Equity Report on Fu-Wang Foods

Limited

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 Equity Report on Fu-Wang Foods Limited

Submitted to:
Md. Sajib Hossain, CFA
Assistant Professor
Department of Finance, University of Dhaka
&
Md. Imran Hossain
Assistant Professor
Department of Finance, University of Dhaka

Submitted by:
Group No: 07
4th Year, 1st Semester
BBA 23rd Batch, Section: A
Department of Finance
University of Dhaka

A combined effort by:

Sl. No. Name Student ID Remarks
1 MD. Mozammel Haque Riyad 23-065
2 Bishakha Roy 23-101
3 Pranta Roy Chowdhury 23-104
4 MD. Tanvir Rahman 23-113
5 Md. Nowshad Ayub 23-135

Date of Submission: October 31, 2020

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 Letter of Transmittal

October 31, 2020

Md. Sajib Hossain, CFA
Assistant Professor
Department of Finance, University of Dhaka
&
Md. Imran Hossain
Assistant Professor
Department of Finance, University of Dhaka

Subject: Submission of “Equity Report on Fu-Wang Foods Limited”

Dear Sir,

Here is the Equity Report on Fu-Wang Foods Limited as per our requirement for course F-
401; Financial Statement Analysis and Valuation.

Though we are in a learning curve, this report has enabled us to gain insight into the financial
analysis and equity valuation. It has been extremely challenging and interesting for us. We
are confident that this knowledge will prove to be of utmost value and importance to us in
future.

We have put our sincere effort to make this report a presentable shape and make it as
informative and precise as possible. We hope that any unintentional error, omission or
mistake committed by us while preparing this report will be considered with sympathy.

Sincerely yours
Group No: 07
4th Year, 1st semester
Section: A
BBA 23rd Batch
Department of Finance
University of Dhaka

Signature
Md. Tanvir Rahman
(On behalf of the whole group)
Roll: 23-113, Sec: A
Department of Finance
University of Dhaka

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 Acknowledgement

Successful completion of any kind of report requires help from several sources. We have also
taken help from our course instructors. So, we don’t deserve all the praise. Our course
teachers Assistant Professors Md. Sajib Hossain, CFA, & Md. Imran Hossain helped us by
providing us with their valuable advice and guidance.

For any BBA student course report is an essential part for his educational life. One can gather
a lot of practical knowledge and experience by observing and doing the work of allocated
report. In this regard, our report has been arranged based on Equity Report on Fu-Wang
Foods Limited.

First of all, we would like to express our gratitude to Almighty Allah for enabling us to
complete this report.

Then, we would like to thank our F-401, Financial Statement Analysis and Valuation, course
instructors, Assistant Professors Md. Sajib Hossain, CFA, & Md. Imran Hossain of
Department of Finance, University of Dhaka. Their constant presence and words of
encouragement inspired us to do our very best. It would probably be impossible to complete
this report without their guidance and availability.

This report is prepared for meeting our academic purpose, not for any other reason. It might
not be used for the benefit of any other purposes.

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Contents
Recommendation ....................................................................................................................... 6
Rating Criteria:....................................................................................................................... 6
Company Analysis ..................................................................................................................... 6
Company Profile .................................................................................................................... 6
Analysis of Company Performance ....................................................................................... 6
Understanding Types of Companies .................................................................................... 11
Defensive Companies vs Cyclical Companies: ................................................................... 12
Business Model of Company ............................................................................................... 13
Key Strategy of the Company to Generate Profit ................................................................ 14
Assessment of Company Strategy ....................................................................................... 14
Macro-Economic Analyses ...................................................................................................... 15
Economic Factors: ............................................................................................................... 15
Industry Analysis ..................................................................................................................... 18
Industry Overview: .............................................................................................................. 18
Growth Scenario of the Industry: ......................................................................................... 18
Drivers of Industry Growth:................................................................................................. 19
Nature of Competition in the Industry: ................................................................................ 19
Risks Related to The FMCG Industry: ................................................................................ 20
Performance of Major Companies In The Industry: ............................................................ 22
Industry Forecast .................................................................................................................. 24
Industry Forecast Through Industry Growth Drivers: ......................................................... 25
Pro-forma Income Statement ................................................................................................... 28
Pro-forma Balance Sheet ......................................................................................................... 28
DCF Valuation ......................................................................................................................... 29
Relative Valuation ................................................................................................................... 29
Sensitivity Analysis ................................................................................................................. 29
Target Prize .............................................................................................................................. 30

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 Recommendation

Target Prizen (In BDT): 24.98 Fu Wang Foods Ltd.

Current Prize (In BDT): 13.50
Rating: Overweight Buy Decision
Valuation Date: 31 October, 2020

Rating Criteria:
Overweight Expected to outperform the broader market averages
Market weight Expected to equal performance of broader market averages
Underweight Expected to underperform broader market averages
Not-Rated Currently the analyst does not have adequate conviction about the stock's
total return relative to the broader market average

Company Profile
• Name
• Company Type
• Sector
• Main Activities
• Date of Incorporation
• Enlisted in
• Authorized Capital
• Paid-up Capital
• ISO-9002 Certification
• Number of Employees
• Products
Company Analysis
: Fu-Wang Foods Ltd
: Public Ltd Company
: Food Processing
: Food Manufacturing, Beverage Manufacturing
: February, 1997
: Dhaka Stock Exchange Ltd. (July 2000)
Chittagong Stock Exchange Ltd. (July 2000)
: Tk. 1,500 Million
: Tk. 1108.39 Million
: 4 November, 1998
: 1659 Person
: Bread, Cake, Biscuit, Toast, Wafer Bar, Chocolate,
Instant Noodles, Drinking Water, Carbonated
Drinks, Energy Drinks etc.

Analysis of Company Performance

Profitability Ratios: Profitability ratios are financial measures to calculate and evaluate the
capability of a company to generate profit. These ratios can be a measure of how efficiently a
company utilizes its assets to generate profit and produce value to shareholders. A higher
value is usually expected for a company. This means that the business is executing its
activities well by generating profits, revenues and cash flow.
2015- 2016- 2017- 2018- 2019- 2019- 2019-
16 17 18 19 20(Q1) 20(Half 20(Q3)
Yearly)
Profitability Ratios
Operating Profit 16.39 14.90 15.04 16.35 14.05 16.54% 14.50%
Margin % % % % %

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Net Profit Margin 10.45 9.06% 8.84% 9.09% 8.58% 10.32% 8.79%
%
Return on Equity 7.88% 5.39% 5.03% 6.93% 1.53% 3.66% 9.08%
Return on Asset 5.45% 3.72% 3.45% 4.78% 1.06% 2.53% 6.28%
• Operating Profit Margin: The Operating Profit Margin Ratio of FUWANG Food is
increasing. In the year 2016-17 the ratio dropped. But from 2017-18 it is increasing
again, which is good for the company. In the year 2019-20 the ratio is fluctuating in
different quarters. Companies which have higher operating profit margins are able to
pay for fixed costs and interest on obligations. They are able to offer lower prices than
their competitors who have lower profit margin.
• Net Profit Margin: The Net Profit Margin Ratio is decreasing till the year 2017-18.
And have a slight increase in 2018-19. In 2019-20 it is fluctuating in the quarters.
Their Net Profit Margin is below average. As the Margin is decreasing day by day it
is a matter of concern for the company.
• Return on Equity: The Return on Equity Ratio is decreasing and has a slight increase
in 2018-2019. And also fluctuating in 2019-20 quarters. An increasing ROE indicates
that a company’s profit is increasing without taking as much capital. A higher ROE is
considered to be better and a decreasing ROE indicates less efficient usage of equity
capital. If the annual ROE decreases in 2019-20, it will be a matter of concern for the
company.
• Return on Asset: The Return on Asset Ratio is decreasing for FUWANG Food
Company. A higher ROA is considered to be better for a company, because it means
that the company is earning more money with less investment. So Fu wang Food has
to focus on increasing the ROA ratio.

Solvency Ratios: Solvency ratios are used to measure a company’s ability to pay its long
term obligations. It can be used to assess the overall health of a company. Lower solvency
ratio means that there is a greater probability that the company will default on its debt
obligations.
2015- 2016- 2017- 2018- 2019- 2019- 2019-
16 17 18 19 20(Q1) 20(Half 20(Q3)
Yearly)
Solvency Ratios
Debt-to-Asset 0.1015 0.1090 0.1112 0.1164 0.1082 0.1055 0.1156
Debt-to-Equity 0.1462 0.1582 0.1613 0.1706 0.1551 0.1525 0.1673
Interest Coverage 9.9447 6.7513 5.9544 7.5143 6.8191 7.8811 6.5705

• Debt-to-Asset: Fu wang Food has Debt-to-Asset ratio less than 1. A ratio less than 1
means the company has more assets than liabilities. Also it can pay off its obligations
by selling the assets if needed. If the debt to asset ratio is lower, the company is less
risky. For Fu wang food the ratio is below 1 but it is increasing. They have to keep it
below 1.
• Debt-to-Equity: The debt to equity ratio for Fu wang food is below 1 and it is
increasing. As it is below 1, it means that its assets are more financed by equity. A

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 rising debt to equity ratio indicates that the company is borrowing more money for
financing, which means that the company has a probable risk that the debt levels will
be too high.
• Interest Coverage: The interest coverage ratio for Fu wang Food is above 5 and it is
decreasing. If the ratio is lower it means that the company is has more burden of debt
expense. Fu wang Food has enough operating profit to meet its interest burden.

Liquidity Ratios: Liquidity means the ability to convert a company’s assets into cash
quickly. Liquidity ratios are used to determine if a company can use its liquid or current
assets to meet its current liabilities. If the Liquidity ratios are greater than 1, it means that the
company possesses a sound financial health and there is less probability that it will fall into
any financial difficulties.
2015- 2016- 2017- 2018- 2019- 2019- 2019-
16 17 18 19 20(Q1) 20(Half 20(Q3)
Yearly)
Liquidity Ratios
Current Ratio 2.2410 2.4904 2.5405 2.4596 2.6041 2.6020 2.5005
Quick Ratio 1.0139 1.1301 1.0978 1.0842 0.9147 0.8970 0.8624

• Current Ratio: The Current ratio for FUWANG Food is at a good position. It is
above 1.5, which means that the company has a healthy current ratio. The company
has enough liquid assets to cover its short-term liabilities.
• Quick Ratio: Fu wang Food had good quick ratio around 1 in the previous years. But
in the recent year it is below 1 which is a matter of concern. It means that the
company may not be able to fully pay off its current liabilities in the short term.

Efficiency Ratios: Efficiency ratios are used to measure a company's capability of managing
its liabilities and using its assets effectively in the short term period. These ratios can
determine how efficiently a company is using its assets to get revenues and how it is
managing those assets.
2015- 2016- 2017- 2018- 2019- 2019- 2019-
16 17 18 19 20(Q1) 20(Half 20(Q3)
Yearly)
Efficiency Ratios
Inventory 2.7536 2.1304 2.0560 2.9208 0.7197 1.3823 4.1025
Turnover
Asset Turnover 0.5215 0.4101 0.3901 0.5263 0.1237 0.2450 0.7141
Fixed Asset 1.3577 1.1359 1.1233 1.5550 0.3758 0.7451 2.1577
Turnover
Receivables 1.9416 1.5041 1.4154 2.1335 0.5768 1.1598 3.4357
Turnover
Payables Turnover 16.0292 13.9167 16.6710 21.2233 4.7568 9.1934 13.4206

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 • Inventory Turnover: The Inventory Turnover Ratio for Fu wang Food is above 2. It
is a matter of concern for the company. Because a good Inventory Turnover Ratio is
above 4. A low turnover means that there is excess inventory and weak sales.
• Asset Turnover: The asset turnover ratio for FUWANG Food is around .5. And it is
standard for food processing industry. It indicates the efficiency of using the assets of
the company to product sales.
• Receivables Turnover: Fu wang Food has low receivables turnover ratio. A low
receivables turnover ratio is not good for company. As it indicates an inefficient
collection process or bad credit policies. Fu wang food should reconsider its credit
policies so that they can ensure the timely collection of receivables.
• Payables Turnover: Payables Ratio for Fu wang food had increase in previous years.
But it is decreasing in the recent year. A higher payable turnover ratio is more
favorable, as it indicates that payables are being paid more quickly.

Dupont Analysis: DuPont analysis is useful in evaluating the components of a company's

return on equity (ROE). Here the extended 5 parts of the DuPont composition are used to see
which component has the most effect on the ROE.
2015- 2016- 2017- 2018- 2019- 2019- 2019-
16 17 18 19 20(Q1) 20(Half 20(Q3)
Yearly)
DuPont Analysis
Tax burden 0.7439 0.7486 0.7397 0.6697 0.7513 0.7504 0.7504
Interest burden 0.8574 0.8123 0.7947 0.8296 0.8131 0.8316 0.8076
EBIT margin 0.1639 0.1490 0.1504 0.1635 0.1405 0.1654 0.1450
Asset turnover 0.5215 0.4101 0.3901 0.5263 0.1237 0.2450 0.7141
Financial leverage 1.4459 1.4503 1.4580 1.4491 1.4388 1.4459 1.4470
ROE 7.88% 5.39% 5.03% 6.93% 1.53% 3.66% 9.08%
To see which component has more impact on ROE a chart is given below:

Dupont Analysis
Tax burden Interest burden EBIT margin Asset turnover Financial leverage

1.6000
1.4000
1.2000
1.0000
0.8000
0.6000
0.4000
0.2000
0.0000
2015-16 2016-17 2017-18 2018-19 2019-20(Q1) 2019-20(Half 2019-20(Q3) Average
Yearly)

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Here, Financial Leverage or Equity Multiplier has the most impact on ROE and EBT Margin
has the least impact on ROE.
Market Based Performance: Fu wang Food Ltd is under food processing sector. In this
sector the main competitors are- Olympic, Fine Food, Apex Food, PRAN, Ifad, Goldmark,
Kishwan, Haque, Nabisco, BD etc.
Fu Wang Food’s performance can be shown by a comparative representation of different
charts of Revenue, EPS, NAV and Net Profit generated by Fu Wand Food and its
competitors.

Net Profit
29.41
30
25
20 17.02
14.81 14.55 13.85 13.62
13.43
15 12.39 10.95 11.21 12.47 10.4
12.25 11.87 10.8
8.84 8.97
10 7.18
5.76
3.84 3.05 2.92
5 1.42 2.17
0.64
0
2014-15 2015-16 2016-17 2017-18 2018-19

Olympic Fu Wang Fine Foods Limited Golden Harvest Apex Foods Ltd

Revenue
13733
14000 12928
12000 10965 11290

10000 8853
8000
6000
4000 2751
2031 1922 2240
1642 1712
2000 767 776 767 1427 586 1526 712 1870 981
26 34 47 46 52
0
2014-15 2015-16 2016-17 2017-18 2018-19

Olympic Fu Wang Fine Foods Limited Golden Harvest Apex Foods Ltd

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 EPS
20
14.88
15
8.96 9.36
10 8.13 8.22
5.75
5 2.041.81 2.07
1.32 0.95 1.03 1.98 1.72
0.649 1.56 0.57 0.8 2.03
0.816 0.61 0.073 0.247
0
-0.149
2014-15 2015-16 2016-17 2017-18 2018-19
-5 -2.32

Olympic Fu Wang Fine Foods Limited Golden Harvest Apex Foods Ltd

NAV Per Share

150 137.41
124.3
109.16 108.61 115.1

100

50 31.53 36.09
21.46 20.71 23.08 22.72 27.07 20.12 22.31 20.01
11.83 12.92
7.79 11.34
6.67 10.91 11.71
2.18 3.72 4.14
0
2014-15 2015-16 2016-17 2017-18 2018-19

Olympic Fu Wang Fine Foods Limited Golden Harvest Apex Foods Ltd

Olympic has an overall good performance. Golden Harvest and Fu Wang is growing after
Olympic. But Fu Wang’s Net Profit and EPS is falling recently compared to others. So it is
clear that Fu Wang is an average player in the market. In the recent years the company is not
performing well. Other companies may surpass the company by taking different actions. So
Fu Wang has to keep up its performance if it does not want to lag behind.

Understanding Types of Companies

Growth vs Value Companies:
Growth Companies are the companies whose share price is overvalued in the market, which
means it is higher than the intrinsic value of share. And Value Companies are those whose
share price is undervalued, which means it is lower than the intrinsic value of share of a
company.
Intrinsic Value < Current Market Price (Growth Company)
Intrinsic Value > Current Market Price (Value Company)
FU Wang Food Ltd is a Value Company. The current market share price of the company is
13.60. And the calculated intrinsic value for the company is higher, which means the share

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price of the company is undervalued. Market price is lower than the original value. So it can
be said that Fu Wang Food Ltd is a Value Company.

Defensive Companies vs Cyclical Companies:

Cyclical Companies: Cyclical companies are those which are affected by macroeconomic
changes in the overall economy. Cyclical companies follow the cycles of an economy
through expansion, peak, recession, and recovery. Cyclical companies include companies that
sell consumer discretionary items. Consumers buy these kinds of products more during a
booming economy and less likely to buy these products during a recession.
Cyclical Companies include Hotels & Restaurants, Clothing Stores, Airlines, car
manufacturers, furniture retailers etc. If the economy is not in a good position, people cannot
afford to buy them.
Defensive Companies: Defensive companies are those whose earnings remain relatively
steady during both economic expansions and recessions. Defensive companies lean towards
making products or services that are necessary to consumers. These companies are less likely
to go bankrupt during recession because of their nature of stability. But Defensive companies
may lag behind other companies during economic expansion because the demand for their
products and services is always stable and the demand for discretionary products may detract
their profitability.
Defensive Companies include Utility companies, Consumer Staples, Healthcare companies,
Telecommunication, Discount Retailers etc.
To determine if FUWANG Food is a Defensive or Cyclical Company the GDP growth rate of
Bangladesh and earnings Growth rate of FUWANG Food is compared:

40.00% 37.78%

30.00%

20.00%

7.10% 7.30% 7.90% 8.20%

10.00% 6.01% 6.06% 6.55%
1.80% 2.13%
1.15%
0.00% 3.15%
2013 2014 2015 2016 2017 2018 2019
-10.00%
-16.31%
-20.00%

GDP Growth Earnings Growth of Fuwang Food

FUWANG Food Ltd is a Defensive Company. This company produces food and beverages
which are necessary goods for consumers. Their demand is always the same. As the
company’s earnings growth is not significantly influenced by the changes in economy, it can
be said that FUWANG Food Ltd is a Defensive Company.

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 Business Model of Company
Value Customer Customer
Key Partners Key Activities Propositions Relationships Segments

- Distinct
- Share Holders - Collection of Raw products - Brand Awareness - Massive
- Fu Wang Food materials - Good Value - Campaign Markets
Beverage Ltd - Processing on Offering & - Recommendation - Wide Range
- Fu Wang Food Some of these Pricing - Events of Products
Property materials - A broad range - Customer - All Ages of
- Fu Wang - Processing others of food choices Loyalty Customers
Ceramics minerals as - Provide - After Sales - Kids
- MABS & J byproducts consistent, high- Services - University
Partners - Production of quality end Students
Bakery Products products - People With
- Safety & Security - Keep consumers low to medium
- Safety & Health and personnel earnings
- Supply Chain safe - Breakfast
Management - Need/want of Items for
- Trading Activities customers for Everyone
- Marketing & Sales better satisfaction - Teen agers
- Suitable for a - Family
variety of ages Snacks
Key Resources Channels
- A Workforce of - Television
approximately 1652 - Traditional
employees Media
- Strong Balance - Website
Sheets and - Facebook
operational - Retailers Shops
Excellence - Fast Food Chain
- 23 years of - Sponsors
Experience - Events &
- Talented Workshops
Employees - Newspaper &
- 10900 M. Ton Magazine
yearly Production
Capacity
Cost Structure Revenue Structure

- COGS - Revenue From Sale

- Administrative Expenses
- Selling & Distribution Expenses
- Tax Expenses
- Financial Expenses

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Key Strategy of the Company to Generate Profit
Generic strategy pursued by Fu-Wang Foods Limited is “Differentiation”
Product Differentiation helps the firm to make their products dissimilar to other company’s
products. Fu Wang Food believes in product differentiation. It helps to make the products
more attractive to the particular target market. Fu Wang food’s target market is lower to
middle class. So they try to provide different types of quality products at a lower price than
their customers. They have a huge product line of foods and beverages. And these are
increasing according to the need of customers. They produce products in different size,
amount, price, flavor, shape, which attracts the customer to buy their products.

Assessment of Company Strategy

The company can survive and prosper given its strategy because of the following factors:

Higher Demand at given More Varieties of More Value-added

Price Product Services

Less Price-Sensitive
Quality Product
Demand

✓ Higher Demand at given price: Fu Wang Food try to set the price of the products
lower than its competitors. This helps them to attract more customer demand.
✓ Less Price-Sensitive Demand: Price sensitivity means when the cost of a product or
service changes the demand also changes. Fu Wang food is less price-sensitive
because it provides consumer staples, for which the demand is usually the same.
✓ More Varieties of Product: Fu Wang Food has different product lines and has
varieties of products according to customer needs. Bread, Cake, Biscuit, Toast, Wafer
Bar, Chocolate, Instant Noodles, Drinking Water, Carbonated Drinks, Energy Drinks
etc. are different products produced by Fu Wang Food.
✓ More Value-Added Service: Fu Wang focuses on lower to middle class customers.
So it gives customer friendly products with good price. It also works for maintaining
customer loyalty.
✓ Quality Product: Fu Wang always gives quality products at a lower price. They try
to sell different kinds of food products at better quality and better price.

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 Macro-Economic Analyses
Economic Factors:
Year GDP Growth Rate Increase GDP Amount (in Billion) Total Marekt Capital in the year end (In Billion) Change Market Capitalisation to GDP
2015 6.60% 0.50% 16665.76 3159.757747 19%
2016 7.10% 0.50% 17713.6 3412.441493 0.08 19%
2017 7.28% 0.18% 19976.8 4228.945456 0.2393 21%
2018 7.86% 0.58% 21923.2 3872.952837 -0.084 18%
2019 8.15% 0.29% 24205.6 3395.510635 -0.123 14%
2020 5.20% 0.41% 15444.0638 3926.764266 0.1565 25%
2021 6.80% 0.39% 20196.08344 4137.430177 0.0536 20%
2022 7.00% 0.37% 20790.08589 4359.398046 0.0536 21%
2023 7.20% 0.41% 21384.08834 4593.27421 0.0113 21%
2024 7.40% 0.37% 21978.0908 4839.697532 0.0303 22%
2025 7.60% 0.39% 22572.09325 5099.341152 0.0611 23%

Here, in terms of macroeconomic analyses, GDP has been considered as one of the prime
parameters and in the white shade, we have placed the GDP inputs since 2015 to 2019 and
based on that considering the pandemic situation, we considered the forecasting of the ADB
and put the forecasted value in 2020 and 2021. And to reflect the GDP impact, we have
considered the GDP amount and the total market capita in the year end. And we have found
the Market capital to the GDP ratio. And we have found that, there is a positive move in the
economy after the pandemic recovery onwards. And that is how it is ocular that, the company
that we have mentioned will have a robust and positive influential environment to grow.

Forecasted Market Capitalisation to GDP

0.3

0.25

0.2

0.15

0.1

0.05

0
2014 2016 2018 2020 2022 2024 2026

In this regard, there is another factor and this is interest rate. This interest rate is regarded as
the lending rate for the banks and borrowing rate for the companies.

Now the reported lending rate of Bangladesh’s Bank Lending Rate was 7.790 % pa in Jul
2020 which is a decrease from the previous reported number of 7.950 % pa for Jun 2020.

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Since 2976 to 2020, the average lending rate was 12.480 % pa from Jan 1976 to Jul 2020,
considering 535 observations.

Year Lending Rate

2015 11.71
2016 10.71
2017 9.54
2018 9.65
2019 9.55
2020 9
2021 9
2022 9
2023 9
2024 9
2025 9

Here, it is seen there is decreasing in terms of lending rate which is a good sign in that logic
that the less that interest will be the more the companies will be able to take borrowings.
Here, till 2019, the companies needed to pay more than 13-15% interest rate but in 2020
onwards that has been reduced to 9% and during pandemic this has been reduced more and
this is now 7-8% and that will help the mentioned company to borrow more and that reflects
a favorable situation.

Here, reducing the interest rate, BB has increased the money supply and that will be helpful
for the mentioned company onwards.

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 Year Inflation rate Change
2015 6.16%
2016 5.68% -0.48%
2017 5.61% -0.07%
2018 5.54% -0.07%
2019 5.59% 0.05%
2020 5.70% 0.11%
2021 5.59% -0.11%
2022 5.63% 0.04%
2023 5.64% 0.01%
2024 5.62% -0.02%
2025 5.63% 0.01%

Inflation rate
6.30%
6.20%
6.10%
6.00%
5.90%
5.80%
5.70%
5.60%
5.50%
5.40%
5.30%
5.20%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Here, it is seen that, due to pandemic situation, the production line will be hampered and that
will lead to increase the inflation rate subconsciously and that will decrease the consumption.
And that will create a negative pressure in the stock price of the mentioned company. But
moving on the 2020, after the recovery this will be on track as it is hoped by the ADB.

Here, The Bangladesh's Domestic Credit got an increase of 13.4 % YoY in August 2020 in
comparison with an increase of 14.1 % YoY in July. From July 1988 to August 2020, it
averaged 13.9 %. In line with that, we can have an ocular perspective that the credit growth
rate is increasing and that is a good sign in that sense that this credit has been being used to
reduce the intensity of the pandemic situation. And the economy will have a speedy recovery
and that will have positive impact on the mentioned company’s stock price. Here, we have
seen that, the foreign reserve has exceeded USD40 billion dollar. And it is a god sign but if
this cannot be implemented properly that will be boomerang. Here, due to pandemic
situation, in our country almost 2/3 of our population got affected. For that, per family the
income got a decrease of income by 20.24% and that leads to decrease the consumption rate.
And here, the shrinkage in GDP and the 10 multiples unemployment rate has grappled the
economy very horribly. Like the GDP per capita got a decrease and in that period, people do

17 | P a g e
not have money to feed staple food let alone the luxury or not that much of necessary foods
that are offered by the mentioned company. And that will reduce the consumption of the
provided or offered food or products of the company and that will lead to have a downturn
impact on the stock price.

Industry Analysis
Industry Overview:
Fast Moving Consumer Goods (FMCG) are products that are sold rapidly and at
comparatively lower cost. Examples of such FMCGs are packaged foods, beverages,
toiletries, over the counter drugs and similar consumables. The food and beverage industry is
a quickly developing part in Bangladesh, utilizing a noteworthy part of the workforce in the
nation. In between 2014 and 2018, the food and beverage industry in Bangladesh developed
at an average of 7.7 percent for each annum.

Usually, FMCGs have a short shelf life. Some FMCGs are highly perishable such as meat,
fruits, vegetables, dairy products and baked goods. Others products like toiletries, packaged
foods, soft drinks, housework products have high turnover rates. Revenue margin from the
FMCGs is comparatively small, these products are generally sold in bulk quantities to make
considerable aggregate earnings. The business of FMCGs is considered as the most definitive
instance of low margin and high-volume business.

The food industry utilizes 2.45 percent of the nation's aggregate work power and its impact
on the GDP was 2.01 percent in 2018. Also, there are various small industries and local units
occupied with food and beverage all through the nation. As per some industry experts, the
food and beverage sector in Bangladesh is a 4.5 billion US Dollar industry in 2018,
Bangladesh sent out over $700 million worth of processed foods and beverages, more than 60
percent of them were shrimp and fish items. Bangladesh's food and beverage industry faces
real changes as it undergoes a challenging phase in 2020 due to the covd-19 pandemic
situation. The food and beverage industry is all organizations associated with the handling of
raw materials for food, packaging and dissemination.

Growth Scenario of the Industry:

FMCGs industry is one of the fastest growing segments of the market. The population of
Bangladesh was 164.67 million in the end of 20171. This large number of population of the
country makes the FMCGs industry very prospective. With the considerable growth of GDP,
the private consumption growth has also increased over the years. In FY 2016-17, GDP
Growth rate was 7.28% compared to 7.11% in FY 2015-16 whereas Private consumption
growth in FY 2016-17 was 10.3% compared to 9.1% in FY 2015-162.

As private consumption rate is directly related to FMGC industry the subtle and steady
percent of private consumption rate in the nominal GDP can be a decent indicator of the
industry’s growth rate.

Below is information regarding private consumption as % of GDP,

18 | P a g e
 YEAR Private
Consumption
as % of GDP
2016 69.13
2017 68.67
2018 70.8
2019 69.7
2020 68.45

So as it can be observed private consumption takes a sufficiently large portion of the total
GDP of the country, which is the main reason behind the constant growth of the industry.

Drivers of Industry Growth:

Urban Population of the Country: The enlarged urban population of the country has
stimulated reasonable growth for the food and consumer goods and has caused sizable needs
for the related products. The growth of urban population of the country is remarkable over the
years. In the end of 2017, the urban population of the country stood at 58.75 million which
represents 35.70% of the total population. According to Bangladesh Bureau of Statistics
(BBS), the urban population of the country will be 85.95 million within 2030 and 111.88 mn
within 2040.

Rise of Middle Class Income Category: Like urban population, middle class people has
contributed and expected to contribute in the growth of fast moving consumer goods industry.
According to Boston Consulting Group, 2 million Bangladeshis are joining the rank of
middle and affluent class (MAC) a year. Currently the number of MAC is around 12 million
which is expected to be 34 million by the year 2025.
Export Processing Zones (EPZ) Create Prosperity: There are 8 EPZs in Bangladesh.
Among the aims of these EPZs are the diversification of the country’s exports and the
creation of employment. As Bangladesh’s exports have risen, so has the importance of
EPZs. Consequently, EPZs have created many jobs for women, which help in poverty
reduction. When incomes rise, one of the first categories of products to experience increasing
demand are FMCG products. EPZs have played an important role in boosting the FMCG
industry in Bangladesh.
Availability of Raw Materials & Low Labor Cost: The climatic condition of
Bangladesh is suitable for the productions of livestock, milk, rice, wheat, maize, sugarcane,
fruits & vegetables which makes a large raw material base for many FMCG companies.
Moreover, importing of required raw materials (which is not available in local markets) is
very cost efficient for the geographical location of Bangladesh. Besides the availability of
raw materials, low labor cost in Bangladesh is another driver of the growth of FMCG
industry in this country. Low labor cost supports low cost of productions which makes
Bangladesh a favorable investment destination for FMCG industry.

Nature of Competition in the Industry:

Some of the main companies in the industry are-

19 | P a g e
a. Agricultural Marketing Company Ltd. (Pran) b. British American Tobacco c. Bombay
Sweets & co ltd. d.Fu Wang Food Ltd. e. Ispahani Foods ltd f. Ifad Multi pProducts Ltd. g.
ACI Foods ltd. h. Fine Foods Limited i. Rangpur Dairy & Food Products Ltd. j. Olympic
Industries Ltd. k. Shyampur Sugar Mills Ltd. l. Bangas Ltd. m. Golden Harvest Agro
Industries Ltd n. Apex Foods Limited. There are many more registered food and allied
companies in the industry so it is easily predictable that the industry has a high range of
competition. In Bangladesh, the FMCG industry can be classified in three major categories-
(1) Foods and Beverage, (2) Personal Care and (3) Household Care Industries. Foods and
Beverage Industry includes all food products such as milk & dairy products, biscuits and
bakery products, frozen foods, ice cream, tea, coffee, baby foods, soft drinks, tobacco and
others.

The Entry Barriers: The entry barriers to entry into this industry are essential because of
starting an essential venture. Most organizations have completely computerized generation
frameworks that make it troublesome for new business people to deliver indistinguishable
rivalry from the principle rivalry and survival in the market. Besides, the primary competitors
have just accomplished a huge part of the overall industry and brand value, which makes it
troublesome for new organizations to enter the market and share their products to consumers.
Despite the fact that this factor helped the food and beverage industry, it has influenced the
industry conversely. The administrative body isn't viable in frustrating the cooperative’s
administrative exercises to control the nature of the products sold in the food and beverage
industry

Major Players in the Market: Olympic Industries is the market leader having around 39%
market share of the branded biscuits and bakery market. The following table contains the
major market players in the market and their most popular brands:

No Company Popular Brands

Name
1 Olympic Nutty, Energy, Tip, Milk Marie, Queen Marie, Malai Cream,
Orange, Nutty real peanut, Dry cake biscuit
2 Pran Special Toast, All Time Cookies, Dry Cake Biscuit, Sweet Toast
3 Goldmark Orange Cream, Milk Cookies, Coconut Cookies, Low Sugar
Biscuit, Chocolate chips, Butter
4 Ifad Tea Time, Kaju Delight, Butter Delight, Choco Delight, Jeera
Biscuit, Cheesy Bites
5 Kishwan Toast, Chocolate Cookies, Horlicks Biscuit, Ovaltin, Fiore
Butter
6 Haque Digestive, Mr. Cookie, Ding Dong, Milk Chocolate, Mr.
coconut, Mr. Milk
7 Nabisco Glucose, Milk Cream, Crunchi, Elachi
8 Fu Wang Dry cake, fruit cake , energy plus, butter bun, milky bread etc.
Risks Related to The FMCG Industry:
Every industry has its relative and sort of unique risks compared to other industries. FMCG
industry is highly dependent on labor force and raw materials and as a large portion of this
industry is consumer good related it is highly sensitive. These features create and forces
20 | P a g e
companies to face risks and difficulties in different stages of the business cycle. The recent
Covid-19 pandemic has also had a very strong influence on the industry as the impact on
consumer spending has greatly decreased.

The main weaknesses of the industry are:

Consumer Less
Unskilled
Product Safety Experience in Corruption
Labor Force
Acts Global Market

Unethical
Practices

Unskilled Labor Force: FMCG industry is highy dependent on the direct manual labor of
employees. As we all know the labor force in our country is somewhat lagging behind in
terms of knowledge and other skills required by the nature of work in order to progress
smoothly.

Consumer Product Safety Acts: FMCG inustry is consistent with consumer products. And
in recent times consumer safety and health has been a great concernt all over the world
specially in developing countries. All the companies must follow strict regulations and
standards a little slip up from the regulations can cause cancelation of license.

Corruption: Administrative government organizations are mostly corrupted, therefore,

numerous organizations make it simple to bribe and spread contaminated products in the
market. This implies, there are more products in the market yet purchasers lose trust in the
brands since they trust that the brand value isn't kept up. Because of countless corruption,
because of the bribing of many organization authorities, it is hard to get protected products in
the market; all these problems lag behind the food and beverage industry of Bangladesh

Less Experience in Global Market: FMCG products can be a huge source of foreign
revenue but in terms of quality and effectiveness the industry is somewhat lagging behind in
comparison with other international companies in the industry which makes it hard to get into
the global market.

Unethical Practices: The poor and health hazard situation regarding the consumer products
in our country is not unknown to anyone. Maximum companies and manufacturer of products
fail to meet the safety and quality standards set by BSTI and ISO which creates a problem for
the sustainability of the industry

The industry is also facing some future threats and difficulties which might add to the
existing risks in the industry:

21 | P a g e
 Exsistance of Strong MNC's Such As Unilever,Nestle: Such strong presence of powerful
and efficiet companies industry makes it very difficult for other companies and emerging
companies in the industry to survive let alone thrive.

Increasement of Unethical Competition: Competetion in the industry is obviously good for

the betterment. But the increasing amount of corruption in the FMCG industry is really
concering regarding the safety measures.

Poor Legal System: The controlling and regulating body regarding the FMCG industry itself
is very weak and uneffective. The rules and standards posted by the BSTI and other
organizations is hardly maintained by corporations.

Revenue and Growth Hampered By The Pandemic: The ongoing recent pandemic has
created a very difficult financial situation. Supply chain is the sector where these companies
have the potential to be affected the most. The supply chains of FMCG companies are pretty
vast and intricate. And this complicated structure is being affected due to increase of lead
time, volatility of price, and inaccuracy of forecasts. Due to the lockdown, some routes for
shipment are at halt now. As a result, supplies are not being delivered in time. Consequently,
this is causing ripple effect in every subsequent function of the supply chain. Ultimately,
productivity is being lessened severely. In terms of finances, major problems are taking place
in two areas -- budget allocation and payment clearance. The budget for every brand is
typically fixed beforehand. But the budget made before this crisis has failed to predict the
subsequent high uncertainty in demand. Marketing expenses are being severely cut
everywhere. Most marketing jobs are now being done from home.

Performance of Major Companies In The Industry:

Below are the record of revenues generated by five paricipatig companies in the industry
thoroughout recent five years (amounts are in BDT million):

Company 2014-15 2015-16 2016-17 2017-18 2018-19

Name
Olympic 8853 10965 11290 12928 13733
Fu Wang 767 767 586 712 981
Fine Foods 26 34 47 46 52
Limited
Golden 776 1427 1526 1870 2240
Harvest
Apex 2751 2031 1642 1922 1712
Foods Ltd
In terms of financial revenue the two highest revenue generating companies from our selected
five companies are Olympic and Apexx foods ltd. The revenue for most of the companies are
sufficient and a steady growth is also observed for most of them. But with the rise in
competetion some companies like apex foods are loosing money.

22 | P a g e
Below are the record of net profit ratio generated by five paricipatig companies in the
industry thoroughout recent five years (%):

Company 2014-15 2015-16 2016-17 2017-18 2018-19

Olympic 12.39 14.81 14.55 13.85 13.62
Fu Wang 13.43 11.21 10.40 8.84 8.97
Fine Foods 3.84 29.41 17.02 2.17 5.76
Limited
Golden 10.95 12.47 12.25 11.87 10.80
Harvest
Apex 3.05 1.42 2.92 7.18 0.64
Foods Ltd

Now for the net profit ratio we can see from the table that all five companies always had a
positive net profit ratio which shows the industry is profitable and the margin is also quite
satisfactory. The net profit ratio for most of the companies are decreasing because of increase
in competetion and rise in expenditure.

Below are the record of EPS generated by five paricipatig companies in the industry
thoroughout recent five years(par value tk 10):

Company 2014-15 2015-16 2016-17 2017-18 2018-19

Name
Olympic 5.75 8.13 8.22 8.96 9.36
Fu Wang 1.32 1.03 0.61 0.57 0.80
Fine Foods (0.149) 0.816 0.649 0.073 0.247
Limited
Golden 0.95 1.98 1.72 2.04 2.03
Harvest
Apex 14.88 (2.32) 1.56 1.81 2.07
Foods Ltd

Among the companies olympic company has the higheste and most steady EPS rate. The eps
rate is also satisfactory for most of the companies which shows the attractiveness of the
industry which attributes greatly towards the development of the industry.

Below are the record of Net Asset Value per share generated by five paricipatig companies in
the industry thoroughout recent five years :

Company 2014-15 2015-16 2016-17 2017-18 2018-19

Name
Olympic 21.46 23.08 27.07 31.53 36.09
23 | P a g e
 Fu Wang 11.83 12.92 11.34 10.91 11.71
Fine Foods 2.18 7.79 6.67 3.72 4.14
Limited
Golden 20.71 22.72 20.12 22.31 20.01
Harvest
Apex 109.16 108.61 115.10 137.41 124.30
Foods Ltd
Apex foods limited has an outstanding NAV per share. All the companies are showing
positive NAV per share which means in terms of utilizining assets the industry is going
fluently. Companies like olympic and Fu Wang are going in the positive direction with
increasing NAV per share.

Industry Forecast
Covid-19 and Its impact on Fast Moving Consumer Goods
(FMCG) industry of Bangladesh:
Due to Covid-19 pandemic there was sharp increase in the demand for some products and
others experienced a substantial drop. From the very beginning of the pandemic situation
there seems a panic buying in some categories of products like detergents, hand washes,
sanitizers etc. There was a certain situation where the industry experienced the demand for
hand sanitizers was as high as that its outgrown the total demand of pervious year. As a
result, most of the companies having a diversified portfolio, experienced an incredible growth
in few products while others took a plunge. Interestingly, the growth of those few brands
were sufficient for balancing out the loss incurred from the rest in most of the cases.
From the Production End:
Most of the companies within the industry have their factories either inside or outside of the
capital. In multinational company’s workers are working in a three-day work cycle. Half of
the workers are working for three days in a swing and replaced by the other half for three
more days. They had to ensure the procurement of the raw materials is being done in high
volumes to match with the increased and panicked demand and to avoid extra costs.
Supply Chain:
This is the sector where the industry was mostly affected. Because, the supply chain of this
industry is quite wide spread, intricate and affected the complicated structure due to increase
of lead time. inaccuracy of forecast and volatility of price.
Because of lockdown, most of the routes for shipment are blocked now. As a result, supplies
are not delivered in time. This is causing ripple effect in very subsequent function of the
supply chain. Ultimately. Productivity is reduced in a huge number. On top of that, some
vendors are out of supplies. As a result, the companies are looking for new vendors, and this
forcing then to build new relationship with those vendors which are making the process
slower. Moreover, the companies are not having as much leverage in terms of negotiating as
the used to have. As a result, the overall transaction cost of the industry is increased.
Finances:

24 | P a g e
The industry is facing two major problem in case of Financing. One is Budget allocation and
other is Payment Clearance. In most of the cases the budgets were fixed for every brand
beforehand. But due to this pandemic it is very difficult to predict the uncertainty of demand.
Moreover, there is a insufficient budget for high-demand brands while that for low-demand
ones is in surplus. And this preventing the over-performing companies to reach their
potential.
There is also another change is practice came in the clearance of bills and documents.
Normally, most of the companies used to deliver their invoices via a hard copy. But due to
covid-19 pandemic this is not possible anymore. As a result, companies are trying to create
online platform and to initiate the practice of receiving soft copy of bills and documents.
Marketing:
Because of corona virus pandemic most of the companies try to cut their marketing expanses
severely. Marketing jobs are nowadays done from the home via using online platform. As a
result, in the rural area companies are not able to gather the customer insight as effectively as
they used to. Moreover, the retail people are not as efficient at technologies. As a result, the
monitoring process are not as effective as the used to. Corona Virus has changed the
traditional business practices and customer demands. It is not easy to grab this new normal as
well.

Embracing the new normal:

Because of covid-19 most of the companies have adopted the virtual working platform. In our
country it is Unilever who was the first to go virtual by shutting down its offices on March
14. AFBL also reopened their limited capacities. More or less the online services like Food
Panda, Pathao food, Shohoz food become very popular nowadays

Adaption and innovation:

Nestle & Aaron Dairy have lunched their in-house home delivery services during the
lockdown and are now taking online orders. All the items that the burger joint has sold this
lockdown have been in frozen form. Marketing Executive of Takeout said, "Our frozen DIY
foods were not only meant to lessen human interaction as much as possible but also to give
the consumers at home a fun task."

Industry Forecast Through Industry Growth Drivers:

There are several drivers that enables us to think differently about FMCG industry and helps
us to understand and forecast the movement of an industry and its growth. They are

25 | P a g e
 • Population • Technology • Operations
• Customers • Transaction • Finance
• Transportation • Risk

Populations:
Bangladesh is a densely populated country. The market is huge in proportion to its total land
of area. The total number of populations in Bangladesh approximately 165.2 million
currently. The growth rate is 1.01% and its reducing over the years. In 2025 the total number
of population for Bangladesh is expected to reach at 170 million. This vast population gives
FMCG industry a huge market to cultivate. So, by the population parameter we can easily
conclude there will be a future growth in the FMCG industry in near future.

Customers:
FMCG is an industry which work with the total market. It is not centered in a market niche. A
market consists of 3 categories of consumers. Luxury product’s consumers. Middle class
consumers and finally lower-class consumers. FMCG industry cover these consumers types
and more or less serve all over the market. Even this covid-19 pandemic cannot permanently
cause any damage of this industry. Due to the pandemic the industry will underperform for a
several years from its regular benchmark but in the long run this industry will recover it faster
than any other industry of the market.

Transportation:
Due to the overall weaknesses of our transportation infrastructure, we have not been able to
achieve our development goals. Foreign investors also shy away from investing here. The
good news is that the situation is improving. There are several Mega projects under taken by
Bangladesh government to over the weakness in transportation segments. They are given
below:

26 | P a g e
Technology:
Any industry can flourish in an environment which is develop and surrounded by advanced
technology. Bangladesh is far behind in this scenario. We are traditionally leg behind in this
segment and our government also seems to be indifferent in this sector. It is not possible to
helps the rapid growth of FMCG industry without advent technology. So, it’s a drawback for
our nation as well as for the industry that we are no very much advanced technologically. The
rapid digitalization of Bangladesh - including easy internet access in urban areas and
government and non-government initiatives to promote freelancing - has contributed to the
recent growth of this way of working.
As a result, Bangladesh has already become the second-largest supplier of online labor,
according to the Oxford Internet Institute (OII). About 500,000 active freelancers are working
regularly, out of 650,000 registered freelancers in the country; between them they are
generating $100 million annually, according to the ICT Division of Bangladesh.

Finance:
The industry is facing two major problem in case of Financing. One is Budget allocation and
other is Payment Clearance. In most of the cases the budgets were fixed for every brand
beforehand. But due to this pandemic it is very difficult to predict the uncertainty of demand.
Moreover, there is a insufficient budget for high-demand brands while that for low-demand
ones is in surplus. And this preventing the over-performing companies to reach their
potential. There is also another change is practice came in the clearance of bills and
documents. Normally, most of the companies used to deliver their invoices via a hard copy.
But due to covid-19 pandemic this is not possible anymore. As a result, companies are trying
to create online platform and to initiate the practice of receiving soft copy of bills and
documents.

Risk:
The industry will face several risks in the future years. In Bangladesh the political instability
is one of the biggest risk for any industry. The opposition party is not helpful enough to the
government party and vice versa. Moreover, there are some social problems as well like
allegation against rape, restructuring education system, poverty, after pandemic crisisall of
this will hinder the growth of FMCG industry.

27 | P a g e
 Pro-forma Income Statement
Particulars (BDT mn) 2020A 2021E 2022E 2023E 2024E 2025E
Income Statement
Turnover (net of VAT) 1045.66 1113.6 1113.6 1185.96 1263.03 1345.1
Cost of Goods Sold 728.303 811.776 811.776 864.523 920.698 980.524
Gross Profit 317.357 301.829 301.829 321.441 342.328 364.572
Operating Expenses: 102.298 109.841 109.841 116.979 124.58 132.675
Administrative expenses 62.6075 70.8435 71.0526 76.0227 80.3579 81.1986
Selling and distributive expenses 39.6902 38.998 38.7888 40.956 44.2219 51.4761
Operating Proft before Financial Expenses 215.059 191.987 191.987 204.462 217.748 231.897
Financial Expenses 24.1033 24.4982 24.4982 26.09 27.7853 29.5907
Operating Income 190.956 167.489 167.489 178.372 189.963 202.306
Non Operating Income
Net Proft before tax and WPPF 190.956 167.489 167.489 178.372 189.963 202.306
Provision for WPPF & welfare fund 6.54438 7.67923 7.67923 8.17822 8.70962 9.27556
Net Profit before tax 184.411 159.81 159.81 170.194 181.253 193.031
Income Tax expenses 56.38 42.42 42.42 45.18 48.11 51.24
Current Tax 34.6309 34.02 32.43 33.33 35.29 31.47
Deferred Tax 21.747 8.40 10.63 13.46 17.03 21.55
Net Proft after tax 128.03 117.39 117.39 125.02 133.14 141.79

Pro-forma Balance Sheet

Balance Sheet
Particulars (BDT mn) 2020 2021 2022 2023 2024 2025
AS S ETS :
Non Current Assets 758.8298 816.7074 879.3109 947.0262 1020.271 1099.495
Property Plant & Equipment (net of accumulated dep.) 708.8298 766.7074 829.3109 897.0262 970.2705 1049.495
Investment 50 50 50 50 50 50
Current Assets: 1764.967 1389.134 1443.921 1530.012 1620.568 1715.788
Inventories 329.9172 297.00 297.00 316.30 336.85 358.74
Trade and other receivables 751.786 470.15 470.15 500.70 533.24 567.88
Advances, Deposits & prepayments 661.6993 576.10 576.10 613.54 653.40 695.86
Cash and cash equivalents 21.56485 45.881 100.6675 99.47685 97.0797 93.30549
Total Assets 2523.8 2205.84 2323.23 2477.04 2640.84 2815.28
EQUITY & LIABILITIES :
S hareholder's equity 1445.252 1474.856 1592.245 1709.634 1834.651 1967.791
Share Capital 1289.67 1289.67 1289.67 1289.67 1289.67 1289.67
Revaluation reserve 56.65195 56.65195 56.65195 56.65195 56.65195 56.65195
Retained Earnings 98.43 128.03 245.42 362.81 487.83 620.97
Non Controling Interest 0.5 0.5 0.5 0.5 0.5 0.5
Non-Current Liabilities: 132.1366 172.4862 233.113 315.3521 438.2734 649.9489
Deferred Tax Liabilities. 79.97 120.32 180.95 263.19 386.11 597.79
Loan from IDLC 52.16362 52.16362 52.16362 52.16362 52.16362 52.16362
Current Liabilities: 925.3133 577.7569 577.7569 614.1743 652.9581 694.262
Short term bank loans and others 123.23 121.2008 121.2008 129.0762 137.4633 146.3954
Trade and other payables 439.177 54.57 54.57 58.12 61.89 65.91
Payable for WPPF and Welfare Fund 17.3 17.3 17.3 17.3 17.3 17.3
Liabilities for expenses 12.15626 12.94615 12.94615 13.78737 14.68324 15.63733
Provision for Income Tax 333.45 371.7405 371.7405 395.8955 421.6201 449.0161
Total Equity and Liability 2523.8 2205.84 2323.23 2477.04 2640.84 2815.28

28 | P a g e
 DCF Valuation
In case of DCF valuation, our calculated beta was 1.11(approx.), WACC was 10.43%,
Cost of equity was 9.23% and terminal growth rate was assumed to be 2% depending on
recent performance and industry situation.

Particulars (BDT mn) 2021 2022 2023 2024 2025

NPAT 117.39 117.39 125.02 133.14 141.79
Depreciation and ammortization 76.670743 82.93109 89.702617 97.027052 104.94954
Financial Expenses 24.498168 24.49817 26.090013 27.785292 29.590728
Tax rate 35% 35% 35% 35% 35%
Capex 57.877656 62.60351 67.715232 73.244344 79.224921
Change in NWC -28.27675 54.7865 49.673969 51.772556 53.915341
Net Borrowing 40.349679 60.62679 82.239097 122.92122 211.67551
Terminal growth rate 2%
WACC 10.43%
FCFF 188.88 127.63 162.61 210.01 306.04 312.16
Terminal Value 3,703.88
Cost of equity 9.23%
PV Factor for FCFF 0.9055674 0.820052 0.7426127 0.6724859 1.6420865
PV Factor for FCFE
Enterprise value 7,122.34
Equity value 5,313.17
Number of outstanding share (in thousands) 110.83928 110.8393 110.83928 110.83928 110.83928
Per share price 47.94

Relative Valuation
Four companies have been used for making the relative valuation of Fu Wang Foods Ltd. by
using P/S, P/E and P/B Multiples.
Sales Earnings Book Value Market Value P/S P/E P/B
Olympic Industries Ltd. 13,350,627,645 1871427973 7,216,308,626 35449164488 2.66 18.94 4.912
AMCL (Pran) 2,821,830,393 58,400,000 635,950,009 1,528,000,000 0.54 26.16 2.403
Apex Foods 1,712,669,526 11,803,968.00 708,810,544 684,858,240 0.40 58.02 0.966
Fu Wang Food 981,860,152 88,671,427 1,108,392,840 1,418,742,835 1.44 16.00 1.280
981,860,152 88,671,427 1,108,392,840

Fu Wang Food
Fu Wang Food Fu Wang Food
Average Multiple Median Multiple Valuation
Numbers Valuation (Average)
(Median)
Sales 1.20 0.54 981,860,152 1,177,123,803 531,669,910
Earnings 34.38 26.16 88,671,427 3,048,110,308 2,320,033,232
Book Value 2.76 2.403 1,108,392,840 3,059,637,321 2,663,140,554
Average 2,428,290,477 1,838,281,232

# of Shares 110839284 21.91 16.59

Sensitivity Analysis
This analysis is made for the purpose of finding out how much sensitive the target prize is to
the change of WACC and Terminal growth rate. The findings of the analysis reveal that the
prize of the share is more sensitive to terminal growth rate than WACC. It also means that a
slight change in terminal growth rate can bring in a massive change in the price of the stock.

29 | P a g e
 WACC
24.98 5% 8% 10.43% 12% 15%
1% 31.7325 25.6761 23.7231 22.9795 22.1368
1.50% 34.3755 26.6391 24.3177 23.4513 22.4747
Terminal Growth Rate 2% 37.8994 27.7626 24.9829 23.9704 22.8386
2.50% 42.833 29.0903 25.732 24.5441 23.2316
3% 50.2334 30.6836 26.5818 25.1815 23.6574

Target Prize
Though our analysis we have realized that we have 20% confidence on the prize determined
through DCF Valuation, 30% confidence on the average multiple prize and 50% confidence
on median multiple valuation. We have used these confidence levels as weights for
determining the weighted average target prize of share.

Weighted Average Prize 24.98

Weight of DCF 20%
Weigh on average multiple prize 30%
Weight on median multiple prize 50%

30 | P a g e