltd

100.00%
80.00%
60.00%

Godrel Consumer Products


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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Analysis of FMCG sector


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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Analysis of FMCG sector

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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Analysis of FMCG sector


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
Britannia Industries Ltd
Marico Industries Ltd
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
Britannia Industries Ltd

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FY11

FY12
Marico Industries Ltd

FY13
Godrej Consumer Products Ltd

FY14
HUL

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Analysis of FMCG sector

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
Britannia Industries Ltd
Marico Industries Ltd
Godrej Consumer Products Ltd
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

Britannia Industries Ltd


Marico Industries Ltd
Godrej Consumer Products Ltd

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.

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Analysis of FMCG sector


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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Analysis of FMCG sector


Britannia Industries Ltd
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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Analysis of FMCG sector

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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Analysis of FMCG sector


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

Annualised Dividend %
350.00%

100.00%

FY14

FY13

70.00%

66.00%

66.00%

FY12

FY11

FY10

5.2.1 Dividend Payout


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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Analysis of FMCG sector


Rs 1132 (FY14) Crores. For the same reason we may see that the company has debt while its
peers do not.
Marico Industries Ltd
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.
5.2.2 Effect on Share Price

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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Analysis of FMCG sector

5.2.3 Dividend Policy


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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Analysis of FMCG sector


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

Annualised Dividend %
525.00%

FY14

500.00%

FY13

475.00%

FY12

450.00%

FY11

425.00%

FY10

5.3.1 Dividend Payout


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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Analysis of FMCG sector


Godrej Consumer Products Ltd
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.
5.3.2 Effect on Share Price
It is very clear from the graph that the share price is independent of the dividend payouts.

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Analysis of FMCG sector

The company spreads out its dividends into interim dividends in each quarter
5.3.3 Dividend Policy
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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Analysis of FMCG sector


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

Annualised Dividend %
1850.00%

1300.00%

750.00%

FY14

FY13

FY12

650.00%

650.00%

FY11

FY10

5.4.1 Dividend Payout


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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Analysis of FMCG sector


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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Analysis of FMCG sector

5.4.2 Dividend Policy


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.

Group 8 - Section D

Page 24

Analysis of FMCG sector


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
Britannia Industries Ltd
Marico Industries Ltd
Godrej Consumer Products Ltd
HUL

Company
Britannia Industries Ltd
Marico Industries Ltd
Godrej Consumer Products Ltd
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

Analysis of FMCG sector


Inventory
Turnover

Company
Britannia Industries Ltd
Marico Industries Ltd
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
Britannia Industries Ltd

FY11

FY12
Marico Industries Ltd

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
Britannia Industries Ltd
20.69 12.33
6.09
3.09
Marico Industries Ltd
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

Analysis of FMCG sector

Cash Conversion Cycle


60
50
40

Britannia Industries Ltd

30
20

Marico Industries Ltd

10

0
-10

FY10

FY11

FY12

FY13

Godrel Consumer Products


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
Britannia Industries Ltd
Marico Industries Ltd
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

Analysis of FMCG sector

Receivable
Days
Company
Britannia Industries Ltd
Marico Industries Ltd
Godrej Consumer
Products Ltd
HUL

Payable
Days

Company
Britannia Industries Ltd
Marico Industries Ltd
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

Analysis of FMCG sector


7 REFERENCES

Ace Equity Database


www.moneycontrol.com
www.ibef.org
www.crisil.com

Group 8 - Section D

Page 29