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Security Analysis & Portfolio

Managment

BY
Richa Priya , B-16
Reshma,B-39
Roadmap
Industry Overview
Company Analysis
HUL
Asian Paints
Britannia
ITC
Dabur
Marico
Analysis & construction of Portfolio
 Products which have a quick turnover, and relatively low cost are
known as Fast Moving Consumer Goods (FMCG). FMCG products
are those that get replaced within a year

 products such as toiletries, soap, cosmetics, tooth cleaning


products, shaving products and detergents, as well as other non-
durables such as glassware, bulbs, batteries, paper products,
and plastic goods.

 FMCG may also include pharmaceuticals, consumer electronics,


packaged food products, soft drinks, tissue paper, and chocolate
bars.

 White goods in FMCG refer to household electronic items such as


Refrigerators, T.Vs, Music Systems, etc.

 Fourth Largest sector in the economy with total market size of


$18.1bn and expects to rise to $33.4bn by 2015
JUDGE LEGISLATOR

LI
SMEs
TA
FMCG RE

T I
L
U
M
 Presence of many MNCs and intense competition
between organized and unorganized segment.
 Low operational cost, availability of Raw materials,
cheap labor gives India a competitive edge.
 Penetration of markets is yet to reach maturity
level, as rural markets are still untapped.
 Growth is likely to come from matured product
categories as more than 200mn people would shift
to processed foods by 2010
 Automatic investment approval for FDI upto 100%
 Economy growing by more than 6% which would
increase the buying power of the consumers.
 Recent survey showing 47% of India’s 1+billion people are
under age 20, among which 160mn are teenagers which has
14000crs of discretionary income and their families spend
an additional 18500crs on them every year.

 By 2015 Indians under age 20 are estimated to make up


55% of the population and would have proportionately
higher spending power.

 The FMCG sector in India is expected to grow at a


compounded annual growth rate (CAGR) of 9%

Market Size
Challenges Faced by FMCG Companies
 FMCG is relatively less capital-intensive, but demands
immense skills and expenditure on branding and
distribution.

 Most companies in the sector create value through product


differentiation, package innovation, differential pricing and
highlighting the functional aspect of foods.

 Inflation restricts the industry's growth, many companies in


the sector thrive under inflationary pressures.

 Most companies pass on the cost inflation to consumers, via


a judicious blend of price hikes, packaged size reduction and
change in product mix.

 The top five FMCG companies constitute nearly 70% of the


total revenues generated by this sector.

 They tend to spend nearly 10% of their revenues on an


average on advertising and promoting their products, which
is the highest ad spend figure in the industry.
 Products often cater to 3 distinct but usually wanted for aspects
like necessity, comfort, luxury. They meet the demands of the
entire cross section of population. Price and income elasticity of
demand varies across products and consumers.

 Individual items are of small value (small SKU's) although all


FMCG products put together account for a significant part of the
consumer's budget.

 The consumer spends little time on the purchase decision. He


seldom ever looks at the technical specifications. Brand loyalties
or recommendations of reliable retailer/ dealer drive purchase
decisions.

 Limited inventory of these products (many of which are


perishable) are kept by consumer and prefers to purchase them
frequently, as and when required.

 Brand switching is often induced by heavy advertisement,


recommendation of the retailer or word of mouth.
 Large domestic market.India is one of the largest
emerging markets, with a population of over one
billion.
 India is one of the largest economies in the world in
terms of purchasing power and has a strong middle
class base of 300 million.
 Around 70 per cent of the total households in India
(188 million) resides in the rural areas.
India - a large consumer goods
spender
An average Indian spends around 40 per cent of his
income on grocery and 8 per cent on personal care
products. The large share of fast moving consumer goods
(FMCG) in total individual spending along with the large
population base is another factor that makes India one of
the largest FMCG markets.
Porter’s Five Forces Model for
FMCG
Company Overview
Incorporated in 1933

HUL is the part of €40 billion Unilever Group

The group has more than 400 brands spanning 14


categories of (HPC) & (F&B) products

It has presence in more than 100 countries

Headquartered in Mumbai, national sales network


with offices in 4 metro cities.

35 manufacturing locations across India.


Ratio Analysis
Ratios Mar 09 Dec 08 Dec 07 Dec 06 Dec 05
EPS 11.46   8.12 6.98 6.15 5.45 
Dividend payout(%) 750 900 600 500 500
Sales (%) 47.72 13.37 10.37 11.30 -1.68
Operating profit Margin (%) 14.46 14.95 14.74 14.14 15.32
PAT Margin(%) 11.40   11.84   11.67   11.19   10.91  
Current Ratio 0.89 0.70 0.73 0.68 0.92
ROCE (%) 122.83   144.66   66.97   68.72   45.89  
RONW 121.34 122.97 68.14 61.09 57.23
ROA 29.59 25.90 24.45 20.91 16.14
Inventory turnover 9.26 7.20 8.02 8.57 6.97
Debtors turnover 20.95 22.12 25.42 22.12 20.95
Nos of days in WC 1.58 -42.05 -36.37 -40.83 -6.56
Debt/Equity 0.20   0.06   0.03   0.02   0.70  
Security Analysis
Parameters Values
Avg. Weekly Return 0.58

Standard Deviation 3.56

Variance 12.64

Systematic Risk 0.76

Unsystematic Risk 11.88

Beta 0.2

Coefficient of Variation 6.10

Required Return - CAPM 0.50


asian paints
• Started in 1942 by four entrepreneurs:
Champaklal choksey,
Chimanlal choksey,
Suryakant Dani and
Arvind Vakil as
“ASIAN OIL & PAINTS COMPANY.”

• Within three years, their turnover reached 3.5 lacs.

• In 1967, Asian paints became the 10th largest paint


company in the world.
International Operations
Caribbean
Middle
Islands
East
Barbados, Bahrain, Egypt,
Jamaica, Trinidad Oman &
& Tobago. United Arab
Emirates.

South South East


Pacific Asia
Fiji, Tonga, South
China, Malaysia,
Vanuatu, Solomon Asia Singapore &
& Samoa Islands.
Bangladesh, Nepal Thailand.
& Sri Lanka.
Market Share in India

ts 37%
pai n
a n
Asi
Goo
%
15.9
.8
13

dlas
%
n ts
ai

s
P

Ner
er
rg

olac
Be
Fundamental Analysis of Asian
paints
Ratios Mar 09 Mar08 Mar 07 Mar 06 Mar 05
EPS 37.78 39.12 28.36 19.58 18.09
Dividend payout(%) 175 170 130 125 95
Sales growth (%) 25.43 21.74 20.66 19.27 13.98
Operating Profit Margin (%) 12.39 12.96 13.09 14.41 11.80
PAT Margin 7.97% 10.28% 9.11% 7.59% 8.36%
Current Ratio 1.03 1.08 1.09 0.99 1.13
ROCE 49.35% 57.32% 49.68% 49.74% 43.36%
RONW(%) 33.10 40.40 36.56 30.18 30.32
ROA 16.51 18.55 17.50 14.54 14.71
Inventory Turnover 9.80 8.03 6.88 7.09 6.27

Debtors Turnover 16.02 14.74 14.03 14.65 14.31


Nos of days in Wrk Cap 33.13 43.11 32.72 36.49 31.76
Debt/Equity 0.06 0.08 0.14 0.12 0.11
Security Analysis of
Asian Paint
Parameters Values
Avg. Weekly Return 2.40

Standard Deviation 5.08

Variance 25.82

Systematic Risk 4.99

Unsystematic Risk 20.83

Beta 0.5

Coefficient of Variation 2.12

Required Return - CAPM 1.015


 Britannia started in 1892 in kolkata.

 In 1975, the Britannia Biscuit Company took over


the distribution of biscuits from Parry's.

 In the subsequent public issue of 1978, Indian


shareholding crossed 60%, firmly establishing the
Indianness of the firm.

 Britannia today moved up to the 9th position in


terms of its brand equity.

 Today it has become an International company


with various subsidiaries and Joint Ventures.
 Britannia New  International Bakery
Zealand Foods Products
 J B Mangharam Foods
 Strategic Food
International Co.  Manna Foods
Dubai  Ganges Valley Foods

 Al Sallan, Oman  Sunrise Biscuit Company

 Daily Bread Gourmet


Foods (India)
Biscui Bread Cake Dairy
ts
Tiger Whole
Biscuits Good Day Cheese
Wheat
Cakes
Bread
Good Day Milkman
Chocolat
Bourbon Daily
e Cakes
Fresh
50 – 50 Bread
Fruit
Treat Cakes

Milky
Bikis

Nutrichoic
e
 Britannia is offering more value at affordable price points
(Rs2, Rs4, Rs5) particularly in the current economic
environment
 It is commercializing the growing trend of 'out-of-home'
consumption
 Britannia is strengthening its brands through product
design, delivery, mix and introducing differentiated
products
 Britannia has not increased product prices over the past
12 months
 Increase in input cost can hurt the profit margins of the
company
 sugar and wheat prices have risen more than 40% over
the past two years.
Fundamental Analysis of Britannia
Ratios Mar 09 Mar08 Mar 07 Mar 06 Mar 05
EPS 75.51 79.95 45.06 61.29 62.27
Dividend payout(%) 400. 180 150 150 140
Sales Growth (%) 20.26 17.66 28.36 7.92 10.27
Operating Profit Margin(%) 7.20 8.97 5.85 11.72 11.58
PAT Margin(%) 5.75 7.31 4.86 8.48 9.25
Current Ratio 0.84 1.07 1.17 1.22 1.27
ROCE 25.29 26.39 19.22 34.49 41.02
RONW 22.60 26.07 17.51 26.67 33.54
ROA -- 15.79 11.42 16.70 19.32
Inventory turnover 14.54 9.98 10.31 9.34 11.97
Debtors Turnover 64.88 69.07 88.94 53.85 51.30
Nos of Days in WC 13.43 28.82 9.75 6.49 -9.59
Debt/Equity 0.03 0.14 0.01 0.02 0.01
Security Analysis of
Britannia
Parameters Values
Avg. Weekly Return 0.50

Standard Deviation 4.65

Variance 21.62

Systematic Risk 0.99

Unsystematic Risk 20.63

Beta 0.22

Coefficient of Variation 9.28

Required Return - CAPM 0.5306


One of the 8 Indian Companies to feature in ‘Forbes A-list’ for 2004

Only Indian FMCG Company to feature in Forbes 2000 List

Among top in :
Sustained value creation (BT-Stern Stewart survey)
Operating profits
Cash Profits
Ranks No. 5 among Indian listed Private Sector Companies .
No. 1 in FMCG Sector

Rated as one of India’s Most Respected Companies (IMRB-


Businessworld Survey 2006)
ITC - Business
Portfolio
ITC’s Cigarettes Business
Leadership in all segments - geographic & price

Extensive FMCG distribution network

World-class state-of-the-art technology and product

Exciting long term growth potential


Biri : Cigarettes ratio.
Per Capita Adult Cigarette Consumption
(Sticks)

1753
1662

1190

561
488

141

USA China Pakistan Nepal India World Avg.


ITC’s Hotel Business
 ITC-Welcomgroup : a leading hotel chain in India
• Established presence in key business locations
• Over 6000 rooms under 4 distinct brands

Category Brand Positioning


Luxury ITC Hotel: Luxury Collection "Mansions of Luxury"
Upper upscale WelcomHotel: Sheraton "Passion for Quality"
Upscale - mid-scale Fortune Hotels "Promise of True Value"
Heritage WelcomHeritage "Unique Experiences"

 Capacity expansion underway at Bangalore and Chennai; plans for other locations also being
progressed. Positions on land taken at other locations such as Hyderabad and Ahmedabad
 Fastest growing hotel chain with highest operating efficiency (PBDIT/Net Income @ 45%)
amongst the 3 leading chains
 Leverages unique service proposition and international alliance with Starwood Hotels &
Resorts
• ‘Luxury Collection’ / ‘Sheraton’
ITC’s Agri Commodity
Business
Farm linkages in 14 states covering Soya, Wheat, Rice, Marine
products, Coffee etc.
Unique CRM programme in commodity exports
Leveraging IT for the transformational ‘e-Choupal’ initiative
Rural India’s largest Internet-based intervention
Over 38000 villages linked through around 6400 e-Choupals
servicing over 3.5 million farmers
Distinctive sourcing capability for ITC’s Foods business
ITC’s Paperboards &
Packaging businesses
Capacity expansion projects installed

120000 TPA Pulp Mill – commissioning commenced; being stabilised

100000 TPA paper machine (to support Stationery business growth plans) –
production commenced. under stabilization stage (normal stabilization period is 6-9
months)

Results impacted by sharp increases in input prices

ITC’s packaging SBU -India’s largest converter of paperboard into high quality
printed packaging

Leading supplier to Indian FMCG and Consumer Electronic segments

Provides superior packaging solutions to the cigarettes and new FMCG businesses
RATIO Analysis
Ratios Mar 09 Mar08 Mar 07 Mar 06 Mar 05
D/E ratio 0.01 0.02 0.02 0.01 0.03
Sales growth (%) 6.8 13.95 25.67 28.83 18.61
Current ratio 1.42 1.36 1.33 1.25 0.97
RONW % 23.85 25.99 26.01 24.83 27.97
ROCE % 34.61 36.60 37.24 36.26 33.09
ROA 16.50 17.79 17.74 16.80 18.65
PAT % 29.18 28.44 34.05 35.98 28
Operating Profit Margin 32.85 31.57 32.51 34.36 36.40
(%)
Operating profit % 32.85 31.57 32.51 34.36
Inventory turnover ratio 5.51 5.51 3.76 3.82 3.91
Debtors Turnover ratio 21.32 20.43 20.79 18.22 20.07
Nos of days in WC 62.19 52.39 49.56 40.51 6.12
EPS 8.65 8.28 7.18 5.95 88.28
Dividend Payout ratio(%) 350 310 265 310 200
of FV
Security Analysis

Avg .weekly Return 0.98

Standard Deviation 3.79

Beta -0.096

Variance 14.40

Co-variance 3.89

Systematic risk 0.183

Unsystematic Risk 14.22

Required return as per CAPM -0.013


Leading consumer goods company in India with a turnover of Rs. 2834.11
Crore (FY09).
Wide and deep market penetration with 50 C&F agents, more than 5000
distributors and over2.8 million retail outlets all over India.
23 per cent growth in net sales in its Q1 2009-10
It also earmarks $250-500 Mn for overseas buys.
To set up second unit in Himachal Pradesh .
Dabur to unite ayurvedic, natural brands.
Invests Rs. 180 crore for new manufacturing facilities.
The firm plans to add 4-5 stores this fiscal and 10 stores each year from the
next fiscal, he said.
Dabur- Business
Portfolio
Key Ratios
Ratios MAR-09 MAR-08 MAR-07 MAR-06 Mar -05

Debt/Equity ratio 0.19 0.03 0.05 0.05 0.14


Sales growth (%) 15.03 19.97 29.7 9.29 13.3
Current ratio 1.19 0.91 0.97 0.82 0.67
PAT% 17.19 17.37 17.49 17.74
Operating profit Margin 18.33 18.60 17.45 17.90 14.72
(%)
Inventory turnover ratio 10.94 12.52 11.11 11.65 9.64
Debtors Turnover ratio 22.63 25.94 39.70 35.30 26.95
Nos of days in WC 41.32 -5.80 3.82 -10.28 -23.92
Operating profit % 18.33 18.60 17.45 17.90
RONW % 51.20 61.58 62.52 42.22 43.78
ROCE % 47.98 67.51 66.07 46.69 42.85
EPS 4.32 3.67 2.92 3.30 5.17
Dividend Payout (%) 175 150 175 250 250
Security analysis

Avg weekly return 2.69

Standard Deviation 16.61

Beta 0.0034

Systematic risk 0.0002

Unsystematic risk 275.98

variance 275.972

Coeff. Of var 6.17

Return as per CAPM 0.1558


Overview
Marico's Products and Services in Hair care, Skin Care and Healthy
Foods generated a Turnover of about Rs. 23.9 billion (about USD
478 Million) during 2008-09.
Product distribution worldwide.
One of the largest Indian companies*.
widespread distribution network of more than 2.5 Million outlets
in India and overseas.
a CAGR of 24% in Turnover and 27% in Profits over the past 5
years-
Marico won 4 Awards for excellence in Employer branding &
Advertising to Talent at the Remmy Awards 2009 {Saffola won
Media Abby Gold for the World Heart Day Radio entry -"Radio
goes silent" at the Goa Fest }
Fundamental Analysis of
Marico
Ratios Mar 09 Mar08 Mar 07 Mar 06 Mar 05
EPS 2.33 2.35 1.88 17.05 12.72
Dividend payout(%) 65.50 65.50 65.50 62 53.50
Sales growth (%) 21.95 14.76 31.39 10.24 11.87
Operating profit Margin(%) 14.01 13.26 13.77 12.90 8.63
PAT Margin (%) 7.35 9.06 8.39 9.4 7.72
Current Ratio 1.48 1.65 0.90 1.33 1.59
ROCE (%) 38.80 33.60 46.72 21.47 28.79
RONW (%) 33.76 35.65 62.40 51.17 38.64
Inventory Turnover 8.22 8.48 8.39 10.7 10.12
Debtors Turnover 37.42 37.99 30.24 24.62 27.55
Nos of days in WC 75.32 76.11 43.46 53.72 53.57
Debt/Equity 0.84 1.09 0.91 0.81 0.24
Key Ratios
Ratios MAR-09 MAR-08 MAR-07 MAR-06 Mar -05

Debt/Equity ratio 0.19 0.03 0.05 0.05 0.14


Sales growth (%) 15.03 19.97 29.7 9.29 13.3
Current ratio 1.19 0.91 0.97 0.82 0.67
PAT% 17.19 17.37 17.49 17.74
Operating profit Margin 18.33 18.60 17.45 17.90 14.72
(%)
Inventory turnover ratio 10.94 12.52 11.11 11.65 9.64
Debtors Turnover ratio 22.63 25.94 39.70 35.30 26.95
Nos of days in WC 41.32 -5.80 3.82 -10.28 -23.92
Operating profit % 18.33 18.60 17.45 17.90
RONW % 51.20 61.58 62.52 42.22 43.78
ROCE % 47.98 67.51 66.07 46.69 42.85
EPS 4.32 3.67 2.92 3.30 5.17
Dividend Payout (%) 175 150 175 250 250
Security Analysis of Marico
Parameters Values
Avg. Weekly Return 1.78

Standard Deviation 4.00

Variance 15.97

Systematic Risk 0.081

Unsystematic Risk 15.89

Beta 0.064

Coefficient of Variation 2.24

Required Return - CAPM 0.260


Comparative Analysis
HUL Asian Britannia ITC Dabur Marico
paints

EPS 11.46 37.78 75.51 8.65 4.32 2.33

Inventory 9.26 9.80 14.54 5.51 10.94 8.22


turnover

Debtors 20.95 16.02 64.88 21.32 22.63 37.42


turnover

D/E 0.20 0.06 0.03 0.01 0.19 0.84

Current 0.89 1.03 0.84 1.42 1.19 1.48


ratio

PAT% 11.40 7.97 5.75 29.18 17.19 7.35

ROCE% 122.83 49.35 25.29 34.61 47.98 38.80

EBIT% 13.86 12.39 6.08 28.38 17.11 13.06


Combined security analysis
HUL Asian BritanniaITC Dabur Marico
paints

Avg/weekl 0.58 2.40 0.50 0.98 2.69 1.78


y return

Beta 0.20 0.50 0.22 -0.096 0.0034 0.064

Standard 3.56 5.08 4.65 3.79 16.61 4.00


dev

Variance 12.64 25.82 21.62 14.40 275.98 15.97

Coeff. Of 6.10 2.12 9.28 3.89 6.17 2.24


var

Return as 0.50 1.015 0.5306 -0.013 0.1558 0.260


per CAPM