KIRLOSKAR INSTITUTE OF ADVANCED MANAGEMENT STUDIES

PROJECT SUBMISSION FOR STRATEGIC MANAGEMENT-II ON ANALYSIS OF PERFORMANCE OF THE COMPANIES FROM FMCG SECTOR

Submitted to: Dr. V.S.Pai

Submitted from : Anuja Desai (33) Shailendra Chaturvedi (94)

The companies taken for the study are from FMCG sector which can be enlisted as follows: 1.ITC Ltd. 2. Nirma Ltd. 3. Proctale& Gamble (India) Ltd. 4. Hindustan Unilever Ltd. 5. MARICO Ltd. 6. Dabur India ltd. 7. Colgate & Palmolive India Pvt. Ltd. 8. Emami 9. Godrej Consumer Products Ltd. 10. Jyoti Consumers Products Ltd. 11. Gillete India

The variables for the analytical study used are: 1. 2. 3. 4. 5. Operating Margin Net Profit Margin Return on Capital Employed (ROCE) Return on Net Worth (RONW) Asset Turn-Over Ratio

The companies are being classified into three groups as: Low Performing Companies Medium Performing High Performing

The basis of classification is ROCE (Return on Capital Employed), the cut-off being: ROCE < 20% - Low Performing 20% < ROCE < 50% - Medium Performing ROCE> 50% - High Performing ANALYSIS FOR THE BASE YEAR: Operating Margin Null Hypothesis H0: There is no difference between the means of operating margins of the groups. Alternate Hypothesis HA: The mean of operating margin of at least one group is different. Test of Normality: three

Tests of Normality Kolmogorov-Smirnov Statistic OM .131 df 11

a

Shapiro-Wilk Statistic
*

Sig. .200

df 11

Sig. .489

.937

a. Lilliefors Significance Correction *. This is a lower bound of the true significance. As the significant value of the Shapiro Wilk test is greater than .05, this implies that the Shapiro Wilk test is significant and hence the data is normally distributed. Leveness Test (Homogeneity of Variances)

Test of Homogeneity of Variances OM Levene Statistic 2.019 df1 2 df2 8 Sig. .195

As the significance level of the Levene Test is greater than .05, this implies that the null hypothesis is not rejected, and the variance of the different groups is same. One Way ANNOVA

ANOVA OM Between Groups Within Groups Total Sum of Squares 92.188 673.174 765.362 df 2 8 10 Mean Square 46.094 84.147 F .548 Sig. .598

The significance value of the F test in the ANOVA table is 0.598. Thus, we do not reject the null hypothesis, so average operating margin is equal across different groups of companies.

Net Profit Margin Null Hypothesis H0: There is no difference between the means of net profit margins of the groups. Alternate Hypothesis HA: The mean of net profit margin of at least one group is different. Test of Normality: three

Tests of Normality Kolmogorov-Smirnov Statistic NPM .204 df 11

a

Shapiro-Wilk Statistic
*

Sig. .200

df 11

Sig. .218

.906

a. Lilliefors Significance Correction *. This is a lower bound of the true significance. As the significant value of the Shapiro Wilk test is greater than .05, this implies that the Shapiro wilk test is significant and hence the data is normally distributed.

Leveness Test (Homogeneity of Variances)

Test of Homogeneity of Variances NPM Levene Statistic .977 df1 2 df2 8 Sig. .417

As the significance level of the Levene Test is greater than .05, this implies that the null hypothesis is not rejected, and the variance of the different groups is same. One Way Annova ANOVA NPM Between Groups Within Groups Total Sum of Squares 47.585 196.812 244.397 df 2 8 10 Mean Square 23.793 24.601 F .967 Sig. .421

The significance value of the F test in the ANOVA table is 0.421. Thus, we do not reject the null hypothesis, so average net profit margin is equal across different groups of companies.

Return On Net Worth Null Hypothesis H0: There is no difference between the means of return on net worth of the groups. Alternate Hypothesis HA: The mean of return on net worth of at least one group is different. Test of Normality: three

Tests of Normality Kolmogorov-Smirnov Statistic RONW .279 df 11

a

Shapiro-Wilk Statistic .696 df 11 Sig. .000

Sig. .017

a. Lilliefors Significance Correction As the significant value of the Shapiro Wilk test is less than .05, this implies that the null hypothesis of Shapiro wilk test is rejected, so the data is not normally distributed.

Leveness Test (Homogeneity of Variances) Test of Homogeneity of Variances RONW Levene Statistic 9.667 df1 2 df2 8 Sig. .007

As the significance level of the Levene Test is less than .05, this implies that the null hypothesis is rejected, and the variance of the different groups is different. One Way ANNOVA ANOVA RONW Sum of Squares Between Groups Within Groups Total 3674.799 4926.062 8600.861 df 2 8 10 Mean Square 1837.400 615.758 F 2.984 Sig. .108

The significance value of the F test in the ANOVA table is 0.108. Thus, we do not reject the null hypothesis, so average operating margin is equal across different groups of companies. Return on Capital Employed (ROCE) Null Hypothesis H0: There is no difference between the means of return on net worth of the groups. Alternate Hypothesis HA: The mean of return on net worth of at least one group is different. Test of Normality three

Tests of Normality Kolmogorov-Smirnov Statistic ROCE .173 df 11

a

Shapiro-Wilk Statistic
*

Sig. .200

df 11

Sig. .038

.846

a. Lilliefors Significance Correction *. This is a lower bound of the true significance. As the significant value of the Shapiro Wilk test is less than .05, this implies that the null hypothesis of Shapiro wilk test is rejected, so the data is not normally distributed.

Leveness Test (Homogeneity of Variances) Test of Homogeneity of Variances ROCE Levene Statistic 10.729 df1 2 df2 8 Sig. .005

As the significance level of the Levene Test is greater than .05, this implies that the null hypothesis is not rejected, and the variance of the different groups is same. One Way ANNOVA ANOVA ROCE Sum of Squares Between Groups Within Groups Total 6407.079 2516.908 8923.987 Df 2 8 10 Mean Square 3203.540 314.613 F 10.182 Sig. .006

The significance value of the F test in the ANOVA table is 0.006. Thus, we reject the null hypothesis. Therefore we know that the group means of at least one group is different. To find out which group means are different we conduct the post hoc Tuckey Test. The results for the same are:-

Multiple Comparisons ROCE Tukey HSD

Mean (I) Perfornance low performing (J) Perfornance medium performing high performing medium performing low performing high performing high performing low performing medium performing Difference (I-J) Std. Error -19.64533 -63.31667
*

95% Confidence Interval Sig. .334 .006 .334 .024 .006 .024 Lower Bound -56.6593 -104.6996 -17.3686 -80.6853 21.9338 6.6574 Upper Bound 17.3686 -21.9338 56.6593 -6.6574 104.6996 80.6853

12.95353 14.48248 12.95353 12.95353 14.48248 12.95353

19.64533 -43.67133 63.31667 43.67133

* * *

*. The mean difference is significant at the 0.05 level.

ROCE Tukey HSD Subset for alpha = 0.05 Perfornance low performing medium performing high performing Sig. N 3 5 3 .360 1 12.9967 32.6420 76.3133 1.000 2

Means for groups in homogeneous subsets are displayed. The above results of the tuckey test show that all the three group means are different from each other. This result is mainly because we have done the grouping on the basis of ROCE. Alos, it depicts that the group variance differs the high performing group from the low & medium performing group. Asset Turnover Ratio Null Hypothesis H0: There is no difference between the means of asset turnover ratio of the groups. Alternate Hypothesis HA: The mean of asset turnover ratio of at least one group is different. Test of Normality: three

Tests of Normality Kolmogorov-Smirnov

a

Shapiro-Wilk

Statistic ATO .169

df 11

Sig. .200
*

Statistic .886

df 11

Sig. .125

a. Lilliefors Significance Correction *. This is a lower bound of the true significance. As the significant value of the Shapiro Wilk test is greater than .05, this implies that the null hypothesis of Shapiro wilk test is accepted, so the data is normally distributed.

Leveness Test (Homogeneity of Variances)

Test of Homogeneity of Variances ATO Levene Statistic 1.813 df1 2 df2 8 Sig. .224

As the significance level of the Levene Test is greater than .05, this implies that the null hypothesis is accepted, and the variance of the different groups is same. One Way ANNOVA ANOVA ATO Sum of Squares Between Groups Within Groups Total 4.253 27.125 31.378 df 2 8 10 Mean Square 2.127 3.391 F .627 Sig. .558

The significance value of the F test in the ANOVA table is 0.558. Thus, we do accept the null hypothesis, so average net profit margin is equal across different groups of companies.

ANALYSIS FOR THE YEAR 2012: Operating Margin Null Hypothesis H0: There is no difference between the means of net profit margins of the groups. Alternate Hypothesis HA: The mean of net profit margin of at least one group is different. three

Normality Test:

Tests of Normality Kolmogorov-Smirnov Statistic OM .207 Df 11

a

Shapiro-Wilk Statistic
*

Sig. .200

df 11

Sig. .006

.786

a. Lilliefors Significance Correction *. This is a lower bound of the true significance. As the significant value of the Shapiro Wilk test is less than .05, this implies that the null hypothesis of Shapiro wilk test is rejected, so the data is not normally distributed.

Leveness Test (Homogeneity of Variances) Test of Homogeneity of Variances OM Levene Statistic 1.021 df1 2 df2 8 Sig. .403

As the significance level of the Levene Test is greater than .05, this implies that the null hypothesis is accepted, and the variance of the different groups is same. One Way ANNOVA

ANOVA OM Sum of Squares Between Groups Within Groups Total 25.418 420.017 445.435 df 2 8 10 Mean Square 12.709 52.502 F .242 Sig. .791

The significance value of the F test in the ANOVA table is 0.791. Thus, we do accept the null hypothesis, so average operating margin is equal across different groups of companies.

Net profit margin Null Hypothesis H0: There is no difference between the means of asset turnover ratio of the groups. Alternate Hypothesis HA: The mean of asset turnover ratio of at least one group is different. three

Normality tests As the significant value of the Shapiro Wilk test is greater than .05, this implies that the null hypothesis of Shapiro wilk test is accepted, so the data is normally distributed.

Tests of Normality Kolmogorov-Smirnov Statistic NPM .155 df 11

a

Shapiro-Wilk Statistic
*

Sig. .200

df 11

Sig. .940

.976

a. Lilliefors Significance Correction *. This is a lower bound of the true significance.

Levens Test

Test of Homogeneity of Variances NPM Levene Statistic .691 df1 2 df2 8 Sig. .529

The significance is greater than 0.05, thus; the null hypothesis is accepted.

Annova

ANOVA NPM Sum of Squares Between Groups Within Groups Total 49.430 310.144 359.574 df 2 8 10 Mean Square 24.715 38.768 F .638 Sig. .553

The null hypothesis is accepted and thus there is no difference between the group variances for performance.

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ROCE Null Hypothesis H0: There is no difference between the means of asset turnover ratio of the groups. Alternate Hypothesis HA: The mean of asset turnover ratio of at least one group is different. three

Tests of Normality Kolmogorov-Smirnov Statistic ROCE .264 Df 11

a

Shapiro-Wilk Statistic .792 Df 11 Sig. .007

Sig. .031

a. Lilliefors Significance Correction There is no normal distribution as the null hypothesis is rejected. Levenes Test: Test of Homogeneity of Variances ROCE Levene Statistic 5.650 df1 2 df2 8 Sig. .030

The null hypothesis is accepted. ANOVA ROCE Sum of Squares Between Groups Within Groups Total 7869.135 7339.634 15208.769 df 2 8 10 Mean Square 3934.568 917.454 F 4.289 Sig. .054

RONW Null Hypothesis H0: There is no difference between the means of asset turnover ratio of the groups. Alternate Hypothesis HA: The mean of asset turnover ratio of at least one group is different. Tests of Normality Kolmogorov-Smirnov
a

three

Shapiro-Wilk

11

Statistic RONW .303

Df 11

Sig. .006

Statistic .842

df 11

Sig. .034

a. Lilliefors Significance Correction

Test of Homogeneity of Variances RONW Levene Statistic 4.706 df1 2 df2 8 Sig. .045

ANOVA RONW Sum of Squares Between Groups Within Groups Total 4375.004 4102.970 8477.974 df 2 8 10 Mean Square 2187.502 512.871 F 4.265 Sig. .055

ATO Null Hypothesis H0: There is no difference between the means of asset turnover ratio of the groups. Alternate Hypothesis HA: The mean of asset turnover ratio of at least one group is different. Tests of Normality Kolmogorov-Smirnov Statistic ATO .278 df 11
a

three

Shapiro-Wilk Statistic .708 df 11 Sig. .001

Sig. .017

a. Lilliefors Significance Correction

Tests of Normality Kolmogorov-Smirnov Statistic ATO .278 df 11

a

Shapiro-Wilk Statistic .708 df 11 Sig. .001

Sig. .017

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Tests of Normality Kolmogorov-Smirnov Statistic ATO .278 df 11

a

Shapiro-Wilk Statistic .708 df 11 Sig. .001

Sig. .017

a. Lilliefors Significance Correction

Test of Homogeneity of Variances ATO Levene Statistic 2.102 df1 2 df2 8 Sig. .185

ANOVA ATO Sum of Squares Between Groups Within Groups Total 36.675 187.376 224.051 df 2 8 10 Mean Square 18.337 23.422 F .783 Sig. .489

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DISCRIMINANT ANALYSIS a. How good is the model? How many companies does it classify correctly? The predicted model is being classified as 100% of the original grouped cases. Thus, it can be inferred that all the companies classifies correctly for the predicted classification. Thus, the companies are being classified correctly & represents a good predictor model.

Classification Results

Predicted Group Membership medium Perfornance Original Count low performing medium performing high performing % low performing medium performing high performing low performing 3 0 0 100.0 .0 .0 performing 0 5 0 .0 100.0 .0 high performing 0 0 3 .0 .0 100.0 Total 3 5 3 100.0 100.0 100.0

a. 100.0% of original grouped cases correctly classified. b. How significant is the discriminant function, statistically speaking? Wilks' Lambda Test of Function(s) 1 through 2 2 Wilks' Lambda Chi-square .009 .545 28.285 3.640 df 10 4 Sig. .002 .457

The Wilks Lamda is significant at the value 0.009. Ideally, the Wilks Lamda value should be 0 through 1 and lower the value than 1, the better is the model. Thus, looking at the table, our model is better as it has a significant value of 0.009.

Tests of Equality of Group Means Wilks' Lambda OM NPM .880 .805 F .548 .967 df1 2 2 df2 8 8 Sig. .598 .421

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ROCE RONW ATO

.282 .573 .864

10.182 2.984 .627

2 2 2

8 8 8

.006 .108 .558

According to the F-test, the ROCE is coming out to be the best predictor as it has the lowest value of significance and the Wilks Lamda is also the lowest amongst other variables. c. Which variable (relatively speaking) is a better predictor of a company being low, average or better performer? Standardized Coefficients Function 1 OM NPM ROCE RONW ATO 25.540 -16.454 7.803 -7.322 17.183 2 6.795 -4.997 -.176 .377 3.660 Canonical Discriminant Function

The variable which is better predictor for function 1 is the Operations margin as the standardized coefficient is highest amongst all the other variables followed by NPM (Net Profit Margin). For next function, the best predictor remains the same as he function 1. d. How to classify a new company into one of the groups by building a decision rule and a cut off score?

Canonical Discriminant Function Coefficients Function 1 OM NPM ROCE RONW ATO 2.784 -3.317 .440 -.295 9.332 2 .741 -1.007 -.010 .015 1.988

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(Constant)

-51.682

-8.946

Unstandardized coefficients To classify a new company we need to formulate a discriminant equation. Since there are 3 classified groups, we have two functions (n-1) over here. The equations are as follows: D1 : -51.682+2.784(OM)+(-3.317)(NPM)+0.440(ROCE)+(-0.295)(RONW)+9.332(ATO) D2 : -8.946+0.741(OM)+(-1.007)(NPM)+(-0.010)(ROCE)+0.015(RONW)+1.9889(ATO)

For a new company to classify, we should substitute values in functions D1 & D2 for the new company and then only we would get discriminant scores for that company. These scores are then compared with the existing group centroids and the scores which are matching to any of the centroids will get classified into that respective group. Functions at Group Centroids Function Perfornance low performing medium performing high performing 1 -6.594 -2.262 10.365 2 1.006 -.810 .345

Unstandardized canonical discriminant functions evaluated at group means

The above shown table gives the group centroids for the current classifications. 11. Discriminant Analysis for YEAR 2012 a) How good is the model? How many companies does it classify correctly?

The model represents that it is only 72.7% correct than that of year 2003 which was 100% correct. Classification Results
a

Predicted Group Membership medium Performance Original Count low performing medium performing high performing % low performing low performing 2 2 0 66.7 performing 1 3 0 33.3 high performing 0 0 3 .0 Total 3 5 3 100.0

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medium performing high performing

40.0 .0

60.0 .0

.0 100.0

100.0 100.0

a. 72.7% of original grouped cases correctly classified. b) How significant is the discriminant function, statistically speaking? Wilks' Lambda Test of Function(s) 1 through 2 2 Wilks' Lambda Chi-square .221 .758 9.048 1.663 df 10 4 Sig. .528 .797

The Wilks Lamda is significant at the value 0.221. Ideally, the Wilks Lamda value should be 0 through 1 and lower the value than 1, the better is the model. Thus, looking at the table, our model is better as it has a significant value of 0.221. Tests of Equality of Group Means Wilks' Lambda OM NPM ROCE RONW ATO .943 .863 .483 .484 .836 F .242 .638 4.289 4.265 .783 df1 2 2 2 2 2 df2 8 8 8 8 8 Sig. .791 .553 .054 .055 .489

The most discriminating variable is ROCE as it has lowest significant F-value. c) Which variable (relatively speaking) is a better predictor of a company being low, average or better performer? Standardized Canonical Discriminant Function Coefficients Function 1 OM NPM ROCE RONW ATO -2.034 1.897 3.376 -2.130 -.622 2 .410 .212 1.700 -1.989 .758

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The variable which is better predictor for function 1 is the RONW as the standardized co-efficient is highest amongst all the other variables followed by Operating Margin. For next function, the best predictor is RONW followed by ROCE. d) How to classify a new company into one of the groups by building a decision rule and a cut off score? Canonical Discriminant Function Coefficients Function 1 OM NPM ROCE RONW ATO (Constant) -.281 .305 .111 -.094 -.128 .092 2 .057 .034 .056 -.088 .157 -1.293

Unstandardized coefficients To classify a new company we need to formulate a discriminant equation. Since there are 3 classified groups, we have two functions (n-1) over here. The equations are as follows: D1 : 0.092+(-0.281)(OM+0.305(NPM)+0.111(ROCE)+(-0.094)(RONW)+(-0.128)(ATO) D2 : -1.293+0.057(OM)+(0.034)(NPM)+(0.056)(ROCE)+(-0.088)(RONW)+0.157(ATO)

For a new company to classify, we should substitute values in functions D1 & D2 for the new company and then only we would get discriminant scores for that company. These scores are then compared with the existing group centroids and the scores which are matching to any of the centroids will get classified into that respective group.

Functions at Group Centroids Function Performance low performing medium performing high performing 1 -1.278 -.495 2.103 2 -.636 .497 -.192

Unstandardized canonical discriminant functions evaluated at group means

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The above shown table gives the group centroids for the current classifications.

Conclusion: The classifications of the companies according to their performance can be given as follows. This table also represents the change in performance since last decade.

Name of the Company Emami Jyoti Nirma Dabur Gillete Marico ITC P&G Colgate Palmolive HUL GCPL

Performance in 2002-2003 Low Low Low Medium Medium Medium Medium Medium High High High

Performance in 2012 Low Medium Low Low Medium Low Medium Medium High High High

Legends: Red Fonts The company is not performing well Purple Fonts The company is improving its performance.

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