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  • 8/2/2019 Final FULL B

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    BUS 63

    Managerial Finance

    Ratio Analysis for

    Marico BD Ltd.

    Submitted to:

    Dr. Sharif Nurul Ahkam

    Submitted by:

    Ahsanur Rahman

    ID-1030-414-060

    Section -1

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    Table of Content

    Serial no. Content page

    1. Company Profile & Overview 3

    2. Change in Accounting Year 4

    3. Financial Analysis 05-14

    4. Listed Companies in the Pharmacueticals & Chemical

    sector

    16

    5. Concluding Remarks 17

    6. References 17

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    Company Profile

    Marico Bangladesh Limited (MBL) holds a leadership position in the FMCG space. MBL

    recorded a turnover of Tk. 5,358 Million ( USD 73.4 Million) in 12 months ended on 30th

    September, 2010 and Tk. 2,846 Million ( USD 39 Million) in 6 months ended on 31st

    March, 2011. MBL is the subsidiary of Marico Limited, India (Marico).

    MBLs Products in Pure Coconut oil, Edible Oil, Hair care and Skin Care reach out to more

    than 500,000 outlets in Bangladesh. MBL touches the lives of 1 out of every 3

    Bangladeshi through its portfolio of brands such as Parachute, Saffola, Hair Code,

    Aromatic, Camelia and Beliphool to name a few, most of which enjoy leadership

    positions (No. 1 in coconut oil segment), with significant market shares in respective

    categories.

    In 2010, Bangladesh Brand Forum along with Nielsen Bangladesh evaluated 2005 brands

    across all categories nationwide (previous year was 1796) and among this Parachute

    was awarded as the 5th Most Trusted Brand. In addition to this Parachute also received

    the Best Brand Award in the Coconut Oil category.

    Overview of Fast moving consumer goods (FMCG) Sector

    Fast Moving Consumer Goods (FMCG) includes personal care, house hold care,

    packaged food and beverages, tobacco etc. which are frequently purchased consumer

    products. In Bangladesh, FMCG sector is one of the largest sectors in the economywhich is currently growing at double digit growth rate and is expected to maintain a high

    growth rate. The FMCG market can be divided into two segments urban and rural. The

    urban segment is characterized by high penetration levels and high spending propensity

    of the urban resident. The rural economy is largely agrarian directly or indirectly

    dependent on agriculture as a means of livelihood with relatively lower levels of

    penetration and a large unorganized sector. With access to the rural economy gradually

    improving with investments in physical infrastructure, it provides FMCG companies the

    potential to continue to grow their franchise of consumers.

    FMCG companies have to continuously innovate and also advertise in order to build the

    equity of their brands and create mass pull. Brand building, product innovation and

    product differentiation are critical to the growth of FMCG companies.

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    Change of Accounting Year from October-September to April-March and extension of

    time for holding AGM

    Until the last annual report, financial statements were prepared on the basis of

    accounting year for twelve months from October1 to September 30 and year ended

    September 30, 2009. The board has approved a change in the accounting year of the

    company to commence fromApril 1 and end on March 31, so as to align it with the

    accounting year of the holding company, Marico Limited. Therefore, your company has

    consolidated financial statements and annual report for the period from October 2009to March 2011 (18 months) for the reporting period and has subsequently commenced

    the new accounting year from April 1, 2011 onwards for 12 months each. These changes

    are done with prior approval from relevant regulators (annexed) i.e. the Deputy

    Commissioner of Taxes (Ref. letter no. 072-201-1174/Co-9/2009-2010 dated June 2,

    2010), The Registrar of Joint Stock Companies and Firms of Bangladesh (RJSC) (Ref.

    letter no. RJSCO-2763 dated July 14, 2010), and Securities & Exchange Commission (SEC)

    (Ref. letter SEC/CFD/11:29/2009/794 dated September 14, 2010).

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    Financial Analysis

    1. Liquidity ratios :( Short term liquidity)This ration is mainly used to give an idea of the companys ability to pay back its short

    term liabilities with short term assets.

    Current Ratio=

    Inference

    The change in current ratio figure for the year ended 30 Sept 2010 is not verysignificant but the for the period ended 21 March current ratio have dropped

    considerably. This could be due to inflationary pressure worldwide, the firm had

    to spend more on input cost of raw materials. Also could be due to high

    proportion of loans and advances.

    This ratio is acceptable

    Marico 30 Sept 2010 30 Sept 2009 31 Mar 2011 31 Mar 2010

    Current Ratio 3,458,572,654

    1,536,710,015

    =2.25:1

    2,186,504,310

    957,867,526

    =2.28:1

    4,334,737,373

    2,141,571,939

    =2.02:1

    2,581,882,007

    1,121,596,849

    =2.30:1

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    Acid test ratio:

    This is a relationship between the liquid asset and the current liabilities. It is a fairly

    stringent measure of liquidity.

    Acid test ratio/ Quick Ratio =

    Inference:

    A quick ratio of 1:1 is considered standard and ideal since for every taka ofcurrent liabilities there is one taka on current assets. Marico seems to have no

    real problem in this ratio as it has improved over the last eighteen months.

    It was relatively low for the period ended 30 Sept 2010 as cost of inventory ofraw materials and inventory of packaging materials increased considerably in this

    period.

    2. Solvency/Leverage ratioDebt-equity ratio

    This ratio is worked out to ascertain soundness of the long term financial policies

    of the firm. This ration expresses relation between debt and the equity

    Marico 30 Sept 2010 30 Sept 2009 31 Mar 2011 31 Mar 2010

    Acid Test Ratio 3,153,938,640

    2,141,571,939

    =1.47:1

    1,871,969,163

    1,121,596,849

    =1.67:1

    3,110,817,048

    1,536,710,015

    =2.02:1

    1,551,969,958

    957,867,526

    =1.62:1

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    Debt-Equity ratio=

    The firms only long term liability is provision for gratuity. The company makes

    contributions to a non-contributory defined benefit plans that provide pension for

    employees upon retirement.

    Inference:

    In this case the companys debt to equity ratio remained constant over theperiods .There had been increase in reserves for the period ended 31 Mar2011 but the increase was not significant to cause any major change in the

    Debt to equity ratio.

    The extent to which the firm depends upon outsiders for existence isminimal.

    Borrowing capacity is being underutilized.Time Interest Earned

    The interest coverage ratio establishes the relationship between PBIT (profit before

    interest and tax) and debt interest

    Time interest earned=

    Marico 30 Sept 2010 30 Sept 2009 31 Mar 2011 31 Mar 2010

    Debt-Equity

    Ratio

    8,896,857

    2,462,597,327

    =0.004:1

    8,088,052

    1,753,695,739

    =0.005 :1

    8,088,052

    2,195,223,284

    =0.004:1

    7,112,927

    1,570,704,896

    =0.005:1

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    Ratio12 month period 6 month period

    Sep-10 Sep-09 Mar-11 Mar-10

    Time interest earned 22.29 72.06 32.36 68.05

    Inference:

    The company purchased a land at Gazipur for building factory and also purchaseda floor at zashin plaza, Uttara which increased the cost of finance in recent years

    Despite increase in finance cost the ratio is still in excellent position to weatherpossible financial storms.

    The company has generated enough profit to necessary to meet their interestobligation

    3. Profitability Ratio:

    Net profit margin

    This ratio establishes the relation between net profit and net sales expressed in

    percentage forms.

    Net profit Margin=

    Ratio

    12 month

    period 6 month period

    Sep-10 Sep-09Mar-

    11Mar-

    10

    Net profit margin 12.60% 11.61% 12.55% 12.58%

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    Inference

    As we can see from the table that the profit remained same throughout theperiod from 2009 to 2011 even though the turnover in the last eighteen months

    increased by 69% cost associated with importing raw materials and also

    importing finished goods such as parachute advanced cooling oil restricted the

    profit figures to remain at a stable rate but it showed the return slightly by

    increase in net profit margin by 1% form sept 09 to sept 10.

    Gross Margin

    Gross profit Margin=

    *100

    Ratio

    12 month

    period 6 month period

    Sep-10 Sep-09

    Mar-

    11

    Mar-

    10

    Gross profit margin 29.89% 26.57% 26.69% 31.07%

    Inference:

    For the twelve month period the gross profit showed more than 2% increase butin the later years the profit squeezed to 26.69% in March 11 which was 31.07%

    for the same period in the previous year.

    Cost of goods sold includes purchase of raw material and Marico importssignificant amount of raw materials. The fact that inflation worldwide and value

    of taka falling against major currency in recent times caused the fall in gross

    profit margin in recent periods compared to same period last year. Material cost

    (raw+packaging) was 71% to sales in the six months period ended march 2011

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    Return on Total Asset

    Return on total asset=

    Ratio

    12 month

    period 6 month period

    Sep-10 Sep-09

    Mar-

    11

    Mar-

    10

    Return on Total

    Assets 22.00% 24.00% 17.00% 14.00%

    Inference:

    An indicator of how profitable a company relative to its asset. It shows howefficient the management is at using its assets to generate earnings

    Return dipped slightly in sept 10 from the same period in 2009 but in recentyears the this ratio has shown better numbers compared to the previous period.

    All previous investments have started paying off

    Return on Equity

    Return on equity=

    Ratio

    12 month

    period 6 month period

    Sep-10 Sep-09

    Mar-

    11

    Mar-

    10

    Return on Equity 31.00% 30.00% 30.00% 30.00%

    This shows whether the firm has earned sufficient returns for its shareholders. This ratio

    is most crucial one from owners point of view.

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    Inference:

    Despite worldwide economic turmoil and high inflation being all time high inBangladesh the management has maintained the same level of return on equity

    over the periods. Introduction of new brands in the portfolio of Marico has

    certainly helped in maintaining it.

    4. Asset Utilization RatioAverage age of Inventory

    Average age of inventory=

    Ratio12 month period 6 month period

    Sep-10 Sep-09 Mar-11 Mar-10

    Average age of inventory

    (days) 47 61 66 119

    The ratio shows on average how many days a firm takes to sell a piece of inventory. This

    ratio is critical for a firm like Marico with rapid sales.

    Inference:

    Marico being a FMCG company the inventory turnover in days is usually lowercompared to companies in any other industry. The average age of inventory

    improved from 2009 to 2010 and also showed considerable improvement in the

    six month period ended march 11 from its previous period. Inventory turnover

    was particularly high during the period March 2010 as new product Saffola Gold

    was introduced during the same year and thus cost of goods sold was high

    initially but it became normal in the 6 month period ended march 2011.

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    Account receivable turnover in days

    Indicates the receivable of the company in days

    Account receivable turnover in days=

    Note:The Company makes sales in advance so there is no credit risk due to

    inconvertibility of from the customers.

    Total Asset Turnover

    Measures the activity of the assets and the ability of the business to generate sales

    through the use of the assets

    .Total Asset Turnover=

    Ratio12 month period 6 month period

    Sep-10 Sep-09 Mar-11 Mar-10

    Total asset turnover 1.43 1.59 0.61 0.72

    Inference:

    There has been slight improvement in total asset turnover over the 12 monthperiod but over the 6 month period the ratio is less than its previous six month

    period. This is due to the effect of deferred tax assets which doubled from the

    previous period and also fixed deposits for the 6 month period was much higher

    than the same period previous year. Therefore the total asset was inflated for the

    year ended march 2011.

    5.

    Market Value Ratios

    Earnings Per share

    Earnings per share =

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    Ratio12 month period 6 month period

    Sep-10 Sep-09 Mar-11 Mar-10

    Earnings per

    share(EPS)(Tk) 21.43 16.45 11.34 8.31

    This ratio shows whether the earning power has increased or not. It is a very important

    measure of profitability.

    Inference:

    Earnings per share have shown considerable improvement in both 12 and 6month period in recent years than its comparable previous years.

    Major contributions came from maricos ace product Parachute hair oil whichcontributed greatly to the profit.

    The fact that Marico BD Ltd has never declared stock dividend from its inceptionand always given cash dividend meant that the ownership was never diluted and

    number of shares remained the same and at the same time the company kept

    growing.

    Price Earnings Ratio

    A value ratio of companys current share price compared to its pre share earnings

    Price earnings ratio=

    Ratio12 month period 6 month period

    Sep-10 Sep-09 Mar-11 Mar-10Price Earnings ratio

    (times) 30.97 32.21 55.61 55.35

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    Inference:

    PE ration of Marico BDLtd has always remained high compared to its competitorsin the same sector. As this is a fast moving company investors have always been

    willing to invest on this share even though the PE ratio has been on the higher

    side.

    Number of shares held by public is only about 8, 97,750 and has not increased innumber over the last 3 years. Owing to its pretty small number of shares the

    share price does fluctuate considerably. Historically the PE ratio has always

    remained very high for marico

    Book value per share

    A measure used by owners of common shares in a firm to determine the level of safety

    associated with each individual share after all debts are paid accordingly.

    Book value per share=

    Ratio 12 month period 6 month periodSep-10 Sep-09 Mar-11 Mar-10

    Book value per share

    (Tk) 69.69 49.86 78.18 55.67

    Inference:

    This ratio shows improvement in the twelve month period and also in the sixmonth period ended march 11 compared to the comparable periods.

    This is because in the year 2010 to 2011 the company acquired land and alsobuilding and machineries which substantially increased the cost of total assets

    (Fixed asset). As the number of shares remains same the book value per share is

    likely to improve as the time goes.

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    Dividend Yield

    Dividend Yield=

    The Board of Directors of Marico Bangladesh Limited has recommended 20% cash

    dividend i.e. Tk 2.00 per share for the eighteen months period ended on 31 March 2011

    at the Board meeting held on 24 April 2011.

    Dividend yield for 18 month ended march 2011 is 4.16%

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    List of DSE Listed companies in the Pharmaceutical & Chemicals sector

    Figures as per last audited financial statement of each company

    Serial Name P/E

    EPS (Last

    audited)(TK)

    NAV

    (Tk)

    01 ACI Limited 27.32 7.35 223.04

    02 ACI formulation 25.37 3.24 52.73

    03 Active Fine Chemicals 20.05 2.81 15.04

    04 Ambee Pharma 114.55 2.73 24.4

    05 Beacon Pharma 64.25 0.4 12.12

    06 Beximco Pharma 18.24 5.12 78.53

    07 Beximco Synthetic 23.83 1.51 338.1

    08 Glaxosmith Kline 21.41 2.04 93.23

    09 Ibne sina 32.29 3.56 248.83

    10 Keya Cosmetics 15.08 3.8 25.04

    11 orion infusion 21.41 2.04 52.73

    12 Marico 13.49 27.3 78.18

    13 Pharma Aid 27.68 5.93 237.37

    14 Reckit Benkiser 28.18 28.73 48.13

    15 Renata 24.22 50.81 1643.99

    16 Salvo chemical 27.05 1.19 12.05

    17 Square Pharma 15.22 15.28 857.52

    From the above table we can see that at this moment Marico BD Ltd has the lowest

    Price earnings ratio. Its EPS is also third highest among the pharmaceuticals and

    chemical sector

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    Concluding Remarks: After analyzing all the ratios from it can be deduced that the

    company is in pretty good shape and is looking very bright for the existing investors. All

    the ratios show better results from its comparable previous periods. Even though some

    showed deteriorating figures, the impact would be short term and in the longer run the

    company would show favorable result for its key ratios.

    One of the major risks of the company seems to be the exchange rate risk and risk

    importing raw materials from abroad. The company will now be exposed to lower risk

    this year as the import cost of finished goods such as parachute advanced cooling oil

    and other packaging raw materials will be made in the country now.

    Factory has been already set up to manufacture parachute advanced cooling oil here in

    Bangladesh which will reduce the their cost considerably. With the success of first skin

    care solution Kaya the company also started another in Dhanmondi, which will

    contribute greatly and ease the pressure on cash flow of the company.

    It is good sign that the companys long term loan is very insignificant and for a FMCG

    company as the market expands it is likely to generate larger volumes of sales and

    greater profit .

    Reference:

    Annual report Marico BD Ltd. 2009-2011

    www.mariobd.com

    www.dsebd.org

    www.stockbangladesh.com

    http://www.mariobd.com/http://www.mariobd.com/http://www.mariobd.com/