IDENTIFICATION & FINANCIAL ANALYSIS OF SECTORS

PERFORMANCE DURING RECESSION

Submitted to Lovely Professional University
In partial fulfillment of the requirements for the award of degree of
MASTER OF BUSINESS ADMINISTRATION

SUBMITTED BY :

SUPERVISOR:

Group No-R097

Ms. YOGITA SAHNI

PRIYANKA KAUSHIK RR1810A24

Lecturer

SUSHIL KUMAR RR1810A26

RAJVINDER DEOL RR1810 A27
INDERJEET KUMAR RR1810 B31

DEPARTMENT OF MANAGEMENT
LOVELY PROFESSIONAL UNIVERSITY
PHAGWARA
(2008-2010)

TO WHOMSOEVER IT MAY CONCERN

This is to certify that the project report titled Identification and financial analysis of sectors
performance during recession carried out by Priyanka, Sushil, Rajvinder and Inderjeet has been
accomplished under my guidance & supervision as a duly registered MBA students of the
Lovely Professional University, Phagwara. This project is being submitted by them in the partial
fulfillment of the requirements for the award of the Master of Business Administration from
Lovely Professional University.

Their dissertation represents their original work and is worthy of consideration for the award of
the degree of Master of Business Administration.

( Yogita Sahni )
Date: 03-05-2010

DECLARATION

I, Priyanka, hereby declare that the work presented herein is genuine work done originally by me
and has not been published or submitted elsewhere for the requirement of a degree programme.
Any literature, data or works done by others and cited within this dissertation has been given due
acknowledgement and listed in the reference section.

Priyanka
10808717
Date: 03-05-2010

DECLARATION

I, Sushil Kumar, hereby declare that the work presented herein is genuine work done originally
by me and has not been published or submitted elsewhere for the requirement of a degree
programme. Any literature, data or works done by others and cited within this dissertation has
been given due acknowledgement and listed in the reference section.

Sushil Kumar
10806409
Date: 03-05-2010

DECLARATION

I, Rajvinder Deol, hereby declare that the work presented herein is genuine work done originally
by me and has not been published or submitted elsewhere for the requirement of a degree
programme. Any literature, data or works done by others and cited within this dissertation has
been given due acknowledgement and listed in the reference section.

Rajvinder Deol
10811496
Date: 03-05-2010

DECLARATION

I, Inderjeet Kumar, hereby declare that the work presented herein is genuine work done
originally by me and has not been published or submitted elsewhere for the requirement of a
degree programme. Any literature, data or works done by others and cited within this dissertation
has been given due acknowledgement and listed in the reference section.

Inderjeet Kumar
10810228
Date: 03-05-2010

ACKNOWLEDGEMENT
Any project puts to litmus test of an individual knowledge credibility or experience and thus
sole efforts of an individual are not sufficient to accomplish the desire. Successful completion of
a project involves interest and effort of many people and so this becomes obligatory on the part
to record our thanks to those who helped us out in the successful completion of our project.
Life is a process of accumulating and discharging debts, not all of those can be measured. We
cannot hope to discharge them with simple words of thanks but we can certainly acknowledge
them.
At this level of understanding it is often difficult to comprehend and assimilate a wide spectrum
of knowledge without proper guidance and advice. Hence, we would like to take this opportunity
to express our Heartfelt Gratitude to Respected Ms. YOGITA SAHNI for her round the clock
Enthusiastic Support, Noble Guidance and Encouragement which made this project successful.
We are extremely thankful to him for making this project worthful.

TABLE OF CONTENTS
S.No

CHAPTERS

PAGE NO.

EXECUTIVE SUMMARY

9-10

INTRODUCTION TO STOCK MARKET AND ITS

EVALUTION IN INDIA

11-18

REVIEW OF LITERATURE

19-24

OBJECTIVES & METHODOLOGY

25-30

INTRODUCTION TO FMCG SECTOR

31-36

INTERPRETATION OF RATIO ANALYSIS

37-61

FINDINGS, RECOOMENDATIONS &

CONCLUSION

62-66

REFRENCES

67-70

EXECUTIVE SUMMARY
The report contains financial analysis of FMCG sector and its two firms performance during
recession.
In first chapter we discuss about the stock market and its implication and role in stock market.
Stock exchange means any body of individuals, whether incorporated or not, constituted for the
purpose of regulating or controlling the business of buying, selling or dealing in securities. These
securities include:
(i) Shares, scrip, stocks, bonds, debentures stock or other marketable securities of a like nature in
or of any incorporated company or other body corporate;
(ii) Government securities; and
(iii) Rights or interest in securities
The SEBI has been inspecting the stock exchanges once every year since 1995-96. During these
inspections, a review of the market operations, organizational structure and administrative
control of the exchange is made to ascertain whether
And we also discuss about sub prime crisis due to which recession had take place and its impact
on Indian stock market.
Subprime is the cause of USA Economy melt down. It is the very popular news among
everyone and it is become very serious then expected. It caused more damage to all the
industries. Subprime crisis caused big loss to the banks and now it is affecting the other
industries like Auto Mobile companies (GM, Ford, etc.). In this blog I will write about what
exactly is the Subprime crisis and why USA banks created such a big mistake in their era. Some
experts comparing this disaster with the 1930 Economy slow down in USA
In response to its balance of payments (BOP) crisis in the early 1990s, India implemented a
series of trade, industry, and investment reforms. . These reforms effectively liberalized the
economy, ending a long period of relative isolation from global markets and financial and
technology flows. Since then the Indian economy has become increasingly integrated with the
world economy. Consequently, current account flows (receipts and payments of merchandise and
9

invisibles) as a proportion of GDP increased from 20% in FY19901991 to 53% in FY2007

2008.
After that we had discuss about the methods used to calculate the financial performance like ratio
analysis and calculate the average of sectors performance.
In second chapter we have done literature review which is based upon performance of stock
market during recession and impact of sub prime crisis on stock market and Indian economy.
In third chapter we have mention our objective of the study that on what basis we are going to
perform our project. After that in Research methodology we mention the various sources of data
which we have taken to under go with research like mainly we have used secondary data. The
study is based on secondary data which we has taken from BSE India Indices and the period we
have taken is from October 2008 to September 2009. We calculate the average of all sectors and
after that we have taken the sector which has lowest average like FMCG shows lowest
performance at that period of time and we have taken that as most affected sector and than we
have done ratio analysis of the two firms from FMCG i.e. is DABUR and NESTLE.
After that in chapter fourth we have given introduction to FMCG sector and about its growing prospects
in India. The Indian FMCG sector is the fourth largest sector in the economy and creates

employment for three million people in downstream activities. Within the FMCG sector, the
Indian food processing industry represented 6.3 per cent of GDP and accounted for 13 percent of
the country's exports in 2003-04. The Indian FMCG sector with a market size of US$13.1 billion
is the fourth largest sector in the economy. It has been estimated that FMCG sector will rise from
around Rs 56,500 crores in 2005 to Rs 92,100 crores in 2010.
After that we given introduction to the companies that we have taken for ratio analysis that are
DABUR INDIA LIMITED AND NESTLE INDIA LIMITED.
In fifth chapter we have done interpretation by analyzing ratios of the companies and analyze the
effect of recession and how they cope up with recession and what is their current financial
position in present scenario.

10

11

EVALUATION OF STOCK MARKET IN INDIA

Stock markets refer to a market place where investors can buy and sell stocks. The price at which
each buying and selling transaction takes is determined by the market forces (i.e. demand and
supply for a particular stock).
The origin of the stock market in India goes back to the end of the eighteenth century when longterm negotiable securities were first issued. However, for all practical purposes, the real
beginning occurred in the middle of the nineteenth century after the enactment of the companies
Act in 1850, which introduced the features of limited liability and generated investor interest in
corporate securities.
An important early event in the development of the stock market in India was the formation of
the native share and stock brokers 'Association at Bombay in 1875, the precursor of the present
day Bombay Stock Exchange. This was followed by the formation of associations/exchanges in
Ahmadabad (1894), Calcutta (1908), and Madras (1937). In addition, a large number of
ephemeral exchanges emerged mainly in buoyant periods to recede into oblivion during
depressing times subsequently.
Stock exchange means any body of individuals, whether incorporated or not, constituted for the
purpose of regulating or controlling the business of buying, selling or dealing in securities. These
securities include:
(i) Shares, scrip, stocks, bonds, debentures stock or other marketable securities of a like nature in
or of any incorporated company or other body corporate;
(ii) Government securities; and
(iii) Rights or interest in securities.

REGULATION OF BUSINESS IN THE STOCK EXCHANGES

12

Under the SEBI Act, 1992, the SEBI has been empowered to conduct inspection of stock
exchanges. The SEBI has been inspecting the stock exchanges once every year since 1995-96.
During these inspections, a review of the market operations, organizational structure and
administrative control of the exchange is made to ascertain whether:

the exchange provides a fair, equitable and growing market to investors

the exchange's organization, systems and practices are in accordance with the Securities
Contracts (Regulation) Act (SC(R) Act), 1956 and rules framed there under

the exchange has implemented the directions, guidelines and instructions issued by the
SEBI from time to time

The exchange has complied with the conditions, if any, imposed on it at the time of
renewal/ grant of its recognition under section 4 of the SC(R) Act, 1956.

SUB PRIME CRISIS

Subprime Mortgage Loans (or housing loans or junk loans) are very risky. But since profits are
high where the risk is high, a lot of lenders get into this business to try and make a quick
money.These loans are given to people who have inability to repay the loan and they dont have
stable income. For example, a person who is working on IT company earns Rs.40000 per month
and he doesnt have any other income or assets. When the bank gives him loan of some lakhs,
the EMI for the month would be Rs.20000-Rs.30000. If he lose the job, there is no possibility for
him to pay the EMI, he will just surrender the house to bank and go away. This is the one simple
example how Subprime problem starts.
Subprime is the cause of USA Economy melt down. It is the very popular news among
everyone and it is become very serious then expected. It caused more damage to all the
industries. Subprime crisis caused big loss to the banks and now it is affecting the other
industries like Auto Mobile companies (GM, Ford, etc.). In this blog I will write about what
exactly is the Subprime crisis and why USA banks created such a big mistake in their era. Some
experts comparing this disaster with the 1930 Economy slow down in USA

13

What caused 2001 recession

Subprime problem is more severe then what we saw in the 2001 recession. The real fact is that,
2001 what happened is Dot Com Bubble followed by the recession. Since the invention of
internet, there is dozens of new companies coming up with the Dot Com dreams. There is lot of
hype around Dot Com is that any company can make the billions of dollars. So, people started
investing more on the Dot Com companies and the prices of the share value is increased
dramatically. The price of the stock market is over valued. A small company without any profit
valued as a billion dollar company. Even they dont have clear idea on how will they make profit.

Current crisis in the US

The defaults on sub-prime mortgages (home loan defaults) have led to a major crisis in the US.
Sub-prime is a high risk debt offered to people with poor credit worthiness or unstable incomes.
Major Banks have landed in trouble after people could not pay back loans.
The economy and the stock market are closely related. The stock markets reflect the buoyancy of
the economy. In the US, a recession is yet to be declared by the Bureau of Economic Analysis,
but investors are a worried lot. The Indian stock markets also crashed due to a slowdown in the
US economy.

The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The markets
bounced back after the US Fed cut interest rates. However, stock prices are now at a low ebb in
India with little cheer coming to investors.

IMPACT OF CRISIS ON INDIAN ECONOMY

14

In response to its balance of payments (BOP) crisis in the early 1990s, India implemented a
series of trade, industry, and investment reforms. These reforms effectively liberalized the
economy, ending a long period of relative isolation from global markets and financial and
technology flows. Since then the Indian economy has become increasingly integrated with the
world economy. Consequently, current account flows (receipts and payments of merchandise and
invisibles) as a proportion of GDP increased from 20% in FY19901991 to 53% in FY2007
2008. However, the most significant change can be witnessed in the capital account. Due to the
rationalization of procedures and conditions for foreign investment, India has emerged as an
attractive investment destination. This is reflected as an increase in foreign portfolio investment
inflows from US$2 billion in FY20012002 to US$29 billion in FY20072008. Foreign direct
investment (FDI) inflows have also gone up significantly in recent years, having risen to
US$34.3 billion in FY20072008 from US$6.1 billion in FY20012002. At the same time,
Indian corporations have also entered the global market for mergers and acquisitions, resulting in
some capital account outflow from India. As a result, two-way flows of portfolio and direct
foreign capital have gone up from a mere 12% of GDP in FY19901991, to 64% of the GDP in
FY20072008, registering a fivefold increase. Interestingly, these ratios are significantly higher
than those in the US, for which trade in goods and services constituted only 41% of GDP in 2007
and capital flows another 25% in the same year.
However, the indirect impacts of the crisis have affected Indian banks quite badly. The liquidity
squeeze in global markets following the collapse of Lehman Brothers compelled Indian banks
and corporations to shift their credit demand from external sources to the domestic banking
sector. This move exerted a lot of pressure on liquidity in the domestic market and consequently
short-term lending rates shot up abnormally. The magnitude of the impact of the crisis can be
understood from the fact that non-food credit expansion during last five months of FY20082009
has declined by more than 68% as compared with the same period in previous financial year.

The impact of the US Subprime economic crisis has been significant and has been on the
negative side. Foreign Institutional Investors or FII's in short had been heavy buyers in the
15

Indian stock markets in the past few years. They too believed in the Great Indian Growth Story.
They invested in millions of dollars and bought out stocks of India's famous companies. The
stock markets work using a simple principle. More people buy -> The index goes up and the
share prices go up. More people sell . The index goes down and the share prices go down.

Indian Stock Market: An eventful week of great turbulence has begun in the global
financial scenario as stock prices dipped across much of the globe on news that
investment bankers, Lehman Brothers Holdings filed for bankruptcy and Merrill Lynch
& Cos forced sale to Bank of America. The investments in Indian firms by these U.S.
investment bankers are a major worry for Indian investors. Indian stock market has
seen its worst time with the global financial crises. Mostly all the industrial sectors
experienced a consistent low in their stock prices. The IT sector has been badly hit.
Nearly half of the IT sector firms revenues come from banking and financial
institutions. The IT companies have these investment banks as their clients. With the
effect of financial crises, IT companies are not able to enhance their business with these
investment banks, and, in turn, started retrenching their employees. Apart from the
financial crises, the employees turnover is creating turmoil in the market as well. Job
security is the biggest fear among people.

Banks: The ongoing crisis has an adverse impact on Indian banks. The large investment
banks originally from the US, had invested substantially in the stocks of Indian banks.
The banks, in turn, have invested in derivatives, which might have exposure to these
investment bankers. Public sector banks, which have exposure towards derivatives, are
the worst hit by the crisis

Real estate: Real estate is badly affected by the current financial downturn. The
investment banks had given huge amounts of money to real estate companies for
development projects. With the large investment banks going bankrupt, the projects
have to be discontinued, leading to the slump in the real estate market as well.

16

Indias Exports: The worldwide financial crisis has caused up to 70 percent fall in
India's exports. Handicrafts exports fell by 70 percent. Other sectors like tea and carpets
were also down by 20 percent and 32 percent, respectively. The Indian government is
now attempting lifting export curbs on steel and some agro products. Overall export
growth went down to just over 10 percent from 26.9 percent. Two of India's largest
markers, European Union and the US, are both in the throes of financial crisis. Bulk
cargo shipping rates have also come down by nearly 50 percent.

Rupee value: Rupee value against the US dollar has weakened dramatically. One reason
might be the foreign fund inflow into India that was so prominent in the last couple of
years, has turned negative ,This net FII flow has been the single most important reason for the
Rupee's fall. The Dollar has also strengthened against most currencies globally, not due to any
strength of the US economy, but due to a 'flight to safety' of global capital. The US Dollar has
been the world's reserve currency for several decades now.

FINANCIAL ANALYSIS

17

MEANING: Financial analysis (also referred to as financial statement analysis or

accounting analysis) refers to an assessment of the viability, stability and profitability of a
business, sub-business or project.
It is performed by professionals who prepare reports using ratios that make use of information
taken from financial statements and other reports. These reports are usually presented to top
management as one of their bases in making business decisions. Based on these reports,
management may:

Continue or discontinue its main operation or part of its business;

Make or purchase certain materials in the manufacture of its product;

Acquire or rent/lease certain machineries and equipment in the production of its goods;

Issue stocks or negotiate for a bank loan to increase its working capital;

Make decisions regarding investing or lending capital;

Other decisions that allow management to make an informed selection on various

alternatives in the conduct of its business.

Methods
Financial analysts often compare financial ratios (of solvency, profitability, growth, etc.):

Past Performance - Across historical time periods for the same firm (the last 5 years for
example),

Future Performance - Using historical figures and certain mathematical and statistical
techniques, including present and future values, This extrapolation method is the main
source of errors in financial analysis as past statistics can be poor predictors of future
prospects.

Comparative Performance - Comparison between similar firms

18

19

 Suresh S (August 2009) says, Ongoing Recession that began in December 2007
impacted the revenues and profitability of businesses worldwide. We are in a globalised
world and no more immune to the things happening outside our country. The recession
has affected India Incs financial performance due to reduced demand and slack exports.
The paper attempts to catch the impact of slowdown on financial performances in six
important sectors driving Indian economy Some companies have bucked the slowdown
and performed well.. Central bank and Government have adopted suitable measures in
tough times to keep growth in tandem. With positive signals from world economy and
spectacular June 2010 quarter results the growth of India is in track again. Still pricing
pressures and low demand is prevailing and the road ahead will be prolific if sufficient
measures and policies are adopted.

Peterson and Senosi (24 June 2009) says, This contribution is the second
in a series of papers on discrete-time modeling of bank capital regulation and its
connection with the subprime mortgage crisis (SMC). The latter was caused by, amongst
other things, the downturn in the U.S. housing market, risky lending and borrowing
practices, inaccurate credit ratings, credit default swap contracts as well as excessive
individual and corporate debt levels. The Basel II Capital Accord's primary tenet is that
banks should be given more freedom to decide how much risk exposure to permit; a
practice brought into question by the SMC. Also, analysts are now questioning whether
Basel II has failed by allowing these institutions to provision less capital for subprime
mortgage loan losses from highly rated debt, including MBSs. Other unintended
consequences of Basel II include the procyclicality of credit ratings and changes in bank
lending behavior. Our main objective is to model the dependence of bank credit and
capital on the level of macroeconomic activity under Basel I and Basel II as well as its
connection with banking behavior for the period before and during the SMC.

20

Tudor (March 11, 2009 ) says, In this paper we provide an overview of the
roots, first manifestations and further developments of the US subprime crisis and briefly
explain the securitization process by emphasizing especially the mortgage securitization
process. Some explanations for the ongoing financial crisis are also offered. We continue
with a presentation of the US real estate sector and its main indicators. Finally, we
investigate both the linear and causal relationship between the rate of change in home
mortgages and the rate of growth in gross domestic product in the United States using
quarterly observations for the two variables, covering the 2002-2008 time periods. We
find that current GDP is explained both by its own lagged value and by previous quarter
change in home mortgages. A unidirectional Granger causality from home mortgages to
the gross domestic product is also attested. We can therefore report that a significant
decrease in borrowing leads to an equally significant decrease in house prices and causes
a future economic slowdown, reflected by a decrease in the gross domestic product.

Naga (12 Feb. 2009) says, the subprime mortgage market is in free fall. Since the
end of 2005, default rates on subprime mortgages have soared from 6.5% to over 30%,
while foreclosure the process of reviewing the rules under which new subprime
mortgages may be issued, and renegotiating the terms under which previously issued
mortgages can default or be repaid. The EOP, in particular, has instructed the Federal
Housing Administration to expand its insurance of mortgages in order to help
creditworthy borrowers secure more favorable refinancing. Fannie Mae and Freddie Mac,
on the other hand, have both increased their exposure to mortgage assets in an effort to
shore up the housing market. This policy response assumes that subprime defaults are a
result of temporary failures in both origination and securitization markets, and that
government intervention is needed to correct and mediate these failures. rates have
jumped.

21

Malik and Khan Marwat (Jan 2009) says, the purpose of this paper is to
examine the recent impact of financial crisis on the financial institutions in the
developing countries. This study contributes to the knowledge of investors and market
practitioners to be well aware of the risks attached with investments in developing
countries. The global financial crisis set off by the sub-prime credit crisis in the US. This
has destabilized the financial markets of the developed world causing the fall down of
prominent names in the banking business. Primary cause of this crisis can be Banks and
other financial institutions in the United States of America have gone through a long
period of inappropriate lending. Another cause of this crisis as according to latest studies
may be the effect of the global financial crisis was worsened by rising global energy and
commodity prices which pushed up inflation. Developing countries have mainly faced
strong rises in prices. In order to study the impact of this financial crisis content analysis
of various articles and research papers related to development literature was carried out.
If the crisis will continue for long period, state and local governments may begin to
restrict as they try to shore up new financing arrangements for their operations.

Gaiha & Imai (January 6, 2009) says, The rampaging financial crisis has
turned into a crisis of confidence is beyond dispute. Despite extensive interventions by
governments and monetary authorities, the supply of credit has shrunk, stock markets
have recorded dramatic losses, and a major downturn in the global economy is highly
probable. Commodity prices have eased from recent peaks and large exchange rate
realignments have occurred. However, there are few investigations of the (potential)
effects of this crisis on the poor and undernourished. As this is essentially a broad brush
treatment, and abounds in vague generalizations, a distillation of recent empirical
evidence on the linkages between finance and poverty is given here. Attention is also
drawn to the potential of appropriate design of microfinance schemes to ensure that the
trade-off between financial viability of MFIs and outreach is minimized. In the recent
literature, financial development is measured as credit by financial intermediaries to the
private sector divided by GDP (or private credit-to-GDP).

22

Murthy and Deb(Dec. 2008) says,

The sub prime crisis in US is the result of

excessive amounts of loans made to people who could not afford them and excessive
amounts of money thrown into the mortgage arena by investors who were very eager for
high return. The crisis represents the other side of a phase when a low rate of interest,
rising home prices and mortgage securitization brought huge gains. A number of factors
like legislations like Community Reinvestment Act, low rate of interest, mortgage
brokers and lenders, rating agencies played their role in generating crisis. Three important
dimensions of the sub prime saga relate to poor regulation of investment banks,
relaxation in lending standards led by greed in a regime of unbridled competition and
failure of the asset market to realize the dues from the defaulter. It once again brings
home the fact that financial sector is distinctive in nature and can be exposed to unbridled
and unregulated competition only at the cost of a complete peril.
Verma (2008) says, Recession in the West, specially the United States, is a very bad
news for our country. Our companies in India have most outsourcing deals from the US.
Even our exports to US have increased over the years. Exports for January have declined
by 22 per cent. There is a decline in the employment market due to the recession in the
West. There has been a significant drop in the new hiring which is a cause of great
concern for us. Some companies have laid off their employees and there have been cut in
promotions, compensation and perks of the employees. Companies in the private sector
and government sector are hesitant to take up new projects. And they are working on
existing projects only. IT industries, financial sectors, real estate owners, car industry,
investment banking and other industries as well are confronting heavy loss due to the fall
down of global economy. Federation of Indian chambers of Commerce and Industry
(FICCI) found that faced with the global recession, inventories industries like garment,
gems, textiles, chemicals and jewellery had cut production by 10 per cent to 50 per cent.

23

 Singh, D. (2007) says, When an economy is exposed to recessionary risks, central

banks will often move to lower interest rates. Investors often redirect funds from
riskier assets like stocks into Treasury securities, effectively driving bond prices
higher and yields even lower. In the equity market, sectors that perform better during
downturns in the economy are utilities, healthcare, and consumer staples. Stocks in
these groups considered defensive because they are less sensitive to ups and downs
associated with the boom/bust business cycle. In reality, there are almost no recession
proof stocks, but counter-cyclical sectors are often able to ride out tougher times
better than their counterparts. Utility stocks are sought out during recessions because
these companies provide services considered living necessities. Consumers cut out
other discretionary spending before they reduce their utility usage for things like
water, electricity, and heat. Health care stocks are somewhat resistant to recessions
because households value medical services and are slow to rein in their spending on
it..
Singh.K, (2003 ) says, During an economic recession, a normal response of the people is
to save whatever money they have due to uncertainty about jobs. As a result, there will be
an initial increase in the price of commodities and there will also be a significant decrease
in consumers purchasing goods due to a decline in their level of confidence. This
decline is caused by the employment or financial crisis that is stirred up by the recession.
The media often helps foster a loss of confidence, creating a certain frenzy wherein
people tend to become rattled and worried about job cuts and financial matters. People
then begin to curb their spending even more and will save up whatever they can, planning
for a rainy day.

24

25

OBJECTIVE OF THE STUDY

To identify most affected sector during to recession taking sensex as the base for
12 months i.e. is BSE indices ( i.e. October 2008 September 2009)

To study the financial performance of two firms in respect of first objective in the
period of recession with the help of ratio analysis

RESEARCH METHODOLOGY
Methodology is the way of preparing the project, and presenting the project report, the work
should be systematic and done in proper order as good work gives good results. Further the data
26

collected to prepare the project must be relevant. It is a way to systematically solve the research
problem. It may be understood as a science of studying how research is done scientifically. It
also consider the logic the logic behind the methods we use technique and why we are not using
particular method or evaluated either by the researcher himself or by others. Researchers also
need to understand the assumptions underlying various techniques and they need to know the
criteria by which they can decide that certain techniques and procedures will be applicable to
certain problems and others will not.

COLLECTION OF DATA
There are two types of data:
Primary Data
Secondary
PRIMARY DATA: As the nature of the study is secondary so primary data is not
required

SECONDARY DATA: Secondary data is very important data which is already available
and analyzed by someone else. It may be published data or unpublished data.

Various generals, newspaper like economics time, financial express and research papers
and website like bseindia.com etc are used to collect the data.

We have taken 12 months data that is from 1st October 2008 to Sep 2009 basis as Sensex
and we select sectors from BSE indices that 12 sectors are there.
By calculating average of all sectors we came to know that FMCG sector has low
average(i.e. is 2179.81833) as compare to others
So we take FMCG sector as worst effected during recession and compare two companies
of this sector on the basis of their financial performance
On the basis of the performance of sectors we have taken two FMCG companies that is
Dabur and Nestle.

27

RESEARCH DESIGN: Research Design is required to facilitate the smooth

sailing of various research operations, thereby making research as effective as
possible & yielding maximum information with maximum efforts. A research is
simply a plan for study in collection & analyzing the data.

ANALYTICAL TOOL USED TO ANALYSE THE DATA

Ratio analysis (Dabur and Nestle)
Graphs

ANALYSIS AND INTERPRETATION

SECTOR
AUTO
BANK
CD
CG
FMCG
HC
IT
METALS
OIL & GAS

AVG BSE INDEX

3885.728
6463.618
2343.505
9255.692
2179.818
3244.971
2993.404
8175.12
7908.85

percentage
6.711143
11.16348
4.047529
15.98575
3.764821
5.604474
5.169986
14.11946
13.65958
28

POWER
PSU
REALTY

2275.871
6469.327
2703.749
57899.65

3.930716
11.17334
4.669716
100

29

INTERPRETATION:
This diagram shows that here the most affected sector from various sectors is
FMCG because the percentage of FMCG is 3.76% . But the nearest sector to
FMCG is Power also and from diagram we came to know that the less affected
sector is CG. So we have choose the two firms of FMCG i.e. is DABUR and
NESTLE for the ratio analysis.

30

Fast Moving Consumer Goods (FMCG) goods are popularly named

as consumer packaged goods. Items in this category include all consumables
(other than groceries/pulses) people buy at regular intervals. The most
common in the list are toilet soaps, detergents, shampoos, toothpaste, shaving
products, shoe polish, packaged foodstuff, household accessories and extends
to certain electronic goods. These items are meant for daily of frequent
consumption

and

have

high

return.

A major portion of the monthly budget of each household is reserved

for FMCG products. The volume of money circulated in the economy
against FMCG products is very high, as the

31

FMCG Products and Categories

Personal Care, Oral Care, Hair Care, Skin Care, Personal Wash (soaps)
Cosmetics and toiletries, deodorants, perfumes, feminine hygiene, paper
products;
Household care fabric wash including laundry soaps and synthetic
detergents; household cleaners, such as dish/utensil cleaners, floor
cleaners, toilet cleaners, air fresheners, insecticides and mosquito
repellents, metal polish and furniture polish
Scope Of The Sector
The Indian FMCG sector with a market size of US$13.1 billion is the fourth
largest sector in the economy. It has been estimated that FMCG sector will rise
from around Rs 56,500 crores in 2005 to Rs 92,100 crores in 2010. Hair care,
household care, male grooming, female hygiene, and the chocolates and
confectionery categories are estimated to be the fastest growing segments, says
an HSBC report. Though the sector witnessed a slower growth in 2002-2004, it
has been able to make a fine recovery since then.
For example, Hindustan Levers Limited (HLL) has shown a healthy growth in
the last quarter. An estimated double-digit growth over the next few years
shows that the good times are likely to continue.

32

Growth Prospects
With the presence of 12.2% of the world population in the villages of India, the Indian rural
FMCG market is something no one can overlook. Increased focus on farm sector will boost rural
incomes, hence providing better growth prospects to the FMCG companies. Because of the low
per capita consumption for almost all the products in the country, FMCG companies have
immense possibilities for growth. And if the companies are able to change the mindset of the
consumers, i.e. if they are able to take the consumers to branded products and offer new
generation products, they would be able to generate higher growth in the near future. It is
expected that the rural income will rise in 2007, boosting purchasing power in the countryside.
However, the demand in urban areas would be the key growth driver over the long term. Also,
increase in the urban population, along with increase in income levels and the availability of new
categories, would help the urban areas maintain their position in terms of consumption. At
present, urban India accounts for 66% of total FMCG consumption, with rural India accounting
for the remaining 34%.. In urban areas, home and personal care category, including skin care,
household care and feminine hygiene, will keep growing at relatively attractive rates. Within the
foods segment, it is estimated that processed foods, bakery, and dairy are long-term growth
categories in both rural and urban areas.

33

INTRODUCTION TO DABUR INDIA LIMITED

Dabur India Limited is the fourth largest FMCG Company in India and Dabur had a turnover
of approximately US$ 600 Million (Rs. 2,834.11 Crore fy09) & Market Capitalisation of over
US$ 2.2 Billion (Rs 10,000 Crore), with brands like Dabur Amla, Dabur Chyawanprash, Vatika,
Hajmola and Real. The company has kept an eye on new generations of custom
ers with a range of products that cater to a modern lifestyle, while managing not to alienate
earlier generations of loyal customers. It focus on basically two areas:
Consumer Care Division
Consumer Health Division

Dabur is an investor friendly brand as its financial performance shows. The company's growth
rate rose from 10% to 40%. The expected growth rate for two years was two-fold. There is an
abundance of information for its investors and prospective information including a daily update
on the share price (something that very few Indian brands do). Theres a great sense of
responsibility for investors funds on view. This is a direct extension of Daburs philosophy of
taking care of its constituents and it adds to the sense of trust for the brand overall.
The company, through Dabur Pharma Ltd. does toxicology tests and markets ayurvedic
medicines in a scientific manner. They have researched new medicines which will find use in
O.T. all over the country therein opening a new market.
Dabur Foods, a subsidiary of Dabur India is expecting to grow at 25%. Its brands of juices,
namely, Real and Active, together make it the market leader in the Fruit Juice Category
34

INTRODUCTION TO NESTLE INDIA LIMITED

Nestle India is a subsidiary of Nestle S.A. of Switzerland. Nestle India manufactures a variety of
food products such as infant food, milk products, beverages, prepared dishes & cooking aids, and
chocolates & confectionary. Some of the famous brands of Nestle are NESCAFE, MAGGI,
MILKYBAR, MILO, KIT KAT, BAR-ONE, MILKMAID, NESTEA, NESTLE Milk, NESTLE
SLIM Milk, NESTLE Fresh 'n' Natural Dahi and NESTLE Jeera Raita.
Nestle was founded in 1867 in Geneva, Switzerland by Henri Nestle. Nestle's first product was
"Farine Lactee Nestle", an infant cereal. In 1905, Nestle acquired the Anglo-Swiss Condensed
Milk Company. Nestle's relationship with India started 1912, when it began trading as The Nestle
Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finished
products in the Indian market.
Today, Nestle is the world's largest and most diversified food company. It has around 2,50,000
employees worldwide, operated 500 factories in approximately 100 countries and offers over
8,000 products to millions of consumers universally.
The Company insists on honesty, integrity and fairness in all aspects of its business and expects
the same in its relationships. This has earned it the trust and respect of every strata of society that
it comes in contact with and is acknowledged amongst India's 'Most Respected Companies' and
amongst the 'Top Wealth Creators of India'.

Nestl has been a partner in India's growth for over nine decades now and has built a very special
relationship of trust and commitment with the people of India. The Company's activities in India
have facilitated direct and indirect employment and provides livelihood to about one million
people including farmers, suppliers of packaging materials, services and other goods.

35

36

LIQUIDITY RATIOS
1. CURRENT RATIO OF DABUR INDIA LTD

YEAR
CURRENT ASSETS
CURRENT LIABILITY
CURRENT RATIO

2009
973.42
696.97
1.40

2008
576.82
610.57
0.94

2007
397.78
379.27
1.05

2006
285.68
324.12
0.88

2007
678.69
1,027.31
0.66

2006
583.45
836.10
0.69

CURRENT RATIO OF NESTLE INDIA LTD

YEAR
CURRENT ASSETS
CURRENT LIABILITY
CURRENT RATIO

2009
903.36
1,501.18
0.60

2008
836.86
1,259.75
0.66

INTERPRETATION
37

The current ratio of Dabur in the year 2006 was 0.88 it had been increased to 0.94 in the year
2008. It is increased by 6.82%. The reason was increase in CA by 291.14 cr but the CL had been
increased by 286.45 cr. In the year 2009 the current ratio was 1.40 the reason is that the current
assets increased more than the current liability which can be observed form the above table.

On the other hand we see the current ratio of nestle it was decreased from 0.69 in the year 2008
to 0.66. The percentage of decrease 4.35%. And In the year of 2009 it also decrease the reason is
that the increase in current asset less than the increase in the current liability. The increase in the
current liability was 241.43 cr. But the increase in the current assets was increased by only 66.5
cr.

2. QUICK RATIO OF DABUR INDIA LTD

38

YEAR
CURRENT ASSETS
INVENTORIES
CURRENT LIABILITY
QUICK RATIO

2009
973.42
8.64
696.97
0.98

2008
576.82
13.95
610.57
0.57

2007
397.78
19.82
379.27
0.63

2006
285.68
32.87
324.12
0.52

QUICK RATIO OF NESTLE INDIA LTD

YEAR
CURENT ASSETS

2009

2008

2007

2006

903.36

836.86

678.69

583.45

INVENTORIES

558.08

484.13

442.40

332.62

CURRENT LIABILITY

1,501.18

1,259.75

1,027.31

836.10

QUICK RATIO

0.23

0.28

0.23

0.30

INTERPRETATION

39

The quick ratio of Dabur in the year 2006 was 0.52 it had been increased to 0.57 in the year
2008. it is increased by 9.62% . The reason was increase in QA by 139.63 cr but the CL had been
increased by 286.45 cr. In the year 2009 the current ratio was .98 the reason is that the current
assets increased more than the current liability which can be observed for the above table.
On the other hand we see the current ratio of nestle it was decreased from 0.30 in the year 2008
to 0.28. The percentage of decrease 6.67%. And In the year of 2009 it also decrease the reason is
that the increase in current asset less than the increase in the current liability. The increase in the
current liability was 241.43 cr. But the increase in the quick assets was decreased by only 7.45
cr.

3. INVENTORY TURN OVER RATIO OF DABUR INDIA LTD

INVENTORY RATIO = COST OF GOODS SOLD

40

AVERAGE STOCK

COST OF GOODS SOLD = SALES GROSS PROFIT

YEAR

2009

2008

2007

2006

COST OF GOOD
SOLD

358.75

337.69

403.42

316.46

AVERAGE STOCK

8.64

13.95

19.82

32.87

INVENTORY
TURNOVER RATIO

10.94

12.52

13.44

14.44

INVENTORY TURN OVER RATIO OF NESTLE INDIA LTD

YEAR

2009

2008

2007

2006

COST OF GOOD
SOLD

516.55

449.40

340.20

278.33

AVERAGE STOCK

558.08

484.13

442.40

332.62

INVENTORY
TURNOVER RATIO

11.61

11.39

10.02

12.01

INTERPRETATION

41

The ITR of DABUR in the year 2006 was 14.44 times and it decrease to 12.52 times in the year
2008. The percentage of decrease was 13.30%. the reason was that although the COGS had been
increased but the average stock was decrease. And similarly in the year 2009 it also decrease to
10.94 times.
On the other hand ITR of NESTLE was decrease from 12.01 in the year 2008 to 11.39 but it
increased to 11.61 times. In the year 2009 but it is not the good sign for the company as
compared to DABUR.

PROFITABILITY RATIOS
42

1. OPERATING PROFIT RATIO OF DABUR INDIA LTD

OPERATING PROFIT RATIO = OPERATING PROFIT *100
NET SALES

YEAR

2009

2008

2007

2006

OPERATING PROFIT

441.52

389.60

304.66

240.95

NET SALES

1,966.81

1,704.03

1,440.48

1,104.55

OPERATING RATIO

18.33

18.60

17.45

17.90

OPERTAING PROFIT OF NESTLE INDIA LTD

YEAR

2009

2008

2007

2006

OPERATING PROFIT

1,015.39

836.95

682.97

531.92

NET SALES

4,126.52

3,491.70

2,817.99

2,287.24

OPERATING RATIO

19.74

19.33

19.50

18.86

INTERPRETATION

43

The operating profit ratio of Dabur in the year 2006 was 17.90% but it increases to 18.60% in the
year 2008. There is increase of 0.70%. The reason of increase is that operating profit as well as
sales of the year 2008 is more than as compare to 2006. But in the year 2009 the oprerating profit
decrease to 18.33%. The reason for decrease is that although the profit increase but increase in
sales are more than as compare to increase in operating profit.
But on the other hand the operating profit ratio of the Nestle in the year 2006 was 18.86% and it
increasing to 19.33%. There was increase of 0.47%. The reason is same as increase in profit as
well as increase in the sale of the relevant year. But in the year 2009 the operating profit ratio is
also increases to 19.74% as compared to 2008.

2. GROSS PROFIT RATIO OF DABUR INDIA LTD

44

GROSS PROFIT RATIO = GROSSPROFIT *100

NET SALES

YEAR

2009

2008

2007

2006

GROSS PROFIT

452.24

399.36

307.80

242.01

SALES

1,966.81

1,704.03

1,440.48

1,104.55

GROSS PROFIT RATIO

17.19

17.37

16.19

16.49

GROSS PROFIT RATIO OF NESTLE INDIA LTD

YEAR

2009

2008

2007

2006

GROSS PROFIT

1,043.02

869.86

708.10

552.53

SALES

4,126.52

3,491.70

2,817.99

2,287.24

GROSS PROFIT RATIO

17.58

17.20

17.37

16.51

INTERPRETATION

45

The gross profit ratio of Dabur in the year 2006 was 16.49% but it increases to 17.37% in the
year 2008. There is increase of 0.88%. The reason of increase is that gross profit as well as sales
of the year 2008 is more than as compare to 2006. But in the year 2009 the gross profit decrease
to 17.19%. The reason for decrease is that although the profit increases but increase in sales are
more than as compare to increase in gross profit.
But on the other hand the gross profit ratio of the Nestle in the year 2006 was 16.51% and it
increasing to 17.20%. There was increase of 0.70%. The reason is same as increase in profit as
well as increase in the sale of the relevant year. But in the year 2009 the gross profit ratio is also
increases to 17.58% as compared to 2008.

3. NET PROFIT RATIO OF DABUR INDIA LTD

46

NET PROFIT RATIO = NET PROFIT *100

NET SALES

YEAR

2009

2008

2007

2006

NET PROFIT

372.84

315.92

251.94

189.29

SALES

1,966.81

1,704.03

1,440.48

1,104.55

NET PROFIT RATIO

15.44

15.06

14.41

14.04

NET PROFIT RATIO OF NESTLE INDIA LTD

YEAR

2009

2008

2007

2006

NET PROFIT

655.00

534.08

413.81

315.10

SALES

4,126.52

3,491.70

2,817.99

2,287.24

NET PROFIT RATIO

12.67

12.24

11.73

11.09

INTERPRETATION

47

current
The net profit ratio of Dabur in the year 2006 was 14.04% but it increases to 15.06% in the year
2008. There is increase of 1.02%. The reason of increase is that net profit as well as sales of the
year 2008 is more than as compare to 2006. But in the year 2009 the net profit ratio increase to
15.44%. The reason for increase is that although the profit increases but increase in sales are
more than as compare to increase in net profit.
But on the other hand the net profit ratio of the Nestle in the year 2006 was 11.09% and it
increasing to 12.24%. There was increase of 1.12%. The reason is same as increase in profit as
well as increase in the sale of the relevant year. But in the year 2009 the net profit ratio is also
increases to 12.67% as compared to 2008.

LEVERAGE RATIO
1. FIXED ASSETS TURN OVER RATIO OF DABUR INDIA LTD
48

FIXED ASSETS TURNOVER RATIO = SALES / COST OF SALES

TOTAL FIXED ASSETS

YEAR

2009

2008

2007

2006

SALES/COST OF SALE

1,966.81

1,704.03

1,440.48

1,104.55

TOTAL FIXED ASSETS

308.32

278.17

235.33

185.77

FIXED ASSETS RATIO

4.84

4.67

4.50

4.24

FIXED ASSETS TURN OVER RATIO OF NESTLE INDIA LTD

YEAR

2009

2008

2007

2006

SALES/COST OF SALE

4,126.52

3,491.70

2,817.99

2,287.24

TOTAL FIXED ASSETS

896.20

752.99

601.81

541.80

FIXED ASSETS RATIO

3.24

3.20

3.11

2.81

INTERPRETATION

49

The fixed assets ratio of Dabur has increased every year but with only minor changes but in the
period recession that is 2008 its assets are increased it shows that the company is uses its fixed
assets more as not interested in the investment in fixed assets and their under utilization.
Nestles fixed assets turnover has also increases but with small changes Nestle has been
extremely conservative during the past years. However, a buoyant economy, rising input cost
inflation and an improved product mix (more value added products) have improved Nestls
pricing power significantly and we expect realizations to grow at a much faster pace during the
period

2. TOTAL DEBT EQUITY RATIO OF DABUR INDIA LTD

50

TOTAL DEBT EQUITY RATIO

YEAR

2009

2008

2007

2006

TOTAL LIABILITY

138.98

16.69

19.54

20.48

SHAREHOLDERS EQUITY

651.69

441.92

316.90

390.54

DEBT EQUITY RATIO

0.18

0.03

0.04

0.04

TOTAL DEBT EQUITY RATIO OF NESTLE INDIA LTD

YEAR
TOTAL LIABILITY
SHAREHOLDERS EQUITY
DEBT EQUITY RATIO

2009

2008
-

484.85

376.93

2007

2006

2.87

16.27

322.01

292.47

0.01

0.04

INTERPRETATION

51

The ratio indicates that it is stable in two years that was 2006 07 but in 2008 it decreases due to
impact of recession, Dabur as a brand name has good brand image and people are willing to
invest in a company but still the outside liabilities of a companys is less than shareholders fund,
it indicates that the financial position will be better in coming days and we can see that in year
2009 it increases to .18. It is very low of the company from this it is interpret that the company
having the close difference in the equity and out side funds of the company, but it does not
satisfy the rule of thumb of the company

Nestles debt equity ratio has no better sign as we can see that the company has only two years
ratio that is in 2006- 07 and in 2008 and 2009 it is nill. It shows that due the recession period
company is unable to maintain its liability as we can see that for that period of time the liabilities
of a company is also nill. But it may improve in future as a Nestle brand is popular.

PER SHARE RATIOS

1. EARNING PER SHARE OF DABUR INDIA LTD
52

EPS = TOTAL EARNINGS FOR EQUITY SHARESHOLDER

NUMBER OF EQUITY SHARES

YEAR

2009

2008

2007

2006

TOTAL EARNINGS (IN

CRORE)

696.07

545.07

426.95

314.52

NUMBER OF EQUITY
SHARES(IN LAC)

8650.76

8640.23

8628.84

5733.03

EPS

4.10

3.57

2.81

3.27

EARNING PER SHARE OF NESTLE INDIA LTD

YEAR

2009

2008

2007

2006

TOTAL EARNINGS (IN

CRORE)

755.11

546.60

424.28

322.32

NUMBER OF EQUITY
SHARES(IN LAC)

964.16

964.16

964.16

964.16

EPS

69.32

55.71

43.32

33.23

INTERPRETATION

53

The earnings of Dabur increases every year as in the period of recession also the company is
performing well. It means that there is sufficient amount of profit available with the company to
pay to their equity shares holders. Higher the ratio it will treat as high efficiency of the company
and investors would like to invest more money in the company. It is increasing from the last few
years it is good sign for the company. But the dividend payout ratio is decreasing it means the
company is paying the less dividend as compare to last financial year. From this it is conclude
that the company is increasing the retained earnings for the future contingency so that the
company can easily meet the effect of the recession.
Nestles earning per share has also been increased every year and in the time of recession
company is able to maintain its earning and able to pay its equity share holders and encourage
them to invest more in the company.

2. DIVIDEND PER SHARE RATIO OF DABUR INDIA LTD

54

DIVIDEND PER SHARE = TOTAL EQUITY DIVIDEND

NUMBER OF EQUITY SHARES

YEAR

2009

2008

2007

2006

TOTAL EQUITY
DIVIDEND

151.39

129.60

122.13

100.32

NUMBER OF EQUITY
SHARES

8650.76

8640.23

8628.84

5733.03

DIVIDEND PER SHARE

1.75

1.50

1.75

2.50

DIVIDEND PER SHARE RATIO OF NESTLE INDIA LTD

YEAR

2009

2008

2007

2006

TOTAL EQUITY
DIVIDEND

467.62

409.77

318.17

245.86

NUMBER OF EQUITY
SHARES

964.16

964.16

964.16

964.16

DIVIDEND PER SHARE

48.50

42.50

33.00

25.50

INTERPRETATION

55

The dividend per share of Dabur India Ltd, in respect to the year 2008 as a period of recession
the dividend per share has been decrease as it is 1.50 and in 2009 it increases to 1.75. It shows
that Dabur has reduced its dividend in year 2008 due to recession but they recover and in 2009
they paid more as compare to previous year. Due to this shareholder will willing to invest more
as company recover frequently. It is increasing but the dividend payout ratio is decreasing. The
only reason is that the company is paying the fewer dividends behind the company earning. All
though the earning per share is increasing.

Nestles dividend per share remains increasing every year, We can also see that in the period of
recession that is 2008 its dividend per share is 42.50 which is increased from earlier that is
25.50 , 33.00 . It indicates that as the company faces many hazards but still they are able to pay
their dividend per share regularly and at increasing rate. It is good Sign for a company.

3. DIVIDEND PAY OUT RATIO OF DABUR INDIA LTD

56

DIVIDEND PAY OUT RATIO =

YEAR

2009

2008

2007

2006

DPS

1.75

1.50

1.75

2.50

EPS

4.10

3.57

2.81

3.27

DIVIDEND PAY OUT

RATIO

47.41

47.86

55.24

60.49

DIVIDEND PAY OUT RATIO OF NESTLE INDIA LTD

YEAR

2009

2008

2007

2006

DPS

48.50

42.50

33.00

25.50

EPS

69.32

55.71

43.32

33.23

DIVIDEND PAY OUT

RATIO

83.52

89.76

89.50

88.97

INTERPRETATION

57

The payout ratio provides an idea of how well earnings support the dividend payments. As the
ratio decreases every year. With respect to the year 2008 as a period of recession it decreases. It
shows that the company is unable to pay the dividend to the shareholder as it pays them earlier.
Dabur as fast moving company is successful and it has good brand image so it may the reason
that people want to invest in that. The investors who want more dividend treat higher ratio as
good ratio and those who are interested in the progress of the company, they accept even lower
ratio.
The payout ratio of Nestle has been increased in year 2006- 2007 and in 2008 there is minor
change it is because of recession and it has also effected in 2009 as it decrease in that year. It
shows that company is not able to pay dividend as it paid earlier to its shareholder. Because of its
well goodwill and establishment people are interested to invest in Nestle. It is not good sign for
the company because if any company has not paid the dividend or less dividend as compare to
last year. It also decreases the market price of the share and the decrease in the market share.

COMPARISION
58

The current ratio of Nestle is less as compare to Dabur India it means that Dabur has more
stability in terms of current ratio and Nestle India is well positioned to Capture growth owing to
its global parent support, strong set of core brands, wide distribution network and established
sourcing relationships for raw materials through initiatives like Nestle Milk Districts.
Dabur witnessed a sharp uptrend in domestic sales registering a 25.6% overall growth aided by a
steady 15.5% growth in volumes. A broad-based growth across categories reaffirms our view that
Nestle will be able to maintain this momentum in the future as well.
The year 2008 will go down in history as the year in which global market conditions changed
more quickly than ever before in the history of economics. What began as a financial crisis in
real estate in the USA broadened during the course of the year under review to a comprehensive
crisis of the real economy, and in the third and above all fourth quarter led to negative
developments in most Nestle & Dabur markets.
The massive, short-term increases in raw material prices during the course of the second half of
the year could either not be passed on to customers, or only in part. In addition, in a number of
markets local currencies suffered substantial losses in value
As we compare the Nestle and Dabur with its competitors like HUL, ITC, BRITANIA,
COLGATE PAMOLIVE etc we found that these companies has maintain their liquidity and
leverage position better As these are median types companies it means that as compare to HUL
and ITC they are median but still they are perform better. When looks up into the balance sheet
of these companies the most success one is ITC it has more stable liquidity position and its
market share is more than that of these companies. It leads by 25% among all of its competitors.
Daburs The paid up capital of the company has increased by Rs. 0.18 crore on February 10,
2010, consequent upon allotment of 1805664 equity shares of Re.1 each on exercise of stock
option by employees. Dabur has developed an optimal mix of manufacturing facilities at
different locations to reap maximum benefits from fiscal concessions and economies of scale. In
addition, further efficiencies in the supply chain right from procurement to production helped to
cap input costs. These operational factors coupled with good sales growth helped the Company
generate impressive profits and return to investors. The highlights of Dabur India Limiteds
performance in 2008-09 are:
59

 Revenue from operations increased by 10.5 per cent from Rs.1147.9 crore for 2006-07 to
Rs.1268.7 crore in 2008-09
Operating profit (EBIDTA) increased by 36 per cent from Rs.138.2 crore in 2006-07 to
Rs.187.9 crore in 2008-09
Interest outgo decreased by 38 % from Rs.6.9 crore in 2006-07 to Rs. 4.3 crore in 2008-09.
Profit after tax (PAT) increased by 46.3 %from Rs.101.2 crore in 2003-04 to Rs.148 crore in
2008-09.
Return on capital employed (ROCE) increased from 34.9 %in 2006-07 to 38.7 per cent in
2008-09
Return on net worth (RONW) increased from 38.6% in 2006-07 to 44.5 per cent in 2008-09
Dabur India continues to pursue its path of high profitable growth. With the renewed strength of
its brands, your Company recorded a 10.5 per cent growth in net sales, from Rs.1,148 crore in
2006-07 to Rs.1,268.7 crore in 2008-09. This healthy top-line growth, accompanied by
efficiencies in manufacturing and supply chain, contributed to a 36 per cent growth in operating
profits (EBIDTA) from Rs.138.2 crore in 2006-07 to Rs.187.9 crore in 2008-09
Thus, while Nestle registered a Sales CAGR growth of 11.4% during 2006-07 (aided by 6.6%
volume growth), it witnessed sharp acceleration in 2007 registering an impressive 24.7% enjoy
Top line growth (aided by 14.5% volume growth). The performance was even more impressive
when seen in the domestic context as Nestle registered a stronger 25.6% domestic sales growth
aided by a steady 15.5% volume growth.

60

FINDINGS
61

 DABUR company reported net sales of US$ 218 million in 2008-09. Dabur has firmed
up plans to restructure its sales and distribution structure and focus on its core businesses
of fast-moving consumer good products and over-the-counter drugs. Under the
restructured set-up, the company plans to increase direct coverage to gap outlets and gap
towns where Dabur is not present. A roadmap is also being prepared to rationalize the
stockists' network in different regions between various products and divisions.
Dabur's operating margin improved to 19 per cent in the nine months ended December
31, 2009, from 13.7 per cent in 2003-04 (refers to financial year, April 1 to March 31).
The company has healthy debt protection metrics: for the year ended March 31 2009, its
interest coverage and net cash accrual to total debt ratios were 23.8 times and 0.95 times
respectively. Dabur had a RoCE of 54.1 per cent in 2008-09, which is among the highest
in the FMCG sector.

Nestle has been constantly adapting and extending its product portfolio and brands to
meet changing consumer preferences. However, a buoyant economy, rising input cost
inflation and an improved product mix (more Value added products) have improved
Nestls pricing power significantly and we expect Realizations to grow at a much faster
pace during the period 2008-10
Over 2009-10, we expect Nestle to post a CAGR growth of 15.6% in revenue on the back
of strong growth in its domestic business (expected to grow by 16.3% CAGR to
Rs4,265cr in the mentioned period) supported by renewed consumer demand across
categories, innovative product launches and better pricing power.
Nestle operates in the four key segments ie., Milk Products & Infant Nutrition (Baby
Foods & Nutrition contributes 29% and value-added dairy products contribute 13.8% to
the Topline), Prepared Dishes & Cooking Aids (21.4%), Beverages (19.8%) and
Chocolate & Confectionery (16%). Thus, no single category contributes significant
amount to the top line. Moreover, as most categories are witnessing steady growth
pattern, we don't expect the sales mix to exhibit any significant changes.
Nestle leads the Rs465cr Baby Food segment with 85% Market share
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 The company also enjoys market leadership position in the Rs280cr Ketchup market with
39% share facing competition from players like Heinz and HUL.

In the Rs75cr Soups category, Nestle enjoys a strong No2 position after market leader
HUL
Nestle is the second largest player in the Rs1,400cr Chocolate segment with almost 25%
market share, second only to Cadbury.
On the operating front, Nestle has witnessed a contraction of 180bp in its gross margin
during the last couple of years from its average level of 55% owing to rising input cost
pressure particularly in raw materials like milk, green coffee, vegetable oils and wheat.
However, going forward, we expect gross margin to stabilize at around 52.5% levels as
we expect Nestle to reap benefits of premium product portfolio and take selective price
hikes to mitigate the impact of input cost inflation.
Nestle is extremely efficient in terms of capital efficiency as reflected in its zero debt
Balance Sheet, high Return Ratios (in excess of 100%) and negative Working Capital
requirements. Moreover, as the company distributes majority of the Earnings in form of
dividends (dividend Payout at 89%) and maintains low cash levels on the Balance Sheet,.

LIMITATIONS
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1. The time duration was less for the project as this project includes both financial and marketing
(survey) portions.
2. Some databases were not available due to the policy of company. So some part of analysis would
have been better if this limitation was not there.

3. Some sorts of problems were involved during marketing survey.

RECOMMENDATIONS
The Dabur already had a 65.8% market share in India. It would be difficult to increase the

market share substantially. Hence the dabur should focus on increasing the market size.
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 The Dabur should promote Chyawanprash as an all season product and try to remove the
misconception that it is only to be consumed during the winters to strengthen the immune system
against Winter Infections and Allergies.
It should occupy the shelf space next to the Health drinks in retail stores so that they can
remind the consumer of its claim of a comprehensive health supplement.
Now that the dabur is successfully shedding its image of being associated with middle and old
age people it could also target younger generation to expand its market.
Since Dabur Chyawanprash is perceived to be a Health supplement that aids in the
enhancement of the Immunity against winter related health problems , hence it should be
promoted strongly in areas where winters have traditionally been harsh and long.
Nestle must state in writing that it accepts that the international code and the subsequent
relevant World Health Assembly Resolutions are minimum requirements for every country.
Nestle must state in writing that it will make required changes to bring its Baby Food Marketing
policy and practice into line with International Code and Resolutions

CONCLUSION
After analyzing the financial statements of the Dabur by the help of various ratios, I observed that
the trend of growth is positive.

65

Dabur has strong performance with robust top line growth and high quality earnings in all
business segments. The performance is more satisfying when viewed in the light of the
challenging business environment of the Ayurvedic industry, Pharma, FMCG, Food in the export
and domestic markets.

Current ratio has continuously increased but the company needs to raise more of its current assets
and quick assets so that it can fulfill all its obligations and can raise the amount of working
capital for short- term investment. Earnings per share have increased which would surely help the
organization in expanding its market share.
Gross income also show the positive trend of growth, net turnover has also increased and return
on net worth has also grown. All these ratios show that the trends of profit are growing at a rapid
rate and thus it helps the company to meet the latent demands of customer too.
Moreover, after analyzing and comparing the financial statements of Dabur w.r.t. its competitors I
observed that Dabur is itself a big player in Chyawanprash industry as most of its ratios are far
better than NESTLE.

At last I can say from the above study that Emami (Himani Sona-Chandi Chyawanprash) is also
showing positive growth rate and can emerge as a great competitor for Dabur.

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