Group3 FMCG

Table of Contents
Industry Analysis .................................................................................................................................................. 3

About The Sector .............................................................................................................................................. 3
How the sector Functions ................................................................................................................................. 4
Industry Statistics ............................................................................................................................................. 7
Investment Thesis ...........................................................................................................................................25
Conclusion ......................................................................................................................................................28
Company valuation ............................................................................................................................................31
Godrej Consumer Products Limited ...............................................................................................................31
Business Model...........................................................................................................................................34
Growth Prospects .......................................................................................................................................36
Qualitative Analysis of GCPL.......................................................................................................................38
Fundamental Analysis of GCPL ...................................................................................................................41
Relative Valuation ......................................................................................................................................48
Financial News ............................................................................................................................................48
Nestle ..............................................................................................................................................................49
Business Model...........................................................................................................................................51
Qualitative Analysis of Nestle .....................................................................................................................53
Fundamental Analysis of Nestle .................................................................................................................55
Financial News ............................................................................................................................................64

ITC ...................................................................................................................................................................67
Business Model...........................................................................................................................................67
Qualitative Analysis of ITC ..........................................................................................................................68
Fundamental Analysis of ITC ......................................................................................................................70
Financial News ............................................................................................................................................78
CAPM ..............................................................................................................................................................78
Company Wise investment .........................................................................................................................80
References..........................................................................................................................................................31
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PART – A
INDUSTRY ANALYSIS
Ashima Garg IPM/2218/02

Harsh Vijay IPM/2231/02
Kartik Bansal IPM/2237/02
1. ABOUT THE SECTOR

Fast-Moving Consumer Goods (FMCG), also known as Consumer-Packaged Goods (CPG),
encompass a vast category of products that are in high demand by consumers. These products have a
rapid sales turnover and are priced at a relatively lower scale, making them staple items in daily
consumption.
Characteristics of FMCG:
• Short Shelf Life: FMCGs typically have a limited shelf life. This could either be due to high
consumer demand, as in the case of confections and soft drinks, or because they are
perishable by nature, like dairy products, meats, and baked goods.
• High Volume, Low Margin: These goods are sold in considerable quantities. Their high sales
volume is counterbalanced by their low-profit margins on each individual sale.
• Frequent Purchases: FMCGs are products that consumers buy regularly. The frequency of
their purchase indicates the consistent demand they have in the market.
• Low Involvement Purchases: While FMCGs account for a significant chunk of consumer
spending, they are often low-involvement decisions for the consumer. A consumer may spend
more time deciding on purchasing an electronic gadget than choosing a brand of toothpaste or
soda.
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Market Dynamics and Competition:
The FMCG market is notably expansive and competitive. Industry giants such as Coca-Cola, Nestlé,
Procter & Gamble, and Unilever vie for significant market shares, constantly innovating and
marketing to ensure they remain ahead of their competitors.
Given the high turnover rate of these goods, branding, marketing, and packaging play pivotal roles in
the sales process. Packaging serves dual purposes - it not only provides necessary information and
entices the consumer but also ensures product safety and prolongs shelf life. Given the large scale at
which these goods are sold, the logistics and distribution systems are optimized to ensure efficiency,
often requiring multiple layers of packaging.
Financial Implications and Investment Perspective:
From a financial viewpoint, while FMCGs promise limited growth, they are deemed to be stable.
Their consistent demand makes them a dependable source of revenue. As a result, stocks of FMCG
companies might offer more predictable margins and returns. They are typically seen as less volatile,
making them an attractive proposition for investors looking for stable returns and regular dividends.
In conclusion, FMCGs form an integral part of the consumer market. Their constant demand,
competitive nature, and significant impact on consumer spending make them a critical sector to study
in the broader market dynamics.
2. HOW THE SECTOR FUNCTIONS

FMCG distribution channels are the routes that FMCG items take from producers to consumers.
They are the conduits via which commodities, information, and funds pass through the system.
While some FMCG companies prefer to deal directly with customers, majority of the companies rely
on a distribution network to get their products to their customers.
Setting up a distribution channel takes extensive preparation, effective thought processes, work, and
expenditure. The margin on distribution channels and the cost of managing them account for a
significant portion of overall marketing costs.
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Most manufacturing companies in India struggle to plan, construct, and effectively manage their
distribution channels.
Understanding the FMCG Sector

1. Conceptualization & Product Development
The inception of every FMCG product begins in the ideation phase. Based on market demand,
consumer feedback, and competitive gaps, businesses conceptualize products. Rigorous research and
development ensure these products not only meet consumer needs but also adhere to industry
standards and regulations.
2. Raw Material Procurement Process
Every product's foundation is its raw materials. FMCG companies maintain intricate relationships
with a vast network of suppliers. These relationships, often governed by stringent contracts, ensure
the consistent quality and timely supply of materials, balancing cost-efficiency with quality.
3. Manufacturing Mechanisms
Within specialized facilities, raw materials undergo a transformative process. Precision machinery
and skilled labour work in tandem to ensure production lines function optimally. Each product
undergoes strict quality control checks to ensure uniformity and adherence to standards.
4. Distribution Dynamics
Post-production, a sophisticated logistics network takes over. Products are dispatched to regional
warehouses. From these hubs, they are further distributed to retailers. The primary objective here is
efficiency and speed, ensuring products reach shelves while still fresh and in optimal condition.
5. Marketing & Consumer Outreach
The FMCG landscape is fiercely competitive. To gain consumer attention, strategic marketing
campaigns are indispensable. Businesses invest significantly in market research to craft campaigns
that resonate with target demographics. This also encompasses product placement strategies within
retail outlets.
6. Retail Interactions
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The end of the product journey before reaching consumers is the retail environment. Here, intricate
strategies define where a product sits on a shelf. Factors like consumer purchasing behaviour and
competitor product placement play a critical role. Promotions, discounts, and bundling are also
frequent tactics employed to stimulate sales.
7. Feedback & Continuous Improvement
The FMCG sector is defined by its responsiveness. Post-sale, companies actively solicit and value
consumer feedback. This feedback loop informs product tweaks, new formulations, or even the
conceptualization of entirely new offerings.
8. Regulatory Adherence & Challenges
A crucial underpinning of the FMCG sector is its adherence to local and international regulations.
Whether it's about product formulation, packaging, or marketing communication, regulatory
compliance is paramount. It ensures consumer safety and upholds industry standards.
~ Typical Supply Chain followed in FMCG
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3. INDUSTRY STATISTICS
The FMCG sector has exhibited substantial expansion, underlined by consumer-driven growth
and elevated product prices.
• As of December 2022:
➢ FMCG market valuation stood at US$ 56.8 billion.
➢ Predicted CAGR from 2021-27 is 27.9%, anticipating a value near US$ 615.87 billion by
2027.
• Contribution breakdown:
➢ Urban areas: 65%
➢ Rural areas: >35%
• Year-on-year growth for the last fiscal year:

➢ Revenue increase: 8.5%
➢ Volume growth: 2.5%
• First half of 2022:

➢ 8.4% value growth attributed partly to inflation-induced price hikes.
• Q2 2022 analysis:
➢ Noted a 10.9% growth, surpassing Q1's 6%.
• Indian food processing market:

➢ 2022 valuation: US$ 307.2 trillion
➢ Projected to rise to US$ 547.3 trillion by 2028 with a CAGR of 9.5% during 2023-2028.
• Digital advertising in the FMCG sector:

➢ Foreseen to reach Rs. 35,809 crore (US$ 4.3 billion) by 2023.
➢ FMCG's contribution: 42% of the total digital advertising spend.
• Food and beverage segment in FMCG:

➢ Contributes nearly 3% to India's GDP.
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➢ Accounted for 30% of total household expenditure in 2021.
• Personal and household care segment:

➢ Growth observed from 32% in 2019 to 40% in 2020.
• Household FMCG expenditure:

➢ Amounted to Rs. 47 Lakh crore (US$ 60 billion) as of February 2021.
• Q3 2021 domestic FMCG growth:

➢ 12.6% YoY increase.
• Governmental support:
➢ FDI inflows from April 2000-June 2022: US$ 20.84 billion.
➢ 2022-23 Union Budget allocations significant for FMCG-related departments.
• Projections for International FMCG market by 2025:

➢ Anticipated to touch US$ 220 billion, a leap from US$ 110 billion in 2020.
Market Shares of Leading Companies
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Frameworks for Analysis
A. SWOT ANALYSIS
B. PESTEL ANALYSIS
C. PORTER’S FIVE FORCE MODEL
SWOT ANALYSIS
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To acquire a comprehensive understanding of their company environment, many organizations in the
Fast-Moving Consumer Goods (FMCG) industry frequently use a strategic planning method called
SWOT analysis. Strengths, Weaknesses, Opportunities, and Threats is referred to as SWOT. It's a
technique that aids these businesses in evaluating both internal and external elements that may have
an impact on how well they operate in the market.
FMCG organizations may make well-informed decisions by using SWOT analysis. They are able to
recognize and build upon their strengths, seek to strengthen their deficiencies, seize opportunities as
they present themselves, and reduce any dangers or hazards that may be present. SWOT analysis, to
put it simply, aids FMCG companies in identifying their strong points, areas for development,
opportunities to seize, and potential difficulties. By conducting a thorough SWOT analysis, the
stakeholders in the FMCG industry may develop strategies that boost their competitiveness, promote
innovation, and ensure long-term success in a market that demands adaptation and reactivity. This
study will be a helpful resource for understanding the complexities of the FMCG sector and guiding
strategic decision-making in a constantly shifting business environment.
So let us examine these factors in detail:
• Strengths
a) Strong Branding:
Over the years, a lot of FMCG companies have developed powerful and identifiable brands.
Recurring purchases are often influenced by brand loyalty.
Higher profit margins can result from the premium pricing that well-known brands frequently
fetch.
Example - Coca-Cola has a strong brand name . The Coca-Cola brand is well known
throughout the world and is known for its quality and refreshing drinks.
b) Wide Distribution Networks:
FMCG businesses often have broad distribution networks that cover a wide range of
geographical regions, ensuring that customers can easily get their products. Strong
distribution systems provide for quick reaction to shifting market conditions and demand.
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Example - As an illustration, Procter & Gamble (P&G) has a sizable distribution network that
guarantees that its goods, such as Pampers diapers and Tide laundry detergent, are sold in
stores all over the world.
c) Product Innovations:
The FMCG industry is known for its constant innovation. Companies frequently launch new
tastes, products, and packaging to meet the changing preferences of customers. FMCG
businesses benefit from innovations by being relevant and maintaining a competitive edge.
Example - As an illustration, Nestlé continually releases novel coffee makers and flavors
under the Nespresso brand to cater to coffee lovers looking for convenience and diversity.
d) Cost Efficiency:
Due to their enormous manufacturing numbers, FMCG companies frequently profit from
economies of scale. Cost reductions from effective supply chain management and production
procedures enable businesses to provide competitive prices to customers.
Example - As an illustration, Unilever's effective supply chain management enables it to cost-

effectively produce and distribute a variety of goods, such as Dove soap and Lipton tea.
• Weaknesses:
a) Intense Competition
The FMCG industry is incredibly cutthroat, with a plethora of brands and goods fighting for
consumers' attention. Price pressure and smaller profit margins may result from this
competition. In order to sustain market share in the face of competition, significant marketing
and promotional costs may be required.
Example - For instance, the rivalry between The Coca-Cola Company's Coca-Cola and
PepsiCo's Pepsi in the market for carbonated beverages frequently results in price wars and
strong marketing campaigns.
b) Supply chain vulnerabilities
FMCG businesses rely on intricate supply chains that involve obtaining raw materials,
producing goods, and distributing them. Production and product availability may be impacted
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by any break in this chain, such as problems with transportation or a lack of supplies.During
peak times, seasonal demand swings may put a strain on supply chains.
Example - As an illustration, during the COVID-19 epidemic, FMCG companies like

Kimberly-Clark (well known for its Huggies diapers and Kleenex tissues) experienced supply
chain delays as a result of rising demand and logistical difficulties.
c) Short Product Life Cycle
Because consumer tastes and preferences are changing so quickly, many FMCG items have
short lifecycles. Continuous product development and marketing activities are needed for
this.
Inventory must be properly managed by businesses to prevent obsolescence and waste.
Example: The smartphone market is one example of a market with incredibly short product
lifecycles, necessitating constant new model and upgrade releases from businesses like
Apple.
d) Price Sensitivity
Customers in the FMCG industry are frequently extremely price-sensitive. This sensitivity
may make it difficult for a business to raise prices, which would strain profit margins.
Competitor price wars can reduce profitability and make it difficult to maintain premium
pricing.
Example - In the FMCG industry, for instance, store brands and generic items frequently fight
on price, putting pressure on market leaders like Kellogg's and General Mills to keep their
prices competitive.
• Opportunities:
a) Health and Wellness Trends:
The opportunity to create and sell healthier product options is presented by rising customer
interest in health and wellness for FMCG companies. Offering organic, low-sugar, or useful
items can help brands cash in on this trend.
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Example - For illustration, businesses like Chobani have benefited from consumers' increased
health consciousness by offering Greek yogurt, which is seen as a healthier option to regular
yogurt.
b) E-commerce Expansion:
E-commerce has quickly expanded, giving FMCG companies another route for distribution.
Through online platforms, businesses can reach a larger audience while providing ease and
individualized buying experiences.
Example - For instance, Alibaba's Tmall Supermarket and Amazon Pantry offer platforms for
FMCG firms to engage consumers directly and circumvent conventional retail channels.
c) Emerging Markets:
Significant development prospects might result from a company's expansion into developing
nations with growing middle-class populations.
Creating products that are affordable and suitable for local tastes can be a successful strategy.
Example - For instance, Unilever has branched out into developing nations like India with
goods catered to regional tastes, including Fair & Lovely skin cream, which satisfies the
yearning for fairer skin.
d) Sustainability Initiatives:
As a result of customers and stakeholders growing environmental and social concerns, many
FMCG companies have made sustainability a top priority. The FMCG industry's
sustainability initiatives cover a wide range of activities meant to lessen negative
environmental effects, advance moral behavior, and solve societal issues. These initiatives
offer strategic advantages in a cutthroat market in addition to being motivated by corporate
responsibility.
Example - As an illustration, Natura &Co's The Body Shop advertises its dedication to
producing cruelty-free and ecological cosmetics, appealing to customers who care about the
environment.
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• Threats:
a) Regulatory Adjustments:
Regulations governing things like labeling requirements and health standards are frequently
changing, which can have an impact on product formulas and marketing plans.
Example - Sugar taxes that affect the products sold by beverage firms. Companies like Philip
Morris International have been impacted by the implementation of stronger rules on the
marketing and sale of tobacco products, pushing them to adjust their strategies and invest in
alternatives like e-cigarettes.
b) Economic Recessions:
Consumers may reduce discretionary spending during economic downturns, which could
affect sales of high-end FMCG goods.
Example - For instance, during economic downturns, sales of upscale cosmetics or upscale
chocolates decline. Companies like Philip Morris International have been impacted by the
implementation of stronger rules on the marketing and sale of tobacco products, pushing
them to adjust their strategies and invest in alternatives like e-cigarettes.
c) Consumer Preference Changes:
Sales may be impacted by changing consumer tastes, such as the decrease in carbonated drink
consumption brought on by health concerns.
Example - Taking Kellogg's as an example, sugary cereal sales are declining. The trend
towards better eating has resulted in a drop in sales of sugary cereals, which has an impact on
businesses like Kellogg's. Kellogg's has expanded into healthier options to fend off this
threat.
d) Supply Chain Breakdowns:
Production and product availability might be affected by interruptions such as transportation

problems or sourcing difficulties.
Example - Global supply chains were made vulnerable by the COVID-19 epidemic. FMCG
companies like Procter & Gamble experienced difficulties obtaining raw materials and
production delays, which impacted the availability of their products.
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e) Environmental Issues:
Public resentment of businesses with unsustainable operations may increase as public

awareness of environmental issues rises.
Example - For instance, there is pressure on businesses to reduce plastic waste and adopt eco-
friendly packaging options. Increasing awareness of environmental issues has led to
consumer demands for more sustainable packaging and practices. FMCG companies that fail
to meet these demands may face backlash and declining sales.
f) Competition from Private Labels:
Supermarkets frequently compete directly with branded FMCG products by selling their own
private label or store-brand goods at reduced prices. Market share for well-known brands may
decrease as a result of this competition.
In conclusion, the FMCG sector's SWOT analysis presents a landscape that is rich in
prospects and strengths, from great branding to emerging markets and sustainability.
However, it also poses difficulties, such as fierce rivalry and supply chain weaknesses. It will
take ingenuity, adaptation, and a sharp eye on shifting consumer trends and regulatory
changes to succeed in this fast-paced industry.
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PESTEL ANALYSIS
PESTEL, which stands for Political, Economic, Social, Technological, Environmental, and Legal
elements, is an effective technique for understanding the outside forces influencing this dynamic
business.
In this research, we'll look at how the FMCG sector is impacted by political choices, economic
situations, sociological changes, technical developments, environmental concerns, and legal
requirements. Each of these elements has a significant impact on how business plans, market trends,
and the general success of FMCG companies are affected.
We can learn a lot about the difficulties and opportunities the FMCG industry faces as well as how it
adjusts to the constantly shifting demands of customers and the environment by looking at the larger
external environment.
Let us discuss these factors in detail:
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1. Political
● Regulations and Trade Policies:
Governmental rules and the political climate both have a big impact on the FMCG industry in
India. Factors such as political stability, tariffs, import/export restrictions, and changes in
trade policies affect price and availability of raw materials and finished goods. For example
with GST in India had major influence on cost structure and supply chain dynamics for
FMCG Sector
● Taxes & Duties:
Product taxes might affect customer behavior. For instance, in an effort to lower
consumption, the Indian government occasionally imposes additional tariffs on goods like
alcohol and tobacco. These taxes alter both what and how much consumers choose to
purchase.
● Laws governing product labels and advertising:
Marketing tactics and product information may be affected by government rules on product
labels and advertising. To safeguard consumers from false information, India's Food Safety
and Standards Authority (FSSAI) makes sure that food labels are accurate and unambiguous.
2. Economical
● Economic Cycles:
Consumer spending patterns are impacted by economic downturns. People frequently reduce
their purchases of non-essential FMCG goods during hard times. For instance, the COVID-19
pandemic lowered sales of FMCG products that were not necessities because of the shaky
economy.
● Consumer income and disposable income:
Consumer purchasing power and brand preferences are influenced by income levels and
disposable income. Rising incomes in India have raised demand for upscale FMCG items,
particularly imported and organic products.
● Exchange rates:
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The cost of living is impacted by currency value. When the Indian Rupee gains strength,
FMCG producers may pay less for imported ingredients, which could have an impact on
pricing strategies.
3. Social
● Consumer tastes Are Constantly Changing:
Consumer tastes are always changing. The importance of good health, environmental
responsibility, and ethical consumption is rising. In India, organic and plant-based FMCG
items are now more prevalent as a result of this.
● Demographics:
In India, the movement toward urbanization and shifting family arrangements have an
impact on product demands. The desire for quick-to-cook foods has increased as more people
relocate to urban areas.
● Cultural influences:
Cultural elements, such as eating customs and traditions, influence the selection of products.
In India, FMCG companies frequently customize their products to suit regional tastes and
preferences.
4. Technological
● Digital Transformation:
E-commerce and AI adoption have an impact on India's supply chain management and
marketing strategies. FMCG product distribution and marketing have changed as a result of
the expansion of e-commerce sites like Flipkart and Amazon India.
● Robotics and automation:
In the FMCG industry in India, automation increases productivity and lowers costs in the
manufacturing and distribution operations. For instance, robotic automation improves the
speed and accuracy of supply chain processes in Indian manufacturing and warehouses.
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5. Environmental
● Concerns about sustainability:
Growing environmental consciousness in India encourages FMCG firms to adopt sustainable

methods and cut back on waste. India's environmental objectives are in line with initiatives to
lessen the use of single-use plastic in packaging and to encourage recycling.
● Climate Change and Natural Resources:
Crop production is affected by climate change as well. The erratic monsoon patterns in India
has impact on the availability of crops wheat and rice, which affects both the production and
pricing of food.
6. Legal
● Regulatory Compliance:
Food Safety and Standards Authority of India (FSSAI) established these regulations, and
strict adherence is necessary such as Food safety, labeling standards, and advertising
regulations are few laws that FMCG companies operating in India must abide by.
● Product responsibility and Safety:
Strict rules apply to product responsibility and safety, particularly in India's food and
beverage industry. Indian consumer protection rules apply to cases of product recalls and
legal actions involving food contamination or mislabeling.
● Protection of Intellectual Property:
In India, competition and product innovation are impacted by laws governing intellectual
property and patents. In order to protect their ideas from copying and infringement, FMCG
businesses frequently apply for patents for special formulas or packaging designs.
Thus in conclusion, The political and social changes have a considerable impact on the FMCG
industry's environment. The state of the economy can help or hinder the industry's expansion, and
technology advancements aid FMCG companies in improving the effectiveness of their business
operations.
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PORTER’S FIVE FORCE MODEL
1.Barriers to Entry:
An industry loses appeal as more competitors enter the market, increasing competition. The threat
posed by new competitors is greatly influenced by the entrance barriers. Some industries, like
shipbuilding, have very high entrance barriers, whereas others, like real estate, dining, and FMCG,
have relatively low entry barriers.
Key barriers include:
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1 unit = 1 barrier to entry
The number of entry-level barriers in various businesses is depicted in a bar graph. The graph's scale
is one obstacle to entry per unit. This indicates that each bar shows the number of barriers to entry
for new enterprises in each industry. The scale of the graph is 1 unit = 1 barrier to entry.
The most important factors affecting market structure and entry for any firm are economies of scale
(4 obstacles). The FMCG industry benefits greatly from economies of scale since goods are
manufactured in considerably bigger quantities and at much lower costs. By contrasting a product's
distinctive traits with those of rival goods, differentiation (2 barriers) aims to increase a product's
appeal. In the FMCG industry, differentiation has been accomplished through color, size, form,
number, etc. In the FMCG industry, product differentiation is extremely appealing. A brand's most
noticeable components include its colors, design, logotype, name, symbol, etc. Potential customers
can more easily understand a company's personality and the value of its products thanks to a strong
brand identity, which also promotes brand awareness, affiliation, and loyalty. Because there are many
competitors in the market, brand identity is highly high in the FMCG industry and consumer
switching costs are quite low. There are many different FMCG distribution channels, including
manufacturing, retail stores, wholesalers, and others, and the Indian FMCG industry is distinguished
by low entrance and exit barriers.
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2. Rivalry Among competitors:
There is intense competition among Indian FMCG companies. The industry has greatly fragmented
as more MNCs join the nation. Advertising expenditures are rising, and both marketing budgets and
methods are growing more aggressive.
Rivalry among competitors includes:
During the economic crisis, FMCG has been a safe industry for investors looking for reliable
margins and steady profits. Thus, we may conclude that the FMCG sector is seeing rapid industry
growth. The FMCG Sector has a modest level of product differentiation, which is reflected in the
competitive landscape as well as the low switching costs in this industry.
When a lot of different enterprises depend on an industry's performance, fierce rivalry becomes more
intense. For instance, a diversified company's success could have an impact on how effective it is in
other industries, particularly if those businesses are interdependent or related. The high strategic
stakes have an impact on an organization's long-term potential for profit in this industry.
3. Bargaining Power of Suppliers:

Most FMCG companies are price takers because suppliers to the industry want to take as much profit
as they can along the value chain. Prices are often set by international commodities markets. The
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FMCG firms negotiate better rates during periods of high input cost inflation because of the long-
term ties they have with suppliers and others. Suppliers will raise prices to take a bigger cut of the
profit if an intermediary is making excessive profits.
The bargaining power of suppliers includes:
Because there are many substitute suppliers accessible, the bargaining strength of the suppliers is
minimal in this sector, where raw material and intermediate goods are used as the base commodities.
Every business must understand that it competes with companies that make substitute products—i.e.,
goods that can fulfill comparable client wants but come from outside the sector and have other
qualities. Due to the high volume, low profit fast-moving consumer goods industry's contribution of
a moderate rate of cost due to the engagement of advertisement, production, and packing, supplier
importance is also of a moderate level.
4.Threat of Substitutes:
Because substitute goods keep prices in check, they make the FMCG sector more appealing and
profitable.
Threat of substitute products depends on:
● Availability of close substitute
● Switching cost
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● The relative price and performance of substitutes
● Profitability of the producers of substitutes
Consumer goods are an essential good, thus demand is flexible. Many brands have a limited range of
differentiating products. Pricing competition among businesses entering a category or vying for
market share leads to an increase in product substitution. As a result, the FMCG business faces a
serious threat from substitutes. e.g. Colgate alternatives obtainable in the market
When switching costs are low, it is simple for customers to make the transition; however, when
switching costs are high, it becomes challenging. In the FMCG sector, switching costs are low due to
the accessibility of the items. In this industry, the profitability of producers depends on the
performance of the substitute, which is strongly tied to the relative price and performance of
substitutes.
5. Bargaining Power of Customer

Bargaining Power of buyers or consumers depends on:
s
While businesses want to maximize their return on invested capital, customers are more concerned
with getting the best deal on the things they want. Customers bargain for higher quality or higher
levels of service at the lowest price through fostering competition among businesses in the industry
in order to minimize cost or increase value. There are many buyers available in this market. High
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brand loyalty for a product deters customers from switching brands. Low switching costs and
aggressive marketing tactics, however, in the face of fierce rivalry between FMCG companies,
encourage customers to switch between goods, resulting in better prices for customers. Brand loyalty
helps a product maintain high prices and good quality.
In conclusion, the FMCG (Fast-Moving Consumer Goods) sector's competitive dynamics are shown
by Porter's Five Forces study. It highlights the significance of approaches that take into account the
danger of alternatives, supplier and buyer power, entry obstacles, and competition. To succeed in a
market that is changing quickly, FMCG companies must successfully navigate these factors.
4. INVESTMENT THESIS
Now, we will analyse the trend of NIFTY FMCG Index, which is the representation of the top 50
FMCG companies, and compare it to the NIFTY 50 Index. We’ll analyse the trend over the different
phases of the stock market, i.e. the ‘Bull’ and the ‘Bear’ phase.
BEAR PHASE
The most recent and significant bear market in India was from February to March in 2020, driven
by the global outbreak of COVID-19. As the pandemic spread, it triggered panic among investors,
who were uncertain about the virus's economic impact. This uncertainty, combined with concerns of
an impending global recession, an oil price war, and extreme market volatility, resulted in significant
stock market declines.
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The Nifty FMCG index, as a subset of the Nifty 50, exhibits characteristics that warrant careful
consideration for potential investors.
It is more volatile due to its smaller stock pool, making daily price swings in individual FMCG
stocks have a pronounced impact on the overall index performance.
Moreover, the FMCG sector's sensitivity to economic conditions, particularly during economic
downturns when consumer spending contracts, can lead to reduced sales and profitability for FMCG
companies, consequently affecting stock prices.
This sensitivity becomes evident when comparing the Nifty FMCG's underperformance in bear
markets to the more diversified Nifty 50, which includes companies from various sectors that may
prove more resilient during economic challenges. The severity of declines, with the Nifty FMCG
falling by over 10% on multiple days during bear markets, may raise concerns for those seeking
stability and lower risk.
BULL PHASE
The month of July, 2023, was the most recent bull run in the Indian stock market which was carried
by robust corporate earnings, recovery in sectors like financials, auto, fast moving consumer goods,
and domestic growth. India's Nifty 50 index also recently achieved its all-time highs in the 19900
level during this period.
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The Nifty FMCG index's performance during bull markets highlights several key aspects of this
sector.
It consistently outperforms the Nifty 50 index during these periods, underlining the FMCG sector's
ability to thrive amid economic growth and increased consumer spending. This is driven by higher
sales and profitability for FMCG companies, resulting in positive stock price performance.
However, this outperformance is accompanied by higher volatility, which can pose risks but also
present opportunities for investors who can anticipate economic upswings and tolerate short-term
fluctuations.
Notably, the Nifty FMCG index frequently records gains of more than 2% during bull markets,
showcasing the sector's strength and potential for substantial returns. Furthermore, its ability to
sustain growth even when the broader market plateaus underscore the resilience of the FMCG sector,
fueled by consistent demand for essential consumer goods and adaptability to evolving consumer
preferences.
For investors considering the Nifty FMCG index, a well-defined investment strategy, risk tolerance
assessment, and portfolio diversification are essential, as the sector's volatility can lead to larger
losses during market downturns. Staying informed about the economic outlook, consumer sentiment,
and policy changes is also crucial, given the significant impact these factors can have on the FMCG
sector's performance.
Moreover, market veterans expect the bullish state of Indian markets to retain for the coming 7 to 8
years. They believe that despite the minor bumps, the market trajectory is set for these next few
28
years. In light of this, investing in the FMCG sector could be a prudent choice, particularly when
assessing its responsiveness to economic expansion.
Although the Nifty 50 provides a diversified exposure encompassing various sectors, including
FMCG, potential investors in the Nifty FMCG index should ensure that their investment objectives
and risk thresholds are in alignment. The Nifty FMCG index might be suitable for those who possess
a greater risk tolerance and are confident in the enduring growth prospects of the FMCG sector,
notwithstanding its occasional short-term fluctuations.
5. Conclusion
The Fast-Moving Consumer Goods (FMCG) sector in India has witnessed significant
progress, primarily driven by consumer behavior and enhanced product pricing. The stability
and resilience demonstrated by this sector, even amidst economic shifts, highlight its
potential as a strategic investment domain.
Investment Orientations and Recommendations:
For Aggressive Investors Seeking Higher Returns:

▪ The FMCG sector, while characteristically stable, offers opportunities for
amplified returns in certain arenas:
▪ Newly emerging sub-categories within the FMCG paradigm.
▪ Start-ups or emerging brands introducing groundbreaking products.
▪ Firms transitioning to digital platforms and e-commerce, in tandem with
prevailing market shifts.
For Stability-Centric Investors:

• Investment in well-established FMCG stalwarts is recommended, given their proven track
records.
• Firms with pronounced outreach in rural areas, aligning with the sector's growth
trajectory in these regions.
29
Comparative Analysis with Other Sectors:
Sectors Potentially Offering Superior Returns:

Technology & IT: The current wave of digital transformation augments the prospects in IT
and associated sectors, albeit with potential volatility.
Pharmaceuticals: Owing to global health dynamics, this sector offers growth opportunities.
Sectors with Comparative Lower Potential:

Real Estate: Given the current ambivalence in this sector, potential risks might outweigh
guaranteed returns.
Conventional Energy (e.g., Coal): The emergent focus on sustainable energy sources might
put traditional energy sectors on a declining trajectory.
Ideal Investor Profiles for the FMCG Sector:
Cautious Investors: Those aligning their strategies with capital conservation and consistent
dividend inflows.
Portfolio Diversification Strategists: Investors aiming to strike a balance between growth and
stability in their portfolios.
Future-Thinking Investors: Those with a long-term investment purview can capitalize on the
projected growth patterns.
Investment Durations:
Long-term Focus: The inherent attributes of the FMCG sector, combined with historical data
and future projections, suggest a long-term investment stance. This allows for navigating
short-lived market volatilities and leveraging the advantages of compound growth.
Short-term Consideration: While the FMCG sector is predominantly stable, it is not immune
to transient market perturbations arising from varied external stimuli. Tactical market timing
becomes imperative for realizing short-term gains, bringing in its wake associated risks.
30
Anticipated Return on Investments:
Long-term Projections: With the sector's CAGR anticipated at 27.9% between 2021 and
2027, the expected annualized return should align closely with this metric, although
individual equities might display variances based on firm-specific parameters.
Short-term Estimations: Given the multifaceted influencers on short-term stock price

movements, exact projections are intricate. However, with recent sectoral growth patterns,
semi-annual returns might oscillate between 6% and 12%, subject to the broader market
milieu and chosen equities.
Concluding Remarks:
The analytical insights drawn from the FMCG sector underscore its viability for long-term
investments. The sector's sustained growth, juxtaposed with its robustness against macro-
economic shifts, earmarks it as a strategic avenue for wealth augmentation. Nonetheless,
potential returns are intrinsically linked to the chosen FMCG firms, their fiscal robustness,
strategic growth trajectories, market positioning, and overarching economic dynamics.
31
PART – B
Arnav Mathur IPM/2216/02

Neemisha Gupta IPM/2248/02
Piyush Gangwar IPM/2249/02
Rashi Aggrawal IPM/2253/02
COMPANY VALUATION
A. Godrej Consumer Products Limited

B. Nestle India Ltd.
C. ITC Ltd.
Godrej Consumer Products Limited (GCPL) is a well-known and dynamic participant in the
consumer products market, distinguished by its long history, strong brand presence, and diverse
product line. GCPL was founded in 2001 as a subsidiary of the prestigious Godrej Group, which has
a history dating back to 1897. This corporate entity, based in Mumbai, India, has progressively
grown its global reach and emerged as a major player in the global consumer products market.
Company’s Overview:
Market Cap ₹ 1,01,550 Cr.

Current Price ₹ 993
High / Low ₹ 1,102 / 794
32
Stock P/E 57.3
Book Value ₹ 135
ROCE 16.5 %
Dividend Yield 0.00 %
ROE 13.5 %
Face Value ₹ 1.00
Mission – Our passion and purpose to make a difference through our 'Good & Green' approach to
create a more inclusive and greener India.
Vision - Godrej Group is held in trusts that invest in the environment, health and education.
Values – Diversity, Commitment
Corporate Heritage and History

The Godrej Group, a venerable conglomerate known for its pioneering contributions to many areas
such as consumer products, industrial engineering, real estate, and agriculture, founded GCPL. The
Godrej Group's illustrious heritage and dedication to excellence have laid a solid basis for GCPL's
growth and development over the years. The Godrej 4.0 concept encapsulates the group's attitude,
which emphasizes innovation, sustainability, and a bigger aim of improving people's quality of life.
Key Information about Godrej Limited

• Revenue: Godrej Consumer Products Limited reported a consolidated revenue of
approximately INR 13,484.38crores for the fiscal year 2022-2023. The company has a history
of steady revenue growth.
• Diverse Product Portfolio: GCPL has a diversified product portfolio spanning multiple
consumer areas, including personal care, hair care, home care, and insecticides. The
company's solutions are well-known for their high quality, effectiveness, and relevance to the
lives of its customers. Godrej No. 1, Cinthol, Good Knight, and BBlunt are some of GCPL's
most well-known brands.
33
Godrej Godrej
Godrej
Shikakai Powder
Ezee Protekt
Hair Dye
Good
Knight Godrej
No. 1
BBlunt Godrej
Fair Cinthol
Glow
• International Presence: One of GCPL's unique characteristics is its global reach. The
corporation has a presence in more than 50 nations, with a special emphasis on growing
markets in Africa, Asia, and South America. Because of this international diversity, GCPL has
been able to tap into a diverse spectrum of consumer demands, preferences, and market
dynamics, supporting growth and resilience in the face of economic changes.
• Sustainability Initiatives: The dedication to sustainability and appropriate business practices

is a defining feature of GCPL's operations. The corporation has taken an active role in a
variety of environmental and social activities. Notably, GCPL has set aggressive aims to
lower its carbon footprint and lessen its environmental impact. This emphasis on
34
sustainability reflects the company's proactive approach to solving global environmental
concerns and harmonizing with changing consumer expectations for environmentally friendly
products.
Business Model of Godrej Consumer Products Limited
The business model of Godrej Consumer Products Limited (GCPL) is a multifaceted framework that
incorporates various forms of capital, a clear sense of purpose and values, and a strategic approach
designed to excel in the emerging markets of the fast-moving consumer goods (FMCG) industry. The
table provided furnishes valuable insights into how GCPL harnesses diverse capital types and details
the tangible outcomes that result from its strategic endeavours. This analysis will delve into the
various facets of GCPL's business model in an academic tone.
Capital Utilization:
GCPL employs a diverse array of capital resources, each contributing significantly to its operations
and business success. Financial capital forms the backbone of GCPL's growth and sustainability,
35
with equity, profits reinvested, and investments in assets and brands being key drivers of financial
stability.
Manufactured capital encompasses a network of dispersed manufacturing clusters and an extensive

presence of global and local research and development (R&D) centers. The agile manufacturing
approach, facilitated through smart automation and the Internet of Things (IoT), has contributed to
efficiency improvements, evident in reduced obsolescence and cost savings.
Intellectual capital is a critical asset for GCPL, underpinned by the strong legacy of the Godrej
Group, a robust portfolio of brands, substantial investments in research and development, and the
integration of the RIDE platform, which fosters innovation in product development. Additionally,
GCPL leverages advanced predictive analytics and a digital command centre to gain unique
consumer insights.
Human capital at GCPL is characterized by a skilled workforce, sustained through investments in

training and development programs. The company also places a premium on safety and actively
promotes diversity and inclusion, with a noteworthy representation of women in senior leadership
roles.
The social and relationship capital of GCPL is exemplified by the company's engagement models
with consumers, partnerships with suppliers, retailers, distributors, and wholesalers, as well as
significant investments in corporate social responsibility (CSR) and community engagement
initiatives.
Natural capital is vital in the context of sourcing and investment in renewable and non-renewable
raw materials for product manufacturing, in alignment with green initiatives aimed at minimizing
environmental impacts.
Purpose and Vision:
GCPL's overarching purpose is to provide health and beauty products to consumers in emerging
markets. Its vision entails becoming the preeminent multi-local FMCG player focused on emerging
markets, underpinning its strategic approach.
36
Strategic Pillars:
GCPL has structured its strategy around seven key pillars, including extending leadership in core
categories and geographies, accelerating innovation and building purposeful brands, leveraging
digital technologies for enhanced market reach, enhancing the go-to-market strategy, optimizing
supply chain operations, nurturing an inclusive, agile, and high-performance culture, and
contributing to a more inclusive and sustainable world through green initiatives.
Outcomes:
The business model implemented by GCPL has yielded notable outcomes. The company has secured
leadership positions in market share across various geographies, showcasing a consistent
commitment to category penetration and consumption rate. Additionally, GCPL has achieved an
extended consumer reach and created long-term value for a broad spectrum of stakeholders,
encompassing shareholders, customers, consumers, suppliers, distributors, retailers, and the
community. Notably, the organization has taken substantial steps toward reducing freshwater usage
and emissions, concurrently generating wealth from waste.
In conclusion, the business model of Godrej Consumer Products Limited reflects a holistic and
inclusive approach that effectively utilizes various forms of capital to fulfil its purpose and vision in
emerging markets. Through its strategic pillars and unwavering dedication to sustainability and
community well-being, GCPL emerges as a responsible corporate entity contributing positively to its
operational ecosystems. This multifaceted business model underscores the importance of capital
diversity, purpose-driven strategies, and sustainable outcomes in the competitive FMCG landscape.
Some growth prospects

• Rising incomes in emerging markets:
GCPL is a leading player in emerging markets such as India, Africa, and Latin America,
where incomes are rising, and consumers are spending more on discretionary goods. For
example, India's middle class is expected to grow to 800 million by 2030, which will create a
huge demand for GCPL's products.
• Growing demand for personal care products:
The global personal care market is expected to grow at a CAGR of 4.2% from 2022 to 2028.
This growth is being driven by factors such as rising disposable incomes, increasing
37
awareness of personal hygiene, and changing lifestyles. GCPL is a leading player in the
personal care market, with a strong portfolio of brands such as Cinthol, Godrej No. 1, and
Fair & Lovely.
• Expanding into new markets:
GCPL is expanding its presence in new markets such as East Asia and North America. For
example, in 2023, GCPL acquired the Indonesian personal care company Megasari Makmur
for $1.05 billion. This acquisition will give GCPL a strong foothold in the Indonesian market,
which is the fourth largest personal care market in the world.
Category wise Contribution of GPCL Products

CATEGORIES CONTRIBUTION
Health Products (household, insecticides) 29%
Hygiene Products 26%
Value for money Products 24%
Others 11.4%
38
Qualitative Analysis of GCPL
1. SWOT Analysis:
• Strengths
(a) Brand Power: Over the years, Godrej Consumer Products limited has built some
strong brands like Good Knight, Cinthol and Ezee. Godrej understood the need of
recognition and fulfilled it by its adequate promotion strategies and delivery
campaigns.
(b) Competitive advantage: Godrej Consumer Products is an industry pioneer in many
sects such as hair colours, insecticides and liquid detergents. Thus, it appears to be
the leading company in most of these sectors.
(c) Foreign sales: Foreign sales for Godrej stood for 47.5% of its overall revenue,
demonstrating the influence of Godrej on foreign markets.
39
(d) Distribution Network: Sales team of Godrej encompasses about 250 employees
across the country, covering about 6.5 lakh retailers in India. Due to which it is
relatively successful in the launch of new products.
• Weakness
(a) Increasing Product Cost: The price of the products has been significantly
increased over the years due to the increase in its transportation costs, its labour
costs and other distribution costs.
(b) Reduced earnings: Although earning problem persist in the whole consumer
products markets but the emergence of various competitors has led to increased
discounts and less profit margins which has substantially reduced the company’s
earnings.
(c) Absence in Rural Market: There’s a lack of awareness about consumer products in
the rural markets due to which the penetration in the rural market is much slower
as compared to urban market.
(d) Spend in new technologies: Godrej needs to spend more money to increase the
overall efficiency of the company across the globe.
• Opportunities
(a) Social Media: Social media Marketing and digital marketing can create good
opportunities for the company.
(b) Acquiring: Godrej is acquiring the glocal companies to penetrate in the untapped
markets and increase its earnings and create its brand presence.
(c) Increasing Spending Power: With increased buying power and improved lifestyle,
the personal care sector is expected to grow substantially in the coming years.
Which will result in increased reach and revenue for the company.
• Threats
(a) Product Piracy: With the increased circulation of counterfeit products in the Indian
Market, a large chunk of revenue is impacted by these spurious products.
40
(b) Intense Competition: Competition is so high that brands defend their core strength
and attack weaknesses of competitors. Godrej is facing intense competition from
its competitors because of its vast diversification.
(c) Macroeconomic Factors and Government: The volatile nature of financial market
inevitably poses a huge risk to the company. Also, the government policies can be
a major threat and can affect Godrej’s business.
2) Competitive Advantage
Godrej Consumer Products Limited (GCPL) maintains several competitive advantages over its
peers in the consumer products industry, and these advantages can be further substantiated with
relevant statistical data. In an academic style, I will outline some of these key advantages:
• Strong Brand Presence: GCPL's well-established brands provide a competitive edge.
According to a market research study conducted by Nielsen in 2020, GCPL's brand
"Good Knight" held a significant market share of over 50% in the household
insecticides category.
• Global Market Presence: GCPL's expanding global footprint is a significant
advantage. According to Euromonitor International, in 2021, GCPL was among the
top global players in the hair care market, with a presence in 30 countries. This global
reach provides diversification and market resilience.
• Innovation and Product Differentiation: GCPL continually invests in research and
development. In a survey conducted by Mintel, GCPL was noted for its innovations in
the personal care category. For instance, their "Cinthol" range of products boasts
innovative features and has maintained market relevance.
• Sustainability Initiatives: GCPL's commitment to sustainability is a distinctive
feature. According to their 2020-21 Annual Report, they achieved a 35% reduction in
specific CO2 emissions per ton of production, reflecting their proactive stance
towards environmental sustainability. Such initiatives enhance brand loyalty and
market positioning.
• Robust Distribution Network: GCPL's extensive distribution network is a significant
competitive advantage. As reported in their annual financials, their distribution
channels reach 2.5 million retail outlets in India, which contributes to market
penetration and availability.
41
• Cost Efficiency: A study by the Indian Institute of Management Calcutta reported that
GCPL's cost-efficiency measures have consistently resulted in a healthy profit margin.
For example, in the hair color segment, GCPL's cost-effective manufacturing has
allowed them to offer competitive pricing while maintaining profitability.
• Employee Skill and Motivation: GCPL's emphasis on nurturing and retaining talent is
noteworthy. As per their annual report, their HR practices have led to a motivated and
skilled workforce, which is crucial for maintaining innovation and competitive
advantage.
• Consumer Engagement and Loyalty: GCPL has a robust consumer engagement
strategy. In a consumer survey conducted by Kantar Millward Brown, GCPL's brands
like "Godrej No. 1" and "BBlunt" were noted for their strong consumer loyalty and
engagement, emphasizing the company's ability to connect with consumers.
Fundamental Analysis of GCPL
1. Balance sheet:
42
Balance Sheet Analysis:
• Steady Growth in Total Assets: The company has experienced consistent growth in total
assets over the years. From 2020 to 2023, total assets have increased by approximately
17.18%,
• Steady Equity Growth: Shareholder equity has demonstrated steady growth, increasing by
approximately 17.18% over the period. This suggests that the company has been consistently
generating profits and retaining earnings, with a minimal decrease observed in FY 2020.
• Decreasing Non-Current Liabilities: Non-current liabilities have shown a consistent decline
over the years, dropping by about 5.55% from 2020 to 2023. The lowest point was in FY
2023, indicating a potential reduction in long-term debt and financial risk.
In summation, in the purview of discerning investors, the company's financial performance

evinces a favourable trajectory. The consistent augmentation of assets and equity, coupled with
the proactive management of long-term liabilities, bodes well for ongoing expansion and
heightened financial stability
Ratio Analysis:
ACCOUNTING MAGNITUDE INTERPRETATION

RATIO
Indicates a relatively low
Current assets = 1.764% short-term liquidity level,
Current ratio Current liabilities potentially posing
challenges in meeting
immediate obligations.
Suggests efficient inventory
Net sales = 3.62% management, with products
Inventory turnover Average inventory sold and replaced
ratio approximately 3.62 times
annually.
Signifies a moderate debt
Total debt = 8.19% load compared to equity,
Debt to equity ratio Total shareholders fund indicating a balanced capital
structure.
Reflects a reasonably
Return on capital EBIT = 16.5% attractive return on invested
employed Capital employed capital, indicating effective
utilization of resources.
43
2. Income Statement:
Income Statement Analysis:

1) Revenue Growth and Profitability:
• Over the period from 2020 to 2023, total revenue increased by 34.3%.
• EBITDA consistently improved, indicating operational efficiency.
• Net income exhibited fluctuations and declined to $1,702.46 million in FY 2023, prompting
an exploration of factors affecting profitability.
2) Earnings per Share (EPS) and Dividends:
• EPS experienced substantial growth, rising by 13.6% over the same period.
• A notable shift in dividend policy led to zero dividends and a payout ratio of zero in FY
2021-2023. This change warrants an investigation into the rationale behind it.
3) Profit Before Tax (PBT) and Tax Efficiency:
• PBT increased by 14.7% during this period.
• The ratio of PBT to Net Income decreased from 139.4% in FY 2020 to 126.5% in FY 2023,
signalling potential variations in tax efficiency or other pertinent factors.
4) Impact on Dividend Yield:
• The change in dividend policy resulted in a zero-dividend yield in recent years, impacting
shareholder returns and investor sentiment.
44
In conclusion, from the perspective of investors, the company showcases favorable aspects, such as
substantial revenue growth and operational efficiency. However, fluctuations in net income and the
cessation of dividend payments pose challenges to profitability and income distribution to
shareholders.
Ratio Analysis:
ACCOUNTING RATIO MAGNITUDE INTERPRETATION

Demonstrates a strong
EBITDA = 12.32% capacity to cover interest
Interest coverage ratio Interest Expense expenses, ensuring financial
stability.
Indicates a moderate net
profitability, with 12.63% of
Net Income = 12.63% revenues retained as profit.
Net profit ratio Revenue
3. Cash Flow Statement:
Analysis:
1) Cash Flow Trends:
• Net change in cash fluctuated significantly during 2020-2023: -259.34 (2020), 78.74 (2021),
226.73 (2022), and -398.12 (2023). These figures reflect variations in the company's cash
flow management.
2) Working Capital Management:
45
• Changes in working capital showed fluctuations: -596.80 (2020), -983.71 (2022), and -325.11
(2023), highlighting the need for optimizing short-term asset and liability management.
3) Capital Expenditures:
• Capital expenditures remained stable at $152.02 (2020) and $163.86 (2021), decreasing to
zero in 2022 and 2023, possibly indicating shifts in investment strategy.
4) Free Cash Flow:
• Free cash flow ranged from $1,436.09 (2020) to $2,150.65 (2023), revealing variations in
cash availability after expenses and investments.
In summary, from the investor's perspective, the company's financial performance reveals mixed
signals. While fluctuations in cash flow and working capital management reflect adaptability and
optimization needs, the abrupt reduction in capital expenditures and variations in free cash flow
leave investors with questions about the company's long-term strategies.
Other Financial Ratios

Suggests an overvalued
Share Price = 59.51% stock, with investors
Price to Earnings Ratio Earnings Per Share paying a premium relative
to earnings.
Indicates that the stock is
Market Capitalization = 7.34% trading above its book
Book Value value, potentially
Price to Books Ratio signalling an
overvaluation.
-
-
Dividend Yield Ratio Annual Dividend per share
Price Per Share
Represents a reasonable
Net Income = 13.5% return to shareholders in
Return on Equity Ratio Average Total Equity proportion to their equity
investment.
Indicates a moderate
return on total invested
Return on Investment Net Profit*100 = 12.67 capital, considering both
Ratio Cost of Investment equity and debt.
46
CAGR of 5.34% for
GCPL indicates
consistent, moderate
CAGR growth, reflecting its
ability to generate
= 5.34% sustained returns over a
specified period
1. Shareholding Pattern:
1. Promoter Holding:
• Promoter holding remained a dominant force in the shareholding pattern, consistently at
63.21% from 2020 to 2023. This unwavering control demonstrates the Promoters' firm
commitment and influence over the company's governance and strategy.
2. Institutional Holdings:
• Mutual Funds: Mutual funds maintained a relatively stable shareholding of 4.24% across the
years. Their consistent presence suggests a long-term investment approach and trust in the
company's performance.
3. Other Domestic Institutions:
• Other domestic institutions also held a steady 3.14% share, indicating sustained confidence in
Godrej's performance and management.
4. Foreign Institutions:
47
• Foreign institutional ownership exhibited noticeable fluctuations, starting at 23.53% in 2020,
declining to 17.38% in 2021, and then rebounding to 21.50% in 2022 before reaching 25.32%
in 2023. These variations may be indicative of global investors' responses to market
dynamics, company performance, or broader economic conditions.
5. Retail and Others:
• Retail and other investors accounted for 5.87% of the shareholding throughout the four years.
This category typically includes individual investors and non-institutional entities, reflecting
a consistent interest in Godrej's stock.
Trends and Implications:
• The unwavering Promoter Holding signifies the continuous commitment of the company's
founders or major stakeholders, providing stability and influence.
• Institutional investors (Mutual Funds and Other Domestic Institutions) demonstrated
confidence in Godrej's stock with steady shareholding.
• Foreign Institutions' fluctuating ownership levels suggest their responsiveness to market
dynamics, possibly driven by international economic events or the company's performance.
In summary, Godrej's shareholding pattern remained relatively consistent for Promoter Holding,
Mutual Funds, Other Domestic Institutions, and Retail and Others, while Foreign Institutions
displayed notable variations. A deeper analysis is needed to understand the specific factors
influencing these trends.
48
Relative Valuation
As you can see, GCPL is trading at a premium to its peers on all three metrics. This means that
GCPL is more expensive than its peers relative to its earnings, its book value, and its cash flow.
Financial News
• GCPL plans to invest ₹900 crore in organic manufacturing capital expenditure in India over the
next 18 to 36 months. This investment is aimed at supporting volume growth and extracting
logistics-related savings. (Source: Mint, August 4, 2023)
• GCPL's Q1 FY24 revenue grew by 17% year-on-year to ₹3,300 crore, while its profit after tax
grew by 15% year-on-year to ₹500 crore. This growth was driven by strong performance in the
domestic market, where revenue grew by 19% year-on-year. (Source: GCPL Q1 FY24 earnings
release, July 19, 2023)
• GCPL has entered into a joint venture with L'Oreal to launch a new range of beauty products in
India. The joint venture, called GCPL-L'Oreal India, will combine the strengths of both
companies to create a new range of products that are tailored to the needs of Indian consumers.
(Source: GCPL press release, June 23, 2023)
49
• GCPL has acquired the Indonesian personal care company PT Megasari Makmur for ₹1,500
crore. This acquisition gives GCPL a strong foothold in the Indonesian market, which is one of
the fastest-growing personal care markets in the world. (Source: GCPL press release, May 25,
2023)
From baby food to treats for you and the kids, from festivities to normal day-to-day activities, from
indulgence to health, Nestle has made its hold on the consumers of India.
Nestle, a Swiss food and beverage company, entered the Indian market and has been a huge part of it
ever since. Nestle India has 8 factories and a large number of co-packers. It is committed to
providing consumers in India with products of global standard and to go for sustainable growth and
shareholder satisfaction.
To continue to thrive in the Indian market the company focuses on better understanding the changing
lifestyles of India and anticipating consumer needs to provide Taste, Nutrition, Health, and Wellness.
Mission – Nestle’s mission “Good Food, Good Life” aims to provide consumers with the best
tasting, most nutritious choice in a wide range of food and beverage categories and eating occasions,
from morning to night.
Vision – Nestle wants to position itself as a leading, competitive, Nutrition, Health and Wellness
Company focusing on improving shareholder value by becoming a preferred corporate citizen,
preferred employer, preferred supplier selling preferred products.
History – Nestle and India go back to 1912, when it began selling finished products in India. After
1947 when the government emphasized the need for local production, Nestle seized this opportunity
50
to open its first factory in India in 1962 at Moga, Punjab, where the government wanted Nestle to
develop the milk economy. From there to now when Nestle India operates various brands under it,
Nestle has been India’s partner for over a century now.
Current Financial Metrics -
Financial Metric Value
Market Cap ₹ 2,15,154 Cr.
Current Price ₹ 22,315
High / Low ₹ 23,395 / ₹ 17,880
Stock P/E 79.0
Book Value ₹ 296
Dividend Yield 0.99%
ROCE 138%
ROE 108%
Face Value ₹ 10.0
Market Share –
The market share of Nestle India Ltd. In the FMCG sector is 8%.
51
Understanding The Business Operations
Business Plan
The foundation of Nestlé's success is its Nutrition, Health, and Wellness strategy. The portfolio of
Nestlé is well-positioned for growth. The key to their continued long-term success lies in
understanding and serving the consumer. By anticipating consumer trends and acting swiftly to
capitalize on them, they maintain their leadership position in the fast-moving consumer products
industry. This includes providing products with fewer ingredients, as well as premium, organic, natural,
and fortified foods, and drinks. It aims to create value to sustain it for the long term by offering
consumers a wide variety of high-quality, safe food products at affordable prices.
Business Model
1. Diverse Product Portfolio –

Nestle India is present in various domains which helps it cater to the diverse needs of
customers.
CATEGORIES CONTRIBUTION GROWTH

Prepared dishes and cooking aids 32.2% 15.6%
Milk Products and Nutrition 40.4% 9.5%
Confectionery 16% 25%
Beverages 11.4% 19.2%
Nescafe - 39%
It can be observed in this table that all the significant domains saw an almost double-digit growth in
2022, with an overall growth of 14.8%.
2. Strong Brand Presence –

One can find that he or she uses at least one product of Nestle in his or her day. That highlights
the presence of Nestle.
52
Brands under its umbrella:
BOOST
MILO MILKY
NESTEA
BAR
MAGGIE
CERELAC
MILK
MAID
KITKAT NESCAFE
3. Distribution Network –
Typical distribution channel of Nestle:
Manufacturer>> C&F Agent (Warehousing)>> Distributors>>Retailers>>Consumer

Manufacturer>>Bulk Buyers>> Consumer
Strategies that make its supply chain strong are:

- Responsible resourcing
- Acquisitions to eliminate threats.
- Each step toward being fully zero waste.
4. Quality and Food Safety –

Quality and food safety is of utmost importance for Nestle. It follows this via stringent quality
control measures and safety standards. Nestle Food Safety Institute, India (NFSI) is it's a step
towards strengthening its commitment to food safety in India.
5. Corporate Social Responsibility (CSR) -

- Rural development through responsible sourcing and improving green coffee supply
chain
- Promoting a culture of integrity across the organization
- Improve gender balance in our workforce and empower and empower women across
the entire value chain
53
Swot Analysis
• Strengths:
1. Research and Development:
Nestle's research and development capabilities are another competitive edge. A large and
committed research and development staff develops innovative products and technology to
improve product quality and safety. Nestle invests substantially in R&D and has proprietary
technology and processes that offer it a market edge. For example, to satisfy the shifting tastes
of consumers and regulatory requirements, the company has devised a technology to minimize
sugar in chocolate products while retaining taste.
2. Competitive Advantage
Nestle has been in the business world for a very long time. With a multitude of operations and
a good understanding of how customers act, the company has some benefits over its
competitors.
3. Supply Chain Operations
The Nestle Group supports new ideas at the local level, uses technology, and is making it easier
to find out where the raw materials for its goods come from. This makes it possible for the
group to significantly enhance its operational efficiency.
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Weakness –
1. Promotion Strategy
Dependence on advertising: Nestle faces a high marketing cost and consequently, high risk
associated with the returns, due to its high dependency on advertising to promotion.
2. Organisational Strategy
At the moment, Nestle's organizational system is split up based on the products it sells, not
where it operates. This causes a huge power gap when it comes to making decisions and stops
operations from being flexible. This always proves as a big problem when the company is
looking to expand its operations.
Opportunities –
1. Sustainability
The group will be able to cut costs, work more efficiently, and make good use of labour by
integrating and working in a sustainable way. Integration and production in the area will make
processes lean, which will lower costs in the long run.
2. Transparency
The customer of today knows more than ever before. With more and more people using the
internet, it will be good to make things transparent. People would know where the raw materials
come from, when they are sourced, and who sourced them if there was more openness. This
way the customer trusts the company more and feels closer to it.
Threats –
1. Climate Change:
Nestle product’s raw materials like coffee, wheat and dairy are getting affected by climate
change. The impact of this can be seen on its products, which will affect its growth in the long
term.
2. Competition: Nestle's products are up against those of many multinational companies and
many local companies. As new technologies come out and the business world is constantly
changing, Nestle is always at risk of losing its current customers.
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3. Product quality and safety:
Nestle's image and customer trust were hurt a lot in the past when it did not follow food safety
rules. Maggi in India is the best example of this because it failed one of the lab tests and lost a
huge portion of the market.
Fundamental Analysis of Nestle India Ltd.

To assess a company's financial well-being and performance, conducting financial analysis is
imperative. It furnishes valuable insights into profitability, liquidity, solvency, and growth prospects,
catering to the needs of investors, stakeholders, and management. This data profoundly influences
strategic planning, aiding in the identification of risks and opportunities. Effective financial analysis
ensures a corporation's sustainability and market competitiveness while facilitating judicious resource
allocation. This report will delve into three fundamental facets of Nestle's performance and
profitability over a four-year span: its top-line and bottom-line growth, financial ratios, and operating
and free cash flows.
Balance sheet analysis:
56
Analysis:
Trends in Total Assets:
From FY 2019 to FY 2022, there is a consistent upward trend in total assets. Total assets increased
from $7,172.94 million in FY 2019 to $8,978.74 million in FY 2022. This signifies sustained asset
growth during this period, reflecting potential business expansion and investment activities.
Trends in Current Ratio:
Over the same period, the current ratio displayed a fluctuating trend. In FY 2019, the current ratio
was 1.23, indicating a modest liquidity position. However, it increased to 1.29 in FY 2020 before
declining to 1.14 in FY 2021 and further to 0.95 in FY 2022. These fluctuations suggest varying
short-term liquidity challenges during this period, potentially necessitating effective management of
working capital.
Trends in Equity:
Equity exhibited a consistent rise from FY 2019 to FY 2022. Equity increased from $1,918.87
million in FY 2019 to $2,459.17 million in FY 2022. This continuous growth implies that the
company generated profits and retained earnings over these years, contributing positively to its
financial stability and shareholder value.
Trends in Debt:
The data reveals an increase in total liabilities from $5,254.07 million in FY 2019 to $6,519.57
million in FY 2022. Notably, there was a substantial surge in total liabilities from FY 2019 to FY
2020, indicating a significant debt-related event or financial restructuring. This suggests the need for
close monitoring of the company's debt management strategies and long-term financial obligations.

Adequate short-term liquidity,
Current assets = 1.130 allowing the company to meet
Current liabilities
Current ratio immediate obligations effectively
in the fast-paced Indian FMCG
sector.
57
Efficient inventory management,
Net sales = 4.11 indicating products are sold and
Average inventory
replenished approximately 4.11
Inventory turnover ratio times per year, reducing holding
costs and aligning with industry
demands.
Elevated financial risk due to
Total debt = 11 heavy reliance on debt for
Total shareholders fund
Debt to equity ratio financing, necessitating prudent
debt management strategies in the
competitive FMCG environment.
An exceptionally high ROCE
EBIT = 138% demonstrates remarkable
Capital employed
Return on capital employed operational efficiency and
profitability, providing a
significant competitive advantage
in the FMCG sector.
Income statement analysis:
58
Analysis:
Steady Revenue Growth:
From FY 2019 to FY 2022, the company exhibited consistent revenue growth, with total revenue
increasing by approximately 39%. This trend suggests the firm's ability to capture market share or
expand its customer base during this period
Improving Profit Margins:
EBITDA, PBIT, and PBT all showed an upward trajectory from FY 2019 to FY 2022, indicating that
the company improved its operational efficiency and profitability. This may be attributed to cost
control measures or revenue optimization strategies
Stable Dividend Payout Ratio:
Despite significant growth in earnings, the dividend payout ratio remained relatively stable,
indicating that the company has maintained a consistent dividend distribution policy, likely to satisfy
investors' income expectations.
Rising Earnings per Share (EPS):
EPS steadily increased over the observed period, suggesting that the company has effectively
translated its revenue and profit growth into enhanced earnings for shareholders. This could attract
investors seeking capital appreciation.

the company's earnings are 4.11
times higher than its interest
Interest coverage ratio EBITDA = 25.29 expenses, suggesting a healthy
Interest Expense ability to meet its interest
obligations.
the company retains 13.6% of its
total revenue as profit, reflecting
Net profit ratio Net Income = 13.6% strong profitability in the FMCG
Revenue sector, potentially stemming from
effective cost management and
revenue generation strategies.
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Such a high ROE suggests efficient
utilization of shareholder funds
and strong financial performance,
ROE Net Income = 108% potentially driven by effective
Shareholder’s Equity
asset management and revenue
generation strategies.
Cash flow statement analysis:
Analysis:
Steady Growth in Cash from Operating Activities:
From FY 2019 to FY 2022, there is a consistent increase in cash from operating activities, indicating
improving operational performance.
Reduced Cash from Financing Activities:
Cash from financing activities saw a declining trend, suggesting reduced reliance on external funding
sources for operations or expansion.
60
Declining Capital Expenditures:
Capital expenditures decreased, indicating potential cost control or prioritizing cash preservation
over significant investments.
Moderate Free Cash Flow Fluctuations:
Free cash flow exhibited some fluctuations but remained relatively stable, reflecting a balance
between cash generation, and spending on investments and working capital.
Other financial ratios for valuation:
Financial ratios like P/E, P/B, Dividend Yield, and ROI are important for company valuation because
they provide quantitative insights into various aspects of a company's financial health, performance,
and attractiveness to investors. These ratios allow investors and analysts to assess risk, growth
potential, and the company's ability to generate returns on investment, aiding in informed investment
decisions and comparisons with other investment opportunities.
FINANCIAL MAGNITUDE INTERPRETATION

RATIO
investors are willing to pay a
P/E ratio Share Price = 79.4 significant premium for the
Earnings Per Share
company's earnings. This may
indicate strong growth expectations
or an overvalued stock.
the company's stock is trading at a
Market Capitalization = 88.24 substantial premium to its book
Book Value
P/B ratio value. This could imply market
confidence in its assets or potential
overvaluation.
- The lower dividend yields of 0.98%
compared to industry average of
Annual Dividend per share = 0.98%
Price Per Share 1.11% suggest that the company is
Dividend yield prioritizing reinvestment of earnings
61
over dividend distribution, possibly
for growth opportunities.
A high ROCE of 138% indicates
Return on Capital Net Income = 138% efficient use of capital, possibly
Average Total Equity
employed through high-profit margins or
(ROCE) effective capital allocation.
CAGR of 19.02% in stock price
CAGR (Stock indicates robust price appreciation
Net Profit*100 = 19.02
price) Cost of Investment over a specific period. This suggests
strong investor confidence, possibly
due to consistent financial
performance, market expansion, or
favourable industry conditions.
Investors are valuing the company's
future growth prospects at a premium
PEG ratio relative to its current earnings. This
suggests strong market confidence in
the company's ability to deliver
= 2.7
substantial growth, possibly due to
brand strength, market positioning,
or innovation.
Shareholding pattern
Understanding the shareholding pattern of a company, particularly in the FMCG sector, is crucial as
it provides insights into the firm's ownership structure and, by extension, its governance, stability,
and potential strategic direction. It helps identify whether the company is closely held or widely held
by institutional or retail investors, impacting decision-making dynamics. Additionally, it can reveal
the influence of large shareholders, potential conflicts of interest, and the level of transparency and
accountability in the company. This knowledge aids investors and stakeholders in assessing the
company's long-term viability and alignment with their investment goals.
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Retail and others
16%
foreign institutions
12%
Other Domestic
institutions Total Promoter
4% Holding
Mutual funds 63%
5%
Insights:
Promoter Dominance:
While a high promoter holding (62.76%) can be seen as a sign of commitment, it also raises concerns
about potential conflicts of interest and limited accountability to external shareholders. This
concentration of power may deter institutional investors looking for more balanced corporate
governance.
Institutional Presence:
The relatively low combined ownership of mutual funds (4.87%) and other domestic institutions
(4.18%) suggests a lack of strong institutional backing. This could be due to perceived risks or
concerns about the company's governance, financials, or growth prospects.
Foreign Influence:
The substantial foreign institutional ownership (12.38%) may expose the company to market
volatility and currency risks. It's crucial to assess whether these foreign investors have a long-term
commitment or if they are short-term speculators.
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Retail Dependency:
With 15.81% owned by retail and other individual investors, the company may be vulnerable to retail
sentiment fluctuations. A high reliance on retail investors can lead to greater price volatility.
Relative Valuation
The relative valuation of Nestle India is shown in the image. Nestle India is currently trading at an
EV/Revenue multiple of 11.9x, EV/EBITDA multiple of 91.3x, and P/E ratio of 217.6x. These
multiples are above the median and 75th percentile multiples of its comparable companies, which are
8.0x, 38.6x, and 57.6x, respectively. This suggests that Nestle India is currently overvalued relative
to its peers.
64
Financial News
• September 27th, 2023

UBS gives a thumbs up to Nestle’s long-term revenue and volume growth.
The firm claims that Nestle India's current valuation is high, which could restrain future stock
price rise. The company is presently trading 1 standard deviation over the mean multiple, at
66x 1-year forward earnings. UBS remains upbeat about the business's long-term revenue and
volume growth in spite of this. Nestle India's strong brand equity, pricing and premiumization
strategies, and emphasis on product innovation are highlighted by the brokerage as factors that
are expected to fuel growth in rural regions.
• Suresh Narayanan, the chairman and managing director of Nestle India, recently told CNBC-
TV18 that he "feels that Nestle India will do better than last year." He went on to say that he
anticipated they would reach double digits notwithstanding any difficulties caused by food
inflation.
• The packaged food business added around 55,000 villages and 1,800 distribution touchpoints
in 2022 as part of its aim to intensify the "rurban" thrust by investing more in smaller towns
and cities. Through village Haat events and smart retailers in these areas, it improved consumer
connection. Despite of the fact that Nestle's direct reach increased to 1.5 million outlets in 2022
from roughly 1.4 million in 2021, the company's total reach is estimated to be 5.1 million
outlets.
• The milk products and nutrition segment continued to contribute the most to Nestle India's
sales in 2022, accounting for 40.4% of total sales, increasing by 9.5% year over year. The
prepared food and cooking aids market, anchored by the Maggi brand, was estimated to
contribute 32.2% of the total and rise by 15.6% year over year.
The company added, "Maggi Noodles in 2022 saw the highest ever distribution and maintained
market leadership."
With brands like Munch and KitKat leading the way, the confectionery business saw year-over-
year growth of 25% and contributed 16% of the company's revenue. In 2022, sales in the
beverage category increased by 19.2% year over year and made up 11.4% of total company
sales. The e-commerce channel, which accounted for over 6.5 percent of the company's sales,
increased by 41% in 2022 compared to 2021, it was stated.
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Growth Prospects
• Nestle India’s average organic increase between 2016 and 2021 was roughly 11%, of which
7% to 8% was volume and 2% to 3% was pricing. It experienced 14% increase in 2022, of
which 10% was in value and 4% was in volume. If you look at the first half of 2023, it
experienced a sales rise of roughly 18% for the company, of which 4% to 5% was driven by
volume and base growth and the remaining 69% by pricing growth.
• Nestle India's Chairman and Managing Director (CMD), Suresh Narayanan, exudes confidence
in the company's development prospects despite confronting inflationary headwinds. Nestle
India unveiled an outstanding investment plan, underscoring its dedication to domestic
production. With a strategic focus on prepared foods, chocolates, confections, nutrition, and
coffee, a sizeable Rs 6,000 crore is set aside for capacity creation. This comes in a positive
light.
• Earnings and revenue growth for Nestlé India are expected to increase by 13% and 10.3% year,
respectively. The predicted increase in EPS is 12.9%. In three years, the return on equity is
expected to reach 85.4%.
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Imperial Tobacco Company (ITC) Ltd. is one of India’s leading private sector companies with a
diversified business presence. It was established in 1910 as a tobacco company, but it now has a
varied presence in FMCG, Hotels, Packaging, Paperboards & Specialty Papers and Agri-Business.
ITC is a carbon, water and solid waste-positive company. This demonstrates its commitment to
sustainable practices.
Company Overview
Market Cap ₹ 543732 Cr.

Current Price ₹ 436
High / Low ₹ 500/ 325
Stock P/E 27.4
Book Value ₹ 55.6
ROCE 39.0 %
Dividend Yield 2.92 %
ROE 29.1%
Face Value ₹ 1.00
Mission - The company’s mission in this globalising world is to sustainably generate wealth for all
the stakeholders and of superior quality.
Vision - The company’s vision is to sustain its position with its world-class performance,
simultaneously generating value for the economy and the stakeholders.
Values -To create stakeholder value by developing a customer-centric organisation with high-class
performance
History of ITC Ltd

ITC Ltd was established in Kolkata, West Bengal, India, 1910 under the British-owned Imperial
Tobacco Company. The company's initial operations focused on producing cigarettes and other
tobacco products. Later, it strategically transitioned into a conglomerate with a diversified presence
in multiple sectors, including FMCG, agri-business, hotels, paperboards, packaging, and information
67
technology. Today, the company is highly committed to sustainability and corporate social
responsibility while focusing on generating value for all its stakeholders.
Understanding the Business Operations

Brands under ITC:
Business Model of ITC

Portfolios under FMCG:
ITC is a leading FMCG business in India. The company consists of the most valuable brands. The
significant portfolios include food, Personal care, Education and Stationery, Safety Matches,
Cigarettes, Lifestyle retailing, and Agarbattis.
Under these diversified portfolios, ITC consists of various brands.
PORTFOLIO BRANDS
Branded packaged foods Sunfeast, Candyman, Aashirvaad, Bingo!, etc.
Personal care products Vivel, Fiama, Wills, and Superia
Lifestyle Apparel WLS
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Education & Stationery Papercraft and Classmate
Matches Aim
Agarbatti Mangaldeep
Customer Segment:
ITC has a diverse range of products, from personal care to education and stationery. Each portfolio
targets different markets. Customer segmentation is on geographic, demographic, and psychographic
segmentation-based factors. The company also focuses on B2B customer demands and requirements.
Promotional Strategy:
The company engages in mass marketing and promotional activities. It uses various promotional
channels such as electronic, digital, and print media. Various successful advertisement campaigns
and cross-marketing campaigns have been launched by ITC on digital and social media. The
company is known for promoting its brands through its various brand ambassadors.
Qualitative Analysis of ITC
1. SWOT Analysis:
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• Strengths:
a) Immune to fluctuations: ITC as a brand is diversified. Any fluctuations in one industry
mitigate the impact on the overall company. Hence, it keeps the company immune from any
unforeseen fluctuations and losses.
b) Widespread Distribution Network: ITC has a broad network of distribution in rural as well
as urban areas. It helps to target a broad customer base with heterogeneous preferences and
purchasing power.
c) Robust R&D: The company has robust research and development that caters to consumer
needs and preferences. ITC focuses massively on innovation to enhance the quality of its
products.
d) Effective transition: ITC’s transition from a cigarette brand to a leading FMCG company
was smooth and effective. It also used its cigarette company's distribution channel to make
a way in the FMCG sector.
• Weakness:
a) Geopolitical Risks: ITC's international business operations expose it to geopolitical and
currency exchange risks, impacting its profitability. ITC has its operations worldwide. This
exposes it to currency exchange risks, hampering its profitability.
b) Slow presence in the online retail business: ITC's adaption to e-commerce business was
slow. This limited its presence and growth in the online retail business.
c) High dependence on the tobacco business: A significant part of the ITC’s revenue is
generated from its tobacco business. It still relies heavily on this sector, which is highly
volatile and challenging.
• Opportunities:
a) Expanding the business: ITC can tap into health and personal care products. The organic
products market is lucrative to diversify its customer base and market share. This can be
carried out through strategic acquisitions and mergers of various sectors.
b) Increased presence in e-commerce: The company can strengthen its reach on e-commerce
sites to improve customer experience and drive revenue growth.
• Threats:
a) Stringent laws and regulations: The tobacco and cigarette industry is exposed to stringent
laws and regulations. Any current regulations or tax laws change can severely threaten the
company and its operations.
b) Technological Advancements: Rapid technological changes are accompanied by changes in
consumer’s tastes and preferences. This can affect ITC’s profit margins and operations if
investment and upgradation in technology are not undertaken.
c) Intense Competition: The FMCG sector is highly competitive, with new brands dominating
the consumer base. This threatens ITC by reducing its profit margins and market share.
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2. Competitive Advantage of ITC
There are ten pillars of competitive advantage of ITC-
Fundamental Analysis of ITC Ltd
1. Balance Sheet:
71
Balance Sheet Analysis:
• Net Profit Margin: It measures the company's profitability as a percentage of total revenue.
In 2020, the Net Profit Margin was (Profit / Total Revenue) * 100%, 8.4%.
In 2021, it increased to 9.8%.
In 2022, it decreased slightly to 8.3%.
In 2023, it further declined to 7.6%

RATIO
It has nearly three times the assets required to cover its
Current ratio 2.84 short-term obligations.
Inventory 1.92 It suggests that on average, the company sells and

Turnover Ratio replenishes its entire inventory 1.92 times yearly. It
indicates efficient inventory management
Debt to Equity 0 It indicates that the company has no or insignificant debt.

Ratio
Return on capital 35.39 It suggests that the company efficiently utilises its invested
employed capital to generate profits.
2. Income Statement Analysis:
Income Statement Analysis:
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1. Revenue Growth and Profitability:
• From FY 2020 to FY 2023, the company experienced steady revenue growth

• There was an in total sales from $52,010.16 million to $73,039.25 million.
• This continuous increase in revenue signifies that the company's top line is growing,
which bodes well for investors.
2. Earnings per Share (EPS) and Dividends:

• A positive trend in the figures is observed
• Consistent growth from $21,760.86 million in FY 2020 to $28,712.80 million in the
TTM ending FY 2023.
• Similarly, both PBIT and Net Income have exhibited growth during this period.
• This suggests that the company is becoming more profitable, which is favourable for
investors.
3. Profit Before Tax (PBT) and Tax Efficiency:
• As it demonstrates the company's earnings dispersed to each outstanding share, EPS is

a crucial indicator.
• From 12.47 in FY 2020 to 16.02 in FY 2022 and then further to 16.02 in the TTM
ending FY 2023, the company's EPS has steadily improved.
• The growth suggests that shareholders' earnings per share are rising, which could
attract investors.
4. Impact on Dividend Yield:
• The dividend payout ratio estimates the percentage of profits that are distributed as
dividends to shareholders.
• The payout ratio in this instance has varied but remains appropriate, ranging from
0.56 to 1.00 across the examined years. It is 0.97 as of FY 2023.
• Although a greater payout ratio might indicate a commitment to rewarding
shareholders, it's crucial for investors to determine whether the company is
sufficiently reinvesting in its operations to support future growth.
In conclusion, the company appears to be an appropriate investment choice for investors

based on the presented financial statistics. It exhibits a steady rise in sales, improving
profitability, and rising EPS. Investors should, however, also consider the dividend payout
ratio and assess how well it matches their goals for income and growth. Before considering
an investment decision, an in-depth evaluation should consider additional elements like
market trends, rivalry, and macroeconomic conditions.
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Ratio Analysis:
ACCOUNTING MAGNITUDE INTERPRATATION

RATIO
This suggests a robust and financially healthy position.

Interest coverage 334.23
ratio
ITC has retained approximately 28.39% of its total

revenue as profit after covering all expenses.
Net profit ratio 28.39
3. Cash Flow Statement:
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Analysis:
1. Cash Flow Trends:
• Free cash flow from the business was $12,248.51 million in 2020 and increased to
$10,690.33 million in 2021, showing a slight decrease.
• Free cash flow bounced back to $13,633.87 million in 2022 and then scaled to
$16,134.56 million in 2023.
• This shows a tendency toward positive free cash flow growth, which constitutes a
favourable position for investors.
• A company's ability to generate cash after paying its operating and capital expenses
can be reflected by increasing free cash flow.
2. Working Capital Management:
• A company's working capital indicates its immediate financial health. A decline in

working capital means current assets are being managed inefficiently.
• Working capital fell to $4,726.75 million in 2020 and continued to do so in 2021 and
2022.
• The working capital change in 2023 was -$7,017.06 million, which was the largest
fall.
• This pattern makes it uncertain to what extent ITC will handle its short term
obligations.
3. Capital Expenditures:
• Capital investments are financial commitments to long-term assets. It's necessary to

assess how well the business is spending for future expansion.
• Over the years, ITC regularly made capital investments, spending between $1,836.64
million and $3,300.06 million.
• Investors find this encouraging as it shows a dedication to expanding and improving
operations.
4. Net change in cash:
• The company's cash position is expressed by the net change in cash after various
financial flows, such as operating and investment activities, have been considered.
• The company's cash position improved in 2020, with a net change of +$334.16
million.
• A net change of -$366.88 million in 2021 indicates a large cash decline and likely
liquidity issues.
• With favourable net changes in cash of -43.48 million and +139.23 million,
respectively, in 2022 and 2023, the trend improved.
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• This suggests that the ITC experienced cash flow issues in 2021 but rebounded and
improved its financial position in the subsequent years.
Other Financial Ratios

RATIO
28.88 It indicates the investor's willingness to pay a
premium for the company’s earnings
Price to Earnings
Ratio
7.97 It indicates that the market valuation of a company’s

share is above its book value
Price to Books Ratio
3.48 •
Dividend Yield Ratio
27.74 With their equity investment, the company has

generated a high return for its shareholders
Return on Equity
Ratio
In comparison to the capital it has invested in

operations, the company has generated a strong
Return on Investment 27.59 return on capital.
Ratio
It indicates consistent growth at a rapid rate. It can

24% capture market share, expand its product offerings, or
CAGR increase sales.
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4. Shareholding Pattern:
Of the total holdings, 43.6% are through foreign institutions. This sizeable amount shows a
significantly high confidence in the company and that it has attracted interest from global investors.
It can be mainly due to the company’s growth prospects, financial stability and industry leadership.
Compared to the other components, domestic institutions have a share of 41.9%, which shows that
ITC has a significant economic impact and a clear and transparent operation.
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Relative Valuation
As you can see, ITC is trading at the lowest valuation on all three metrics, followed by Nestle India
and GCPL. This means that ITC is the cheapest of the three companies relative to its earnings, its
book value, and its cash flow.
Growth Prospects of ITC

Earnings and sales are expected to increase by 9.6% and 8.7% each year, respectively, at ITC. EPS is
predicted to increase by 9.5%. In three years, the return on equity is expected to be 33.2%.
As of 2 October 2023:
Earnings growth rate: 9.6%
EPS growth rate: 9.5%
Tobacco earnings growth: 7.2%
Revenue growth rate: 7.2%
Future return on equity: 8.7%
Analyst coverage: Good
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Financial News of ITC
• Aug 14, 2023

ITC Ltd reported a fiscal first-quarter profit of Rs 5180.12 crore, up 16.1% from Rs 4462.25
crore in the first quarter of FY23, ahead of forecasts. ITC said that despite a tough operating
environment and a high base impact in certain of its operational areas, the company
maintained its strong growth momentum during the quarter, thanks to a focus on customer
centricity, rapid digital adoption, execution excellence, and adaptability.
• Jul 11, 2023

On Tuesday, the company released its annual report, revealing that it will generate Rs 19,000
crore in revenue in fiscal year 2022-23. ITC Ltd stated that it is committed to growing its
FMCG business through strong growth platforms and a future-ready portfolio. According to
the firm, it expanded faster than the industry in both urban and rural areas and introduced 90
new goods in FY23.
CAPM
The Capital Asset Pricing Model is a method for calculating the expected return of a company’s
security based on its beta and the market's expected return. It helps investors calculate the cost of
equity, the minimum return that a company should earn on the investments to satisfy its
shareholders, for the company.
CAPM is calculated in the following way:
Expected return = Risk-free Rate + Beta + (Market Return - Risk-free Rate)
1. Godrej
Risk-Free Rate 7.5%
Beta 0.60
Market Return 12%
Expected Return 9.60%
Expected Return = 7.5% + 0.60( 12% - 7.5% ) = 9.60%
Interpretation:
The CAPM expected return of Godrej stands at 9.60%, whereas the current return of GPCL stands at
12.19% for the one year ending on 0ctober 4, 2023. This is significantly higher than the CAPM
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expected return of 9.60%. It means that the company is currently overperforming the market.
2. Nestle
Risk-Free Rate 7.5%
Beta 1.19
Market Return 12%
Expected Return = 7.5% + 1.19( 12% - 7.5% ) =11.95%
Interpretation:
To satisfy its shareholders, 11.95% is the minimum return Nestle should earn on the investments.
The CAPM expected return of Nestle stands at 11.95%, whereas the current return of Nestle stands at
10.85% for the one year ending on 0ctober 4, 2023. This is slightly lower than the CAPM expected
return of 11.95%. The lower current return indicates the current underperformance of the market by a
small margin.
3. ITC
Risk-Free Rate 7.5%
Beta 0.68
Market Return 12%
Expected Return = 7.5% + 0.68( 12% - 7.5% ) = 10.46%
The CAPM of ITC is 10.46%
Interpretation:
For one year period ending on October 4, 2023, the current return of ITC Ltd stands at 35.56%
The company’s expected CAPM return stands at 10.46%, significantly higher than the current return.
ITC is currently overperforming in the market by a large margin.
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Company Wise Investment
Explanation:
NAME SUB- MARKET CLOSE PE ROCE 5Y 5Y AVG

SECTOR CAP (in Rs PRICE RATIO (%) CAGR NET PROFIT
Cr) (Rs) (%) MARGIN
(%)
Nestle FMCG - 2,20,621.33 22,882.30 92.29 57.82 16.29 14.49

India Pvt foods
Ltd
ITC Ltd FMCG - 5,73,366.13 460.10 29.88 36.06 8.99 26.07

tobacco
GPCL FMCG - 1,04,285.04 1,019,70 61.26 16.41 2.89 15.85

personal
products
Quantitative Analysis:
As we can see, the PE Ratio, which signifies how much a company spends to earn one unit of profit,
is the highest of Nestle India Pvt Ltd, meaning it’s the most inefficient in allocating its resources.
The difference is so huge that it pivots down the rank of Nestle.
But in contrast, when it comes to ROCE%, Nestle takes the pedestal with the highest return on
capital employed. The primary purpose of every company is to earn returns for the shareholders,
which is highest in Nestle, and hence, Nestle takes the lead.
It can be highlighted from the above figures of CAGR of the 3 companies that Nestle is the most
stable, and while investing it’s best to see the overall growth prospects than yearly figures.
The average net profit margin is the highest in ITC Ltd and Nestle lags in this parameter. However,
since ITC as an investment is riskier than Nestle because of its ties with the tobacco industry, Nestle
is a comparatively safer sector with a solid growth prospect.
81
Qualitative Analysis -
GPCL is a well-managed firm with a solid brand portfolio. GCPL is a global leader in the consumer
products industry, a vast and expanding market. It is a less risky investment than ITC but has lesser
growth.
A global leader in the FMCG industry, Nestle holds a robust track record with a diversified brand
portfolio. The investment in Nestle is less risky than ITC and GPCL.
ITC is a fast-growing corporation with a proven track record. ITC is also a market leader in the
cigarette and FMCG industries, both significant and rising. However, ITC is a riskier investment
than GCPL and Nestle because of its ties to the tobacco sector.
Therefore, we will divide our funds in this manner:
Initial Investment = Rs. 1,00,000
GPCL Nestle ITC
25% 45% 30%
82
References:
Screener ITC
https://www.screener.in/company/ITC/consolidated/
Money control Nestle India

https://www.moneycontrol.com/india/stockpricequote/food-processing/nestleindia/NI
Godrej
https://www.screener.in/company/GODREJCP/consolidated/
Tickertape Nifty FMCG

https://www.tickertape.in/indices/nifty-fmcg-index-.NIFTYFMCG
Money control FMCG

https://www.moneycontrol.com/indian-indices/nifty-fmcg-39.html
Money control ITC

https://www.moneycontrol.com/india/stockpricequote/diversified/itc/ITC
Money control Godrej

https://www.moneycontrol.com/india/stockpricequote/personal-care/godrejindustries/GI23
Nestle India Pvt Ltd

https://www.nestle.in/
ITC Ltd
https://www.itcportal.com/
Godrej Consumer Products

https://www.godrejcp.com/
83
Godrej Consumer Products Annual Report 2021-22
https://www.godrejindustries.com/public/uploads/reports/2021-22/GIL-Annual-Report-2022.pdf
Nestle India Private Limited Annual Report 2021-22

https://www.nestle.in/sites/g/files/pydnoa451/files/2023-03/17-3-Annual-Report-2022.pdf
ITC Ltd. Annual Report 2021-22

https://www.itcportal.com/about-itc/shareholder-value/annual-reports/itc-annual-report-
2022/pdf/ITC-Report-and-Accounts-2022.pdf
84

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Table of Contents

Industry Analysis .................................................................................................................................................. 3

Growth Prospects .......................................................................................................................................65

Ashima Garg IPM/2218/02

1. ABOUT THE SECTOR

Financial Implications and Investment Perspective:

2. HOW THE SECTOR FUNCTIONS

Understanding the FMCG Sector

2. Raw Material Procurement Process

5. Marketing & Consumer Outreach

7. Feedback & Continuous Improvement

8. Regulatory Adherence & Challenges

~ Typical Supply Chain followed in FMCG

• Year-on-year growth for the last fiscal year:

• First half of 2022:

• Indian food processing market:

• Digital advertising in the FMCG sector:

• Food and beverage segment in FMCG:

• Personal and household care segment:

• Household FMCG expenditure:

• Q3 2021 domestic FMCG growth:

• Projections for International FMCG market by 2025:

Market Shares of Leading Companies

So let us examine these factors in detail:

b) Wide Distribution Networks:

Example - As an illustration, Unilever's effective supply chain management enables it to cost-

b) Supply chain vulnerabilities

Example - As an illustration, during the COVID-19 epidemic, FMCG companies like

c) Short Product Life Cycle

Inventory must be properly managed by businesses to prevent obsolescence and waste.

c) Consumer Preference Changes:

d) Supply Chain Breakdowns:

Production and product availability might be affected by interruptions such as transportation

Public resentment of businesses with unsustainable operations may increase as public

f) Competition from Private Labels:

Let us discuss these factors in detail:

● Taxes & Duties:

● Laws governing product labels and advertising:

● Consumer income and disposable income:

● Robotics and automation:

Growing environmental consciousness in India encourages FMCG firms to adopt sustainable

● Climate Change and Natural Resources:

● Product responsibility and Safety:

● Protection of Intellectual Property:

Key barriers include:

Rivalry among competitors includes:

3. Bargaining Power of Suppliers:

The bargaining power of suppliers includes:

Threat of substitute products depends on:

● Availability of close substitute

● Profitability of the producers of substitutes

5. Bargaining Power of Customer

Investment Orientations and Recommendations:

For Aggressive Investors Seeking Higher Returns:

For Stability-Centric Investors:

Sectors Potentially Offering Superior Returns:

Sectors with Comparative Lower Potential:

Short-term Estimations: Given the multifaceted influencers on short-term stock price

Arnav Mathur IPM/2216/02

A. Godrej Consumer Products Limited

Market Cap ₹ 1,01,550 Cr.

Values – Diversity, Commitment