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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



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



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).

MBL’s 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.



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 from April 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).



Financial Analysis

1. Liquidity ratios :( Short term liquidity)

This ration is mainly used to give an idea of the company’s 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 very

significant 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



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 of current 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 of

raw materials and inventory of packaging materials increased considerably in this

period.

2. Solvency/Leverage ratio

Debt-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


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



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 company’s debt to equity ratio remained constant over the

periods .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 is

minimal.

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=


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



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 purchased

a 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 weather

possible financial storms.

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

obligation

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%



Inference

As we can see from the table that the profit remained same throughout the

period 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


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 but

in 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 imports

significant 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



Return on Total Asset

Return on total asset=

Ratio

12 month


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 how

efficient the management is at using its assets to generate earnings

Return dipped slightly in sept 10 from the same period in 2009 but in recent

years 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


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.



Inference:

Despite worldwide economic turmoil and high inflation being all time high in

Bangladesh 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 Ratio

Average age of Inventory

Average age of inventory=



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 lower

compared 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.



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=



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 =





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 6

month period in recent years than its comparable previous years.

Major contributions came from marico’s ace product Parachute hair oil which

contributed greatly to the profit.

The fact that Marico BD Ltd has never declared stock dividend from its inception

and 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 company’s current share price compared to its pre share earnings

Price earnings ratio=


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

(times) 30.97 32.21 55.61 55.35



Inference:

PE ration of Marico BD Ltd has always remained high compared to its competitors

in 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 in

number 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 also

building 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.



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%



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



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 company’s 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/



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