Investment & Risk Management

ASSIGNMENT NO. 1

Emami Ltd. and Nestle India Ltd.

Group no.- 4
p42175 Anjana Sahu
p42233 Vaishali Jain
P42162 Shweta Mahdole
P42193 Medhavi
P42219 Sonali Pandey
P42175 Anjana Sahu
P42147 Rishabh Choudhry
P42218 Simran Gupta
P42104 Shatabdi Roy

INSTITUTE OF RURAL MANAGEMENT ANAND

7th May 2022

 1.)

Ratio Formula Values

Net profit margin = (Revenue-Cost)/Revenue 0.148
Equity multiplier = Total asset/ Total Stockholders' Equity 1.331
Asset turnover ratio = Net sales/ Average total asset 1.033
ROE = Net income / Shareholders’ equity 0.215
ROA = Net income / Total asset 0.161
Financial leverage
debt ratio = Total debt/ Total asset 0.248
DE ratio = Debt/ Equity 0.331
Solvency ratio
Interest Coverage Ratio = EBIT/ Interest expense NA
Debt Service Coverage Ratio = Net operating income/ Total Debt 1.361
Emami Ltd.
Interpretation of each ratio:
The NPM is in the optimum range and as suggested above the company
Net profit margin
can look to expand.
Equity multiplier Its fund is optimally financed through shareholders’ equity
The firm has low Asset turnover ratio than it should have but since it is
Asset turnover ratio greater than 1, it suggests that the company is able to enough revenue for
itself.
A good ROE here shows that the investor that the firm is using its capital
ROE
well.
ROA The company is doing well and optimally utilizing its assets.
FINANCIAL
LEVERAGE
A debt ratio lower than 0.4 suggests greater credit worthiness, but there
Debt ratio is also risk associated with the firm carrying lower debt and higher
equity.
The low DE ratio is optimum and the firm should try to maintain it in the
DE ratio
long run.
SOLVENCY RATIO
Interest Coverage Ratio N.A.
The company is generating sufficient operating income to cover its
Debt Service Coverage
annual debt and interest payments, but it should look to increase it to
Ratio
above 2.0
 Ratio Formula Values
Net profit margin = (Revenue-Cost)/Revenue 0.236
Equity multiplier = Total asset/ Total Stockholders' Equity 3.926
Asset turnover ratio = Net sales/ Average total asset 1.733
ROE = Net income / Shareholders’ equity 1.030
ROA = Net income / Total asset 0.262
Financial leverage
debt ratio = Total debt/ Total asset 0.858
DE ratio = Debt/ Equity 3.368
Solvency ratio
Interest Coverage Ratio = EBIT/ Interest expense 1.869
Debt Service Coverage Ratio = Net operating income/ Total Debt 0.969
Nestle India Ltd.

Interpretation of each ratio:

The NPM which is 23.6% is a healthy value. It suggests that if the
Net profit margin companies look to expand then the share price of the company will
increase at a higher rate as I will be less skeptical.
A high EM value shows that the firm's assets are highly financed through
Equity multiplier
shareholder's equity.
In the FMCG sector, this value is well positioned, while the firm should
Asset turnover ratio
look to increase it beyond 2.5.
ROE It is above the optimum value and hence a good sign for the firm.
Generally, ROA around 20% is considered great, so the companies
ROA
utilising its asset well.
FINANCIAL
LEVERAGE
Debt ratio is a worry for the firm as it is in the higher range so makes it
Debt ratio
difficult to borrow money.
It is in the higher range; the firm should try to bring it down to around 2.0
DE ratio
which is optimum in the FMCG industry.
SOLVENCY RATIO
It is in the moderate range, and suggests that there is lower probability
Interest Coverage Ratio
that the company will default on its debt obligations.
It is a concern for the firm as the value should be greater than 1,
Debt Service Coverage
suggesting that it is not able to cover the annual debt through operating
Ratio
income.
2.) CALCULATION OF IGR AND SGR:

NESTLE
FY21 FY20
b(Retention Ratio) 0.10096 0.092526
Net Income(PAT) 2144.86 2082.43

Total Asset 8,209.93 7,899.73

Total shareholder equity 2,084.48 2,019.34

ROA 0.2613 0.2636

ROE 1.0290 1.0312
b*ROA 0.0264 0.0244
b*ROE 0.1039 0.0954

IGR 0.027 0.025

SGR 0.116 0.105

IGR (Internal Growth Rate) = (Retention Ratio*ROA)/ (1-Retention Ratio*ROA)

SGR (Sustainable Growth Rate) = (Retention Ratio*ROE)/(1-Retention
Ratio*ROE)
ROA= Net Income/Total Asset
ROE= Net Income/Total share capital/equity
Internal growth rate of Emami goes from 5.44 % to 13.47% means a company can
highest grow with the respective growth rate of its internal funds i.e without any
obtaining outside financing.
Nestle maximum internal growth rate decreased from 2.75 to 2.5 % means the
with the company business operations the growth of the company decreasing.
With the -3.86% from 7.24% SGR the growth of emami is decreased with
additional equity and debt ie. without using internal revenue. Although the net
income is good but Emami is giving more dividend the they actually should.
The sustainable growth rate of Nestle also decreased from 11.6% to 10.5 %
although the decrease is less than Emami.
 3) Pro forma of Emami Income Statement: -
in Rs.
in Rs. Crores in Rs. Cr.
Particulars Cr.
FY21 FY20 Average Pro Forma
REVENUE
Gross Sales 2,551.73 2,342.07 2,446.90 3,425.66
GST & Other Levies 0 0 0 0
Net Sales 2,551.73 2,342.07 2,446.90 3,425.66
Other Income 134.6 141.94 138.27 165.92
Net Revenue 2,686.33 2,484.01 2,585.17 3,591.58

EXPENSES
Material 679.82 710.45 695.14 973.19
Salary & other expenses 1,071.15 1,106.35 1,088.75 1,252.06
Total Expense 1,750.97 1,816.80 1,783.89 2,225.25

EBITDA 935.36 667.21 801.29 1,366.33

Depreciation & Amortisation Expenses 361.15 326.1 343.63 412.35
EBIT 574.21 341.11 457.66 953.98
Interest Expense 0 0 0 0
PBT 574.21 341.11 457.66 953.98
Corporate Tax 99.09 51.99 75.54 98.2
PAT 475.13 289.12 382.13 855.78
Extra Income (Discontinuing Operations
etc.)

Net income (for the period) 475.13 289.12 382.13 855.78

Dividend Pay-out (Including DDT) 355.61 363.15 359.38 467.19
Transfer to Reserves & Surplus 119.52 -74.03 22.75 388.59
Retention Ratio 25.16 -25.61 -23.00 45.41
 • For an increase in sales of 40%, the cost of materials is expected to
increase by the same.
• More fixed assets will be needed for an increase in sales growth; thus, a
20% increase in depreciation is expected.

Pro forma of Emami Balance Statement: -

Particulars In Rs. Cr.
FY21 FY20 Average Pro Forma

NON-CURRENT ASSETS
Fixed Assets 1,105.98 1,430.13 1,268.06 1,724.55
Non-current Investments 175.42 92.63 134.03 187.64
Other Non-current Assets 110.40 126.98 118.69 155.66
TOTAL NON-CURRENT ASSETS 1,391.80 1,649.74 1,520.77 2,067.85

CURRENT ASSETS
Cash and Cash Equivalents 307.93 57.30 182.62 273.92
Inventory 269.25 225.89 247.57 346.60
Accounts Receivable 99.72 181.69 140.71 219.50
Current Investments 88.91 68.33 78.62 116.75
Other Current Assets 146.49 251.83 199.16 292.57
TOTAL CURRENT ASSETS 912.30 785.04 848.67 1,249.34
TOTAL ASSETS 2,304.10 2,434.78 2,369.44 3,317.22

SHAREHOLDER’S FUND
Equity Share Capital 44.45 45.32 44.89 69.57
Reserves and Surplus 1,714.88 1,756.68 1,735.78 3,124.40
Other Reserves 0.00 0.00 0.00 0.00
TOTAL SHAREHOLDER’S FUND 1,759.33 1,802.00 1,780.67 3,131.89

NON-CURRENT LIABILITIES
Long-term Borrowings 19.01 18.55 18.78 59.32
Other Non-current Liabilities 27.84 32.98 30.41 30.71
TOTAL NON-CURRENT LIABILITIES 46.85 51.53 49.19 90.03

CURRENT LIABILITIES
 Short-term Borrowings 46.53 158.25 102.39 28.67
Accounts Payable 279.19 239.12 259.16 46.65
Other Current Liabilities 172.20 183.88 178.04 21.36
TOTAL CURRENT LIABILITIES 497.92 581.25 539.59 96.68
TOTAL CAPITAL AND LIABILITIES 2,304.09 2,434.78 2,369.44 3,317.21

• We have anticipated an increase of 36% of fixed assets as the company

will need more plants and machinery for sales growth of 40%.
• Corresponding to growth of sales, non-current investments is expected to
increase by 40%.
• Other non-current assets are expected to show an increase of 31.15%.
• growth in cash by 50% is expected as there will be more need of working
capital for the increase in sales.
• For sales growth of 40%, inventory should be level up by 40% as well.
• With growth in sales, expected growth in accounts receivables will be
56%.
• Expected growth in equity will be 55%.

Pro forma of Nestle Income Statement: -

in Rs. Crores in Rs. Cr.

Particulars
FY21 FY20 Average Pro-forma (40%)
REVENUE
Gross Sales 14,633.72 13,290.16 13,961.94 19,546.72
GST & Other Levies 0 0 0 0
Net Sales 14,633.72 13,290.16 13,961.94 19,546.72
Other Income 195.8 205.72 200.76 240.912
Net Revenue 14,829.52 13,495.88 14,162.70 19,787.63

EXPENSES
Material 6154.1 5554.24 5854.17 8195.838
Salary & other expenses 5,164.96 4,758.47 4,961.72 5,705.97
Total Expense 11,319.06 10,312.71 10,815.89 13,901.81

EBITDA 3510.46 3183.17 6693.63 5,885.82

Depreciation & Amortisation Expenses 390.19 370.38 380.285 456.342
EBIT 3120.27 2812.79 2966.53 5429.48
Interest Expense 1714.32 1460.72 1587.52 1746.272
PBT 1405.95 1352.07 1379.01 3683.2
Corporate Tax 738.91 730.36 734.635 955.0255
PAT 2144.86 2082.43 2113.645 2728.18

Extra Income (Discontinuing Operations etc.)

Net income (for the period) 2144.86 2082.43 2113.65 2728.17825

Dividend Pay-out (Including DDT) 1928.31 1889.75 1909.03 2099.933
Transfer to Reserves & Surplus 216.55 192.68 204.62 628.24525
Retention Ratio 10.09623006 9.25265195 9.67 23.02801329

• 40% sales growth is expected.

• For increase in sales of 40%, cost of materials is expected to increase by
the same.
• For increase in the sales growth, more fixed assets will be needed, thus
20% increase in depreciation is expected.

Pro forma of Nestle Balance Statement: -

In Rs. Cr.
Particulars
FY21 FY20 Average Pro forma (40%)
NON-CURRENT ASSETS
Fixed Assets 3,240.20 2,817.99 3,029.10 4,120.18
Non-current Investments 710.70 740.83 725.77 1,016.07
Other Non-current Assets 1,520.27 155.83 838.05 1,099.10
TOTAL NON-CURRENT ASSETS 5,471.17 3,714.65 4,592.91 6,235.35

CURRENT ASSETS
Cash and Cash Equivalents 735.41 1,769.87 1,252.64 1,878.96
Inventory 1,580.22 1,416.48 1,498.35 2,097.69
Accounts Receivable 165.27 164.93 165.10 255.91
Current Investments 63.28 722.94 393.11 585.73
Other Current Assets 194.58 110.86 152.72 222.97
TOTAL CURRENT ASSETS 2,738.76 4,185.08 3,461.92 5,041.26
TOTAL ASSETS 8,209.93 7,899.73 8,054.83 11,276.76

SHAREHOLDER’S FUND
Equity Share Capital 96.42 96.42 96.42 96.42
Reserves and Surplus 1,988.06 1,922.92 1,955.49 2,735.22
Other Reserves 0.00 0.00 0.00 0.00
TOTAL SHAREHOLDER’S FUND 2,084.48 2,019.34 2,051.91 2,831.64

NON-CURRENT LIABILITIES
Long-term Borrowings 27.47 31.72 29.60 39.66
Other Non-current Liabilities 3,494.74 3,356.12 3,425.43 3,939.24
TOTAL NON-CURRENT 3,522.21 3,387.84 3,455.03 3,978.90
LIABILITIES

CURRENT LIABILITIES
Short-term Borrowings 6.59 3.12 4.86 6.31
Accounts Payable 1,889.66 1,809.01 1,849.34 2,034.27
Other Current Liabilities 706.99 3,701.01 2,204.00 2,424.40
TOTAL CURRENT LIABILITIES 2,603.24 5,513.14 4,058.19 4,464.98
TOTAL CAPITAL AND 8,209.93 7,899.73 8,054.83 11,276.76
LIABILITIES

• We have anticipated an increase of 36.02% of fixed assets as the company

will need more plants and machinery for sales growth of 40%
• Corresponding to growth of sales, non-current investments is expected to
increase by 40%
• Other non-current assets are expected to show an increase of 31.15%
• Growth in cash by 50% is expected as there will be more need of working
capital for the increase in sales
• For sales growth of 40%, inventory should be level up by 40% as well
• With growth in sales, expected growth in accounts receivables will be
55%
• As there is negative EFN, no need for extra equity is required