Professional Documents
Culture Documents
Britannia Mario HUL
Britannia Mario HUL
Britannia Mario HUL
Group 8 - Section D
Page 1
Group 8 - Section D
Page 2
Group 8 - Section D
Page 3
The Indian FMCG market is expected to increase at a CAGR of 14.7 % to $ 110.4 Billion from $
44 Billion during 2012-20 while the total consumption expenditure is to reach $ 3600 Billion
from $ 1328 Billion. The rural FMCG market is expected to increase at a rate of 17.7% to $ 100
Billion
Growing demand: Rising incomes and growing youth population have been key growth
drivers. Brand consciousness has added demand.
Higher Investments: Industry has witnessed a healthy FDI inflow, as the sector
accounted for 3.0 % of the countrys total FDI inflow over April 2000 to October 2013.
Organized retail is expected to 14-18 % of the overall retail market by 2015
Attractive Opportunities: Low penetration levels in rural market offers room for
growth. Disposable income in rural India has increased due to direct cash transfer
scheme. Growing demand for premium products.
Investment approval of up to 100 % foreign equity in single brand retail and 51 % in
multi brand retail
Group 8 - Section D
Page 4
SectionD_Group8_Pr
oject.xlsx
Britannia
0.321
0.995
Marico
0.103
0.762
GCPL
0.812
1.052
HUL
0.193
0.892
2.1 ANALYSIS
The beta values indicate the percentage change in the return on stock price of a company
relative to the percentage change in the total market return.
2.1.1 Using 1-year beta
Beta values for all the 4 companies is less than 1 which implies that the stock are low
risk and are therefore less sensitive to the market variation. Among the selected stocks
Godrej Consumer Products Ltd is the most risky compared to its peers with Marico Ltd
being the most stable.
2.1.2 Using 3-year beta
The stocks are observed to move in tandem with the market with GCPL carrying highest
risk amongst its peers with a beta value of 1.052 whereas Marico again has the least
Beta value of 0.762.
Page 5
The market value of equity (Market capitalization) and the book value of Long term
Debt of the last year, that is, FY14 is taken into consideration for calculation of cost of
capital
The Cost of Equity is calculated using the CAPM method
The tax rate is assumed as 33.99% (Source : KPMG)
The credit ratings are taken from ACE EQUITY database
Credit ratings for only long term loans are considered for calculation of cost of debt
The default spread for cost of debt is determined from the default spreads for
corporate from FIMMDA database
SectionD_Group8_Pr
oject.xlsx
Companies
Market
Premium
Beta Value
Cost of Equity
Britannia
7.77
7.20
0.995
14.939
Marico
7.77
7.20
0.762
13.263
GCPL
7.77
7.20
1.052
15.348
HUL
7.77
7.20
0.892
14.195
Companies
Credit Rating
Cost of Debt
Britannia
AAA
0.47
33.99
8.240
Marico
AA+
0.57
33.99
8.340
GCPL
AA
1.04
33.99
8.810
HUL
AAA
0.47
33.99
8.240
Group 8 - Section D
Page 6
SNo.
Companies
D/E Ratio
Britannia
0.0004
5.439
14.939
14.938
Marico
0.1275
5.505
13.263
13.121
GCPL
0.0000
5.815
15.348
15.348
HUL
0.0000
5.439
14.195
14.195
of
Since the sector includes products such as hair oil, cosmetics, dairy products
(commodities) etc. which are sold quickly and at relatively low cost, the industry is
resilient to slowdown
Rainfall or monsoon is one of the key systematic risks
In 2014, El Nino was a key risks to the consumption, which posed a threat of reduction
in rainfall by 40% though it only went to a level of 10%.
GDP and Disposable Income: Products such as hair oils and cosmetics depend on the
disposable income which depends on urbanization and GDP growth. Inflation also plays
as a systematic risk.
Taxes: The taxes such as excise duties on machinery and customs duty on raw material
plays a key role in driving the costs of FMCG products
Group 8 - Section D
Page 7
Return on Equity
140.00%
120.00%
Britannia Industries Ltd
100.00%
80.00%
60.00%
40.00%
HUL
20.00%
0.00%
FY14
FY13
FY12
FY11
FY10
140.00%
120.00%
100.00%
80.00%
60.00%
40.00%
HUL
20.00%
0.00%
FY14
FY13
FY12
FY11
FY10
The ratios ROE and ROCE are performance ratios indicated how well the companys capital is
generating profit. It has two components namely: Profit and Investment.
Group 8 - Section D
Page 8
Group 8 - Section D
Page 9
Companies
Cost of Equity
Britannia
49.34
14.939
Marico
29.12
13.263
GCPL
19.56
15.348
HUL
131.80
14.195
The Return on Equity is greater than Cost of Equity for all 4 company but we can clearly see that
GCPLs Return on Equity is closer to its cost of equity. Since all the firms are big and are not
take-over targets and their return is higher than cost of equity and all except Marico have no
debt, they should take debt to finance new projects as that will increase the debt and also
maximize company valuation by decreasing the cost of capital. But it is clearly seen that all of
them follow the pecking order theory.
Group 8 - Section D
Page 10
FY14
0.00
0.28
0.09
0.00
FY13
0.34
0.36
0.11
0.00
FY12
0.84
0.51
0.09
0.00
FY11
0.96
0.63
0.18
0.00
FY10
1.08
0.16
0.01
0.00
Total Debt/Equity
1.2
1
0.8
0.6
0.4
0.2
0
FY10
Britannia Industries Ltd
Group 8 - Section D
FY11
FY12
Marico Industries Ltd
FY13
Godrej Consumer Products Ltd
FY14
HUL
Page 11
Interest Cover
Company
Britannia Industries Ltd
Marico Industries Ltd
Godrej Consumer Products Ltd
HUL
FY14
FY13
FY12
FY11
FY10
100.75
9.8
6.96
5.68 19.89
24.57
13.41 15.09 10.77 16.99
18.74
36.32 34.78 63.14 82.73
140.56
166.45 2798.6 12239 404.94
HUL
Interest Cover
14000
120
100
80
60
40
20
0
12000
10000
8000
6000
FY10
FY11
FY12
FY13
FY14
4000
2000
0
FY10
FY11
FY12
FY13
FY14
We believe that the industry does contribute a substantial portion of the companys decision to
not undertake debt in this sector. Fast moving goods, negative working capitals, profitable and
sustainable businesses and low capital intensive nature of the industry further influence such a
decision. Also, we think that most companies want to unknowingly apply the pecking order
theory to manage their capital structure with growth funded by internal cash, followed by debt
and at last by equity. Apart from the example of Marico Industries Ltd., the other three players
seem to be following this approach.
Group 8 - Section D
Page 12
54.38%
53.45%
51.26%
FY12
FY11
FY10
43.46%
38.92%
FY14
FY13
Annualised Dividend %
600.00%
425.00%
425.00%
325.00%
250.00%
FY14
FY13
FY12
FY11
FY10
Group 8 - Section D
Page 13
FY14
30.83
143.91
FY13
19.56
101.66
FY12
15.63
101.53
FY11
12.16
77.64
FY10
48.77
59.73
Britannia has maintained a nearly constant payout ratio from FY10 to FY11 but has that has
dropped down because of large increase of 57.61% in EPS from FY13 to FY14 attributed to the
increase in sales which can be seen from the Profit and Loss account in the excel sheet
attached. There is no increase in dividend from FY12 to FY13 because Britannia freed up the
funds for mutual-funds investments to cash, short term advances/loans and dividend payments
to please the shareholders by not dropping the dividend amount even.
Britannia went for a stock split of 5-for-1 on 8th Sept 2010 and the stock price moved from 420
to 480 on the day of the split and face value changed from 10 to 2.
5.1.2 Effect on Share Price
The share price did have a positive or upward effect due to the dividend payout but the
splitting of the stock in FY10 eventually led to fall in the price of share as can be seen from the
chart above. If we carefully observe every year, the dividend payout has had a positive or low
positive effect on share price.
Group 8 - Section D
Page 14
Group 8 - Section D
Page 15
30.00%
20.00%
10.00%
15.03%
12.79%
12.86%
FY13
FY12
FY11
17.09%
0.00%
FY14
FY10
Annualised Dividend %
350.00%
100.00%
FY14
FY13
70.00%
66.00%
66.00%
FY12
FY11
FY10
Page 16
From the chart above we can clearly see that the share price of Marico has risen continuously
over the last five years which minor fluctuations. Though we can see a rise in share price during
the period of dividend payout but it is difficult to co-relate both as the share price has been
continuously rising attributed to the various acquisitions made by Marico during this period.
Group 8 - Section D
Page 17
Group 8 - Section D
Page 18
52.80%
40.00%
30.00%
31.65%
33.31%
FY14
FY13
33.48%
26.75%
20.00%
10.00%
0.00%
FY12
FY11
FY10
Annualised Dividend %
525.00%
FY14
500.00%
FY13
475.00%
FY12
450.00%
FY11
425.00%
FY10
Group 8 - Section D
Page 19
FY14
FY13
FY12
FY11
FY10
1
16.59
178.7
34.0378
5.25
1
15.01
170.16
34.0327
5
1
17.76
156.63
34.0297
4.75
1
13.44
163.2
32.3590
4.5
1
8.05
125.86
30.8190
4.25
It is very evident that the company follows a strict policy of increasing the dividend per share by
Rs 0.25 every year. As compared to its peers Godrej Pays lowest but one dividend per share
with Marico being the lowest.
5.3.2 Effect on Share Price
It is very clear from the graph that the share price is independent of the dividend payouts.
Group 8 - Section D
Page 20
The company spreads out its dividends into interim dividends in each quarter
5.3.3 Dividend Policy
Marico has a conservative dividend policy. This is because the company has shown inorganic
growth (acquisition of Darling group and Cosmetica Nacionel in Fy13 and FY12) and similar is
indicated in the balance sheet by the increased long term investments every year. The company
bought back shares in FY08 and FY09 to increase the shares of the its executives for a better
management control during the Global Financial Crisis and to signal positive for its share price
to the shareholders by rewarding them.
Group 8 - Section D
Page 21
72.71%
50.00%
60.24%
60.86%
FY12
FY11
67.43%
30.00%
10.00%
FY14
-10.00%
FY13
FY10
Annualised Dividend %
1850.00%
1300.00%
750.00%
FY14
FY13
FY12
650.00%
650.00%
FY11
FY10
Group 8 - Section D
Page 22
FY14
FY13
FY12
1
17.88
2811.43
1
17.56
3999.99
1
12.45
1620.94
FY11
1
10.68
1410.6
FY10
1
9.64
1417.94
It is clear that the dividend paid out only a one-time special dividend when it observed
accumulated cash due to sale of assets. Hence the company does not want to accumulate cash
in order to avoid slacking of management and rewards its shareholders
HUL pays out dividend twice every year and from the graph it can be seen that share price
increases when dividend is paid but eventually this effect gets neutralized.
Group 8 - Section D
Page 23
Group 8 - Section D
Page 24
Inventory
growth
Company
Britannia Industries Ltd
Marico Industries Ltd
Godrej Consumer Products Ltd
HUL
Company
Britannia Industries Ltd
Marico Industries Ltd
Godrej Consumer Products Ltd
HUL
From the above, we can observe that there is constant revenue growth in all the four
companies. The growth inventory is fluctuating and in FY13-14 Britannia Industries Ltd. and HUL
have shown positive growth whereas Marico Industries Ltd. and Godrej Consumer Products Ltd.
have a reduction in inventory levels. These figures do not give us a clear picture to analyze.
Assessment of inventory turnover will give us a better understanding of inventory positions.
The inventory turnover is a measure which indicates how many times the inventory has
converted into sales for the company. It is usually measured as:
Inventory Turnover = Average Inventory
Cost of Goods Sold
All the companies have taken cognition of improving their inventory days. Improving the
inventory turnover, leads to improved cash flow and thereby better financial position. Also, it
indicates a prudent approach to inventory management.
Group 8 - Section D
Page 25
Company
Britannia Industries Ltd
Marico Industries Ltd
Godrej Consumer Products
Ltd
HUL
FY10
13.13
6.29
FY11
14.69
5.71
FY12
14.51
6.03
FY13
15.97
5.5
FY14
18.4
5.37
Avg.
15.34
5.78
8.78
7.74
10.76
8.27
8.39
8.7
7.82
10.82
8.35
11.21
8.82
9.35
Inventory Turnover
20
15
10
5
0
FY10
Britannia Industries Ltd
FY11
FY12
Marico Industries Ltd
FY13
FY14
HUL
The above table indicates the trend whereby, each of the companies is trying to improve their
inventory turnover. Also, from the table, we can easily observe the increased inventory
turnover Britannia Industries Ltd. and HUL as compared to Marico Industries Ltd. and Godrej
Consumer Products Ltd.
Cash Conversion Cycle is another useful working capital measure, through which we can see
how soon can a company store a product, sell it, collect money and also, pay its suppliers.
Cash Conversion Cycle (CCC) = Inventory Days + Receivable Days - Payable Days
Cash
Conversion
Cycle
Company
FY10
FY11
FY12
FY13
Britannia Industries Ltd
20.69 12.33
6.09
3.09
Marico Industries Ltd
28.84
46.5 44.46 42.28
Godrej Consumer Products
Ltd
13.35 11.13 -3.47 -15.7
HUL
-40.26 -33.5 -23.54 -25.73
Group 8 - Section D
FY14
-3.18
43.28
Avg.
7.80
41.07
-29.38 -4.81
-30.53 -30.71
Page 26
30
20
10
0
-10
FY10
FY11
FY12
FY13
FY14
-20
HUL
-30
-40
-50
From the above, we observe that apart from Marico Industries Ltd. all the other three
companies have a negative cash flow cycle. This is principally because of the delayed payments
made by these companies to the suppliers. Marico Industries Ltd. has a substantially high CCC.
This is principally because the company has to wait for quite a while to realize its cash from its
sales, leading to higher CCC. Below we have the split of each individual companys inventory
days, receivable days and payable days. Each of these metrics was calculated as:
Inventory Days =
360
Inventory turnover
Receivable Days =
Payable Days =
Inventory
Days
Company
Britannia Industries Ltd
Marico Industries Ltd
Godrej Consumer
Products Ltd
HUL
Group 8 - Section D
FY10
27.8
57.99
FY11
24.85
63.96
FY12
25.15
60.55
FY13
22.85
66.31
FY14
19.84
67.92
Avg.
24.10
63.35
41.56
47.16
33.94
44.13
43.52
41.94
46.69
33.74
43.71
32.57
41.88
39.91
Page 27
Receivable
Days
Company
Britannia Industries Ltd
Marico Industries Ltd
Godrej Consumer
Products Ltd
HUL
Payable
Days
Company
Britannia Industries Ltd
Marico Industries Ltd
Godrej Consumer
Products Ltd
HUL
Group 8 - Section D
FY10
4.75
14.02
FY11
4.15
16.57
FY12
3.97
13.53
FY13
4.14
12.04
FY14
3.72
13.47
Avg.
4.15
13.93
6.06
12.1
9.76
14.28
11.63
12.77
10.42
10.12
11.09
10.19
9.79
11.89
FY10
11.86
43.17
FY11
16.67
34.03
FY12
23.03
29.62
FY13
23.9
36.07
FY14
26.74
38.11
Avg.
20.44
36.20
34.27
99.52
32.57
91.91
58.62
78.25
72.81
69.59
84.18
73.29
56.49
82.51
Page 28
Group 8 - Section D
Page 29