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Performance Analysis of FMCG Sector in India

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International Journal of Business Analytics and Intelligence
6 (2) 2018, 12-23
http://publishingindia.com/ijbai/

Performance Analysis of FMCG Sector in India

Rosy Dhingra*, Kapil Dev**, Madhuri Gupta***

patterns are some of the important factors for driving the

Abstract
growth in this segment. Generation of demand from the
For the performance analysis of Fast Moving Consumer rural sector is one of the major contributors to this sector.
Goods (FMCG) industry, discriminatory power of financial
Government linked Indian rural sector growth with the
ratios are examined by using Wilks’ lambda and Multiple
growth of this sector. Recently rural areas contribute
discriminant function analysis. For this purpose sample
around 16% as against the 12% growth from urban sector.
of eighteen FMCG companies listed with Bombay Stock
Exchange is taken in to account. Market capitalization Companies are also making efforts to attract more and
is taken as basis for selecting these companies. Data more rural consumer by creating products according to
is collected for twelve years ranges from 1 April 2006 their market requirements. Government is also taking
to 31 March 2017. For effective implementation of various initiatives in order to improve the infrastructure
discriminant analysis, firstly average stock market in the rural areas. As with the ease of access in facilities,
returns are computed from the annual stock prices of the will give multiplier effect in the FMCG sector. As far
selected companies and average stock market returns as contribution from the urban sector, demand patterns
are classified in to three groups viz. ‘Market Under- are urban consumer has been changing with the rise in
Performers’, ‘Market Average-Performers’ and ‘Market income. With the increasing spending power consumer
Out-Performers’. It has been found that revenue from is shifting its demand to the premium products and
operations/share is the most important ratio and having
companies also started upgrading their premium product
impact to assess the company’s market performance.
range. Digitalization is also playing key role in growth of
Debt equity ratio and inventory turnover ratio having
this sector. Internet users are the major contributors to the
moderate impact in assessing the company’s stock
market performance of companies and dividend payout growth prospect. Government is also trying to make India
ratio is the ratio having less impact in assessing the as a digital economy. This sector is not only contributing
company’s stock market performance. to the growth of country GDP but also helping government
in the overall development of the country.
Keywords: Multiple Discriminant Analysis, FMCG,
Average Stock Market Return, Financial Ratios As FMCG is one of the fastest growing sectors. So,
many people seek opportunity to invest into the lap of
share market. But making investment in the stock market
Introduction is not always easy because of volatility in the stock
market. Investors do not have in depth information about
Indian economy is one of the world’s largest and fastest the changing market scenario; investor is able to access
growing economy. Indian businesses are promising about financial statements of the company and can execute
the growth of rural sector. Rural sector is contributing to the research about company through Internet. Lack of
growth of Fast Moving Consumer Goods (FMCG) sector. technical analysis always left investor in to dilemma for
According to the government survey, FMCG is the fourth making investment in the stock market. To overcome this
largest sector in India. FMCG market in India is estimated dilemma, investor tries to seek information from family
to grow by US$74 billion in 2018. Changing lifestyles, and friends and try to invest in the popular stock but this
new economic orders, changing consumer consumption kind of decision proves detrimental in the long run. It
*
Research Scholar, Department of Management Studies, I.K. Gujral Punjab Technical University, Kapurthala, Jalandhar, Punjab,
India. Email: [email protected]
** Assistant Professor, GGSD College, Chandigarh, India. Email: [email protected]
*** Associate Professor, Rayat Institute of Management, Chandigarh, India. Email: [email protected]
 Performance Analysis of FMCG Sector in India 13

is very difficult for the common man to make rational bankruptcy correctly in 94% of the initial sample with
investment decision for investing in the stock market. 95% of all firms in the bankrupt and non-bankrupt groups
There are many internal and external factors because assigned to their actual group classification.
of which investor will not able to follow a disciplined
investment approach. For making rational investment Khatri Kumar Dhanesh (2016), purposed the to develop
decision, lot of credit rating agencies like CARE, ICRA, a model for predicting corporate failure using financial
etc. provides information about the financial instruments, ratios on the principles of discriminant model. For
but no information is provided for equity investors. this purpose sample of two groups of stock broking
Availability of incomplete information left the investor companies/investment bankers are considered. Group
indecisive for analyzing risk and return relationship. After ‘A’ companies were labeled as ‘Healthy Companies’ and
analyzing all the information, if an investors had made group ‘B’ companies were labeled as ‘Sick Companies.
the right investment decision, than he started to time the 20 companies for Group A and 10 companies for Group
market and out of anxiety he ended up by panic selling. B listed with NSE for five years are identified. It has
This led to drain of his hard earned money. been seen that by applying the discriminant model to the
financial ratios of Lehman Brothers, Bear Sterns, and
This research paper will analyse the financial ratios and Freddie Mac, would have helped in raising an alarm about
discriminate the performance of FMCG companies on the the bankruptcy of these companies well in advance and
basis of Ratios. With the help of discriminant analysis, acted as ‘Whistle Blower.’
Stock market performance of FMCG companies can be
analyzed and classified as Marker Under-Performers, Ayinla S. Alayande and Adekunle Kehinde Bashiru
Market Average-Performers and Market Out-Performers. (2015), conducted study on the usefulness of discriminant
This paper is to test the discriminatory power of the ratios analysis for investigating on various aspects of multivariate
and differentiate companies’ performance. research problem. For this purpose component analysis
of the 30 ratio set used for the superior 17 and futile 13
firms in Nigeria considered both together and separately.
Review of Literature
It also developed a simple linear discriminant model
Theoretical and empirical research suggests financial for the identification of potential Nigeria bankrupt
ratios possess discriminatory power and having impact concerns which uses only accounting statement-based
on stock market performance of companies. financial ratios as variables. The derived model appeared
outperform than the previous model build concerning
Maricica Moscalu and Georgeta Vintila (2012) conducted
failed company in Nigeria. Since the model can exhibit
research on Business Failure Risk Analysis using
true ex ante predictive ability for a period of about 3 years
Financial Ratios. Purpose of this paper is to investigate
subsequent.
the predictive power of financial ratios for a sample of
Romanian listed companies. For this purpose t test is Taffler (1983) claimed there are only four out of eighty
applied and result shows financial ratios can discriminate potential useful ratios in evaluating the financial
between failed and non-failed companies especially with performance and financial condition of a company. Green
regard to profitability, financial position and leverage both (1978) stated that financial ratios have long been regarded
in 2010 and 2009. as barometers of corporate health, being used for reporting
liquidity, leverage, activity and profitability and that an
Altman I. Edward (1968), in his paper investigated the
investor may use financial ratios to appraise a company’s
relevance of economic and financial ratios for predicting
performance and its future prospect of success. Koh and
bankruptcy of sixty-six manufacturing concerns by using
Killough (1986) claimed it is not necessitated to have
multiple discriminant analysis. It had been found that
a huge number of ratios to predict business failures but
traditional ratios are not an analytical tool, while when
desirable is a set of dominant ratios derived from a larger
ratios are combined with discriminant analysis approach
set of correlated ratios.
than rations are considered to be important tool for
discrimination company’s performance. The discriminant- Banerjee Sougata and Pawar Sarwat (2013), the primary
ratio model proved to be extremely accurate in predicting objective of the study is to identify the potential
14 International Journal of Business Analytics and Intelligence Volume 6 Issue 2 October 2018

customers within the target segment of a brand which Jain Himmath (2003), the study aimed at identifying
will help the marketer to assess the market potentiality the financial ratio, which significantly discriminates
by identifying the consumer purchase intention. between Market Under-Performers, Market Average-
The secondary objectives include understanding the Performers and Market Out-Performers. Sample of 14
perception of the existing customers about the brand. For companies cement companies are taken for five years.
the study, researcher has chosen the brand Cherokee, an Six ratios are used to study the discriminatory power
Arvind Retail brand of kidswear, and the primary data of ratios. It was found that dividend payout ratio has a
was collected from Mega Mart Stores in Delhi. The power to significantly discriminate the Market Under-
study is based on primary data. Data is collected through Performers, Market Average-Performers and Market
questionnaire and for that sample of 100 people as taken Out-Performers. The other five variables (financial
as sample. It has been found that discriminant analysis is ratios) failed to discriminate across Market Under-
the useful tool for identifying the potential customer and Performers, Market Average-Performers and Market Out-
with the help of this analysis marketer to assess the real Performers. Fourteen companies from cement sector have
market positioning of a brand in terms of the customers’ been selected for five years. Chen and Shimerda (1981)
purchase intention. Also marketers can find the market claimed that there are too many (41 ratios) financial ratios
potentiality of their brand in a new market. to be helpful in evaluating the financial performance and
financial condition of a company.
Bhunia Amalendu (2011) aims to build up a model to
develop the predictive abilities for company failures in
Importance of Study
a later time frame with different financial, business and
operating conditions in the Indian context. A total of The study is to find the discriminatory power of ratios
sixty-four private sector pharmaceutical companies were and their impact on the stock market performance of
analyzed with sixteen financial ratios using multiple FMCG sector in India. This research will help investors
discriminant analysis. A strong discriminant function for taking rational investment decision and also for the
was constructed with seven ratios found to be significant government authorities for designing regulatory norms
in discriminating power and the classification results for the companies of FMCG sector. Moreover, it is also
showed high predictive accuracy rates of between 86% important to analyse the financial performance of the
and 96% for each of the five years prior to actual failure. companies for the investors, shareholders, management
This study also indicated that even with more advanced and Government.
statistical tools more popularly used recently, MDA is still
a very reliable and potent statistical tool. Research Objective
Ben Chin-Fook Yap, David Fie-Gun Yong, and Poona ● To examine and make a comparative analysis of per-
Wai-Ching (2010), purposed to develop a model to formance of selected FMCG companies.
improve the predictive abilities for company failures in ● To find out financial ratios, which have major im-
a later time frame with different financial, business and pact on company’s performance in stock market.
operating conditions in the Malaysia context. A total of
● To assess the discriminatory power of most signifi-
64 companies listed with Bursa Malaysia for ten years
cant ratios.
were analyzed with 16 financial ratios using multiple
discriminant analysis. A strong discriminant function
was constructed with seven ratios found to be significant Research Question
in discriminating power and the classification results The paper investigates the impact of important ratios on
showed high predictive accuracy rates of between 88% the FMCG company’s performance in the stock market.
and 94% for each of the five years prior to actual failure. With the help of this discriminatory power of most
This study also indicated that even with more advanced significant ratios can be assessed and Market Under-
statistical tools more popularly used recently, MDA is still Performers, Market Average-Performers and Market Out-
a very reliable and potent statistical tool. Performers can be explained.
 Performance Analysis of FMCG Sector in India 15

Hypotheses Discriminant Analysis

H0: A selected financial ratio does not discriminate among
Market Under-Performers, Market Average-Performers Discriminant analysis is used in social science research
and Market Out-Performers. which helps in finding the variables that can discriminate
two or more groups. (Altman, 1968) used discriminant
H1: At least one Selected financial ratio discriminate analysis in finance and predict corporate bankruptcy. R.
among Market Under-Performers, Market Average- A. Fisher (1936) developed the technique of discriminant
Performers and Market Out-Performers. analysis. This technique is helpful in studying the diff-
erences between or among groups. The main purpose of
Research Methodology discriminant analysis is to develop the linear combinations
of predictor variable, which will discriminate between the
Period of Study
categories of the depen-dent variable. With this researcher
The scope of the study is time specific. This study covers can easily exam-ine whether significant difference exist
period of twelve years ranging from April 1, 2006 to among the groups or not. Also accuracy of classification
March 31, 2017. For this purpose Annual stock prices are can be evaluated with the help of discriminant analysis.
taken in to account for specific period. The significance of discriminant analysis is to determine
the variables, which contributes for major portion of inters
Data Collection group difference. In discriminant analysis statistical value
of the variables discriminant coefficient for each of the
This research is based on secondary data. Secondary data significant variables is arrived at which is used to calculate
is collected from CMIE PROWESS database. Financial ‘Z Score’ for each of the observations as well as for each
information is collected from PROWESS database and of the groups. ‘Z Score’ of each of the groups is further
through published sources like annual reports from used to arrive at a benchmark score called ‘Cut Off Point’
Bombay Stock Exchange website and Money Control which serves the basis for assigning new individuals to
website. Other publications like journals, newspapers, one of the groups, assuming that it belongs to one of the
magazines, company’s websites helps in supplementing groups defined a priori.
the information so collected.
This paper will analyse the performance of FMCG
companies in India. Using multiple discriminant analysis
Sample Size
the companies are divided into three groups that are
Sample is selected on the basis of market capitalization. Market Under-Performers, Market Average-Performers
Eighteen private sector FMCG companies listed on and Market Out-Performers in stock market. With the
Bombay Stock Exchange are selected as sample. For help of discriminant analysis calculating discriminate
selecting sample, only those companies are selected score and cutoff rate.
which remain in BSE list for at least three years ranging
from 2010–11 to 2012–13. Procedure for using multiple discriminate analysis:

D= x+b1x1+b2x2+…..bnvn
Tools of Analysis
D=Discriminant Score
Companies are classified in to three categories Market
Under-Performers, Market Average-Performers and ‘x’ is the constant term, which is in the following table viz
Market Out-Performers in the stock market and multiple ‘Canonical Discriminant Function Coefficient’.
discriminant function analysis is used to analyse the
b1b2= are the discriminant function coefficient
selected company’s performance. Independent variable is
used in the form of financial ratios, to find their impact on v1v2=are the Predictor (independent variables)
stock market performance.
16 International Journal of Business Analytics and Intelligence Volume 6 Issue 2 October 2018

For analysis, set of variables to be used are identified and performers. With the help of this classification, weights in
then these variables are classified in to three groups that are the form of 1, 2 and 3 on the basis of average stock market
“Market Under-Performers, Market Average-Performers returns are assigned to each company in the sample. The
and Market Out-Performers” among the eighteen FMCG entire sample is classified in to three mutually exclusive
companies in India. Discriminant variable is none but categories.
Ratios are used and then by using ratios discriminant
coefficients can also be derived. Ratios can be obtained Table 1:  Categorization of Sample FMCG Sector
from the financial statements of the sample companies for Companies on the Basis of Average Stock Market
twelve years ranging from April 1, 2006 to March 31, 2017. Returns
Discriminant analysis is combined with financial ratios to
S.No Company’s Name Average Stock Performance
construct a model, which can be used for analyzing the
Market return Groups
performance of stocks of companies selected as a sample.
1. ITC 0.036576 1
2. Nestle India 0.175633 3
Procedure for Classification of Under Stock Market
3. Dabur 0.078561 1
Performers, Average Stock Market Performer and
4. Britannia 0.133007 2
Out Stock Market Performers of Selected FMCG
5. Procter and Gamble 0.217445 3
Companies in India 6. Marico -0.0469 1
A simple test is done for the classification of stock market 7. Colgate Palmolive 0.094251 1
performance of selected companies. Classification is 8. Godrej Consumer 0.172428 3
done on the basis of average stock market returns and for 9. Pidilite 0.181853 3
this unadjusted stock price is considered for calculating 10. Wipro -0.05973 1
returns on particular stock. To invalidate the effect of 11. Future consumer 0.352787 3
uncontrollable market factors on the stock price, adjusted 12. United breweries 0.163702 3
return is calculated in excess of stock specific return on
13. GlaxoSmithKline 0.224093 3
BSE Sensex. Selected sample companies are classified in
14. Emami 0.147403 2
to three categorical Groups.
15. Tata Global Bever- -0.075 1
● For categorical group One, Market “Under- ages
Performers”, Average market return must be below 16. United spirits 0.131517 2
10% of benchmark Index. 17. Jubilant Food works 0.14816 2
● For categorical group Two, Market “Average- 18. Himalaya Interna- 0.088413 1
Performers”, Average market return must be be- tional
tween 10% to 15% of benchmark Index.
● For categorical group Three, Market “Out- Wilks’ Lambda
Performers”, Average market return must be above Wilks’ lambda is multivariate statistic, which is used to test
15% of benchmark Index. the significance of the variable in discriminant function.
Which means, selected sample companies are divided Wilks’ lambda is used for stepwise approach. It is the ratio
in to three categorical groups, that is “One”, “Two” and of within-groups sum of squares to the total sum of squares.
“Three”, companies whose average stock market returns It plays the same role as F-Test plays in the one way of
are below 10% are classified under category “One” analysis of variance. Wilks’ lambda depicts the values of
and called them as “under” stock market performers, two or more variables. Wilks’ lambda is closed to zero,
companies whose average stock market return is between than that variable contributes to the discriminant function.
10% and 15% are classified under category “Two” and It can also be derived from 1- canonical correlation.
named as average-performers and companies whose Wilks’ lambda is a direct measure of the proportion of
average stock market return is above 10% to 15% are variance in the combination of dependent variables that is
classified under this category Three and named as Out unaccounted for by the independent variable (the grouping
 Performance Analysis of FMCG Sector in India 17

variable or factor). If a large proportion of the variance is that there is an effect from the grouping variable and that
accounted for by the independent variable then it suggests they have different mean values.

Table 2:  Wilks’ Lambda

Number of Exact F
Step Lambda df1 df2 df3
Variables Statistic df1 df2 Sig.
1 1 .816 1 2 213 24.052 2 213.000 .000
2 2 .723 2 2 213 18.670 4 424.000 .000
3 3 .682 3 2 213 14.810 6 422.000 .000
4 4 .650 4 2 213 12.638 8 420.000 .000

Wilks’ lambda shows the percent variance in dependent Summary of Canonical Discriminant
variables which is not explained by differences in levels
of the independent variable. Wilks’ lambda depicts the
Functions
values of two or more variables. At each step, the variable Canonical discriminant function reflects the joint
that minimizes the overall Wilks’ lambda is entered. contribution of the variables to the function (Rencher,
Table 2 presents univariate ANOVA which is carried out 1992). It does not show the effect of individual variable but
for the ratios in the form of predictor variable. SPSS has it shows the influence of individual variable in presence
grouped the data in to three groups that is Under, Average of the other variable. So, it is linear combination that
and Out performers. Observations are distributed in to separates group of observations. Canonical correlation
different groups by the group statistics. The function shows correlation between weighted linear composite and
indicates the first canonical linear discriminant function. multiple predictor variable.
In present study, it can be seen in Table 2, lambda shows
the values of each variables in the model, df3 shows Eigen Value
total number of observations that is 213 which is 99%
of the total observations viz. 216. 213 observations are Eigen value provides statistics of between and within
grouped in to three categories for discriminant analysis. group variability for the predictor variable. In simple
df1 shows the number of important predictor variables are words, Eigen value is linear mapping of distortion induced
used for discriminant function and df2 values shows the by the transformation. Eigen values are related with
numbers allocated to the predictor variables. On the other canonical correlations and explains the discriminating
side, F-statistic is used to test significance of MANOVA ability of function. The canonical correlation is the
and statistics shows that it is significant, as insignificant measure of association between the discriminant function
values are not considered by F-statistics. and the categorical. Percentage of variance in categorical
is explained by the square of canonical correlation
Wilks’ lambda tests the level of contribution of coefficient. The larger the Eigen value, the more is the
predictor variable to the model. The range of scale variance explained by that function in dependent variable.
for this is o to 1, 0 means total discrimination and one
means no discrimination. Smaller the Wilks’ lambda, Table 3:  Eigen Values
the more important is the variable to the discriminant
function. Wilks’ lambda is significant by the F test for Eigen % of Cumulative Canonical
all independent variable. F-statistics values are used to Function Value Variance % Correlation
test the significance and in table 2 it can be seen that 1 .392a 78.8 78.8 .531
these four predictor variable are significant and has the 2 .106 a
21.2 100.0 .309
discriminatory power, which helps in analyzing the stock
market performance of the companies. Table 3 shows that first 2 canonical discriminant
functions were used in the analysis. With the help of
18 International Journal of Business Analytics and Intelligence Volume 6 Issue 2 October 2018

SPSS, it can be seen that there are two functions; since Wilks’ Lambda that function one is to be considered for
there are three discriminating variables are used in the the further analysis.
research and number of functions depend on the number
of used discriminating variables. The maximum number Table 5:  Standardized Canonical Discriminant
of discriminant functions generated by the total number
Function
of groups minus one, here it can be 3-1=2 discriminating
functions. With the help of function best discriminant Function Coefficients 1 2
Revenue from Operations/Share (Rs.) .938 -.321
between the groups can easily be assessed. As already
stated Higher the Eigen value, better it is. Table 3, shows Total Debt/Equity (X) .435 .564

that function 1 Eigen value is greater than function 2 Dividend Payout Ratio (NP) (%) -.469 .169

and % of variance depicts the discriminating ability of Inventory Turnover Ratio (X) .007 .714
all the three groups. As there are two function and we
can see function one is higher % of variance than the Observing the Comparative Significance of
function 2, but cumulative % represents the current Each Predictor Variable
and proceeding cumulative total of the % of variance.
The standardized canonical discriminant function
Canonical correlations are the multiple correlations
coefficients Table 5 indicates the significant importance
between the predictors and the discriminant function. One
of each independent variable. The interpretation
is considered to be perfect value for canonical correlation,
of standardized coefficients is similar to multiple
Higher or closer to one considers being the best fit value
regressions. The standardized discriminant function
for the discrimination. Here, it can be seen that value for
coefficients should be used to assess the importance
the function 1 is higher than the function 2, but value for
of each independent variable’s unique contribution
function 1 is 0.531 is comparatively low from the ideal
to the discriminant function. More difference among
value one, but higher than the function 2.
coefficients of variables depicts that there might be
Table 4:  Wilks’ Lambda difference in mean among groups. With the help of
coefficients, it can be easily identified that which variable
Test of Wilks' Chi- bears more discriminating power than the other variable.
Function(s) Lambda square df Sig. Higher standardized discriminant coefficient means
1 through 2 .650 91.237 8 .000 higher discriminating power, that variable possesses. If
we analyse the values of function one, than revenue from
2 .904 21.234 3 .000
operations/share is the strongest predictor variable with
Wilks’ lambda is the proportion of the total variance in the the highest coefficient of 0.938, which is followed by total
discriminant scores not explained by differences among debt equity, inventory turnover ratio and dividend payout
groups. Table 4 shows the significance of Wilks’ lambda ratio. This shows that revenue from operations/share is
and significant values are 0.000 for both the function, the most significant ratio, bearing impact on stock market
which means that both the functions are significant. So, performance of FMCG sector selected companies.
we can use both the functions for analysis. For better
results Wilks’ lambda value should be smaller and Table 6:  Unstandardized Canonical Discriminant
function one value is smaller than the function Two. Coefficients
Small Wilks’ lambda occurs only when within group
Function
variability is small as compared to total variability. Chi- Function Coefficients 1 2
square value is also higher in function one as compare to
Revenue from Operations/Share (Rs.) .004 -.001
function two with the eight degree of freedom. Here, we
Total Debt/Equity (X) .522 .677
can see Wilks’ lambda is 0.650 and 0.904, which means
Dividend Payout Ratio (NP) (%) -.016 .006
that group means differ. Also here we can conclude from
Inventory Turnover Ratio (X) .000 .035
(Constant) -.465 -.676
 Performance Analysis of FMCG Sector in India 19

Unstandardized canonical discriminant function is Table 8:  Structure Matrix

used to calculate Z-score. Formulating discriminant
function on the basis of standardized canonical Function
discriminant coefficients. Since function 1 coefficients Function Coefficients 1 2
are used to ranking the variables because of their highest Revenue from Operations/Share (Rs.)
discriminating power. Coefficients of function 1 are also .735* -.361
used for calculating discriminant score. Book Value [ExclRevalReserve]/Share (Rs.)b .612* -.286
*
Dividend Payout Ratio (NP) (%) -.294 -.113
Procedure for using multiple discriminate analyses:
Retention Ratios (%)b .186* .141
D= x+b1v1+b2v2+…..bnvn b *
Return on Net Worth / Equity (%) -.122 .116
D=Discriminant Score
Net Profit Margin (%)b -.111* -.026
‘x’ is the constant term, which is in the following table viz EV/EBITDA (X)b -.093* .043
‘Canonical Discriminant Function Coefficient’. Current Ratio (X) b
-.063* -.030
b1b2= are the discriminant function coefficient Earnings Yieldb -.043* -.024
v1v2=are the Predictor (Independent variables)
The standardized canonical discriminant functions
Where, disclose the pooled within-groups correlations between
discriminating variables. With the help of structure matrix
D = -0.465 + 0.004 (Revenue from Operations/Share) +
correlations can be compared easily and can be assessed
0.522 (Total debt/Equity) -0.16 (Dividend Payout Ratio)
that how closely variable is related to each function.
+ 0.000 (Inventory Turnover Ratio).
Values of function 1 and 2 in structure matrix are
It can also be seen that unstandardized canonical computed by pooled within ‘groups’ correlations between
coefficients follows the same pattern as standardized discriminating variables and standardized canonical
coefficients. discriminant functions variables ordered by absolute size
of correlation with in function. Values with * represents
On the basis of above coefficients, following table shows the values which shows the largest absolute correlation
the ranking of significant predictor variable. between each variable and any discriminant function.’ b’
denotes the variables not used in the analysis. In present
Table 7:  Ranking of the Predictor Variables research it has been seen that there were eleven predictor
variables were considered and only four variables possess
Ranking of the Predictor Variable the discriminating power and having impact on the stock
Variable market performance of the selected sample companies.
1. Revenue from Operations/Share (Rs.) Structure matrix represents the correlations between the
2. Total Debt/Equity (X) observed variables and the dimensions created with the
3. Inventory Turnover Ratio (X) unobserved discriminant functions. Usually variables
4. Dividend Payout Ratio (NP) (%) correlation value 0.3 or more is considered significant. In
the structure matrix, it can be easily seen revenue from
Table 7 shows the ranking of the independent variables, operations/share, debt equity ratio plays significant role
according to their discriminatory power to analyse the in discriminant function analysis.
stock market performance of the companies. This ranking
is done on the basis of function one only, as function one Structure matrix reveals that pattern of variables in matrix
is more significant for analysis than the function 2 (ref. and pattern of variables in canonical discriminant function
Table 5 and 6). is same.
20 International Journal of Business Analytics and Intelligence Volume 6 Issue 2 October 2018

Table 9:  Functions at Group Centroids Centriod values of function 1 from performance group 1,
2 and 3 are -0.669, 0.967 and 0.116.
Function
Mean values 0.149 and 0.5415
Performance Group 1 2
1.0 -.669 .208 Table 11:  Classification Function Coefficients
2.0 .967 .336
3.0 .116 -.400 Performance Group
1.0 2.0 3.0
Table 8 represents standardized discriminant function Revenue from Opera-
evaluated at group means. Group centroids are called .000 .006 .003
tions/Share (Rs.)
canonical observation means. The extreme point to Total Debt/Equity (X) .639 1.579 .637
formulate the decision rule is centroids. A function at Dividend Payout Ra-
.052 .027 .036
group centriod indicates the average discriminant score for tio (NP) (%)
three performance groups. For classifying observations, Inventory Turnover
.045 .050 .024
predictive power of canonical discriminant function Ratio (X)
depends on the larger difference between the canonical (Constant) -2.574 -3.700 -2.369
group means.
It represents the Fisher’s linear discriminant functions.
Classification functions are called linear discriminant
Classification Statistics
function for each observations. Coefficients helps in
depicting the discriminatory power of the independent
Table 10:  Prior Probabilities for Groups variables and by comparing the coefficient values it can
be easily assessed that which variable plays important role
Performance Cases Used in Analysis
in analyzing the stock market performance of the sample
Group Prior Unweighted Weighted
selected companies. After analyzing the performance
1.0 .333 84 84.000
group coefficients, total debt equity ratio is the most
2.0 .333 48 48.000
significant ratio with the highest discriminating power due
3.0 .333 84 84.000
to higher coefficient 0.639 of Total debt equity ratio from
Total 1.000 216 216.000
the Group one and this is followed by dividend payout
The starting point of this research is the distribution of ratio (NP), inventory turnover ratio and revenue from
observations in to performance groups. Table 10, prior operations/share. If we analyse performance group 2 than
probabilities for groups shows the performance groups total debt equity ratio coefficient of 1.579 is highest and
and number of observations used for discriminant is followed by inventory turnover ratio, dividend payout
analysis. The total number of observations used for ratio (NP) and Revenue from operations/share. From
analysis are 216. Out of 216 observations 84 observations the performance group 3, 0.637 is the coefficient value
are allocated in performance group one, 48 observations for Total debt equity ratio is the highest among all other
are allocated in performance group two and lastly, 84 variables from the respective performance group. Overall
observations are allocated in performance group three. analysis of Fisher’s linear discriminant function shows
Centriod value is calculated with the help of weighted that total debt equity ratio in all the three performance
value. As under-performers, average-performers and out- groups plays significant role and having impact on stock
performers group are not equal, so dividing points need to market performance of FMCG companies. All these
be calculated. four ratios have the discriminatory power to analyse the
performance of FMCG sector in India.
The dividing rule:
Mean values of group centroids.
 Performance Analysis of FMCG Sector in India 21

Table 12:  Classification Results

Performance Predicted Group Membership

Group 1.0 2.0 3.0 Total
Original Count 1.0 62 3 19 84
2.0 14 32 2 48
3.0 30 17 37 84
% 1.0 73.8 3.6 22.6 100.0
2.0 29.2 66.7 4.2 100.0
3.0 35.7 20.2 44.0 100.0
a. 60.6% of original grouped cases correctly classified.

After observation from Table 12, 60.6% Data is correctly companies. Financial data for the companies are taken
classified in to three groups that is under-performers, from CMIE prowess and money control website and stock
average-performers and out-performers by discriminant market return data of selected companies is collected
function analysis. From the performance group one that from Bombay Stock Exchange. Data is collected for
is Market Out-Performers, there are 84 observations in twelve years ranges from 1 April 2006 to 31 March 2017.
total and out of these 84 observations, 62 observations are For effective implementation of Discriminant analysis,
correctly classified as ‘Market Under-Performers’, 3 and Firstly Average stock market returns are computed from
19 observations wrongly classified under performance the annual stock prices of the selected companies and
group 2 and 3. Similarly, In performance group 2 that is average stock market returns are classified in to three
‘Market Average-Performers’, there are 48 observations groups (Table 1) viz. ‘Market Under-performers’, ‘Market
in total and out of 48 observations, 32 observations are Average-Performers’ and ‘Market Out-Performers’.
correctly classified as Market average-performers, 14 and
2 observations are wrongly classified under performance As explained earlier, paper focuses on the finding the
group 1 and 3. Lastly, there are 84 observations in important sets of financial ratios, so financial ratios are
performance group 3 that is ‘Market Out-Performers’ taken as predictor or independent variable. With the help
and out of these 84 observations 37 observations are of ratios relationship between financial ratios and stock
correctly classified under performance group 3, 30 and returns can easily investigated. Group statistics shows
17 observations are wrongly classified under performance the distribution of observations in to three performance
group 1 and 2.60. 6% correctly classified data means that groups. It shows the identified predictor variables in
model is accurate and provide adequate results, which the form of ratios which are used for the discriminant
means the model has capacity to predict the performance analysis. Eleven ratios viz. book value, revenue on
of the company in the stock market. operations/share, net profit margin, total debt/equity
ratio, inventory turnover ratio, return on net worth/equity,
dividend payout ratio (NP), current ratio, retention ratios,
Conclusion
earning yield ratio, EV/EBITDA are taken in the form
The research is to examine and make the comparative predictor variable but only four ratios are used in analysis
analysis of selected companies and to find the important that are Total debt/equity ratio, inventory turnover ratio,
set of financial ratios which bears significant impact on dividend payout ratio (NP) and, revenue on operations/
FMCG companies listed with Bombay Stock Exchange share. To check the statistical significance of MANOVA,
in India, performance in stock market. For achieving F-statistic is used and Table 2 shows that F-statistics
the objective of this research paper, Wilks’ Lambda shows that it is significant, as insignificant values are
and multiple discriminant function analysis model is not considered by F-statistics. The model shows good
used. sample of eighteen FMCG companies listed with enough Eigen values after testing and it also shows the
Bombay Stock Exchange is taken in to account. Market significance of Wilks’ lambda and significant values are
capitalization is taken as basis for selecting these 0.000 for both the function, which means that both the
22 International Journal of Business Analytics and Intelligence Volume 6 Issue 2 October 2018

functions are significant. The analysis of the model shows Under- Performers’. Britannia, Emami, Jubilant Food
that 60.6% of original grouped cases correctly classified. Work and United Spirits are classified in to performance
Correctly classified data means that model is accurate group two that is Market Average-Performers and Nestle
and provides adequate results, which means the model India, Procter and Gamble, Godrej consumer Ltd, Pidilite,
has capacity to predict the performance of the company Future Consumer ltd, GlaxoSmithKline and United
in the stock market. standardized canonical discriminant Breweries are classified in to Performance group three
function helps in providing the ranking of the predictor that is Market Out-Performers.
variables according to their significance. From the
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