TABLE OF CONTENTS

Sl. No. TOPIC PAGE NO.

1 Choice of Industry 4-8
2 Macro-Economic Variables Affecting the 9
FMCG Industry
3 Industry Characteristics 10-16
4 Cross Sectional – Financial Statements 17-24
Analysis
5 Working Capital Analysis 25-28
6 Vertical Analysis of Income Statement 29-30
7 Vertical Analysis of Balance Sheet 31-32
8 Cash Flow Analysis 33-36
9 Conclusion of Analysis 37
10 Data Sources 38-39
11 References 40

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 ABSTRACT
Financial Statements represent a formal record of the financial activities of an entity. These are written
reports that quantify the financial strength, performance and liquidity of a company. Financial
Statements reflect the financial effects of business transactions and events on the entity..

Financial statement analysis is the process of analyzing a company's financial statements for decision-
making purposes. External stakeholders use it to understand the overall health of an organization as
well as to evaluate financial performance and business value. Internal constituents use it as a
monitoring tool for managing the finances.

The purpose of this report is to analyze financial statements and accounting policies of the Fast Moving
Consumer Goods Industry in general and three key players namely: Marico, Dabur and Unilever in
specific.

Part (A) describes the reasons why these players and industry were chosen followed by
macroeconomic variables affecting the industry, trends and risks involved, industry characteristics,
generic business model, cost structure and the major accounting policies of the industry.

Part (B) showcases a cross sectional Financial Statement Analysis & comparisons between the three
key players – Marico, Nestle and Unilever with last 5 years of data. Along with this, their current
valuations, equity share data, income data, balance sheet, cash flow were also analysed and
interpreted.

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 1. Choice of Industry

1.1 Rationale behind selecting FMCG industry:

Fast-moving consumer goods (FMCG) sector is India’s fourth largest sector with household and
personal care accounting for 50 per cent of FMCG sales in India. This fourth largest sector of Indian
economy provides employment to around 3 million people which accounts for approximately 5% of
the total factory employment in the country. These products are daily consumed by each and every
strata of the society irrespective of social class, income group, age group etc. FMCG sector is more
lucrative because of low penetration levels, well established distribution network, low operating cost,
lower per capita consumption, large consumer base and fairly low capital investments for most
products.

1.2 Introduction to the sector

The FMCG Industry is briefly divided into the following segments:

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1.3 Growth Drivers
Some of the growth trends and indicators that make this industry interesting to study are as below:

1. Increasing Market Share & Consumption

Rural FMCG Market

FMCG Market inIndia (USD
India is Million)
expected to grow at a CAGR of 23.15% to reach to US $ 103.70 Billion
400 by FY 2021 from USD 68.38 Billion in FY 2018
200
23.63 220
100
0
FY 2018 FY 2020 (F) FY 20205 (F)

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 2. Attractive Opportunities

Rural FMCG Market India (USD

Million)
Increase in disposable income in Rural India
300
and low penetration levels in rural market
200 offers room for growth
220
100
23.63 100
0
FY 2018 FY 2020 (F) FY 20205 (F)

3. Policy Support

 Goods and Service Tax has been beneficial for the FMCG industry as many of the FMCG
products such as soap, toothpaste, hair oil now come under 18% tax bracket against the
previous 23-24%

4. Higher Investments

 Investments in this sector attract investors as FMCG products have demand throughout the
year. The Sector witnessed healthy FDI inflow of USD 16.28 Billion during April 2000 – March
2020

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1.4 Market Size and Evolution

FMCG is the 4th largest sector in the Indian economy. Growing awareness, easier access and
changing lifestyles have been the key growth drivers for the sector. Retail market in India is
estimated to reach US$ 1.1 trillion by 2020 from US$ 672 billion in 2016, with modern trade
expected to grow at 20 per cent - 25 per cent per annum, which is likely to boost revenues of
FMCG companies People are gracefully embracing Ayurveda products, which has resulted in
growth of FMCG major, Patanjali Ayurveda, with a m-cap of US$ 14.94 billion. The retail market
in India is estimated to reach US$ 1.1 trillion by 2020 from US$ 840 billion in 2017, with modern
trade expected to grow at 20-25 per cent per annum, which is likely to boost revenue of FMCG
companies. Revenue of FMCG sector reached Rs 3.4 lakh crore (US$ 52.75 billion) in FY18 and
is estimated to reach US$ 103.7 billion in 2020. FMCG market is expected to grow at 9-10 per
cent in 2020.

1.5 Investments & Developments

The Government has allowed 100 per cent Foreign Direct Investment (FDI) in food processing
and single-brand retail and 51 per cent in multi-brand retail. This would bolster employment,
supply chain and high visibility for FMCG brands across organized retail markets thereby
bolstering consumer spending and encouraging more product launches. The sector witnessed
healthy FDI inflow of US$ 16.28 billion during April 2000-March 2020.

Few of the recent developments in the FMCG sector are as follows:

In May 2020, Tata Consumer Products Limited (TCPL) acquired PepsiCo’s stake in Nourish Co
Beverages Limited.

In March 2020, Hindustan Unilever Limited (HUL) signed an agreement with Glenmark
Pharmaceuticals Ltd to acquire its intimate hygiene brand V-Wash.

In March 2020, Venture Catalysts made an investment in OM Bhakti, an organised brand in the
puja cotton-wicks market during its seed-funding round.

In November 2019, ITC Ltd acquired 33.42 per cent stake in Delectable Technologies, which is
a vending machine start-up.

Nestle plans to invest Rs 700 crore (US$ 100.16 million) to open a new plant in Sanand for Maggi.

ITC to invest Rs 700 crore (US$ 100 million) in food park in Madhya Pradesh.

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 Patanjali will spend US$743.72 million in various food parks in Maharashtra, Madhya Pradesh,
Assam, Andhra Pradesh and Uttar Pradesh.

The sector witnessed

healthy FDI Inflow of USD
16.28 Bn during March
2016-2020

1.6 Road Ahead

Rural consumption has increased, led by a combination of increasing income and higher aspiration
levels. There is an increased demand for branded products in rural India. The rural FMCG market
in India is expected to grow to US$ 220 billion by 2025 from US$ 23.6 billion in FY18.

On the other hand, with the share of unorganised market in the FMCG sector falling, the organised
sector growth is expected to rise with increased level of brand consciousness, augmented by the
growth in modern retail.

Another major factor propelling the demand for food services in India is the growing youth
population, primarily in urban regions. India has a large base of young consumers who form majority
of the workforce, and due to time constraints, barely get time for cooking.

It is estimated that India will gain US$ 15 billion a year by implementing GST. GST and
demonetisation are expected to drive demand, both in the rural and urban areas, and economic
growth in a structured manner in the long term and improved performance of companies within the
sector.

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2 Macro-Economic Variables Affecting the FMCG Industry:

The below table presents key variables that have direct impact on capital good market.

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3 Industry Characteristics

3.1 Major Players:

India is home to six million retail outlets, including 2 million in 5,160 towns and four million in
627,000 villages. Below are the few major companies:

1. Hindustan Unilever Ltd

Hindustan Unilever Limited is India’s largest fast moving consumer goods (FMCG) company
with a Historical presence in India of over 80 years. It is the largest in the list of top 5 FMCG
companies in India. Nine Out of ten Indian households use one or more of HUL Brands.
Divisions – Home Care, Beauty & Personal Care and Foods and Refreshment – includes a
portfolio of brands that serve consumers across the length and breadth of India.

2. ITC Ltd
Established in 1910, ITC Limited is a diversified conglomerate with businesses spanning Fast
Moving Consumer Goods comprising Foods, Personal Care, Cigarettes and Cigars, Branded
Apparel, Education & Stationery Products, Incense Sticks and Safety Matches; Hotels,
Paperboards, and Packaging, Agri-Business and Information Technology.

3. Nestle India Ltd

Nestlé is the world’s largest food and beverage company. The company has more than 2000
brands ranging from global icons to local favorites, and are present in 191 countries around
the world. After more than a century-old association with the country, today, NESTLÉ India
has a presence across India with 8 manufacturing facilities and 4 branch offices. It is the third
Largest in Top FMCG Companies in India

4. Britannia Industries Ltd

Britannia Industries is one of India’s leading Top FMCG Companies with a 100-year legacy.
Britannia is among the most trusted food brands and manufactures India’s favorite brands like
Good Day, Tiger, NutriChoice, Milk Bikis and Marie Gold which are household names in India.
Britannia’s product portfolio includes Biscuits, Bread, Cakes, Rusk, and Dairy products
including Cheese, Beverages, Milk, and Yoghurt.

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5. Godrej Consumer Products Ltd
Godrej Consumer Products is a leading emerging markets company. As part of the over 122-
year young Godrej Group. Godrej Consumer Products Ltd enjoys the patronage of 1.15 billion
consumers globally, across different businesses. It is fifth in the list of top 5 FMCG companies
in India.

6. Dabur India Ltd

The world’s largest and leading Ayurvedic and Natural Health Care company with 135 years
of rich heritage and experience. It is sixth in the list of top 10 FMCG companies in India 2019.
Business is divided into three Strategic Business Units, i.e., Consumer Care Business, Foods
Business, and International Business. Consumer Care Business covers interests in Health
Care and Home & Personal Care.

7. Marico Ltd
Marico Limited is one of Top FMCG Companies in India in the beauty and wellness sector. It
is seventh in the list of top 10 FMCG companies in India 2019. Over the last 25 Years, Marico
has established itself as a leading consumer goods company with a product portfolio spanning
across Haircare, Skincare, Edible oils, healthy foods, Male Grooming and fabric care. Brands
such as Parachute, saffola, Hair& Care, Nihar Naturals, true roots, Livon, Set Wet, Coco Soul,
kaya Youth.

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3.2 Players Selected
The players in the FMCG sector which we take into consideration are Marico, Unilever and Nestle.
These companies form the backbone of the Indian FMCG sector and have an annual revenue of
more than ~Rs 53,000 Crores jointly.

o Marico Limited

Marico Limited is one of Top FMCG Companies in India in the beauty and wellness sector. It
is seventh in the list of top 10 FMCG companies in India 2019. Over the last 25 Years, Marico
has established itself as a leading consumer goods company with a product portfolio spanning
across Haircare, Skincare, Edible oils, healthy foods, Male Grooming and fabric care. Brands
such as Parachute, saffola, Hair& Care, Nihar Naturals, true roots, Livon, Set Wet, Coco Soul,
kaya Youth.

o Dabur India Limited

The world’s largest and leading Ayurvedic and Natural Health Care company with 135 years
of rich heritage and experience. It is sixth in the list of top 10 FMCG companies in India 2019.

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 o Hindustan Unilever Limited:

It is India’s largest fastmoving consumer goods (FMCG) company with a Historical presence
in India of over 80 years. It is the largest in the list of top 5 FMCG companies in India. Nine
Out of ten Indian households use one or more of HUL Brands.

3.3 Generic Business Model of FMCG Industry

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3.4 SWOT Analysis

3.5 Key Industry Challenges

o Complex Distribution Network:

FMCG industry is characterized by a complex distribution network and intense competition

forcing firms to constantly work on supply chain innovation, which is great for consumers.
Companies with a structured supply chain system are bound to perform well, whereas those
with poorly managed supply chains will find it tough to even survive in this competitive market.

o Regulatory Constraints

Multiplicity permits and licenses for various states, prevailing outdated labor laws, and
cumbersome and lengthy export procedures are major constraints.

o Policy Framework

FDI into Retail sector (single-brand & multi-brand retail), License rules in setting up of Industry
are complex too.

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o Inflation:

Inflationary pressures alter the purchasing power of consumer which Indian economy is facing
in recent years.

o Complicated Tax Structure

Direct and indirect taxation policies in this sector keep constantly changing and cause a
challenge to this sector

o Marketing Challenge

The goals of marketing remain unchanged, but not the way in which these are reached. It is of
vital importance to understand that the customer journey and the new ways and opportunities
for connecting with the consumer are very different. Companies must make consumers
understand the importance of brands and know how to connect with them, using all available
channels

o Innovation.

Innovation ratios have been truly poor in recent years. Despite all of the difficulties, innovation
must be a key strategy for any company, we must invest in truly innovative products that entail
added value for categories and, especially, for consumers. The perception of innovation should
not only focus on the product or format, we must also think about transversal innovation.

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3.6 Major Accounting Policies followed by Marico
Some of the major accounting policies followed by Marico are as below:-

Revenue Recognition

•The sale of a product is recognized only when the risk and rewards of the ownership in the
product are passes on the consumer as per the terms of the contract. The company should not
retain any effective control over the product. The financial reports are generally prepared using
accrual accounting method.

Depreciation

•Depreciation is calculated using the straight line method to allocate the cost of Property, Plant &
Equipment, net of residual values, over their uselful lives.
•Intangible assets are amortised on a straight line basis over the estimated useful lives of the
respective assets

Inventories

•Inventories include raw materials, work in progress, packaging materials & spares, finished
goods. Cost of Inventories are calculated using weighted average method. Usually inventories
are valued at lower than value and net realizable value. The net realizable value is generally
estimated as the estimated selling price on the course of the business less the estimated loss of
completion and estimated cost necessary to make the sale

Trade Receivables, Loans and Advances

•The value of Trade receivables loans and advances are accounted after making necessary
adjustments with the provisions for doubtful balances.

Property, Plant & Equipment

•Property Plant & Equipment is recognised when it is probable that future economic benefits
associated with the item will flow to the group and cost of the item can be measured reliably.
The value is stated at its original cost net of taxes availed and less any accumulated
depreciation and impairment (if any)

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4 Cross Sectional – Financial Statements Analysis

In this part, a cross sectional Financial Statement Analysis & comparisons between the three key
players- Marico, Dabur & Unilever with last 5 years of data has been presented.

We are going to analyze following ratios for all the competitor firms –
A. Solvency Ratio
B. Liquidity ratio
C. Profitability Ratio
D. Capital Market Standing

A. Solvency Ratio

a. Debt to Equity Ratio

Debt-to-Equity Ratio
0.30 Year Mar Mar Mar Mar Mar
0.20 16 17 18 19 20
0.10 Marico 0.16 0.10 0.12 0.12 0.11
0.00
HUL 0.03 0.04 0.00 0.01 0.00
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20 Dabur 0.19 0.20 0.16 0.12 0.08
Marico HUL Dabur

Interpretation:
o HUL has reduced it dept to ZERO in 2020 and became a debt free company
o Dabur has also reduced its debt to equity ratio by reducing debt and raising money through
equity.
o Marico has high ratio in 2016 due to high debt and less equity base.
o From creditors point of view, preference will be HUL > Dabur > Marico

b. Liability To Equity Ratio

Liability to Equity Ratio

Year Mar Mar Mar Mar Mar
2.00
16 17 18 19 20
Marico 1.18 1.12 1.13 1.18 1.17
0.00
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20 HUL 1.20 1.23 1.23 1.28 1.32
Dabur 1.21 1.22 1.18 1.14 1.09
Marico HUL Dabur

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 Interpretation:
o Ratio depicts ability to pay for all liabilities with point equity valuation
o Ratio is constant for all 3 companies over last 5 years, as they have increased their
liabilities as well as equity base.
o For creditors view, less liability to equity ratio will be most favorable. Hence preference
in this case shall be – Dabur > Marico > HUL

c. Interest Coverage Ratio

Interest Coverage
400.00 Year Mar Mar Mar Mar Mar
16 17 18 19 20
200.00
Marico 50.9 70.3 70.8 32.4 28.5
HUL 355.5 185.8 282.0 261.7 78.7
0.00 Dabur 33.1 30.8 32.9 30.0 35.9
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20

Marico HUL Dabur

Interpretation:
o The lower the interest coverage ratio, the greater the company’s debt and the possibility
of bankruptcy.
o HUL interest coverage has decreased due to high interest payments in recent years.

B. Liquidity Ratio

a. Current Ratio

Current Ratio
2.500 Year Mar 16 Mar Mar Mar Mar
2.000 17 18 19 20
1.500 Marico 1.67 1.84 1.98 2.03 1.75
1.000 HUL 1.13 0.86 0.99 1.07 1.19
0.500 Dabur 1.38 1.38 1.46 1.44 1.66
0.000
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20

Marico HUL Dabur

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 Interpretation:
o All firms have current ratio >1 emphasizing that it can pay all its current short term
obligations & hence is favorable for short term creditors

b. Quick Ratio

Quick Ratio
1.500
Year Mar 16 Mar Mar Mar Mar
1.000 17 18 19 20
0.500 Marico 0.72 0.60 0.68 1.01 0.81
0.000 HUL 0.73 0.52 0.71 0.77 0.89
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20 Dabur 0.77 0.74 0.79 0.79 1.00
Marico HUL Dabur

Interpretation:
o All firms have quick ratios constantly increasing after 2017 indicating that firms are improving their
ability of settling current obligations
o Sudden fall in MARICO quick ratio in 2020 is due to reduction in current assets.

c. Inventory Turnover Ratio

Inventory Turnover Ratio

15.00 Year Mar 16 Mar Mar Mar Mar
10.00 17 18 19 20
Marico 5.11 4.42 4.30 4.61 4.64
5.00
HUL 9.41 10.16 11.17 12.05 11.35
0.00
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20 Dabur 6.20 5.56 5.24 5.35 5.27
Marico HUL Dabur

Interpretation:
o This ratio tells how fast you are able to move the inventory and turn it into cash. This ratio is
preferred to be as high as possible, as lower inventory level, greater the cash available to meet day
to day operating needs.

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 o Higher ratio for HUL shows that it is able to manage its inventory much better than MARICO and
DABUR.

d. Inventory Holding Period

Inventory Holding Period

100.000
Year Mar Mar Mar Mar Mar
80.000 16 17 18 19 20
60.000 Marico 71.44 82.59 84.91 79.13 78.64
40.000 HUL 38.79 35.93 32.67 30.29 32.16
20.000 Dabur 58.83 65.62 69.72 68.23 69.31
0.000
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20

Marico HUL Dabur

Interpretation:
o It is just the interpretation of Inventory turnover ratio, in terms of no of days the inventory stays with
the firm. Lesser is better.
o Here, Inventory holding period of HUL is roughly half as that of Marico and Dabur, which means
that HUL is highly efficient in inventory management and converting it to cash.

C. Profitability Ratios

a. Profit Margin

Profit Margin
20.00%
Year Mar Mar Mar Mar Mar
10.00%
16 17 18 19 20
Marico 12.01% 13.66% 12.04% 14.24% 12.95%
0.00% HUL 11.99% 12.56% 14.42% 15.42% 16.98%
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20 Dabur 15.94% 16.62% 17.52% 16.95% 16.64%
Marico HUL Dabur

Interpretation:
o This ratio tells us about the profitability of a company, how much profit it earns for every 1 Rs. of
sale.
o This ratio is expected to be as high as possible.
o Marico has less profit margin than DABUR and HUL

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 o HUL has improved its profit margins over the years.
o Sudden fall in MARICO quick ratio in 2020 is due to reduction in current assets.

b. Asset Turnover ratio

Asset Turnover
6.00
Year Mar 16 Mar Mar Mar Mar
4.00 17 18 19 20
Marico 2.59 2.39 2.50 2.48 2.29
2.00
HUL 5.26 4.42 4.20 4.13 3.81
0.00 Dabur 1.71 1.41 1.23 1.30 1.27
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20

Marico HUL Dabur

Interpretation:
o This ratio tells how good a firm is in utilizing its assets to earn revenue.
o Less ratio means assets are idle and company is not utilizing them properly.
o HUL has the highest ratio, which indicates it is able to utilize its assets much better than Marico
and Dabur.

c. Returns on Assets

Return on Assets
0.80 Year Mar 16 Mar Mar Mar Mar
0.60 17 18 19 20
0.40
Marico 0.31 0.33 0.30 0.35 0.30
HUL 0.63 0.56 0.61 0.64 0.65
0.20
Dabur 0.27 0.23 0.21 0.22 0.21
0.00
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20

Marico HUL Dabur

Interpretation:
o This ratio tells how efficient a company in making profits from its assets utlization is.
o This ratio is expected to be as high as possible.
o HUL has the highest ratio due to high profit margins and its ability to use the assets efficiently..

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d. Return on Equity

Return on Equity
Year Mar 16 Mar Mar Mar Mar
1.00 17 18 19 20
Marico 0.36 0.35 0.33 0.38 0.35
0.50
HUL 0.63 0.67 0.72 0.77 0.82
0.00 Dabur 0.30 0.26 0.24 0.26 0.22
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20

Marico HUL Dabur

Interpretation:
o It is the measure of profitability from the shareholders' point, as shareholder would like to earn max
profit on every rupee they invest in a company.
o This ratio should be as high as possible.
o Here again HUL has best ROE, which means shareholders are getting maximum retun by investing
in HUL
o This is also one of the reason why HUL share price has increased so much in last 5 years. It also
reflects the investors confidence in company..

D. Capital Market Standing

a. Price Earnings Ratio

P/E Ratio
Year Mar 16 Mar Mar Mar Mar
100.00 17 18 19 20
Marico 45.24 48.33 58.55 39.46 35.24
0.00 HUL 45.40 43.76 55.09 61.12 73.68
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20
Dabur 46.74 48.88 53.69 57.13 68.01
Marico HUL Dabur

Interpretation:
o P/E ratios are used by investors and analysts to determine the relative value of a company's shares
in an apples-to-apples comparison. Generally, a high P/E ratio means that investors are anticipating
higher growth in the future. Companies that are losing money do not have a P/E ratio . A low P/E
can indicate either that a company may currently be undervalued or that the company is doing
exceptionally well relative to its past trends. When a company has no earnings or is posting losses,

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 in both cases P/E will be expressed as “N/A.” Though it is possible to calculate a negative P/E, this
is not the common convention
o HUL has maximum P/E ratio because of investors confidence in it and its ability to make higher
profit which is evident for high ROE as well.

b. Price to Book Ratio

P/B Ratio
80.00 Year Mar 16 Mar Mar Mar Mar
60.00 17 18 19 20
Marico 12.33 12.73 13.64 12.67 10.04
40.00
HUL 29.91 30.27 40.79 48.16 61.81
20.00
Dabur 14.16 13.34 13.63 18.20 17.39
0.00
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20

Marico HUL Dabur

Interpretation:
o The P/B ratio measures the market's valuation of a company relative to its book value. P/B ratio is
used by value investors to identify potential investments. A lower P/B ratio could mean the stock is
undervalued. However, it could also mean something is fundamentally wrong with the company.
On the other hand high P/B means overvalued stock and investor should be cautious while
investing in such companies.
o Now, HUL has a P/B of 61 which is way higher than Marico and Dabur. One reason is that it has
high ROE, but one should ask whether its worth to buy a stock which is much overvalued.
o This also shows the speculative part of investor for company future. HUL has maximum P/E ratio
because of investors confidence in it and its ability to make higher profit which is evident for high
ROE as well.

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c. Dividend Yield Ratio

Dividend Yield
Year Mar Mar Mar Mar Mar
3.00% 16 17 18 19 20
2.00% Marico 1.85% 1.24% 1.13% 1.37% 2.37%
1.00% HUL 2.22% 1.87% 1.50% 1.28% 1.08%
0.00% Dabur 0.68% 0.63% 1.51% 0.59% 0.54%
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20

Marico HUL Dabur

o The dividend yield is an estimate of the dividend-only return of a stock investment. Assuming the
dividend is not raised or lowered, the yield will rise when the price of the stock falls, and it will fall
when the price of the stock rise. High dividend yield stocks are good investment options during
volatile times, as these companies offer good payoff options. They are suitable for risk-averse
investors. Marico has constant positive sloped graph of dividend yield emphasizing that the firm is
sharing its profit with shareholders constantly in terms of Dividend.
o While declining graph for HUL is due to the fact that instead of sharing the profit with shareholders
it is investing in expansion, which was evident form HUL cash flow for operating and investing
activities.

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5 Working Capital Analysis:

a. Debtors Turnover Ratio:-

o Debtors turnover ratio, is a ratio that is used to gauge the number of times a business is able
to convert its credit sales to cash during a financial year.This ratios indicate the efficiency
factor of the company in collecting receivables from its debtors and the speed at which they
are able to do it. These two ratios are largely used to indicate the liquidity position of the
company along with its efficiency with which operates. It also reflects the power the company
has to dictate credit terms.

o Higher debtor’s turnover ratio indicates faster turnaround and reflects positively on the liquidity
of the company. The faster collection would keep the company having the cash to pay off its
creditors and thereby reduce the working capital cycle for better working capital management.
Now let us compare this ratio for our selected companies for comparison:-

Debtors Turnover Ratio

6.000
5.000
4.000
3.000
2.000
1.000
0.000
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20

Marico HUL Dabur

From the above it is clear that HUL is managing its debtors better than Dabur and Marico as it is
having highest Debtors Turnover Ratio, however it is clear from the graph that for all the given
companies over the period of 4 years ratio are on downward trend this shows that companies
debtors realisability has come down over the period.

b. Debtors Holding period: -

o This ratio is expressed in terms of the number of days and represents the length of time taken
to convert debtors to cash.

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 This period is the time taken by the company to convert its credit sales to cash. This ratio is
calculated as ratio of 365 divided by Debtors turnover ratio.
o The lower the Debtors holding period the better is the company’s ability to covert its debtors into
cash. The lower debtors holding period indicates that company is able to convert its debtors into
cash in lesser time, which shows improves companies liquidity position and better management
of working capital

Now let us compare this ratio for our selected companies for comparison:-

Debtors Holding period

200.000

150.000

100.000

50.000

0.000
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20

Marico HUL Dabur

From the above it is clear that HUL is having lower Debtor Holding period than its peers, which
means that on an average HUL is able to realize its debtors in 13.60 days however Marico takes
23.92 days and Dabur maximum days to realize its debtors i.e takes 34.54 days.
Hence from the above it is clear that HUL’s management is of debtors are better than Marico and
Dabur.

c. Creditors turnover ratio:-

o The accounts payable turnover ratio is a liquidity ratio that measures how many times a
company is able to pay its creditors over a span of time.
o A high ratio may be due to suppliers demanding fast payments or the company taking advantage
of early payment discounts.
o A low ratio may be due to favorable credit terms or a worsening financial condition.
o Bargaining power plays a big role in the ratio. Companies with strong bargaining power are
given longer credit terms and hence, will have a lower accounts payable turnover ratio.

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o A higher ratio signals creditworthiness and is sought after by creditors.
Now let us compare this ratio for our selected companies for comparison:-

Creditors Turnover Ratio

6.000
5.000
4.000
3.000
2.000
1.000
0.000
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20

Marico HUL Dabur

From the above we can observe that creditor’s turnover ratio is least for HUL and Dabur which
indicates that HUL and Dabur has to pay its creditors less number of times a year.

d. Creditors Holding period:-

o Dividing 365 by the creditors turnover ratio results in the creditors Holding period in days,
which measures the number of days that it takes a company, on average, to pay creditors.
o A higher ratio signals creditworthiness and is sought after by creditors.

Now let us compare this ratio for our selected companies for comparison:-

Creditors Holding Period

200.000

150.000

100.000

50.000

0.000
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20

Marico HUL Dabur

27
From above it is clear that Dabur and having highest number of Credit Turnover Ratio which
shows their credit worthiness and thus market is willing them to give raw material on credit and
do not pressurize them to pay in shorter period and thus improving their working capital
management.

Conclusion and comment of working capital analysis of selected companies:-

From the above Ratio Analysis it is very clear that HUL manages its working capital very well by
keep its Inventory Turover Ratio and Debtor Turnover ratio higher and Creditor turnover ratio
lower.
It can aslo be infered from the analysis that HUL’s converision of Inventory into Sales and
Realization of Sales to on credit i.e Debtor’s realization is faster which means that it conversion
of raw material to cash takes very less time and thus improves its liquity, also its creditor turn
over ratio is on lower side which means that it can enjoy higher credit period from its creditors
and thus can utilize interest free money of creditors for growth of its business.

28
 6 Vertical Analysis of Income Statement

Following analysis has been computed keeping sales figures at 100% for the respective FY –

A vertical analysis is used to show the relative sizes of the different accounts on a financial statement.

Sale in Total Income Raw Material in Expenditure

102% 60%
100%
40%
98%
96%
20%
94%
92% 0%
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Mario Ltd Dabur (I) Ltd HUL Mario Ltd Dabur (I) Ltd HUL

Employee Cost in Expenditure Selling & Admin expense in

15% Expenditure
30%
10%
20%
5%
10%

0% 0%
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Mario Ltd Dabur (I) Ltd HUL Mario Ltd Dabur (I) Ltd HUL

Other operating expenses Net Profit

25% 20%
20% 15%
15%
10%
10%
5% 5%

0% 0%
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Mario Ltd Dabur (I) Ltd HUL Mario Ltd Dabur (I) Ltd HUL

29
 Interest Expense Depreciation Expenses
1% 3%

1%
2%
0%
1%
0%

0% 0%
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Mario Ltd Dabur (I) Ltd HUL Mario Ltd Dabur (I) Ltd HUL

Interpretation:
o It is observed that major source of income (more than 95%) for all the companies are from the
key business.
o The Major part of the expenditure for these companies are in raw material. Our observations
shows that, on an average, approximately 40% of the total expenditure (including the profit) was
on the procurement of the raw materials for the product. Any suitable influence on the prices of
the raw material hits the PL sheet of these companies at high scale. Therefore, efficiency of the
procurement departments plays a major role in net profit for these kind of industries.
o Employee cost is highest for Dabur (I) Ltd whose net proportion (~10%) is approximately twice
than HUL (~5%) and even higher than the Marico Ltd. On the contrary to this the cost for raw
material for the Dabur (I) Ltd is lowest among the three.
o Dabur (I) Ltd is also spending the least in Selling and admin expenses, which means that the
company is spending more for the beneficiaries of their employee. Their might be possibility that
spending on the training and other profile upgradation by the Dabur (I) Ltd helps it to manage to
control the expenditure on other verticals.
o Marico Ltd is spending the least proportion of their income (among the three) on operating
expenses other than raw material, manpower, selling and admin expenses and Dabur (I) Ltd is
spending the most. Spending on technical enhancement of the machinery, advance production
line, etc may be the reason for these type of expenses.
o Also, net profit proportion of the Dabur (I) Ltd is highest (on an average) among the three. From
the above points, it is observed that the company is spending more on employee beneficiaries
and technical enhancement and managing to cove these expenses by controlling the expenses
of other verticals like raw material, admin and selling expenses, etc.
o Interest and depreciation expenses for all the companies are more or less same, which are
between 0-2% of the total income. This shows that these companies are not tending towards
debt free status. Limited fixed assets or equipment is the main reason for less proportion of the
depreciation expenses.

30
7 Vertical Analysis of Balance Sheet

Following analysis has been computed keeping Assets or Liabilities at 100% for the respective FY:

Equity Net Block

80% 40%

60% 30%

40% 20%

20% 10%

0% 0%
Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Mario Ltd Dabur (I) Ltd HUL Mario Ltd Dabur (I) Ltd HUL

Inventories Current Assets

40% 80%

30% 60%

20% 40%

10% 20%

0% 0%
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Mario Ltd Dabur (I) Ltd HUL Mario Ltd Dabur (I) Ltd HUL

Current Liability Non Current Liabilities

60% 15%

40% 10%

20% 5%

0% 0%
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Mario Ltd Dabur (I) Ltd HUL Mario Ltd Dabur (I) Ltd HUL

31
 Cash & Equivalent Share Capital
30% 5%
4%
20%
3%
2%
10%
1%
0% 0%
Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Mario Ltd Dabur (I) Ltd HUL Mario Ltd Dabur (I) Ltd HUL

Interpretation:
o Dabur (I) Ltd had most of the liability portion as equity with increasing trends. This motivates the
investors to invest in this industry when comparing to the other, which was further supported by
the low share capital (2-3%) in the liability.
o Net block of all the three companies are on the same platform (between 20-30%), means the
cost of fixed assets are in this proportion for these type of companies.
o Inventory management is the part where Marico Ltd is lacking from the other two. Over inventory
also increases the warehouse cost which further impact the net profit.
o Major junk of the total assets are in current assets, therefore cash liquidity is easily available for
them.
o Current liabilities are favorable when compared with current assets, which means a reasonable
current ratio (as discussed earlier).
o Non-current liabilities are in between 5-15%, which is lowest (on an average) for the Marico Ltd.
As the major junk of the non-current liabilities are the long term debts, which justifies the fact
the Marico Ltd being the lowest among the current liabilities paid the least amount of interest.
o HUL have the most liquid form of the assets (Cash & cash equivalent) which means it is a cash
rich company. However, more cash equivalent is good for any industry but excess of the same
results in loss in the form of opportunity profit, in terms of investment of this cash.

32
8 Cash Flow Analysis

Cash Flow from Operating Activities

CFO
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20

Marico HUL Dabur

Cash Flow from Investing Activities

CFI
2000

1500

1000

500

0
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20
-500

-1000

-1500

Marico HUL Dabur

33
Cash Flow from Financing Activities

CFF
0
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20
-1000

-2000

-3000

-4000

-5000

-6000

-7000

-8000

Marico HUL Dabur

Cash and Cash Equivalents at Year end

Cash Ending
3500

3000

2500

2000

1500

1000

500

0
Mar 16 Mar 17 Mar 18 Mar 19 Mar 20

Marico HUL Dabur

34
Interpretation of the Cash Flows:

o Cash Flow from Operating Activities

Cash flow from operating activities (CFO) is an accounting item that indicates the amount of money a
company brings in from the ongoing regular business activities, such as manufacturing and selling
goods or providing service.
Cash availability allows a business the necessary options to expand, build and launch new products,
buy back shares to affirm their strong financial position, pay out dividends to reward and bolster
shareholder confidence, or reduce debt and save on interest. Analysts and investors look to cash
flow from operations to get important insights into the core of the cash-generating drivers of a company.
CFO for HUL is best and have increased by ~2X in past 5 years, which is much higher than the Marico
and Dabur which has ~1.5x. This gets reflected in the company share price also showing investors are
more confident and bullish on HUL than Marico and Dabur. HUL has given 2.7x return vs 1.8x return of
Dabur and Marico

o Cash Flow from Investing Activities

Cash flow from investing activities is an item on the cash flow statement that reports the aggregate
change in a company's cash position resulting from investment gains or losses and changes resulting
from amounts spent on investments in capital assets, such as plant and equipment.
All 3 companies are putting money (-ve CFI) to increase or asset base, which shows their positive
outlook towards he sector. HUL CFI shot up in 2020 due to higher sale of investment than the purchases

o Cash Flow from Financing Activities

Cash flow from financing activities (CFF) is a section of a company’s cash flow statement, which shows
the net flows of cash that are used to fund the company. Financing activities include transactions
involving debt, equity, and dividends.
Negative CFF numbers can mean the company is servicing debt, but can also mean the company is
retiring debt or making dividend payments and stock repurchases, which investors might be glad to
see.
HUL has high negative CFF due to higher dividend paid. In 2020, Marico increased the dividend paid
by ~2X, that’s why CFF also became negative by 2X while DABUR decreased dividend payment to
roughly half so its CFF improved. This can be seen in the amount of dividend paid by companies over

35
past 5 years.

o Net Cash and cash equivalent

All three companies has positive net cash which shows robust financial health of the companies, and
their ability to meet any liabilities in long run

36
9 CONCLUSION OF ANALYSIS

After computing cross –sectional analysis of financial statements pertaining to Marico, HUL and
Dabur, we found that even considering positive net profit of all three firms, HUL will be the first
choice for investment considering following notable points.

MANAGER`s point of view –

o HUL has highest Net Profit % i.e. 16.98% in comparison with Marico (12.95%) & Dabur (16.64%).
Moreover, HUL net profit in increasing consistently from past 5 years, which is not the case with
Marico and Dabur.

INVESTOR`s point of view –

o HUL has highest Return on Asset or Return on investment which gives measure of profitability
from given level of investment. ROA of HUL is 64.7 % against Marico (29.6%) & Dabur (21.2%)

SHAREHOLDER`s & POTENTIAL INVESTOR`s point of view –

o HUL has highest earning per share (EPS) i.e. 31.24 in comparison peer competitors Marico (7.91)
& Dabur (8.18)

CREDITOR`s & BANK`s point of view –

o HUL has highest Interest Coverage ratio of 78.669 against Marico (28.48) & Dabur (35.87).

Hence referring above analysis HUL is proposed be the first priority over Marico & Dabur for
investment purpose

37
10 DATA SOURCES

The Annual Reports Figures of Marico, Dabur and Unilever have been used to analyze and compare
the Cross Sectional Financial analysis data. The ratios and other are then referred and calculated in
attached Excel Sheet. Below is Summary snapshot of Balance Sheet, Income Sheet and Cash Flow
Sheet

BALANCE SHEET

38
INCOME STATEMENT

CASH FLOW

39
11 REFERENCES:

1. https://www.ibef.org/industry/fmcg.aspx#:~:text=Revenue%20of%20FMCG%20sector%20r
eached,to%20the%20overall%20FMCG%20spending
2. The Annual Reports Figures of Marico, Dabur and HUL are downloaded from
https://www-capitaline-com

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