Institute for Integrated Learning in Management

Graduate School of Management.

FINANCIAL RATIO ANALYSIS

of

HUL WITH COMPETITOR

(DABUR INDIA)

Submitted To: Submitted By:

Prof. FMA Khan Rakesh Balani

IILM GSM

FT-11-1067

INDEX

INTRODUCTIONEXECUTIVE SUMMARYHISTORY OF HUL, DABUR. BALANCE SHEET OF HULBALANCE SHEET OF DABURRATIO ANALYASIS MEANING OF RATIO ANALYASISOBJECTIVE OF RATIO ANALYSISCLASSIFICATION OF RATIOCURRENT RATIO DEBT EQUTY RATIO PRICE EARNING RATIO IMPORTANCE OF RATIO ANALYSISPURPOSE OF RATIO ANALYSISINVESTOR PERSPECTIVEOUR RECOMENDATIONCONCLUSION

INTRODUCTION

To understand the information contained in financial statements with a view to know the strength or weaknesses of the firm and to make forecast about the future prospects of the firm and thereby enabling the financial analyst to take different decisions regarding the operations of the firm.

EXECUTIVE SUMMARY:

India’s consumer market is riding the crest of the country’s economic boom. India’s fast moving consumer goods (FMCG) sector is the fourth largest sector in the economy of India with a total market size in excess of US$ 13.1 billion. If we go by statistics, roughly around 73% of the Indian population lives in the rural areas- that’s a very large market. Many giant players, both foreign as well as domestic, are competing in the market with a view to capture it. The growing consumerism in India shows the rapid increase in Indian consumer purchasing power, it shows strengths and opportunity that lies in rural Indian markets especially for FMCG products. As a result of it we have opted to undergo analyzing the financial statements and on basis of it, we shall do a peer to peer analysis and compare their market position (HUL & DABUR ) in Indian FMCG Company having excellent distribution channel and deep rural reach in India

As the major part of the market is yet to be extracted completely, one needs to evolve a set of strategies and plans to tap the potential Indian consumer market.

To capture such a great opportunity, only good product and brand awareness will not be sufficient but proper distribution channel must be present in holistic approach. Thereby sufficing the need to assimilate the objectives of these companies as the objective of financial statements would be to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. Financial statements should be understandable, relevant, reliable and comparable as it gives a correlation about reported assets, liabilities, equity, income and expenses which are directly related to an organization's financial position.

Therefore, financial statements are intended to be understandable by readers who have "a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently."

HISTORY OF HUL DABUR INDIA

HUL

HUL works to create a better future every day and helps people feel good, look good and get more out of life with brands and services that are good for them and good for others.

With over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water purifiers, the Company is a part of the everyday life of millions of consumers across India. Its portfolio includes leading household brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall’s and Pureit.

The Company has over 16,000 employees and has an annual turnover of around Rs.19, 401 crores (financial year 2010 - 2011). HUL is a subsidiary of Unilever, one of the world’s leading suppliers of fast moving consumer goods with strong local roots in more than 100 countries across the globe with annual sales of about €44 billion in 2011. Unilever has about 52% shareholding in HUL. Hindustan Unilever Limited (HUL) formerly Hindustan Lever Limited (it was renamedin late June 2007 as HUL) is India's largest Fast Moving Consumer Goods company,touching the lives of two out of three Indians with over 20 distinct categories in Home &Personal Care Products and Foods & Beverages.

 These products endow the companywith a scale of combined volumes of about 4 million tones and sales of nearly Rs. 13718crores. touching the lives of two out of three Indians with over 20 distinct categories inHome & Personal Care Products and Foods & Beverages. The company¶s Turnover isRs. 20, 239 crores (for the 15 month period ± January 1, 2008 to March 31, 2009). HULis also one of the country's largest exporters; it has been recognized as a Golden Super Star Trading House by the Government of India. The mission that inspires HUL's over 15,000 employees, including over 1,300 managers, is to "add vitality to life." HUL meetsevery day needs for nutrition, hygiene, and personal care with brands that help peoplefeel good, look good and get more out of life. It is a mission HUL shares with its parentcompany, Unilever, which holds 52.10% of the equity. The rest of the shareholding isdistributed among 360,675 individual shareholders and financial institutions.

 

HUL's brands-like Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond's,Sunsilk, Clinic, Pepsodent, Close-up, Lakme, Brooke Bond, Kissan, Knorr -Annapurna,Kwality Wall's ± are household names across the country and span many categories- soaps, detergents, personal products, tea, coffee, branded staples, ice cream and culinary products. These products are manufactured over 40 factories across India. The operationsinvolve over 2,000 suppliers and associates. HUL's distribution network comprises about4,000 redistribution stocks, covering 6.3 million retail outlets reaching the entire urban population, and about 250 million rural consumers

DABUR:

Dabur India Limited is the fourth largest FMCG Company in India and has a turnover of approximately US$ 750 Million (Rs. 3417.1 Crore – FY 2010) & Market Capitalization of over US$ 3.5 Billion (Rs 15500 Crore), with brands like Dabur Amla, Dabur Chyawanprash, Vatika, Hajmola and Real. The company was started by a doctor Dr. S.K. Burman in 1884. The brand name Dabur is derived from the words ‘Da’ for ‘Daktar’ or ‘Doctor’ and ‘bur’ from Burman. From those humble beginnings, the company has grown into India’s leading manufacturer of consumer healthcare, personal care and food products. Over its 125 years of existence, the Dabur brand has stood for goodness through a natural lifestyle. An umbrella name for a variety of products, ranging from hair care to honey, Dabur is consistently ranked among India’s top brands. Its brands are built on the foundation of trust that a Dabur offering will never cause sdanyone slightest of harm. The trust levels that this brand enjoys are phenomenally high.In early 1900s, the next generation of Burmans took a conscious decision to enter the Ayurvedic medicines market and that led to the commercial start of Dabur. They set up a R&D center which paved way for the growth. In 1940 Dabur diversified into personal care products with the launch of its Dabur Amla Hair Oil which was a hit with Indian consumers. In 1949 it launched Dabur Chyawanprash and by 1970 launched Dabur Lal Dant Manjan. Dabur shifted its base to Delhi in 1972.

Hajmola was launched in 1978 and the candy version came in 1989 (another brand Swad had created the new market of digestive candies at that time) and soon became a huge success. In 1996 it entered processed foods market with Real Fruit Juice. The brand went on to become the biggest success of the company and in 1997  the Foods division was created, comprising of Real Fruit Juice and Homemade cooking pastes to form the core of this division’s product portfolio.

OVERVIEW OF DABUR

One of the largest FMCG company has a turnover of approximately US$ 750 Million (Rs. 3417.1 Crore – FY 2010)

Differentiated products-strong herbal and natural products and more than 120 year of experience.

Wide distribution network-covering 1.9 retail outlets and high penetration in urban and rural areas.

Brand strength-various strong brand in diverse categories. Mother brand Dabur has a strong image in customers mind.

Leading brand of Dabur India Ltd. Is vatika, anmol sarsono amla, dabur hajmola, dabur amla, dabur chyanprash and lal dant manjan, each brand having 100 crore turnovers.

Vatika hair oil and shampoo is the high growth brand of the company. Dabur honey is the market leader with over 40% market share in branded honey market. Dabur chayanprash is the largest selling ayuravedic medicine with over 65% market

share. In digestive tablets category hajmola is the leader with 75% market share. Dabur lal dant manjan has 35% of market share having top position in baby massage oil

market.

% of Dabur products in the market

Baby oil & skin care=7%

Home care=6%

Hair care=32%

Digestive & candies=9%

Health supplements=24%

Oral care=22%

SALES STRATEGY

Accenture proposed that Dabur improve its supply chain management, sales and distribution capabilities and use IT as a strategic enabler for its business strategy. From an IT perspective, Accenture recommended a two-pronged strategy: migration to a nimbler outsourcing model that would generate value through agility and support business initiatives and maintenance of its SAP enterprise resource planning (ERP) system. To bring these initiatives to life, Accenture assembled a team of highly skilled industry experts, as well as professionals with extensive SAP design and implementation experience. Working closely with Dabur, the Accenture team initiated a number of high-impact projects, including:-

Why Dabur has chosen as peers for Financial comparison with HUL

Dabur has chosen as their sales revenue is very close to HUL

Vitality of Company's financial performance through Financial Ratios

Financial Statement Analysis will help business owners and other interested people to analyse the data in financial statements to provide them with better information about such key factors for decision making and ultimate business survival

• To use financial statements to evaluate an organisation’s

– Financial performance

– Financial position.

• To have a means of comparative analysis across time in terms of:

– Intracompany basis (within the company itself)

– Intercompany basis (between companies)

– Industry Averages (against that particular industry’s averages)

• To apply analytical tools and techniques to financial statements to obtain useful information to aid decision making.

The commonly used tools for financial statement analysis is: Financial Ratio Analysis

BALANCE SHEET OF HUL:

Mar '12 Mar '11 Mar '10 Mar '09 Dec '07

12 mths 12 mths 12 mths 15 mths 12 mths

Sources Of Funds

Total Share Capital 216.15 215.95 218.17 217.99 217.75

Equity Share Capital 216.15 215.95 218.17 217.99 217.75

Share Application Money 0.00 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 3,296.11 2,417.30 2,364.68 1,842.85 1,220.82

Revaluation Reserves 0.67 0.67 0.67 0.67 0.67

Networth 3,512.93 2,633.92 2,583.52 2,061.51 1,439.24

Secured Loans 0.00 0.00 0.00 144.65 25.52

Unsecured Loans 0.00 0.00 0.00 277.30 63.01

Total Debt 0.00 0.00 0.00 421.95 88.53

Total Liabilities 3,512.93 2,633.92 2,583.52 2,483.46 1,527.77

Mar '12 Mar '11 Mar '10 Mar '09 Dec '07

12 mths 12 mths 12 mths 15 mths 12 mths

Application Of Funds

Gross Block 3,574.67 3,759.62 3,581.96 2,881.73 2,669.08

Less: Accum. Depreciation 1,416.88 1,590.46 1,419.85 1,274.95 1,146.57

Net Block 2,157.79 2,169.16 2,162.11 1,606.78 1,522.51

Capital Work in Progress 210.89 299.08 273.96 472.07 185.64

Investments 2,438.21 1,260.68 1,264.08 332.62 1,440.81

Inventories 2,516.65 2,811.26 2,179.93 2,528.86 1,953.60

Sundry Debtors 678.99 943.20 678.44 536.89 443.37

Cash and Bank Balance 510.05 281.91 231.37 190.59 200.11

Total Current Assets 3,705.69 4,036.37 3,089.74 3,256.34 2,597.08

Loans and Advances 1,314.72 1,099.72 1,068.31 1,196.95 1,083.28

Fixed Deposits 1,319.99 1,358.10 1,660.84 1,586.76 0.75

Total CA, Loans & Advances 6,340.40 6,494.19 5,818.89 6,040.05 3,681.11

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 5,688.44 6,264.21 5,493.97 4,440.08 4,028.41

Provisions 1,945.92 1,324.98 1,441.55 1,527.98 1,273.90

Total CL & Provisions 7,634.36 7,589.19 6,935.52 5,968.06 5,302.31

Net Current Assets-

1,293.96-1,095.00 -1,116.63 71.99 -1,621.20

Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.00

Total Assets 3,512.93 2,633.92 2,583.52 2,483.46 1,527.76

Contingent Liabilities 1,009.23 836.96 468.49 417.26 494.46

Book Value (Rs) 16.25 12.19 11.84 9.45 6.61

Source : Dion Global Solutions Limited

BALANCE SHEET OF DABUR INDIA:

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 174.21 174.07 86.76 86.51 86.40

Equity Share Capital 174.21 174.07 86.76 86.51 86.40

Share Application Money 0.00 0.00 0.14 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 1,128.28 927.09 662.48 651.69 441.92

Revaluation Reserves 0.78 0.00 0.00 0.00 0.00

Networth 1,303.27 1,101.16 749.38 738.20 528.32

Secured Loans 19.12 17.57 24.27 8.26 16.45

Unsecured Loans 254.15 235.78 81.80 130.72 0.24

Total Debt 273.27 253.35 106.07 138.98 16.69

Total Liabilities 1,576.54 1,354.51 855.45 877.18 545.01

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds

Gross Block 883.23 766.88 687.23 518.77 467.93

Less: Accum. Depreciation 297.90 269.32 236.28 210.45 189.77

Net Block 585.33 497.56 450.95 308.32 278.16

Capital Work in Progress 25.12 11.92 23.31 51.71 16.26

Investments 552.72 519.23 348.51 232.05 270.37

Inventories 528.57 460.58 298.44 261.72 201.15

Sundry Debtors 224.17 202.46 130.48 112.36 100.46

Cash and Bank Balance 261.20 26.08 48.80 32.16 67.36

Total Current Assets 1,013.94 689.12 477.72 406.24 368.97

Loans and Advances 603.61 461.81 348.94 455.65 206.94

Fixed Deposits 30.09 166.33 115.11 111.53 0.90

Total CA, Loans & Advances 1,647.64 1,317.26 941.77 973.42 576.81

Deffered Credit 0.00 0.00 0.00 0.00 0.00

Current Liabilities 695.70 539.05 471.73 381.87 345.16

Provisions 592.40 535.36 440.10 315.10 265.41

Total CL & Provisions 1,288.10 1,074.41 911.83 696.97 610.57

Net Current Assets 359.54 242.85 29.94 276.45 -33.76

Miscellaneous Expenses 53.83 82.95 2.74 8.64 13.95

Total Assets 1,576.54 1,354.51 855.45 877.17 544.98

Contingent Liabilities 1,337.82 1,075.89 173.48 174.15 171.24

Book Value (Rs) 7.48 6.33 8.64 8.53 6.11

Source : Dion Global Solutions Limited

RATIO ANALYSIS :

Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measurable factors (quantitative). This means crunching and analyzing numbers from the financial statements. If

used in conjunction with other methods, quantitative analysis can produce excellent results.

Ratio analysis isn't just comparing different numbers from the balance sheet, income statement, and cash flow statement. It's comparing the number against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future.

MEANING OF RATIO :

A ratio is one figure express in terms of another figure. It is a mathematical yardstick that

measures the relationship two figures, which are related to each other and mutually

interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is

an expression relating one number to another. It is simply the quotient of two numbers. It can be

expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as “so many

times”. As accounting ratio is an expression relating two figures or accounts or two sets of

account heads or group contain in the financial statements.

MEANING OF RATIO ANALYSIS :

Ratio analysis is the method or process by which the relationship of items or group of items in the financial statement are computed, determined and presented.

Ratio analysis is an attempt to derive quantitative measure or guides concerning the

financial health and profitability of business enterprises. Ratio analysis can be used both in trend

and static analysis. There are several ratios at the disposal of an analyst but their group of ratio

he would prefer depends on the purpose and the objective of analysis.

While a detailed explanation of ratio analysis is beyond the scope of this section, we will

focus on a technique, which is easy to use. It can provide you with a valuable investment

analysis tool.

This technique is called cross-sectional analysis. Cross-sectional analysis compares

financial ratios of several companies from the same industry. Ratio analysis can provide valuable

information about a company's financial health. A financial ratio measures a company's

performance in a specific area. For example, you could use a ratio of a company's debt to its

equity to measure a company's leverage. By comparing the leverage ratios of two companies,

you can determine which company uses greater debt in the conduct of its business.

A company whose leverage ratio is higher than a competitor's has more debt per equity.

You can use this information to make a judgment as to which company is a better investment

risk.

However, you must be careful not to place too much importance on one ratio. You obtain

a better indication of the direction in which a company is moving when several ratios are taken

as a group.

OBJECTIVE OF RATIOS

Ratio is work out to analyze the following aspects of business organization-

A) Solvency-

1) Long term

2) Short term

3) Immediate

B) Stability

C) Profitability

D) Operational efficiency

E) Credit standing

F) Structural analysis

G) Effective utilization of resources

ANALYZING COMPANY STATUS WITH CHARTS:

HUL RATIOS

Mar '12 Mar '11 Mar '10 Mar '09 Dec '07

Investment Valuation Ratios

Face Value 1.00 1.00 1.00 1.00 1.00

Dividend Per Share 7.50 6.50 6.50 7.50 9.00

Operating Profit Per Share (Rs) 15.38 12.34 12.82 13.60 9.54

Net Operating Profit Per Share (Rs) 102.33 91.18 81.45 94.06 63.75

Free Reserves Per Share (Rs) 14.94 11.04 10.70 8.30 5.45

Bonus in Equity Capital 60.92 60.98 60.36 60.40 60.47

Profitability Ratios

Operating Profit Margin(%) 15.03 13.53 15.74 14.46 14.95

Profit Before Interest And Tax Margin(%) 13.94 12.25 14.59 13.39 13.78

Gross Profit Margin(%) 14.04 12.41 14.70 13.50 15.86

Cash Profit Margin(%) 12.12 11.75 12.76 12.29 13.56

Adjusted Cash Margin(%) 12.12 11.75 12.76 12.29 12.90

Net Profit Margin(%) 12.07 11.56 12.29 12.09 12.58

Adjusted Net Profit Margin(%) 12.07 11.56 12.29 12.09 11.91

Return On Capital Employed(%) 93.08 102.47 106.78 118.59 138.72

Return On Net Worth(%) 76.62 87.57 85.25 121.34 122.97

Adjusted Return on Net Worth(%) 70.68 80.67 81.40 113.85 116.49

Return on Assets Excluding Revaluations 16.25 12.19 11.84 9.45 6.61

Return on Assets Including Revaluations 16.25 12.20 11.84 9.46 6.61

Return on Long Term Funds(%) 93.08 102.47 106.78 142.88 147.26

Liquidity And Solvency Ratios

Current Ratio 0.83 0.86 0.84 0.92 0.68

Quick Ratio 0.45 0.43 0.46 0.51 0.25

Debt Equity Ratio -- -- -- 0.20 0.06

Long Term Debt Equity Ratio -- -- -- -- --

Debt Coverage Ratios

Interest Cover 2,636.53 11,243.63 395.13 116.28 83.09

Total Debt to Owners Fund -- -- -- 0.20 0.06

Financial Charges Coverage Ratio 2,812.54 12,163.75 421.50 123.99 88.52

Financial Charges Coverage Ratio Post Tax 2,347.49 10,529.33 342.84 107.47 75.81

Management Efficiency Ratios

Inventory Turnover Ratio 9.93 7.91 8.99 9.26 7.20

Debtors Turnover Ratio 27.27 24.28 29.24 41.83 31.41

Investments Turnover Ratio 9.93 7.91 8.99 9.26 8.20

Fixed Assets Turnover Ratio 6.26 5.63 5.35 7.81 9.80

Total Assets Turnover Ratio 6.37 8.31 7.66 9.22 10.53

Asset Turnover Ratio 7.20 7.55 7.01 -- 5.64

Average Raw Material Holding 46.50 61.54 51.08 72.27 84.20

Average Finished Goods Held 29.08 35.15 32.05 34.18 29.81

Number of Days In Working Capital -21.06 -20.02 -22.62 1.58 -42.05

Profit & Loss Account Ratios

Material Cost Composition 52.90 53.29 50.67 55.50 54.34

Imported Composition of Raw Materials Consumed 12.53 19.20 18.61 21.65 16.67

Selling Distribution Cost Composition 16.75 19.35 18.35 15.98 15.56

Expenses as Composition of Total Sales 2.24 7.25 7.31 9.47 10.68

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 69.99 71.20 75.20 76.47 131.80

Dividend Payout Ratio Cash Profit 64.74 64.98 69.40 70.93 122.23

Earning Retention Ratio 24.13 22.71 21.25 18.50 -39.13

Cash Earning Retention Ratio 30.26 29.99 27.59 24.77 -28.52

AdjustedCash Flow Times -- -- -- 0.17 0.05

Mar '12 Mar '11 Mar '10 Mar '09 Dec '07

Earnings Per Share 12.45 10.68 10.09 11.47 8.12

Book Value 16.25 12.19 11.84 9.45 6.61

Source : Dion Global Solutions Limited

DABUR INDIA:

Mar '12

Mar '11 Mar '10 Mar '09 Mar '08

Investment Valuation Ratios

Face Value 1.00 1.00 1.00 1.00 1.00

Dividend Per Share 1.30 1.15 2.00 1.75 1.50

Operating Profit Per Share (Rs) 3.79 3.59 6.34 5.10 4.51

Net Operating Profit Per Share (Rs) 21.58 18.81 33.05 27.84 24.23

Free Reserves Per Share (Rs) 5.41 4.02 7.14 6.84 4.33

Bonus in Equity Capital 93.34 93.41 87.10 87.35 87.46

Profitability Ratios

Operating Profit Margin(%) 17.54 19.06 19.17 18.33 18.60

Profit Before Interest And Tax Margin(%) 16.36 17.76 17.97 17.11 17.29

Gross Profit Margin(%) 16.56 17.91 18.06 17.19 17.37

Cash Profit Margin(%) 14.90 15.58 15.88 15.97 16.16

Adjusted Cash Margin(%) 14.90 15.58 15.88 15.97 16.16

Net Profit Margin(%) 12.17 14.27 15.03 15.44 15.06

Adjusted Net Profit Margin(%) 12.17 14.27 15.03 15.44 15.06

Return On Capital Employed(%) 40.51 44.16 61.62 47.98 67.51

Return On Net Worth(%) 37.09 46.29 58.04 51.20 61.58

Adjusted Return on Net Worth(%) 40.13 45.21 56.29 48.65 59.99

Return on Assets Excluding Revaluations 7.17 5.85 8.60 8.43 5.95

Return on Assets Including Revaluations 7.17 5.85 8.60 8.43 5.95

Return on Long Term Funds(%) 43.91 53.79 68.96 55.29 68.93

Liquidity And Solvency Ratios

Current Ratio 1.15 0.99 0.93 1.19 0.91

Quick Ratio 0.85 0.78 0.68 0.99 0.58

Debt Equity Ratio 0.21 0.23 0.14 0.19 0.03

Long Term Debt Equity Ratio 0.12 0.01 0.02 0.03 0.01

Debt Coverage Ratios

Interest Cover 53.91 56.06 52.35 38.34 46.79

Total Debt to Owners Fund 0.21 0.23 0.14 0.19 0.03

Financial Charges Coverage Ratio 52.55 50.47 42.53 31.26 36.56

Financial Charges Coverage Ratio Post Tax 40.49 41.66 36.46 28.99 32.87

Management Efficiency Ratios

Inventory Turnover Ratio 7.19 8.65 11.31 10.94 12.52

Debtors Turnover Ratio 17.62 19.67 23.62 22.63 25.94

Investments Turnover Ratio 7.19 8.65 11.31 10.94 12.52

Fixed Assets Turnover Ratio 4.38 4.39 4.31 4.84 4.67

Total Assets Turnover Ratio 2.43 2.46 3.44 2.81 3.98

Asset Turnover Ratio 2.57 2.96 3.31 3.39 4.67

Average Raw Material Holding 86.17 63.26 52.96 45.18 45.68

Average Finished Goods Held 28.16 29.32 22.08 21.28 20.13

Number of Days In Working Capital 34.43 26.70 3.76 41.32 -5.80

Profit & Loss Account Ratios

Material Cost Composition 55.67 53.15 48.61 52.80 49.05

Imported Composition of Raw Materials Consumed 0.91 0.93 1.22 1.06 0.97

Selling Distribution Cost Composition 13.44 14.89 16.55 14.89 16.12

Expenses as Composition of Total Sales 4.44 4.09 4.31 4.56 4.49

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 56.81 49.42 46.86 47.41 47.86

Dividend Payout Ratio Cash Profit 49.74 44.32 43.13 43.74 43.54

Earning Retention Ratio 47.48 49.40 51.67 50.11 50.87

Cash Earning Retention Ratio 53.59 54.74 55.64 54.16 55.41

AdjustedCash Flow Times 0.48 0.49 0.23 0.36 0.05

Mar '12

Mar '11 Mar '10 Mar '09 Mar '08

Earnings Per Share 2.66 2.71 4.99 4.32 3.67

Book Value 7.48 6.33 8.64 8.53 6.11

Source : Dion Global Solutions Limited

COMPARISION WITH COMPETITORS:

HUL Dabur India Marico

Mar '11 Mar '11 Mar '11

Sources Of Funds

Total Share Capital 215.95 174.07 61.44

Equity Share Capital 215.95 174.07 61.44

Share Application Money 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00

Reserves 2,417.30 927.09 811.68

Revaluation Reserves 0.67 0.00 0.00

Networth2,633.9

21,101.16 873.12

Secured Loans 0.00 17.57 332.42

Unsecured Loans 0.00 235.78 220.07

Total Debt 0.00 253.35 552.49

Total Liabilities2,633.9

21,354.51 1,425.61

HUL Dabur India Marico

Mar '11 Mar '11 Mar '11

Application Of Funds

Gross Block 3,759.62 766.88 421.20

Less: Accum. Depreciation 1,590.46 269.32 198.74

Net Block2,169.1

6497.56 222.46

Capital Work in Progress 299.08 11.92 45.52

Investments1,260.6

8519.23 470.36

Inventories 2,811.26 460.58 454.22

Sundry Debtors 943.20 202.46 118.98

Cash and Bank Balance 281.91 26.08 13.95

Total Current Assets 4,036.37 689.12 587.15

Loans and Advances 1,099.72 461.81 369.93

Fixed Deposits 1,358.10 166.33 4.22

Total CA, Loans & Advances 6,494.19 1,317.26 961.30

Deffered Credit 0.00 0.00 0.00

Current Liabilities 6,264.21 539.05 242.07

Provisions 1,324.98 535.36 31.96

Total CL & Provisions 7,589.19 1,074.41 274.03

Net Current Assets-

1,095.00

242.85 687.27

Miscellaneous Expenses 0.00 82.95 0.00

Total Assets2,633.9

21,354.51 1,425.61

INTERPRETAION FROM ABOVE RATIOS:

PROFITABILITY RATIOS:

Profitability Measures assess the firm's ability to operate efficiently and are of concern to owners, creditors, and management

Return on Asset (ROA)

 ROA gives an idea as to how efficient management is at using its assets to generate earnings. 

Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage.

(Net Profit / Avg. Total Asset) * 100

Return on assets measures a company’s earnings in relation to all of the resources it had at its disposal (the shareholders’ capital plus short and long-term borrowed funds). Thus, it is the most stringent and excessive test of return to shareholders. If a company has no debt, the return on assets and return on equity figures will be the same.

Return on Equity (ROE)

The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.  

(Net Earnings/Share’s holder Equity) * 100

Gross Profit Margin (GPM)

It gives a good indication of financial health. A financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.

(Gross Profit/ Net Sales) * 100

Net Profit Margin (NPM)

This number is an indication of how effective a company is at cost control. The higher the net profit margin is, the more effective the company is at converting revenue into actual profit. The net profit margin is a good way of comparing companies in the same industry, since such companies are generally subject to similar business conditions.

(Net Profit/ Net Sales) * 100

ROA and ROE

The ROA value gives investors an idea of how effectively the company is converting the money it has to invest into net income. In case of HUL it is always more if last 2 years then Marico and Dabur. In 2010, ROA was around 87% for HUL, It clearly signifies that for every Rs.1/- of investment as asset, HUL earning 87paise where it is quite low in case of Dabur and Marico.

Now, assets comprise of share holder equity and long term borrowed funds. In case of HUL, Debt to equity ratio is zero implies HUL as a No debt company. Hence ROE is same as ROA for HUL,

In case of Dabur and Marico, ROE is lying around 45% to 60% which suggests company’s pay back as per investment made by share holder. On the other hand if we look at ROA of these two companies, it is fluctuating near to 20 % in the last two years. As we know, ROA tells about company performance while keeping all the assets into consideration and not only shareholder equity alone.

ROE is certainly a “hint” that management is giving shareholders more for their money. On the other hand, if ROA is low or the company is carrying a

lot of debt, a high ROE can give investors a false impression about the company's fortunes. Hence it is necessary to analyse the different ratio in one picture frame rather than looking at them simultaneously.

One other important prospective, as HUL is a zero debt company (ROE=ROA) while other two are not. Implies HUL is not using debt financing. From investor point of view, I might appreciate the fact the company has zero debt but debt is cheaper then equity. If the company have taken care of debt financing it could have increased up its operations and revenues. However for companies which have very large market capitalization like HUL, not using debt financing signifies the low risk and self dependency in investor’s eye.

Discussing about NPM and GPM, the different between NPM and GPM is

Net Profit (NP) = Gross Profit (GP) – overhead

The profit margin tells you how much profit a company makes for every Rs.1/- it generates in revenue or sales. Eg. NPM = 20% means for every Rs.1/-

Hence higher the NPM and GPM, indicates better financial health of a company.

Mathematically GPM will always be greater than or equal to NPM as there will some overhead expenses. Practically, overheads are not zero hence GPM > NPM.

The lower the difference between NPM and GPM, the better. If the difference is more that signifies the operational efficiency of the company. This difference is less in case of HUL as compare to other peers considered relatively. Hence we can comment on good operational efficiency of HUL with respect to Dabur and Marico.

LIQUIDITY RATIOS:

Liquidity Ratio:

The higher the current ratio, the more capable the company is of paying its obligations. In case of HUL the ratio is lying between 0.8 to 0 .9 whereas for

Dabur it’s .9 to 1.2. At the same time for Marico, it is above 1.2. By looking at Current ratio only we can say Marico has the highest ability to meet short-term debt obligations.

However, the current assets also include inventory of a company. Generally inventories are not readily converted into cash hence we need another ratio that does not includes inventory in current asset to give a more precise picture of any firm’s liquidity. That ratio is quick ratio. For HUL the difference between quick ratio and current ratio is very significant as compare Marico and Dabur which implies heavy inventory in HUL. The difference is least in Marico and then Dabur studied for last two years. Hence we have concluded on liquidity parameter Marico is on top followed by Dabur and then HUL.

Inventory Turnover Ratio:

Keeping more inventory is not a false behaviour(as in case of HUL), one might argue having enough inventory can guard you against various un-favourable situation like in-ability to produce the goods due to any factor, excess demand due to factors like season, natural calamity etc. The excess inventory gives enough confidence to firm to act in future. However with no doubt this inventory should be in rotation i.e. inventory turnover ratio should be good. So that the same amount of goods will present in ware house but it will keep rotating. The inventory turn ratio of Dabur is quite high comparatively to Marico and HUL. In-fact Marico has the lowest inventory ratio. Thus analysing quick ratio and inventory ratio in single frame, Marico has highest quick ratio but lowest inventory turn ratio implies Marico maintaining high inventories but its sitting period of good in inventory is more comparison to HUL and Dabur which are maintaining low inventory but quickly converting it into revenues.

Apart from Inventory turnover ratio, we will be discussing on fixed asset and Total Asset turnover ratio to comment on operational efficiency.

Fixed Asset Turnover Ratio

A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues. Investments made on Plant, Property and Equipments (PPE). The fixed turnover ratio is decreasing in case of all the three companies. However the decrease in ratio is due to investments made in PPE by HUL and Marico where as in case of Dabur it is disinvestment in fixed asset. To analyse fixed turnover ratio, one must analyse at least four –five years of patterns as

investment made on PPE would yield higher production in significant amount of time. As per our scope of analysis we have concluded Marico is utilizing its fixed assets in the way resulting addition to sales revenue to maximum followed by HUL and then Dabur.

P/E Ratio

In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. If market price of any firm’s stock is raising and proportionately dividend is not increasing resulting increase in P/E ratio, yet as an investor I might be interested as in the hope the currently market price of share is high and increasing over time being receiver of low dividend (targeting for long term). P/E ratio noticed high in last year for HUL, implies higher expectation of earning/willingness to pay to earn per unit of income. The difference in ratio is not much in the three companies considered to comment on financial health comparison but P/E directly affected by market situation also.

D/E Ratio

A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. Higher D/E ratio can facilitate company to use the benefits of debt financing as Debt is not always bad and Debt is always cheaper then equity. But very high D/E creates serious troubles in decision making process and affects the flexibility of top management in any firm. On the contrary low D/E implies a company is not enough using the debt.

Discussing about D/E of HUL it is zero means it is a no debt company. D/E is quite high in case of Marico and comparatively very less in Dabur. This implies the risk factor in HUL is very less and financial leverage is least in comparison of Dabur and Marico. Also in case of Dabur and Marico, the ratio has decreased in the last two years indicating lowering of risk.

INVESTOR PERSPECTIVE & OUR RECOMMENDATION:

FOR HINDUSTAN UNILEVER:

A look at the 2 years closing chart pattern of Hindustan Unilever should convince investors of different experiences and propensities why this is a must-have stock among the several thousand being traded on the BSE and NSE.

There is an old saying: “You can’t keep a good man down.” That expression could just as well describe the HUL stock. Note that when the stock dropped to its new closing low of 220 in Mar ‘10, all four technical indicators reached higher bottoms (marked by blue arrows). The positive divergences signaled the end of the bear period.

The stock embarked on a fresh bull rally within an upward-sloping channel that is still intact. From Sep ‘10 through Jan ‘11, the stock reached three closing tops – each a little higher than the previous one. This time, the technical indicators all touched lower tops. The negative divergences led to a sharp drop below the 200 day EMA, followed by a triple-bottom reversal pattern from Feb to May ‘11.

Once again, positive divergences from all four technical indicators that touched higher bottoms, hinted at a resumption of the rally. The stock

reached a new closing high of 343 in Jun ‘11 at the upper-end of the upward-sloping channel. Negative divergences in the technical indicators warned of a correction.

There are two points of interest here. The first is that the stock’s price movements provide long-term trading opportunities, as it swings up and down within the upward-sloping channel. The second, more important one, is that between Nov ‘10 and Sep ‘11 the stock has gone up to touch new highs, and is in a bull market - even as the Sensex and Nifty are in clear down trends.

All three EMAs are rising and the stock is trading above them – a sign of a bull market. The strategy should be to use dips towards the lower end of the upward-sloping channel to add. All four technical indicators – MACD, ROC, RSI and slow stochastic are correcting an overbought situation. The correction from the new closing high of 353 may continue a bit longer.

Bottomline? The stock chart pattern of Hindustan Unilever is in a bull market, making steady rather than spectacular progress. Growth and margins are back on the upswing. Valuations are not cheap, but the stock is worth its weight in gold. Regular dividends are an added attraction.

FOR DABUR:

Dabur India

The stock investing tip to buy stocks of Dabur India for short term time frame can be considered as an option. The target price could get achieved in one to two months. Dabur is one of the good FMCG stock as everyone knows. This tip is purely based on analytical indications.

Dabur India touched its 52 week high recently at Rs 218.95. 52 week low was at Rs 121. Current EPS is Rs 4.87 and P/E stands at 41.37. Although P/E ratio looks high, FMCG stocks have always been considered as safe stocks in stocks markets and so command a higher P/E.

If you look at the 6 months chart, support line is around Rs. 195 which could be considered as stop loss. The target once again could be near to its 52 week high i.e. 218. This level provides moderate amount of returns in short term i.e. 1 - 2 months.

CONCLUSION

As we have given the project work to compare the three well known FMCG companies i.e. HUL DABUR and MARICO .We came to know about the financial condition of the three companies’ relatively good with HUL being in ideal condition for investment. They are able to generate customer and these companies are providing new services and products with latest innovation to customers. At the end I can say that Hindustan Unilever Ltd. Is in good financial position and marico & dabur can be titled as the market followers and can promptly become the challengers in near future.

REFERENCES:

1) [1]. http://www.investopedia.com2) [2]. http://www.investorwords.com3) [3]. http://www.hul.co.in4) [4]. http://www.marico.com5) [5]. http://www.dabur.com6) http://investmentsfordummieslikeme.blogspot.com