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

3

Acknowledgement

4

Executive Summary

5

Chapter-1 Introduction

7

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 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. 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

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 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.

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 movingconsumer 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.

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 inrural Indiaand 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.

The top ten India FMCG brands are:

1. Hindustan Unilever Ltd.2. ITC (Indian Tobacco Company)3. Nestl India4. GCMMF (AMUL)5. Dabur India6. Asian Paints (India)7. Cadbury India8. Britannia Industries9. Procter & Gamble Hygiene and Health Care10. 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.

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 15-24 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.

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%.

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.

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 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 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 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.

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

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)

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.

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.

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)

TheEconomy ofIndiais theseventh-largestin the world bynominal GDPand thethird-largestbypurchasing power parity(PPP).The country is one of theG-20 major economies, a member ofBRICSand a developing economy among the top 20 global traders according to theWTO.

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 2013-14. 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)

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.

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

Investments

Following are some of the major investmentsand developments in the Indian consumer market sector.

Emami, the flagship company of the Rs 10,000 crore (US$ 1.61 billion) Emami Group, has acquired a controlling 66.67 per cent stake in Fravin of Australia along with its three subsidiaries. Emami International FZE, a subsidiary of Emami, was the special purpose vehicle for this first global acquisition by the group. This international acquisition marks Emami's entry into the fast growing natural and organic personal care segment and is in line with the company's strategy to be present in sectors with high-growth potential.

Indias Internet economy will grow to almost Rs 10 trillion (US$ 161.29 billion) by 2018, accounting for 5 per cent of the countrys gross domestic product (GDP), according to a report by the Boston Consulting Group (BCG) and Internet and Mobile Association of India (IAMAI). Indias Internet economy, which was about Rs 3.6 trillion (US$ 58.06 billion) in 2013, contributed 3.2 per cent to the GDP, the largest among the developing countries and sixth largest globally, the report said. About half the population, or 580 million Indians, will be online in the next three years, including people from all age groups, women and the rural population.

Custo Barcelona, the Spanish apparel brand of Custo Dalmau, has entered India. The brand has started its operations with two stores, in Delhi and Mumbai, and will then expand over a period. Its sale will be limited to exclusive outlets, and there will be no multi-brand retailing.

US-based semiconductor company Freescale that has R&D facility in India, said that it is enabling its partners to bring smart products to facilitate the government's Rs 1.13 trillion (US$ 18.22 billion) Digital India initiative. Freescale maintains digital networking and automotive R&D centres with a 1,000 strong employee base in Bengaluru, Hyderabad and Noida, and offers a plethora of reference designs to enable smart products that leverages sensors, processors and microcontrollers.

Government Initiatives

The Government of India has allowed 100 per cent FDI in the electronics hardware-manufacturing sector through the automatic route. It has also enabled 51 per cent FDI in multi-brand retail and 100 per cent in single-brand retail to attract more foreign Investmentinto the country.

Hyderabad will soon have a Rs 100 crore (US$ 16.12 million) National Institute for Footwear Design and Development. The Government of Andhra Pradesh has set aside the required land at Gachibowli in Cyberabad. Funds for the centre have been sanctioned by the Ministry of Commerce, India.

With the demand for skilled labour growing among Indian industries, the government plans to train 500 million people by 2022, and is encouraging private players and entrepreneurs investin the venture. Many government, corporate, and educational organizations are putting in the effort to train, educate and produce skilled workers.

Maintain tax stability in excise rates for cigarette/tobacco industry

FICCI has recommended that excise duty rates should be kept unchanged to leverage the tax efficiency of cigarettes by encouraging shifts from non-cigarette forms of consumption, which will maximize contribution to the exchequer, even in a shrinking basket of overall tobacco consumption. While GST on cigarettes should be levied at the uniform standard rate applicable to the general category of goods, with availability of input tax credit and central excise duty would continue to be levied, it is critical that the combined incidence of excise duty and GST on cigarettes remain revenue neutral. Further it has demanded that, excise duty evasion by small manufacturing units should be controlled through compulsory licensing [as required under the I (D&R) Act, 1951], stricter surveillance and harsher penalties to prevent revenue losses.

Increase availability of vegetable oils from domestic resources

To balance the demand and supply, country is compelled to import a large quantity of edible oils. India has become the largest importer of vegetable oils in the world, as during November, 2010 to October, 2011 (2010-11) country import were around 88/90 lakh tonnes of edible oil. Hence, FICCI in its pre-budget memorandum has demanded to increase the accessibility of vegetable oils from domestic resources by encouraging diversification of land from food grains to oilseeds, increasing productivity of oilseeds and fullest exploitation of nontraditional domestic sources.

Outlook

Overall increasing affluence and aspirations in the customers have fueled FMCG sector in India which is likely to grow in rapid pace over the years. A rapid urbanization, increase in demands, double digits increase in sales, profits galloping and well under check on costs in the FMCG sector has presented a picture of growth in the recent days. As per the emerging market scenario and overall macro-economic expectations the Reserve Bank of India (RBI) is expected to go for a reduction in interest rates to boost the sagging economy, improve demand momentum and investment climate. Market also expects RBI to reduce the cash reserve ratio (CRR) and the repo in the forthcoming monetary policy review and FMCG will turn out to be the biggest beneficiary of the same.

There is ample scope for all the FMCG companies as the per capita consumption of almost all products in the country is amongst the lowest in the world and the demand or prospect could be increased further if these companies can change the consumer's mindset, and offer new generation products. Traditionally, Indian consumers were using non-branded apparel, but today, clothes of different brands are available and the same consumers are willing to pay more for branded quality clothes. It's the quality, promotion and innovation of products, which can drive FMCG sectors. The sector has sustained a double digit volume growth in the second quarter despite the slowing global and domestic economy, the rise in demand has helped the companies to recover the margin drop and the trend is likely to continue. Product innovation in FMCG sector has picked up pace in the last few years and will act as a catalyst of growth for the sector in coming days. Also the implementation of the long delayed GST is likely to benefit the sector as they are considered as the progressive measures aimed at removing bottlenecks, though the unabated inflation will continue posing hindrance.

INDUSTRY ANALYSIS

INDUSTRY OVERVIEW

Fast Moving Consumer Goods (FMCG) goods, popularly named as consumer packaged goods, play a vital role as a necessity and as an inelastic product

The Indian FMCG sector is the fourth largest sector the economy with a total

market size of Rs. 167,100crs

The market is estimated to grow to US$ 100 billion by 2025, according to market research firm Nielsen

In the last decade the FMCG sector has grown at an average of 11% a year; in the last five years, annual growth accelerated to 17%

The FMCG Industry is characterized by a well established distribution network, low penetration levels, low operating cost, lower per capita consumption and intense competition between the organized and unorganized segments

FMCGs are slowly and gradually positioning and deeply penetrating in the fast growing rural market. The Rural mindset is open to consumption of newer, more contemporary food categories and as a result, drive consistent growth

Rural India accounts for more than 700 Million consumers or 70% of the Indian population and accounts for 40% of the total FMCG market

The Rural market is a large market space with very low organized player penetration. Across the globe, the Indian rural market is probably the single largest unit of opportunity

Also with changing lifestyle and increasing consumer demand, the Indian FMCG market is expected to cross $80 billion by 2026 in towns with population of up to 10 lakh

The sector has a tremendous opportunity for growth in India, with the growing population, the rising incomes, education and urbanization, the advent of modern retail, and a consumption-driven society

Market Break up of Indian FMCG Industry

(a) Fast Growing Sector

In 2005, the Rs. 48,000-crore FMCG segment was one of the fast growing industries in India. According to the AC Nielsen India study, the industry grew 5.3% in value between 2004 and 2005. The Indian FMCG sector is the fourth largest in the economy and has a market size of US$13.1 billion. Well-established distribution networks, as well as intense competition between the organized and unorganized segments are the characteristics of this sector. FMCG in India has a strong and competitive MNC presence across the entire value chain. The middle class and the rural segments of the Indian population are the most promising market for FMCG, and give brand makers the opportunity to convert them to branded products. Most of the product categories like jams, toothpaste, skin care, shampoos etc, in India, have low per capita consumption as well as low penetration level, but the potential for growth is huge.

Key Players in FMCG Sector:

1. Hindustan Unilever Ltd.

2. ITC (Indian Tobacco Company)

3. Nestl India

4. Dabur India

5. Colgate Palmolive

(b) Scope of the Sector

Industry Growth Drivers - Having matured in a decade of tremendous economic growth, the Indian FMCG industry is now ready to sustain that growth and forge ahead. There are three key forces at work within and outside the industry which drive this development.

Industry Life Cycle-Booz & Company analysis of consumption patterns across countries has revealed that most categories of consumer products tend to follow an S-curve of growth with the initial consumption driven by rich consumers and early adopters. At the trigger point though, the consumption becomes more wide-spread and then increases exponentially. Subsequently, the categories of consumer products mature as consumers move from a need-driven to a more want-driven consumption pattern. While the Indian GDP per capita is low, many Indian consumer segments which constitute rather large absolute numbers are either close to or have already reached the tipping point of rapid growth. This is true for many categories of consumer durables, beauty and wellness goods, such as, skin-care products and even edibles such as packaged beverages, all of which have reported signicantly faster growth rates.

Macroeconomic Factors- Favorable macroeconomic drivers such as the growth in GDP, coupled with rising incomes, increased participation of women in the workforce and the tapping of the rural markets, are seen to be enabling growth in the FMCG sector.

GROWTH DRIVER

PAST GROWTH(2000-2010)

FUTURE GROWTH(2011-2020)

CONTRIBUTION TO FMCG

TRANSFORMATION

GDP Growth

7%

8-9%

Population Growth

1.5%

1.2%

Per Capita

INCOME GROWTH

-14% annual growth

(disposable income)

-Womens participation 34% in 2010

-15% annual growth

(disposable income)

-Womens participation closer to levels in developed nations

GOVERNMENT POLICY

-NREGA

-Farmer loan-waiver

GST

FDI

Right to Education

Food Security

Lifestyle Changes

-2.3% urbanization

-60% people in 15-59 age group in 2010

-2.5% urbanization

age profile

-More up-trading in urban and rural areas

These are elaborated upon below:

The Indian economy is expected to overtake UK in the coming decade, with GDP growth ranging between 8-10 per cent.

India is expected to reach Chinas current population gure of 1.4 billion by 2020.

Per capita incomes supported by various government schemes and policies are expected to rise in both rural and urban areas. Participation of women in the Indian workforce is also likely to rise. Estimates suggest that if it increases to approximately 70 per cent (as in the developed nations), it will further boost GDP growth by 2-3 per cent.

Favorable government policies such as the introduction of GST can be expected to substantially decrease supply chain costs. Increased FDI in multi-brand retail may open up a large channel for sales. Other policy measures such as lower income taxes, the Food Security Act, Right to Education, infrastructure schemes etc have also acted as enablers of higher consumption.

Factor favoring India to Get Competitive Edge

The following factors make India a competitive player in FMCG sector:

(i) Availability of raw materials: Because of the diverse agro-climatic conditions in India, there is a large raw material base suitable for food processing industries. India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew and is the second largest producer of rice, wheat and fruits &vegetables. India also produces caustic soda and soda ash, which are required for the production of soaps and detergents. The availability of these raw materials gives India the location advantage.

(ii) Labor cost comparison: Low cost labor gives India a competitive advantage. India's labor cost is amongst the lowest in the world, after China & Indonesia. Low labor costs give the advantage of low cost of production. Many MNC's have established their plants in India to outsource for domestic and export markets.

(iii) Presence across value chain: Indian companies have their presence across the value chain of FMCG sector, right from the supply of raw materials to packaged goods in the food-processing sector. This brings India a more cost competitive advantage. For example, Amul supplies milk as well as dairy products like cheese, butter, etc.

Analysis of FMCG INDUSTRY in India

The analysis of the FMCG sector of India is carried out on the basis of following:

(A) PEST ANALYSIS

Pest analysis of FMCG sector in India is carried out on political, economical, social and technological aspects. It is explained below:

(i) Political:

Tax exemption in sales and excise duty for small scale industiers.

Transportation and infrastructure development in rural areas helps in distribution network.

Restrictions in import policies.

Help for agricultural sector.

(ii) Economical:

The GDP rate of Indian economy is increasing every year. It is expected in future it would be better only in comparison with other countries.

Inflation rate is increasing across the world and India is also no exception. The government and Reserve Bank of India both are trying to control the inflation rate with the help of different measures.

Increase in disposable income has taken place due to higher GDP rate. The per capita income is increasing so the customers are having more income to spent for various reasons.

Indian FMCG sector recorded 16% sales growth in last fiscal year and it is expected it would further improve in the forthcoming years.

The FMCG sector is a 4th largest sector of Indian economy with market size of more than 60,000 crore. The Indian Territory is very large and number of customers is also very high.

(iii) Social:

Demographical analysis

Table : Demographical Analysis

Year

Total hhlds in mn

strivers

Achievers

Rich

2003

181

131

46

3

2013

231

96

124

11

The Indian culture, social & life styles are changing drastically. The total population is nearly 115 crores and population includes rich, poor, middle class, male, female, located in rural, urban and sub urban areas, different level of education etc.

(iv) Technology:

Technology has been simplified and available in the industry. Where technology is not available then it is brought from foreign countries to meet FMCG sector requirements.

Foreign players help in high technological development. With research and development facilities the new technologies are developed alone or with the help of foreign players.

B) PORTERS FIVE FORCES MODEL-

Threat of new substitutes: HIGH

Multiple brands positioned with narrow product differentiation

Companies entering a category / trying to gain market share compete on pricing which increases product substitution

Threat of new entrants- MODERATE

Low regulatory barriers

High competitive intensity requires large investments in brand building which deters small players

Bargaining power of consumers-LOW

High brand loyalty for someproducts, thereby discouraging customers product shift

Low switching costs

Aggressive marketing strategies induce customers to switch between products

Bargaining power of suppliers- Moderate

Prices are generally governed by international commodity markets,

making most FMCG companies price takers

Due to the long term relationships with suppliers etc., FMCG companies negotiate better rates during times of high input cost inflation

Rivalry among competitors- HIGH

More MNCs entering the country

Advertising spends continue to grow and marketing budgets as well as strategies are becoming more aggressive

C) SWOT ANALYSIS

.

D PRODUCT LIFE CYCLE

The industrial life cycle is a term used for classifying industry vitality over time. Industry life cycle classification generally groups industries into one of four stages: pioneer, growth, maturity and decline.

In the pioneer phase, the product has not been widely accepted or adopted. Business strategies are developing, and there is high risk of failure. However, successful companies can grow at extraordinary rates. The Indian automobile sector has passed this stage quite successfully.

In the growth phase, the product market has been established and there is at least some historical guide to ground demand estimates. The industry is growing rapidly, often at an accelerating rate of sales and earnings growth.

As the product matures, growth slows as penetration reaches practical limits. Companies began to focus on market share rather than growth. Industry demand tends to follow the overall economy, but the scope of growth of the fmcg sector is very much possible in India.

(e) Factors Affecting the Growth

Over the years, demand for consumer durables has increased with rising income levels, double-income families, changing lifestyles, availability of credit, increasing consumer awareness and introduction of new models. Products like air conditioners are no longer perceived as luxury products. The biggest attraction for MNCs is the growing Indian middle 127 class. This market is characterized with low penetration levels. MNCs hold an edge over their Indian counterparts in terms of superior technology combined with a steady flow of capital, while domestic companies compete on the basis of their well-acknowledged brands, an extensive distribution network and an insight in local market conditions. With companies opting for information technology a reduction in inventory levels and an improvement in the working capital cycle is likely. This will benefit companies by controlling costs and improving margins.

(f) Major Government Policies/Changes:

In the context of the positives and the negatives, investing in FMCG stocks is a tricky prospect. Given this, one has to be active with FMCG stocks and should book profits as soon as the targeted returns are reached. Unlike earlier times, nowadays, one cannot afford to buy an FMCG stock and forget about it for a long time. It is unlikely that the government's initiatives will boost the sector overnight. The ongoing price wars mean that company earnings will continue to be volatile. Hence, in the short term, one should look at individual companies' prospects rather than the overall sector's prospects. This means that it is better to leave mutual funds that concentrate on FMCG companies and instead buy shares depending upon the company. It is not necessary that an MNC will be better than an Indian company. One should look at a company's profile and analyze its prospects before investing in its shares .It is not that you will lose out by buying FMCG stocks. But, in buying an FMCG stock, it will be ideal to cash in during short bursts of activity.

COMPANY ANALYSIS

MAJOR PLAYERS

Strong FMCG Brands

Common Stock Comparable Analysis

STRONG FMCG BRANDS

1) HINDUSTAN UNILEVER LIMITED

2) INDIAN TOBACCO COMPANY

3) NESTLE

4) COLGATE PALMOLIVE

5) DABUR

Common Stock Comparison

(Rs. In Crs)

S.NO

COMPANY NAME

FINANCIALS AS ON

SHARE PRICE

Shares o/s on mar12

MARKET CAP

NET DEBT

EV

1

ITC(standalone)

31-Mar-12

226.85

781.84

177,360.96

(2,739.84)

174,621.12

2

Hul(consolidated)

31-Mar-12

409.90

216.54

88,600.40

(1,978.13)

86,622.27

3

Nestle(consolidated)

31-Mar-11

4602.85

9.54

44,378.71

798.20

45,176.91

4

Dabur(consolidated)

31-Mar-12

106.40

174.21

18,535.95

629.19

19,165.14

5

Colgate(standalone)

31-Mar-12

1116.00

13.60

15,176.80

(309.80)

14,867.00

COMPANY NAME

FINANCIALS AS ON

SHARE PRICE

Shares o/s on mar12

MARKET CAP

NET DEBT

EV

ITC(standalone)

31-Mar-12

226.85

781.84

177,360.96

(2,739.84)

174,621.12

Hul(consolidated)

31-Mar-12

409.90

216.54

88,600.40

(1,978.13)

86,622.27

Nestle(consolidated)

31-Mar-11

4602.85

9.54

44,378.71

798.20

45,176.91

Dabur(consolidated)

31-Mar-12

106.40

174.21

18,535.95

629.19

19,165.14

Colgate(standalone)

31-Mar-12

1116.00

13.60

15,176.80

(309.80)

14,867.00

COMPANY NAME

SALES

2012 2013E

EBITDA

2012 2013E

NET INCOME

2012 2013E

ITC

Rs.24,798.00

Rs.29,183.40

Rs.8,474.00

Rs.10,621.80

Rs.6,162.37

Rs.7,277.70

HUL

22,987.73

25,826.40

3,034.96

3,500.40

2,790.66

3,025.20

NESTLE

9,125.40

11,124.70

1,871.60

2,311.20

1,187.10

1,429.10

DABUR

5,305.42

5,960.30

890.17

1,044.90

644.11

759.40

COLGATE

2,623.85

3,051.30

509.14

691.30

446.47

514.50

COMPANY NAME

EBITDA

PAT

EV/SALES

2012 2013E

EV/EBITDA

2012 2013E

P/E

2012 2013E

ITC

34.17%

24.85%

7.04

5.98

20.61

16.44

28.78

24.37

HUL

13.20%

12.14%

3.77

3.35

28.54

24.75

31.75

29.29

NESTLE

20.51%

13.01%

4.95

4.06

24.14

19.55

37.38

31.05

DABUR

16.78%

12.14%

3.61

3.22

21.53

18.34

28.78

24.41

COLGATE

19.40%

17.02%

5.67

4.87

29.20

21.51

33.99

29.50

MEAN

MEDIAN

MAXIMUM

MINIMUM

17.09%

13.22%

3.98

3.61

7.04

1.32

3.40

3.22

5.98

1.13

23.72

23.91

29.20

19.85

18.72

17.64

24.75

16.34

30.92

31.75

37.38

22.46

26.26

24.84

31.05

21.44

PROFILES OF THE MAJOR PLAYERS

1) Indian Tobacco Company

Company Snapshot-

Incorporation Year 1910

Industry Group FMCG

Main Product Cigarettes

Board of Directors

Chairman Yogesh Chander Deveshwar

Exec. Director N Anand

Exec. Director P V Dhobale

Exec. Director K N Grant

Director A Baijal

Company Overview

ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports

It is the leading cigarette manufacturer based out of Kolkata with a 67% share of the market by volume and 83% by value

The company is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery ITC's Agri-Business is one of India's largest exporters of agricultural products

ITC is one of the eight Indian companies to figure in Forbes A-List for 2004, featuring 400 of "the world's best big companies". Forbes has also named among Asia's'Fab 50' and the World's Most Reputable Companies.

ITC Ltd products:

ITC is involved in different businesses and products of the company are following:

Cigarettes: ITC is the market leader in cigarettes in India and has a wide range of popular brands such as Insignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake in its portfolio.

Packaging: ITC's Packaging & Printing Business is the country's largest convertor of paperboard into packaging. It was set up in 1925 as a strategic backward integration for ITC's Cigarettes business. It offers a variety of value-added packaging solutions for the food & beverage, personal products, cigarette, liquor, cellular phone and IT packaging industries.

Hotels: ITC entered the hotels business in 1975 with the acquisition of a hotel in Chennai which was rechristened Hotel Chola. Today ITC-Welcomgroup with over 70 hotels is one of the foremost hotel chains in India.

Paperboards: In 1979, ITC entered the Paperboards business by promoting ITC Bhadrachalam Paperboards. ITC's Paperboards business has a manufacturing capacity of over 360,000 tonnes per year and is a market leader in India across all carton-consuming segments.

Greeting, gifting & stationery: ITC's stationery brands "Paper Kraft" & "Classmate" are widely distributed brands across India. The Paperkraft designer stationery range consists of notepads & multi subject notebooks in hard, soft covers & multiple binding formats including spirals, wiros etc. ITC's Greeting & Gifting products include Expressions range of greeting cards and gifting products.

Safety matches: ITC's brands of safety matches include iKno, Mangaldeep, VaxLit, Delite and Aim. The Aim is the largest selling brand of Safety Matches in India. ITC also exports premium brands to markets such as Europe, Africa and the USA.

Aggarbattis: ITC has launched Mangaldeep brand of Aggarbattis with a wide range of fragrances like Rose, Jasmine, Bouquet, Sandalwood, Madhur, Durbar, Tarangini, Anushri,Ananth and Mogra. Mangaldeep is also being exported to USA, UAE, Bahrain, Nepal, Singapore, Malaysia, Oman and South Africa.

Lifestyle retailing: ITC entered the Lifestyle Retailing business with the Wills Sport range of international quality relaxed wear for men and women in 2000. The Wills Lifestyle chain of exclusive stores later expanded its range to include Wills Classic formal wear (2002) and Wills Club life evening wear (2003). In 2002, ITC entered into the popular segment with its men's wear brand, John Players. In 2005, ITC introduced Essenza Di Wills, an exclusive line of prestige fragrance products.

Food: ITC made its entry into the branded & packaged Foods business in August 2001 with the launch of the "Kitchens of India" brand. In 2002 it expanded into Confectionery, Staples and Snack Foods segments. ITC's brand in Food category include: Kitchens of India, Aashirvaad, Sunfeast, Mint-O, Candyman, and Bingo!

Agri exports: ITC's International Business Division (IBD) is the country's second largest exporter of agri-products. ITC exports Feed Ingredients (Soyameal), Foodgrains (Rice, Wheat, and Pulses), Coffee & Spices, Edible Nuts, Marine Products, and Processed Fruits. 186

E-choupal: The e-Choupal model of ITC has been very effective in tackling the challenges posed by the unique features of Indian agriculture, characterised by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others. ITC's e-Choupal won the Stockholm Challenge 2006 award is for using information technology for the economic development of rural communities.

2) HUL

Company Snapshot

Incorporation Year 1933

Industry Group Household Care

Main Product Cosmetics, toiletries, soaps & detergents

Board of Directors

Chairman Harish Manwani

MD & CEO Nitin Paranjpe

Exec. Director Sridhar Ramamurthy

Exec. Director Gopal Vittal

Exec. Director Pradeep Banerjee

Company Overview

HUL, a 51% subsidiary of Unilever Plc, is the largest Indian FMCG company (excluding cigarettes) based out of Mumbai.

It has a portfolio of over 50 brands across categories such as soaps, detergents, foods, ice cream and water purifiers.

The key strengths of the company are an extensive distribution network (its products are available in over 6mn outlets), powerful brands (most of its brands are market leaders and straddle price segments), strong balance sheet, and high-quality management.

(ii) Prodcuts: Hindustan Unilever Limited also called Hindustan Lever Limited (HLL) was established in 1933 as Lever Brothers India Limited. Hindustan Lever Limited (HLL) is India's largest Fast Moving Consumer Goods Company, with a customer base of 2 out of every 3 Indian in the category of Home & Personal Care Products and Foods & Beverages. The company has combined volumes of about 4 million tonnes and sales of Rs.10, 000 crores. HLL is also one of the country's largest exporters; the Government of India has recognized HLL as a Golden Super Star Trading House. Some of HLL brands are:

Ice creams-Kwality Walls Ice Cream

Bath soaps include Hamam, Lifebuoy, Rexona, Lux, Liril, Moti Soaps, Breeze, Peers..

Tea leaves include Lipton Tea, Brooke Bond Tea, Bru Coffee.

Tooth pastes include Pepsodent, Close Up, 137

Detergents include cake and powders are Rin, Wheel Laundry Detergent, surf power, surf excel, excelmatic and surf blue.

Cosmetics include Pond cream, Ponds powder, Vaseline, Fair & Lovely, Lakm creans, Lakme powder, lipsticks etc.

Shampoos include Clinic Plus, Clinic All Clear, Sunsilk and Lux Shampoos

Cleaning material such as Vim, Ala Bleach, Domex, Pureit Water Purifier

Other items such as Kisan drinks and jams, Annapurna salts and many more items.

The Hindustan Lever Research Center (HLRC) was established in 1958, and now has facilities in Mumbai & Bangalore. HLRC has 200 highly qualified scientists and technologists, many of them with post-doctoral experience. HLL also runs various ambitious programmes like Shakti. Shakti's aim is to create opportunities for rural women thereby improving their livelihood and standard of living in rural sector. Shakti also includes health and hygiene education through the Shakti Vani Programme. The programme covers about 50,000 villages in 12 states. HLL's motive is to take this programme to 100,000 villages influencing the lives of over a 100 million rural Indians. HLL is also involved in running a rural health programme - Lifebuoy Swasthya Chetana. The programme aims to inculcate the hygienic practices among rural Indians to bring down the figure of diarrhea patients. It has already covered 70 million people in approximately 15000 villages of 8 states.

3)NESTLE

Company Snapshot

Incorporation Year 1959

Industry Group Food & Beverages

Main Product Dairy products

Board of Directors

Chairman & MD Antonio Helio Waszyk

Director Shobinder Duggal

Director Christian Schmid

Director Pradeep Baijal

Director Rakesh Mohan

Company Overview

Nestle, a 62.8% subsidiary of its parent Nestl S.A. of Switzerland, is Indias third largest consumer goods company after HUL and ITC Nestl India manufactures products of truly international quality under internationallyfamous brand names such as NESCAF, MAGGI, MILKYBAR, MILO, KIT KAT, BAR-ONE,MILKMAID and NESTEA

Nestle enjoys leadership position in its core categories such as baby foods, instantnoodles, and instant coffee

It enjoys a distinct advantage over competitors in the F&B space on account of its strong focus on developing products around the nutrition, health, and wellness platform, and a culture of renovation and innovation in its offerings, backed by strong parent support.

(ii) Products of Nestle India: Nestle India is one of the leading company in Indian FMCG sector. It is facing tough competition. Still it is maintaining it market position. It has developed many products and through research and development facilities, the company is having very innovative approach for further development of products. The major products of the company are milk products, beverages, chocolates and confectioneries. The list of products is appended below:

Milk products & nutrition

Beverages

Chocolates & confectionery

4)DABUR

Company Snapshot

Incorporation Year 1975

Industry Group Personal Care

Main Product Diversified

Board of Directors

Chairman Anand Burman (Dr.)

Vice Chairman Amit Burman

Exec. Director Pradip Burman

Exec. Director P D Narang

Director Mohit Burman

Company Overview

Dabur is one of Indias most trusted names and the worlds largest Ayurvedic and Natural Health Care Company and is the second largest FMCG company in India, in terms of Product portfolio.

Dabur has three divisions in India apart from its international operations :

First, The Consumer care division (CCD) offers a wide range of products in hair care,oral care, health supplements, digestives and candies, and baby and skin care products,based on ayurved

Second, The consumer health division (CHD) includes overthecounter(OTC) products, Asavs, and branded ethical, and classic products. The CHD division has been merged with CCD to leverage the companies distribution networks

The third, Dabur Foods Ltd produces fruit juices, cooking pastes, sauces, and items for institutional food purchases.

Products of Dabur:

Dabur offers the lowest price anywhere on the internet for the following product(s). The prices quoted anywhere on the website are inclusive of shipping. Dabur India Limited is the fourth largest FMCG (fast moving consumer goods) Company in India with interests in Health care, Personal care and Food products. Dabur's Ayurvedic Specialities Division has over 260 medicines for treating a range of ailments and body conditions-from common cold to chronic paralysis. Ayurveda is a holistic Indian system of medicine that uses a constitutional model. It works to provide a flexible guidance to attain a state of positive health. Its treatment and techniques is also flexible for people with health challenges. Ayurveda is derived from two Sanskrit root words: Ayu, which means Life, and Veda, which means the Knowledge. Thus Ayurveda refers to the Science of life.

Ayurveda is a fine blend of Science, Religion & Philosophy as well. We use the word religion to denote philosophical perceptions and discipline in conduct through which, the doors of perception open to all aspects of life. Through its scientific approach to human life, Ayurveda works to harness the intricate abilities of human body and mind. With its philosophical approach to human life, Ayurveda preaches us to recognize ourselves as miniscule component of this magnificent universe. The physiological and pharmacological concepts of Ayurveda are structured in "whole- someness". Therefore, the Ayurvedic description of "human body" and the "drugs" are dealt from a holistic plane. Even their "interface" is identified from a holistic perspective .It manufactures a variety of products and the products are listed below;

Dabur healthcare products

Hair care

Ayurvedic medicines

Soaps

5) COLGATE PALMOLIVE-

Company Snapshot

Incorporation Year 1937

Industry Group Household Care

Main Product Preparations for oral or dental hygiene

Board of Directors

Chairman D Samuel

Vice Chairman R A Shah

Deputy Chairman P K Ghosh

MD M V Deoras

Director P E Alton

Company Overview

Colgate, 51% owned by Colgate USA, is the largest oral-care company in India. Supported by a wide distribution network, it derives over 96% revenue from this category

The company's 51% stake is owned by the foreign promoters (colgate-palmolive group),around 26% by individuals and around 21% by institutional investors.

Colgate has also driven inorganic growth through acquisitions, namely Hindustan CibaGeigy Ltd, CC Health Care Products Pvt Ltd, Professional Oral Care Products Pvt. Ltd.,Advanced Oral Care Products and SS Oral Hygiene Prod

Colgate Palmolive is a market leader in the toothpaste segment with a market share of ~50% in India, but is seeing increasing competition from domestic players

Products of Colgate Palmolive Limited: The Company is manufacture different types of products taking care of most of the segment of the population. The list of products includes toothpastes, toothbrushes. Toothpowders, whitening products, kids products, mouth wash products, body wash, handwash , hair care, skin care, shaving creams, professional oral care and many other products. The list is givn below:

Toothpastes:

Toothbrushes:

Bodywash

Liquid handwash:

Other products

In company analysis the investor tries to predict the future earnings of the company because there is strong evidence that the earnings have a strong effect on the share prices. The level, trend and safety of earnings of a company, however depend upon a number of factors concerning the operations of the company.

The different issues regarding a company that should be examined are:

The Management

The Company

The Annual Report

Ratios

Cash flow

The Management:Management is the most important factor that should be first looked into in a company. The performance of a company is primarily dependant on the effectiveness of the management. Investors must check on the integrity of the managers, proven competence, rating among its peers, its performance at the time of adversity, its depth of knowledge, innovation and professionalism.

The Company: It is most important to understand the company because ultimately the profitability depends on the business it is into. Many factors are considered here including the products and services, its competitors, competitive advantage, market position, policies, etc.

The Annual Report: The annual report is the primary and most important source of information on a company. By law, this is prepared every year and distributed to the shareholders. It contains very important information relating to the performance of a company over a period of time.

The Annual Report is broken down into the following specific parts:

A) The Director's Report,

B) The Auditor's Report,

C) The Financial Statements, and

D) The Schedules and Notes to the Accounts.

A. The Directors Report

The Directors Report is a report submitted by the directors of a company to its shareholders, advising them of the performance of the company under their stewardship. A Directors Report is valuable and it gives information relating to the workings of a company, the problems it faces, the direction it intends taking, and its future prospects.

B. The Auditor's Report

The auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors. Auditors are required to report whether the financial statements presented do, in fact, present a true and fair view of the state of the company. The auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair. They are also required to report any change, such as a change in accounting principles or the non provision of charges that result in an increase or decrease in profits.

C. Financial Statements

The published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date, and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period.

Balance Sheet

The Balance Sheet details the financial position of a company on a particular date; of the company's assets (that which the company owns), and liabilities (that which the company owes), grouped logically under specific heads. It must however, be noted that the Balance Sheet details the financial position on a particular day.

Profit & Loss Account

The Profit and Loss account summarizes the activities of a company during an accounting period which may be a month, a quarter, six months, a year or longer, and the result achieved by the company. It details the income earned by the company, its cost and the resulting profit or loss. It is, in effect, the performance appraisal not only of the company but also of its management- its competence, foresight and ability to lead.

Cash flow

A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses). The net result shows whether there has been an excess or deficit of funds and how this was financed. Investors must examine a company's cash flow as it reveals exactly where the money came from how it was utilized. Investors must be concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration.

Ratios:

A ratio is an arithmetical expression of relationship between two variables of the financial statements. It helps in easy comparison. The comparison may be intra firm or inter firm. A glance at the ratios of the company gives the complete information about the company to an investor.

There are many ratios one can calculate and no single ratio can tell the complete story. Ratios are generally classified as:

(A) Liquidity Ratios:

Liquidity ratios are the ratios which are used to measure the short term liquidity position of a firm. Some of the commonly used liquidity ratios are Current Ratio, Acid Test Ratio, Absolute Liquidity Ratio, etc.

(B) Solvency Ratios:

These are the ratios that are used to measure the long term solvency position of a firm. These ratios are generally looked into by creditors of the companies. The common solvency ratios are Debt Equity Ratio, Proprietory Ratio, Interest Coverage Ratio, Fixed Charge Coverage Ratio, etc.

(C) Profitability Ratios:

The profitability ratios measure the overall profitability of a firm. Some of the common profitability ratios are Gross Profit Ratio, Net Profit Ratio, Operating Profit Ratio, Return on Equity, Return on Assets, Return on Investments, Return on Capital Employed, etc.

(D) Activity Based Ratios:

Activity Ratios measures the efficiency of a firm. These ratios are also called as performance ratios. Some of the commonly used ratios are Inventory Turnover ratio, Debtors Turnover Ratio, Fixed Assets Turnover Ratio, etc.

(E) Market Based Ratios:

These ratios are usually calculated using the values in the financial statements and the market value of the share. Some of the commonly used ratios are: Price Earnings Ratio, Dividend Yield Ratio, Market Price to Book value Ratio, etc.

Some important ratios that are considered in this project are:

Net Profit Margin:- The Net Profit Margin measures the relationship between Net Profits and Sales of a firm. This ratio is indicative of managements ability to operate the business successfully and expresses the cost effectiveness of the organization.

A high net profit margin would ensure adequate return to the owners as well as enable the firm to withstand adverse economic conditions like falling demand, rising costs, etc. while a low net profit margin has the opposite implications.

Debt-Equity Ratio:- This ratio is used to find out the long term solvency position of the firm.

This ratio serves of primary use to the creditors of the company. This ratio is also used by the investors to know their claim in the company.

Return on Equity:- This ratio expresses the profitability of a firm in relation to the equity shareholders funds.

This is the single most important ratio to judge whether the firm has earned satisfactory return to the equity shareholders or not.

Earnings Per Share (EPS):- This ratio measures the profit available to the equity shareholders on a per share basis, that is the amount they can get on every share held. It is the most widely used ratio by investors.

This ratio only shows the profits earned per share but the same amount is not received by the shareholders.

Price Earnings (P/E) Ratio:- The P/E Ratio reflects the price currently paid by the investor for each rupee of the reported EPS.

It measures the investors confidence in the firms future. The higher the ratio, the larger is the investors confidence in the firms future.

Dividend Per Share (DPS):- This ratio shows the profits that are paid to equity shareholders on a per share basis

The DPS is a better indicator than EPS as the former shows exactly what amount is received by the shareholders.

Dividend Payout Ratio:- This ratio measures the relationship between the earnings belonging to the equity shareholders and the dividends paid to them.

If the Dividend Payout Ratio is subtracted from 100 it shows the Earnings Retention Ratio, which shows the profits retained in the business.

Dividend Yield Ratio:- This ratio reflects the price paid by the investor for each rupee of the dividend paid.

This ratio is very significant from the point of view of those investors who are interested in dividend income.

Book Value Per Share:- Book value per share represents the claim of the shareholders on a per share basis. This ratio is sometimes used as a benchmark for comparison with the Market price per share.

RATIO ANALYSIS

1. Operating Profit Margin (OPM)

Operating profit margin indicates how effective a company is at controlling the costs and expenses associated with their normal business operation. This ratio is found out using the following formulae and in percentage terms:

Operating Profit Margin= (Operating profit/Total Revenues)*100

YEAR

ITC

HUL

NESTLE

DABUR

COLGATE

2008

31.57

14.95

19.50

18.60

18.09

2009

32.84

14.46

19.33

18.33

19.12

2010

33.02

15.74

19.74

19.17

24.14

2011

34.08

13.53

19.89

19.06

22.77

2012

35.55

15.03

20.83

17.54

21.52

Avg

33.412

14.742

19.858

18.54

21.128

As it is observed in the Table 1, among all the companies, ITC sustained the highest operating profit margin amongst all other companies during the study period followed by HUL, which has registered a reasonably higher margin during the period of review. OPM of M & M i.e. 33.142 is more than others. Amongst all HUL Ltd. has the lowest OPM i.e 14.742.This suggests that ITC is the most efficient company in terms of operating profit margin.

2) NET PROFIT MARGIN-

Net 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

HUL

ITC

DABUR

NESTLE

COLGATE

2008

-

21.43

14.76

14.60

14.87

2009

12.00

20.50

15.31

12.25

16.18

2010

12.32

21.65

14.99

12.68

20.54

2011

11.54

22.68

14.23

13.00

17.30

2012

12.02

23.70

12.15

12.75

16.27

Avg.

11.97

21.992

14.288

13.056

17.032

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

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

HUL

ITC

NESTLE

DABUR

COLGATE

2008

9.64

8.28

16.61

3.67

17.04

2009

11.45

8.65

55.39

4.32

21.34

2010

10.09

10.64

67.93

4.99

31.12

2011

10.68

6.45

84.91

2.71

21.34

2012

12.45

7.88

99.73

2.66

17.04

Avg.

10.862

8.38

64.914

3.67

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.

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

HUL

ITC

NESTLE

DABUR

COLGATE

2008

9.00

3.50

33

1.50

13

2009

7.50

3.70

42.50

1.75

15

2010

6.50

10.00

48.50

2.00

20

2011

6.50

4.45

48.50

1.15

22

2012

7.50

4.50

48.50

1.30

25

Avg.

7.4

5.23

44.2

1.54

19

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

HUL

ITC

NESTLE

DABUR

COLGATE

2008

131.80

49.45

89.50

47.86

98.24

2009

76.47

50.06

89.76

47.41

82.05

2010

75.20

109.63

83.52

46.86

75.08

2011

71.20

80.24

66.54

49.40

86.65

2012

69.99

66.35

56.74

56.81

88.50

Avg.

84.932

71.146

77.212

49.668

86.104

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)

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

HUL

ITC

NESTLE

DABUR

COLGATE

2008

122.97

25.99

98.99

61.58

142.84

2009

121.34

23.85

112.83

51.20

134.17

2010

85.25

28.98

112.68

58.04

129.78

2011

87.57

31.36

95.70

46.29

104.82

2012

76.62

32.88

75.47

37.09

102.54

Avg.

98.75

28.776

99.164

50.84

122.83

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 12