Institute of Management Technology, Ghaziabad

Post-Graduate Diploma in Management, 2021-23

Financial Accounting Project

NESTLE INDIA Limited

Program & Batch PGDM 2021-2023

Section and APO Group E-8
Hermann Singh Oberoi 210103062
Ishaan Rajput 210101038
Pratyaksh Verma 210102040
Raghav Bansal 210102076
Sahil Biswas 210103184
Siddhant Goyal 210101166
Twinkle Dawar 210101131
 List of Contents
1. Background

1.1 Company’s History and Background

1.2 Market Share and Growth Potential
1.3 Latest Revenue and Costs Figures
1.4 Business Risks
1.5 Company’s top management
1.6 Share Holding Pattern
1.7 Major News in the last 5 years
1.8 Long Term Competitive Advantage

2. Ratio Analysis

2.1 Profitability Ratios

2.2 Liquidity Ratios
2.3 Solvency Ratios
2.4 Activity Ratios

3. Horizontal Trend Analysis

4. Vertical Trend Analysis

5. DuPont Analysis

6. Bibliography
 1. Background

1.1 Company History and Background

Nestle India Ltd, is one of the world’s largest food and beverage company in India. It is a subsidiary
of Swiss multinational company, Nestle S.A. The company was incorporated in 28 March, 1959. Its
main office is located in Gurgaon, Haryana. The other main offices are located in Delhi, Chennai,
Mumbai and Kolkata. The company has 8 manufacturing facilities. The first manufacturing facility
of Nestle opened in 1961 at Moga, Punjab, where it produced milk products. The farmers benefited
in return by receiving education from Nestle about irrigation methods, crop management, and bank
loans.

The main business segment of Nestle are Chocolate and Confectionary, Dairy, Food, Beverage,
Nutrition and Breakfast Cereals.. Nestle entered the chocolate business segment in 1990. It is now
the second largest chocolate company in India. Its various brands of chocolates are Barone, KitKat,
Munch, Milky bar, etc. In the beverage segment, it mainly sells the instant coffee under the brand of
Nestle. Maggi, the 2-minute noodles, is the major contributor in food segment. It was launched in
India in 1984 and it is now the most famous noodles of the country. The advertising cost for Maggi
amounts is about 100 crores. Maggi is available in variety of flavours such as veg-atta, oats, spicy
garlic ,sweet chilli, etc. In the dairy segment, Nestle sells milk, Dahi and jeera raita. Various brands
in the category are NESTLÉ a+ GREKYO Yoghurt, NESTLÉ a+ Nourish Milk, NESTLÉ a+
Nourish Dahi, NESTLÉ a+ SLIM Milk & Curd, NESTLÉ Bhuna Jeera Raita and NESTLÉ
ACTIPLUS Dahi. The breakfast cereals segments has brands- Koko Krunch and NesPlus. Nesplus
was launched in 2018, and its taste was adjusted for the local populations. The move was also part
of the strategy against its rivals.

In order to face the challenge of changing consumer taste, Nestle has a Research & Development
Centre in India, which is also a part of its global R&D network. Nestle had invested CHF 50 million
for the centre and it started operating from 2012. The main focus has been to develop competitive
product with best price that is relevant to the ongoing trend while maintaining the taste and
nutritional value. It helped in addressing the concerns of important micronutrients by adding iodine,
zinc, Vitamin A and iron, to the regularly consumed foods. Nestle also opened Food Safety Institute
in Manesar, Haryana to tackle the demand for food safety in India. It takes the support from its
capability of global R&D expertise.

Sources: Nestle India Website

1.2 Market Share and Growth Potential

IN 2020, Nestle cerelac product by Nestle India occupied 97% share in the market. And the instant
pasta has 75% share in the industry. It is clearly visible that Nestle India has more than 50% share
in more than 7 segments out of the 9 segments it is dealing in FMCG products. Nestle India is
considered as one of the largest FMCG company in consumer market. It specializes in food,
beverages, chocolate, and confectionary

Valuation of India FMCG at 110 billion U.S. dollars in 2020. While analysing the figures of 2012,
the market size of FMCG had increased 3 times. By 2025, the market share is expected to increase
to 220 billion dollars.

While FMCG had a low share in India’s GDP , FMCG goods takes the maximum volume of traded
goods. The country’s FMCG market include “food and beverages, household and personal care, and
healthcare”. Although tier1,2,3,4 cities areas shared the market almost equally , the low tier city
derives CAGR more rapidly. And due to pandemic online FMCG purchase got rapid boast.
Source: Statista
 1.3 Latest Revenue and Cost Figures

Revenue Amount (INR in

million)
Domestic Sales 126,427.70
Export Sales 6,473.90
Total Sales 132,901.60

Revenues by Product groups Amount (INR in million) Share (%)

Milk Products and Nutrition (dairy whitener, 61,487.80 46.3%
condensed milk, UHT milk, yoghurt, maternal and
infant formula, baby foods, health care nutrition)
Prepared dishes and cooking aids (noodles, sauces, 39,108.20 29.4%
seasonings, pasta, cereals)
Powdered and Liquid Beverages (instant coffee, 14,762.50 11.1%
instant tea, ready to drink beverage)
Confectionery (bar countlines, tablets, sugar 17,543.10 13.2%
confectionery)
Total sales product-wise 132,902 100%

Costs Amount (INR in million)

Raw materials 47,127.40
Packing materials 8,415.00
Cost of materials consumed 55,542.40
Salaries, wages, bonus, pension, performance 13,148.90
incentives etc
Contribution to provident and other funds 627.10
Share based payments 423.50
Staff welfare expenses 810.00
Employee Benefit Expenses 15,009.50
Interest cost on employee benefit plans 1,376.40
Interest on bank overdraft and others 180.40
Interest on finance lease 85.00
Finance costs 1,641.80
Other expenses 29,132.80

1.4 Business Risks

  Changes in out-of-home consumption
As a result of Covid-19, out-of-home consumption has decreased. People are confined to
their homes due to work from home, online education, and travel restrictions. This change in
consumption pattern has impacted Nestle but with things moving back to normal, demand
for out-of-home consumption will gradually improve.

 Increased dependence on IT
Shift to WFH and online education due to pandemic has increased the dependence on IT.
Excessive dependence has also led to vulnerability to cyber-attacks.

 Global and Macro Economic factors

These factors affect consumer demand and sharp inflation in commodity prices.

 Climate risk
Climate change is a continuous threat to Nestle. Extreme weather events such as extreme
temperature, heavy rainfall etc. pose challenges to current business models. However, Nestle is
continuously working towards addressing these challenges by adopting various environmental
conservation measures.

Sources: Annual Report 2020, TCFD Report-Nestle

1.5 Company’s Top Management

The company's top management includes:

Mr. Suresh Narayanan (Chairman & Managing Director)
Mr. Matthias C. Lohner (Executive Director - Technical) 24
Dr. Swati A. Pirmala (Non-Executive Director)
Mr. R. V. Kanoria (Non-Executive Director)
Ms. Rama Bijapurkar (Non-Executive Director)
Ms. Roopa Kudva (Non-Executive Director)
Mr. P. R. Ramesh (Non-Executive Director)
Mr. David S. McDaniel (Executive Director- Finance & Control and CFO)15
Mr. B. Murli (General Counsel and Company Secretary).

Top Management Analysis

Mr Suresh Narayanan was appointed as Managing director on 1 st August 2015. He joined Nestle in
1999 as Executive Vice President and has worked for the company since then which shows his
commitment and integrity. The CEO has even mentioned that he was specifically chosen to be sent
to India during the Maggi crisis which he successfully handled and increase the market share from
42% to 61%. Thus, he is equally talented and has a good understanding of markets in India. He
recently became the highest paid Chairman in the FMCG Industry.
Dr Swati A. Piramal joined Nestle India Ltd in 2010 and has been with the company since. An
expert in the field of Healthcare and Medicine, she is the first woman to be elected as the President
of ASSOCHAM in the last 90 years of its existence. She is also a recipient of France’s highest
honour “Knight of the Order of Merit”.
 Ms. Roopa Kudva is an alumnus of IIM Ahmedabad, she has been appointed as Non-Executive
Director in the company in 2019. She has been awarded as the “Outstanding Woman Business
Leader” of the year and “Corporate Woman Award” in 2014.
All in all the management of the company holds a rich experience in their respective fields and have
been with the company for an average of 10-12 years at least. Even before working for Nestle India
Ltd, they have been associated with the other subsidiary in one or the other locations. They exhibit
integrity and excellence which are required for the growth of the company. The Management can be
rated 9/10 in terms of Talent and Integrity both.
For a long time the promoter holdings of the company have remained unchanged at 62.76% with
zero pledged shares. The FIIs and Mutual funds holdings also has remained more or less same
during the past few years. This indicates that the promoters and investors hold significant
confidence with the company.

Sources: Nestle India Annual Report 2020

Promoter and Top Management Analysis

Mr Suresh Narayanan was appointed as Managing director on 1 st August 2015. He joined Nestle in
1999 as Executive Vice President and has worked for the company since then which shows his
commitment and integrity. The CEO has even mentioned that he was specifically chosen to be sent
to India during the Maggi crisis which he successfully handled and increase the market share from
42% to 61%. Thus, he is equally talented and has a good understanding of markets in India. He
recently became the highest paid Chairman in the FMCG Industry.
Dr Swati A. Piramal joined Nestle India Ltd in 2010 and has been with the company since. An
expert in the field of Healthcare and Medicine, she is the first woman to be elected as the President
of ASSOCHAM in the last 90 years of its existence. She is also a recipient of France’s highest
honour “Knight of the Order of Merit”.
Ms. Roopa Kudva is an alumnus of IIM Ahmedabad, she has been appointed as Non-Executive
Director in the company in 2019. She has been awarded as the “Outstanding Woman Business
Leader” of the year and “Corporate Woman Award” in 2014.
All in all, the management of the company holds a rich experience in their respective fields and
have been with the company for an average of 10-12 years at least. Even before working for Nestle
India Ltd, they have been associated with the other subsidiary in one or the other locations. They
exhibit integrity and excellence which are required for the growth of the company. The
Management can be rated 9/10 in terms of Talent and Integrity both.
For a long time, the promoter holdings of the company have remained unchanged at 62.76% with
zero pledged shares. The FIIs and Mutual funds holdings also has remained more or less same
during the past few years. This indicates that the promoters and investors hold significant
confidence with the company.

1.6 Shareholding Pattern

Shown below is the shareholding pattern for Nestle India Limited as on 18.9.2021

Entity No of Shareholders Number of Equity Shares In Percentage Terms

Promoters and
Promoter Group 2 60515079 62.76%
Public Shareholding 167107 35900637 37.24%
Institutions
 Mutual Funds 46 3527935 3.66%
Alternate investment
funds 19 127496 0.13%
Foreign Portfolio
Investors 697 11986365 12.43%
Financial
Institutions/Banks 22 53213 0.06%
Insurance Companies 33 3927286 4.07%
Government/President of
India 1 1600 0.00%
Non-Institution
Public Shareholders 166289 16276742 16.88%
Total 167109 96415716 100.00%

Shareholding Pattern Nestle India Ltd

17%
4%
0%
12%
63%
0%
4%

Promoters and Promoter Group Mutual Funds

Alternate investment funds Foreign Portfolio Investors
Financial Institutions/Banks Insurance Companies
Non Institution Public Shareholders

Headquartered in Gurgaon, Nestle India Ltd is the Indian arm of multinational company Nestle
based in Switzerland. Nestle S.A and Maggi Enterprises Limited together hold 62.76% of the
subsidiary with 34.28% and 28.48% being the respective shareholdings. Further Axis Nifty ETF
and SBI ETF SENSEX being the two mutual funds with a total of 3.66% holdings. This has been
reduced from 3.81% in the previous quarter. But overall Institutional Investors have increased their
holdings from 12.29% to 12.43%.
Sources: Nestle India Annual Report 2020

1.7 Major News in the last 5 years

Mergers and Acquisitions

 Nestle India Ltd. has made no mergers and acquisitions in the past five years.

Analyst Insights
 Analysts define the strengths of Nestle India based on the advantages it holds from being
market leader in multiple product segments, known brands that have become household
names, mature distribution network, and a diverse revenue profile.
 Being a dominant FMCG company in the food industry, Nestle either edges other brands
under most of its product categories, or falls among the top two across numerous categories
such as beverages, chocolates and confectionery, dairy and nutrition, and readymade foods
and cooking aids. It has been able to maintain its standing and generate steady cash due to
its well-established brands.
 The source of its revenues are abundant, which is necessary to alleviate risk. Here two
segments (milk and nutrition products, Maggi range) generate 76% revenue and chocolates
& confectioneries and beverages generate 14% and 10% revenue respectively. This proved
beneficial for Nestle as it did not face significant hardships to performance during the Maggi
noodles ban in 2015.
 Nestle India has the massive advantage of receiving extended support of its parent company,
Nestle SA, which is one of the giants among the top global FMCG companies in the Food
and Beverages sector and holds 62.76% stake in Nestle India. As most of its brands are part
of the parent company, Nestle India boasts access to extensive research and scientific know-
how.
 Nestle has a remarkable liquidity with a cash surplus of over Rs.4000 Crore as of June 30 th,
2019, which provides financial flexibility and good health for the company.
 Nestle is faced with fierce competition from various FMCG multinationals across all the
divisions it operates in, in the form of ambitious product launches and marketing schemes
from competitors and changing consumer tastes.

Source: CRISIL

News
Highest-paid FMCG CEO
 Nestle beats HUL to offer the highest CEO package out of all FMCGs in India. The
Chairman & Managing Director of Nestle India, Suresh Narayan has seen a 6.3% increase in
his salary of Rs.16.17 Crore from CY2019, to overall draw of Rs.17.19 Crore in CY2020.
While his earnings crossed those of HUL’s Sanjiv Mehta, it is worth noting that Mehta saw
a decrease in earnings from Rs.19.42 Crore to Rs.15.4 Crore during the same period.
(abplive.com)
Source: ABP News

Nestle stock attains new peak

 The stock price of Nestle India Ltd has reached new heights by crossing the Rs.20000 mark
on 27th August 2021. Even amid disruptions due to the pandemic among its factories, Nestle
has seen a healthy revenue growth of 13.8% year-on-year. Analysts predict strong
performance through its e-commerce and hyperlocal mediums for in-home products and
expect to see a revival in out-of-home sectors coming out of the pandemic.
Source: Business Standard
 The unhealthy portfolio fiasco
 Nestle has shifted into damage control mode after an internal presentation meant for top
management got leaked, stating that 60% of Nestle’s product portfolio was unhealthy.
Following this news, the share price of Nestle India fell more than 1% in the early hours of
1st June, 2021. However, this news will have only a limited impact in India as Nestle
operates only 9 of its 35 largest brands here, and it has not positioned brands such as Maggi
in the health category.
Sources: thefederal.com, moneycontrol.com
Nestle holds its own in the pandemic
Even as other FMCG companies saw a decline in growth during the start of the pandemic,
Nestle India showed strong a 10.8% rise in the first half of 2019 and 21% growth in its
premium offerings. By implementing effective pricing and product strategies by region,
introducing innovative products with sizable advertising spends and a plan to build its ninth
manufacturing facility, Nestle is showing reliable growth in these times.
Source: Bloombergquint.com
Maggi noodles ban
 In 2015 it was discovered that Maggi noodles were unsafe for human consumption as they
had hazardous levels of MSG (monosodium glutamate) and lead content that was 1000
times the amount that Nestle has insisted. In addition, the packaging also read “no added
MSG”. On the command of FSSAI (Food Safety and Standards Authority of India) Nestle
had to pull 38,000 tonnes of Maggi from around the country and destroy it. This resulted in
an absolute drop in market share from 80% to 0%, and cost Nestle more than Rs.500 Crore.
The stock price took its biggest hit on June 8 th, 2015 and fell to its lowest level in 2015 at
Rs.5539.8. The company also declared its net loss in almost 30 years, at Rs.64.40 Crore.
Sources: indiatoday.in, dnaindia.com

1.8 Long Term Competitive Advantage

Nestle in India has built some of the most popular FMCG brands like Maggi, Nescafe,
Kitkat, etc.
Nestle India is a major player in the processed food market and its products are also
exported to Russia, France, Japan, and other areas.
The culture of providing affordable and value-for-money products along with continuous
investment in research and development in new products has helped the company to reach
such heights. The company has ensured that its supply chain is efficient which has ensured
that its product reaches the most remote parts of India which can be credited to its smaller
stock-keeping units (SKUs). It has also ensured that top celebrities endorse its product and
always come up with a unique advertising strategy that ensures that the brand is more visible
than its competitors. There are the following long term competitive advantages of Nestle
over other brands:

 Nutrition, Health, and Wellness 

 The most important aim of Nestle is to improve its consumers' lives by offering them healthy
and good quality food and beverages. This can be expressed by their tagline ‘Good Food, Good
Life.
 
 Quality Assxurance and product safety
Nestle India is synonymous with good quality and safe products. It ensures that all its
products are safe and of high standards.
 
 Consumer Communication
Nestle India try to communicate about its brand in such a way that customer can make well-
informed choices and promotes healthier diets.
 
 Leadership and personal responsibility
Nestle India believes that “Success is based on the people”. The people in Nestle India treat
each other with dignity and self-respect. They hire people who are competent and possess a
high-value system.
 
 Supplier and customer relations
Nestle India implements responsible sourcing in its supply chain. Nestle India is
empowering its farmers and suppliers so that they can sustainably able to produce raw
materials that it uses. Nestle India keeps its advertisement campaigns very interactive which
helps them in keeping their customers engaged and it also helps Nestle India in collecting
high-quality data.

These are some of the long-term competent strategies for nestle as it has been following
them for more than 150 years of its existence. If nestle keeps following these strategies, it
will ensure that the environment that it operates in remains in a good state and it will ensure
stable performance in the long run.

1.9 Key Insights from Management Discussion and Analysis Report.

 “In order to foster an improved internal control culture in the Company, wherein every
employee is fully aware of all the major risk/controls faced in his / her work sphere and
assumes responsibility for the controls performed therein, the Company has inter-alia
implemented a tool called "Controls Manager" which works on the basic concept of Control
Self-Assessment”

The Company has tried to improve the internal control environment by implementing a tool
called ‘Controls Manager’.
The Same tool was used in the year 2019 as well

 Manpower Figure of the company as on December 31, 2020 was 7,747.

 Manpower Figure of the company as on December 31, 2019 was 7,649.
 As a part of manpower development and training and with an aim to increase efficiency,
employees have been sent on postings and environments to other nestle group companies.
  “Further, the Company has appointed Ombudsman for Infant Code, under which
employees can report Infant Code violations directly to the Ombudsman, with adequate
safeguard to protect the employee reporting.”
Nestle has appointed and ombudsman (an official who deals with complaints made by
employees against the organizations) for Infant Code under which the employees can
directly report infant code violations.

 “During the Year 2020, the Board of Directors had accepted all recommendation of the
Committees of the Board of Directors, which are mandatorily required to be made.”

“As per the requirement of the Sexual Harassment of Women at the Workplace
(Prevention, Prohibition and Redressal) Act, 2013 (POSH), the Company has a robust
mechanism in place to redress complaints reported under it.”

 In 2020, there were 4 cases of sexual harassment reported in the company, which were
investigated and resolved as per the provisions of POSH.
 In 2019, there were 7 cases of sexual harassment reported in the company, which were
investigated and resolved as per the provisions of POSH.

1.10 Key Insights from Managing Directors Message to the Shareholders.

1. “Our PURPOSE has helped us stay strong, despite challenges in the external environment.”
 The employees had voluntarily donated a part of their salary, which was topped up
by an equal contribution from Nestle India, and was donated to the Indian Red Cross
Society for relief efforts.

2. “We are committed to the PLANET through sustainable use of resources.”

 The company has accelerated its efforts to achieve net zero greenhouse emissions by
2050.
 In the next decade the company will introduce products with lower carbon footprint
and will move towards sustainable packaging.

3. “We delivered a STRONG PERFORMANCE and are committed to MAKE in INDIA

and MADE in INDIA”
  The company is planning to invest INR 26 billion over the next 4 years to support
the governments initiative of make in India.

4. “Looking ahead in the NEW NORMAL.”

 The company is looking towards increasing penetration and proclivity towards more
transparent and better trustworthy brands.
 The company is committed make the life of its consumers and the planet better.
 2. Ratio Analysis

2.1 Profitability Ratios

2020 2019 2018 2017 2016

Return on Assets (ROA) Net Income/ Total Assets 26.36% 27.44% 19.87% 16.64% 14.70%
Return on Equity (ROE) Net Income/Shareholder's Equity 103.12% 102.58% 43.74% 35.82% 30.51%
Financial Leverage Return on Equity - Return on Assets 76.76% 75.14% 23.87% 19.18% 15.81%
EPS Net Income/Number of shares of common 215.98 204.16 166.70 127.10 103.90
stock outstanding
Net Profit Margin Net Income/Net Sales 15.67% 16.01% 14.33% 12.31% 11.03%
Operating Profit Margin Operating profit/Net Sales 21.70% 21.10% 20.46% 17.68% 16.38%

21.70% 21.10% 20.46%

17.68%
15.67% 16.01% 16.38%
14.33%
12.31%
11.03%

2020 2019 2018 2017 2016

Net Profit Margin

Linear (Net Profit Margin)
Operating Profit Margin
Linear (Operating Profit Margin)

Financial Leverage
120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
2020 2019 2018 2017 2016

Return on Assets (ROA) Return on Equity (ROE)

Financial Leverage
  Sales of Nestle increased by 45% from 2016 to 2020 whereas the increase in operating
profits was 90%. This is why the OPM increased by 33% from 2016 to 2020. Increase in
Operating Profit margin indicates that the profitability of the company has improved.
 Financial Leverage = Return on Equity- Return on Assets.
 Financial leverage of Nestle has witnessed a sharp increase because of increase in Return on
Equity since ROA has remained stable over the periods. ROE has increased by more than
100% in 2019. This significant increase is attributable to payment of special interim
dividend of Rs. 180 per share out of previous year’s accumulated profits in 2019. This had
an impact on retained earnings of 2019.

2.2 Liquidity Ratios

2020 2019 2018 2017 2016

Current Ratio Current Assets/Current Liabilities 1.68x 1.74x 2.55x 2.64x 2.40x
Quick Ratio Quick Assets/Current Liabilities 1.11x 1.16x 2.03x 2.03x 1.71x
Receivable Turnover Ratio Net Credit Sales/Average Trade Receivables 91.9 98.8 105 108.45 106.72
Average age of receivables Days in year/Receivable Turnover 3.97 3.69 3.48 3.37 3.42

Liquidity Ratios
3
2.5
2
1.5
1
0.5
0
2020 2019 2018 2017 2016

Current Ratio Quick Ratio

Liquidity Ratio Parameters

5000
4000
3000
2000
1000
0
2020 2019 2018 2017 2016

Current Assets Current Liabilities

Inventories

 The Current Ratio of Nestle started decreasing from 2018. It has declined by 30% in a span of 5
years i.e. from 2016 to 2020. This is primarily because of the drastic decrease in current assets in
2019 and increase in current liabilities (Trade payables playing a significant role)
  The Quick Ratio of Nestle also followed the same trend as that of Current Ratio. It declined by 43%
from 2018 to 2019. This is mainly attributed to the decline in the current assets.
 The reason behind significant decrease in current assets in 2019 is attributable to payment of special
interim dividend which had an impact on cash & cash equivalents.

2.3 Solvency Ratios

2020 2019 2018 2017 2016

De bt to Equity Ratio 7.31% 9.85% 0.96% 1.05% 1.04%
Inte re st Cove rage Ratio 1.80% 2.86% 0.56% 0.60% 0.61%

Solvency Ratios
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2020 2019 2018 2017 2016

Debt to Equity Ratio Interest Coverage Ratio

 Debt Equity ratio isn’t relevant for Nestle since it has negligible debt. However, the drastic increase
in Debt Equity from 0.96% to 9.85% in 2019 is attributed to decline in the Retained Earnings in
Reserves & Surplus. The reason for decreased retained earnings is payment of special interim
dividend in 2019.

2.4 Activity Ratios

2020 2019 2018 2017 2016

Inventory Turnover Ratio 9.85 10.94 12.01 11.00 10.69
 Inventory trend and Inventory Turnover Ratio
14.00 1600
1416.48
12.00 1283.07 1400
10.00 1200
965.55 902.47 943.18 1000
8.00
800
6.00
600
4.00 400
2.00 200
0.00 0
2020 2019 2018 2017 2016

Inventory Inventory Turnover Ratio

 The Inventory turnover ratio witnessed a slight decrease over the analysis period, the impact
of which can be attributable to the increase in cost of materials consumed.

3. Horizontal Trend Analysis

PROFIT AND LOSS STATEMENT

Dec-16 Dec-17 Dec-18 Dec-19 Dec-20

Total Operating Revenues 100% 109% 122% 134% 145%
Other Income 100% 118% 173% 165% 98%
Total Revenue 100% 109% 123% 135% 144%
Cost Of Materials Consumed 100% 112% 116% 136% 147%
Purchase Of Stock-In Trade 100% 151% 200% 189% 164%
Interests Payments 100% 2618% 3189% 3679% 4677%
Depreciation And Amortisation Expenses 100% 97% 95% 105% 105%
Other Expenses 100% 104% 120% 123% 124%
Total Expenses 100% 106% 116% 126% 136%
Profit/Loss Before Exceptional, ExtraOrdinary Items And Tax100% 122% 162% 178% 187%
Profit/Loss Before Tax 100% 128% 168% 185% 195%
Total Tax Expenses 100% 119% 160% 137% 142%
Profit/Loss After Tax And Before ExtraOrdinary Items 100% 132% 173% 212% 225%
Profit/Loss From Continuing Operations 100% 132% 173% 212% 225%
Profit/Loss For The Period 100% 132% 173% 212% 225%

 The Revenues of the company have shown a stable growth over the past five years. Also the
total expenses in the past five years have shown a growth which is lesser as compared to
revenues which ultimately reflect in high profit growth of the company for the same period.
 One thing to observe carefully is that the interest costs borne by the company has increased
tremendously due to large increase in borrowing over the years.
BALANCE SHEET
 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20
Total Share Capital 100% 100% 100% 100% 100%
Reserves and Surplus 100% 114% 123% 62% 66%
Total Reserves and Surplus 100% 114% 123% 62% 66%
Total Shareholders Funds 100% 114% 122% 64% 67%
NON-CURRENT LIABILITIES
Long Term Borrowings 100% 106% 106% 160% 96%
Deferred Tax Liabilities [Net] 100% 79% 38% 9% 0%
Other Long Term Liabilities 100%
Long Term Provisions 100% 116% 125% 147% 166%
Total Non-Current Liabilities 100% 113% 119% 142% 157%
CURRENT LIABILITIES
Short Term Borrowings
Trade Payables 100% 123% 155% 204% 232%
Other Current Liabilities 100% 82% 89% 93% 103%
Short Term Provisions 100% 27% 49% 27% 33%
Total Current Liabilities 100% 91% 114% 134% 153%
Total Capital And Liabilities 100% 108% 119% 105% 116%
ASSETS
NON-CURRENT ASSETS
Tangible Assets 100% 96% 88% 86% 80%
Capital Work-In-Progress 100% 50% 56% 76% 339%
Fixed Assets 100% 93% 86% 85% 97%
Non-Current Investments 100% 123% 155% 157% 156%
Deferred Tax Assets [Net]
Long Term Loans And Advances 100% 34% 30% 35% 34%
Other Non-Current Assets 100%
Total Non-Current Assets 100% 97% 95% 95% 105%
CURRENT ASSETS
Current Investments 100% 109% 151% 79% 57%
Inventories 100% 96% 102% 136% 150%
Trade Receivables 100% 91% 127% 127% 168%
Cash And Cash Equivalents 100% 166% 183% 149% 201%
Short Term Loans And Advances 100% 51% 31% 22% 23%
OtherCurrentAssets 100% 256% 363% 317% 378%
Total Current Assets 100% 120% 144% 116% 128%
Total Assets 100% 108% 119% 105% 116%

 By looking at the company’s shareholder funds, we can deduce that there is reduction in overall
funds. And noticing the Deferred Tax Liabilities section, we see that it has become negligible in
the last 5 years. The company has been using the reserved funds for possibly decreasing its tax
liabilities and paying dividends which have increased by three times since 2019.
 Trade Payables are increasing on year-on-year basis which show that the company is buying
more raw materials on a credit rather than cash basis.
 An increase in Capital Work in Progress indicates the company’s activities regarding new
projects or business expansion which might be financed through a mix of debt and equity
Source: moneycontrol.com
4. Vertical Trend Analysis
 BALANCE SHEET

Dec-20 Dec-19 Dec-18 Dec-17 Dec-16

Equity Share Capital 1.22 1.34 1.19 1.31 1.42
Total Share Capital 1.22 1.34 1.19 1.31 1.42
Reserves and Surplus 24.34 25.41 44.23 45.15 42.86
Total Reserves and Surplus 24.34 25.41 44.23 45.15 42.86
Total Shareholders Funds 25.56 26.75 45.42 46.46 44.28
Long Term Borrowings 0.40 0.74 0.43 0.48 0.49
Deferred Tax Liabilities [Net] 0.00 0.19 0.73 1.66 2.27
Other Long Term Liabilities 1.11 1.26 0.01 0.01 0.00
Long Term Provisions 41.37 40.53 30.48 31.12 28.98
Total Non-Current Liabilities 42.89 42.71 31.64 33.27 31.73
Short Term Borrowings 0.04 0.00 0.00 0.00 0.00
Trade Payables 23.49 22.68 15.34 13.37 11.74
Other Current Liabilities 6.68 6.67 5.65 5.71 7.54
Short Term Provisions 1.34 1.19 1.94 1.19 4.71
Total Current Liabilities 31.55 30.54 22.93 20.27 23.99
Total Capital And Liabilities 100 100 100 100 100
Tangible Assets 27.59 32.64 29.68 35.53 40.10
Intangible Assets 0.00 0.00 0.00 0.00 0.00
Capital Work-In-Progress 8.08 2.00 1.30 1.28 2.76
Other Assets 0.00 0.00 0.00 0.00 0.00
Fixed Assets 35.67 34.64 30.98 36.81 42.87
Non-Current Investments 9.38 10.37 9.07 7.95 6.97
Deferred Tax Assets [Net] 0.25 0.00 0.00 0.00 0.00
Long Term Loans And Advances 0.59 0.65 0.50 0.63 1.98
Other Non-Current Assets 1.13 1.12 0.89 1.13 0.00
Total Non-Current Assets 47.02 46.78 41.43 46.52 51.82
Current Investments 9.15 14.05 23.80 18.93 18.73
Inventories 17.93 17.89 11.94 12.26 13.86
Trade Receivables 2.09 1.73 1.54 1.21 1.44
Cash And Cash Equivalents 22.40 18.24 19.91 19.79 12.93
Short Term Loans And Advances 0.17 0.17 0.22 0.39 0.84
OtherCurrentAssets 1.24 1.14 1.16 0.90 0.38
Total Current Assets 52.98 53.22 58.57 53.48 48.18
Total Assets 100 100 100 100 100

As discussed before total shareholders’ funds has decreased from 2016 to 2020, that clearly
signifies that the company has increased its liabilities or decreased its assets. But looking at the
Total Current Assets and Total Non-Current Assets, it shows that the assets of the company have
remained more or less the same. So we can deduce that the liabilities of the company has been
increasing even though the company has been able to reduce its deferred tax liability to zero. Trade
Payables could be a major contributing factor to this.

INCOME STATEMENT
 Dec-20 Dec-19 Dec-18 Dec-17 Dec-16
Total Operating Revenues 98.92 98.04 97.76 98.26 98.41
Other Income 1.08 1.96 2.24 1.74 1.59
Total Revenue 100.00 100.00 100.00 100.00 100.00
Cost Of Materials Consumed 41.16 40.82 37.79 41.54 40.28
Interest Costs 1.22 1.02 0.97 0.90 0.04
Depreciation And Amortisation Expenses 2.74 2.93 2.91 3.36 3.77
Other Expenses 21.93 23.27 24.73 24.36 25.38
Total Expenses 79.16 78.81 78.97 81.94 83.96
Profit/Loss Before Exceptional, ExtraOrdinary Items And Tax 20.84 21.19 21.03 18.06 16.04
Exceptional Items 0.00 0.00 0.00 0.00 -0.66
Profit/Loss Before Tax 20.84 21.19 21.03 18.06 15.38
Total Tax Expenses 5.41 5.59 7.12 6.03 5.49
Profit/Loss For The Period 15.43 15.60 13.91 12.03 9.89
Again as in horizontal analysis, significant increase in Interests Costs is visible from year 2016 to
2020. The interest costsThe Net profits seem to be healthy and growing.

Source: moneycontrol.com

5. DuPont Analysis
DuPont Analysis is a technique to generate insights on the Return on Equity of the Company by
breaking the ROE into three different parts.
The three components of DuPont Analysis are
 Operating Margin: Ratio of Net Profit to the Total sales Revenue. The higher this ratio is,
the better capable the company is in generating profits.
Profit Margins = Net Income/Sales
 Asset Turnover Ratio: Ratio of Sales Revenue of the company to the Total Average Assets
in that year. Higher is this Ratio, better the company is equipped efficiently use its assets.
Asset Turnover Ratio = Revenue/Total Average Assets
 Capital Structure: This is the ratio of Total Average Assets to the Average Shareholders
Equity for that particular year. It is also sometimes called Financial Leverage. Higher is this
Ratio, it means more of the company’s assets are financed with the help of debt, which is a
riskier thing to do.
Capital Structure = Total Average Assets/Average Shareholders Equity

2016 2017 2018 2019 2020

9,141.3 10,009.6 11,292.2 10,009.6 13,354.9
Sales Revenue 4 0 7 0 3
1,001.3
Net Profit 6 1,225.19 1,606.93 1,968.44 2,082.43
Total Assets 6810.46 7362.59 8088.08 7172.94 7899.73
7086.52 7725.33 7536.33
Average Total Assets 6445.46 5 5 7630.51 5
Shareholders’ Equity 3282.33 3420.59 3673.74 1918.87 2019.34
Average Shareholders’ 3050.08 3547.16 2796.30 1969.10
Equity 5 3351.46 5 5 5
Net Profit Margin 10.95% 12.24% 14.23% 19.67% 15.59%
Assets Turnover 1.42 1.41 1.46 1.31 1.77
 Capital Structure 2.11 2.11 2.18 2.73 3.83
DuPont Analysis 0.33 0.37 0.45 0.70 1.06

The Capital structure of the company is rising which signifies that the company is increasing its
liabilities. By looking at the assets of the company for the last five years, we can say that the
company has been using debt to finance its assets. The Net Profit Margin has been increasing year
on year which is a good sign.
Source: EMIS
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