itc project report by manoj kumar[1].roll no 3048
TRANSCRIPT
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A
ON
OF
SUBMITTED IN THE PARTIALFULFILLMENT
FOR THE DEGREE OF MBA (2007-2009)
Submitted to
Miss. Shruti VermaFaculty
H.I.M., Kala-AmbSirmaur(H. P.)
Submitted by
Manoj Kumar
s/o Mr. Navab Singh
Univ. Roll. No. 920Institute Roll No. 3048
Univ. Reg. No. 07-HIM-19
HIMALAYAN INSTITUTE OF MANAGEMENT, KALA-AMB.Under the patronage of Maa Saraswati Educational Trust,( Regd. )
Approved By AICTE, Delhi.(Government of India)Affiliated to- Himachal Pradesh University, Shimla
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ACKNOWLEDGEMEN
TThere is joy in work. There is no happiness except inthe realization that we have accomplished
something
Henry
Ford
The making of any project requires contribution from
many people, right from inception till its completion.
In my case also, there had been a few people who
have made this happen. It was not only learning but
also an enriching experience.
I would like to thank Mr. Shantanu Sarkar (Asst.
Commercial Mng.), Miss Shruti Verma (Faculty, HIM
Kala-Amb),Dr. Vikas Arora(Director, HIM Kala-Amb)
for being a source of inspiration and for the valuable
suggestions provided throughout. His constant
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follow-ups and result orientation ensured that we
successfully meet the deadlines.
I also thank my colleagues and friends for providing
constant encouragement and help. Finally, I am
grateful to my family members for their moral
support and understanding.
MANOJ KUMARMBA
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DECLARATION
I here by declare that the report entitled the study
of estimate the candies industry & identify the
critical success factor under I.T.C. ltd. Saharanpur is
the original work conducted by me, and all the data
in this report are original to the best of my
knowledge and submitted by me for the award of
master of business administration, from Himachal
Pradesh University, Shimla, Himachal Pradesh.
This report is not submitted to any other institute/
university for the award of any other degree of
diploma.
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Manoj kumar
MBA
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PREFACE
Financial analysis is very complex phenomenon and
its proper understanding by each and every
employee and trainees are crucial to attain success
and efficiency in financial operations. This project will
help to understand the financial process of FMCG in
different territories of India. ITC net profit was US $
4.75 Billion (approximately) in year 2007-2008.
As the FMCG scenario is changing very fast and
the market has become highly competitive, ITC has
to rework its marketing strategy oriented to meet
contemporary challenges and yet relating the basic
philosophy of ITC,-Lets put India
First....Citizen First .
This report is based on my training experiences
in Indian Tobacco Company, Limited (ITC,Ltd.)
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Saharanpur. It is an attempt to write M.B.A. training
report.
Manoj KumarMBA
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Table of Contents
Company Overview
Industry profile
Objective of the study
Scope of the project
Executive Summary
Literature review
Project in the company
SWOT analysis of ITC
Research Methodology
Data analysis & interpretation
Findings
Limitations
Suggestions
Conclusion
Bibliography
Annexure
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Companyoverview
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Company Overview: ITC Group
ITC is one of India's foremost private sector companies with a market
capitalization of nearly US $ 15 billion and a turnover of over US $ 4.75 billion.
ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the
World's Most Reputable Companies by Forbes magazine, among India's Most
Respected Companies by BusinessWorld and among India's Most Valuable
Companies by Business Today. ITC also ranks among India's top 10 `Most
Valuable (Company) Brands', in a study conducted by Brand Finance and
published by the Economic Times.
ITC has a diversified presence in Cigarettes, Hotels, Paperboards &
Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery,
Information Technology, Branded Apparel, Greeting Cards, Safety Matches and
other FMCG products. While ITC is an outstanding market leader in its traditional
businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is
rapidly gaining market share even in its nascent businesses of Packaged Foods
& Confectionery, Branded Apparel and Greeting Cards.
As one of India's most valuable and respected corporations, ITC is widely
perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this
source of inspiration "a commitment beyond the market". In his own words: "ITC
believes that its aspiration to create enduring value for the nation provides the
motive force to sustain growing shareholder value. ITC practises this philosophy
by not only driving each of its businesses towards international competitiveness
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but by also consciously contributing to enhancing the competitiveness of the
larger value chain of which it is a part."
ITC's diversified status originates from its corporate strategy aimed at
creating multiple drivers of growth anchored on its time-tested core
competencies: unmatched distribution reach, superior brand-building capabilities,
effective supply chain management and acknowledged service skills in
hoteliering. Over time, the strategic forays into new businesses are expected to
garner a significant share of these emerging high-growth markets in India.
ITC's Agri-Business is one of India's largest exporters of agricultural
products. ITC is one of the country's biggest foreign exchange earners (US $ 2.8
billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian
agriculture significantly enhance its competitiveness by empowering Indian
farmers through the power of the Internet. This transformational strategy, which
has already become the subject matter of a case study at Harvard Business
School, is expected to progressively create for ITC a huge rural distribution
infrastructure, significantly enhancing the Company's marketing reach. ITC's
wholly owned Information Technology subsidiary, ITC Infotech India Limited, is
aggressively pursuing emerging opportunities in providing end-to-end IT
solutions, including e-enabled services and business process outsourcing.
ITC's production facilities and hotels have won numerous national and
international awards for quality, productivity, safety and environment
management systems. ITC was the first company in India to voluntarily seek a
corporate governance rating.
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ITC employs over 21,000 people at more than 60 locations across India.
The Company continuously endeavors to enhance its wealth generating
capabilities in a globalizing environment to consistently reward more than
4,46,000 shareholders, fulfill the aspirations of its stakeholders and meet societal
expectations. This over-arching vision of the company is expressively captured in
its corporate positioning statement: "Enduring Value. For the nation. For the
Shareholder.
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Industry
Profile
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Industryprofile The Indian FMCG
Industry
The Indian FMCG sector is the fourth largest in the economy and has a
market size of US$13.1 billion. Well-established distribution networks, as well as
intense competition between the organised and unorganised segments are the
characteristics of this sector. FMCG in India has a strong and competitive MNC
presence across the entire value chain. It has been predicted that the FMCG
market will reach to US$ 33.4 billion in 2015 from US $ billion 11.6 in 2003. The
middle class and the rural segments of the Indian population are the most
promising market for FMCG, and give brand makers the opportunity to convert
them to branded products. Most of the product categories like jams, toothpaste,
skin care, shampoos, etc, in India, have low per capita consumption as well as
low penetration level, but the potential for growth is huge.
The Indian Economy is surging ahead by leaps and bounds, keeping pace
with rapid urbanization, increased literacy levels, and rising per capita income.
The big firms are growing bigger and small-time companies are catching up as
well. According to the study conducted by AC Nielsen, 62 of the top 100 brands
are owned by MNCs, and the balance by Indian companies. Fifteen companies
own these 62 brands, and 27 of these are owned by Hindustan Lever. Pepsi is at
number three followed by Thums Up. Britannia takes the fifth place, followed by
Colgate (6), Nirma (7), Coca-Cola (8) and Parle (9). These are figures the soft
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drink and cigarette companies have always shied away from revealing. Personal
care, cigarettes, and soft drinks are the three biggest categories in FMCG.
Between them, they account for 35 of the top 100 brands.
THE TOP 10 COMPANIES IN FMCG SECTOR
Hindustan Unilever Ltd.
ITC (Indian Tobacco Company)
Nestle India
GCMMF (AMUL)
Dabur India
Asian Paints (India)
Cadbury India
Britannia Industries
Procter & Gamble Hygiene and Health Care
Marico Industries
The companies mentioned are the leaders in their respective sectors. The
personal care category has the largest number of brands, i.e., 21, inclusive of
Lux, Lifebuoy, Fair and Lovely, Vicks, and Ponds. There are 11 HLL brands in
the 21, aggregating Rs. 3,799 crore or 54% of the personal care category.
Cigarettes account for 17% of the top 100 FMCG sales, and just below the
personal care category. ITC alone accounts for 60% volume market share and
70% by value of all filter cigarettes in India.
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The foods category in FMCG is gaining popularity with a swing of launches by
HLL, ITC, Godrej, and others. This category has 18 major brands, aggregating
Rs. 4,637 crore. Nestle and Amul slug it out in the powders segment. The food
category has also seen innovations like softies in ice creams, chapattis by HLL,
ready to eat rice by HLL and pizzas by both GCMMF and Godrej Pillsbury. This
category seems to have faster development than the stagnating personal care
category. Amul, India's largest foods company, has a good presence in the food
category with its ice-creams, curd, milk, butter, cheese, and so on. Britannia also
ranks in the top 100 FMCG brands, dominates the biscuits category and has
launched a series of products at various prices.
In the household care category (like mosquito repellents), Godrej and Reckitt are
two players. Goodnight from Godrej, is worth above Rs 217 crore, followed by
Reckitt's Mortein at Rs 149 crore. In the shampoo category, HLL's Clinic and
Sunsilk make it to the top 100, although P&G's Head and Shoulders and Pantene
are also trying hard to be positioned on top. Clinic is nearly double the size of
Sunsilk.
Dabur is among the top five FMCG companies in India and is a herbal specialist.
With a turnover of Rs. 19 billion (approx. US$ 420 million) in 2005-2006, Dabur
has brands like Dabur-Amla, Dabur-Chyawanprash, Vatika, Hajmola and Real.
Asian Paints is enjoying a formidable presence in the Indian sub-continent,
Southeast Asia, Far East, Middle East, South Pacific, Caribbean, Africa and
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Europe. Asian Paints is India's largest paint company, with a turnover of Rs.22.6
billion (around USD 513 million). Forbes Global magazine, USA, ranked Asian
Paints among the 200 Best Small Companies in the World.
Cadbury India is the market leader in the chocolate confectionery market
with a 70% market share and is ranked number two in the total food drinks
market. Its popular brands include Cadbury's Dairy Milk, 5 Star, Eclairs, and
Gems. The Rs.15.6 billion (USD 380 Million) Marico is a leading Indian group in
consumer products and services in the Global Beauty and Wellness space.
There is a huge growth potential for all the FMCG companies as the per
capita consumption of almost all products in the country is amongst the lowest in
the world. Again the demand or prospect could be increased further if these
companies can change the consumer's mindset and offer new generation
products. Earlier, Indian consumers were using non-branded apparel, but today,
clothes of different brands are available and the same consumers are willing to
pay more for branded quality clothes. It's the quality, promotion and innovation of
products, which can drive many sectors.
The performance of the industry was inconsistent in terms of sales and
growth for over 4 years. The investors in the sector were not gainers at par with
other booming sectors. After two years of sinking performance of FMCG sector,
the year 2005 has witnessed the FMCGs demand growing. Strong growth was
seen across various segments in FY06. With the rise in disposable income and
the economy in good health, the urban consumers continued with their shopping
spree.
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Objective
s of thestudy
Objective of the study
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To find out that, what is the market position of I.T.C. in FMCG sector.
To find that which kind of products that ITC produced.
To find out financial positions of ITC, like working capital, liquidly ratio and
many more.
To analysis the view of financial need regarding the product.
To find out main factor which influence the financial need of company.
To compare the competitor of the company with the ITC.
Analysis the growth of the company on the base of past and present sales
of the company.
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Scope of
theproject
Environmental Analysis
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Well-established distribution networks, intense competition between the
organized and unorganized segments characterize the FMGC sector.
It is expected to grow by over 60% by 2010. That will translate into an annual
growth of 10% over a 5-year period. It has been estimated that FMCG sector will
rise from around Rs 56,500 crores in 2005 to Rs 92,100 crores in 2010.
Hair care, household care, male grooming, female hygiene, and the chocolates
and confectionery categories are estimated to be the fastest growing segments,
says an HSBC report. Though the sector witnessed a slower growth in 2002-
2004, it has been able to make a fine recovery since then. For example, Indian
Tobacco Company Limited (ITC) has shown a healthy growth in the last quarter.
An estimated double-digit growth over the next few years shows that the good
times are likely to continue.
Growth ProspectWith the presence of 12.2% of the world population in the villages of India,
the Indian rural FMCG market is something no one can overlook. Increased
focus on farm sector will boost rural incomes, hence providing better growth
prospects to the FMCG companies.
Better infrastructure facilities will improve their supply chain. FMCG sector
is also likely to benefit from growing demand in the market. Because of the low
per capita consumption for almost all the products in the country, FMCG
companies have immense possibilities for growth. And if the companies are able
to change the mindset of the consumers, i.e. if they are able to take the
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consumers to branded products and offer new generation products, they would
be able to generate higher growth in the near future. It is expected that the rural
income will rise in 2007, boosting purchasing power in the countryside.
However, the demand in urban areas would be the key growth driver over the
long term. Also, increase in the urban population, along with increase in income
levels and the availability of new categories, would help the urban areas maintain
their position in terms of consumption.
At present, urban India accounts for 66% of total FMCG consumption, with
rural India accounting for the remaining 34%. However, rural India accounts for
more than 40% consumption in major FMCG categories such as personal care,
fabric care, and hot beverages. In urban areas, home and personal care
category, including skin care, household care and feminine hygiene, will keep
growing at relatively attractive rates. Within the foods segment, it is estimated
that processed foods, bakery, and dairy are long-term growth categories in both
rural and urban areas.
The following factors make India a competitive player in FMCG sector:
Availability of raw materials
Because of the diverse agro-climatic conditions in India, there is a large
raw material base suitable for food processing industries. India is the largest
producer of livestock, milk, sugarcane, coconut, spices and cashew and is the
second largest producer of rice, wheat and fruits &vegetables. India also
produces caustic soda and soda ash, which are required for the production of
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soaps and detergents. The availability of these raw materials gives India the
location advantage.
Low cost labor
Low cost labor gives India a competitive advantage. India's labor cost is
amongst the lowest in the world, after China & Indonesia. Low labor costs give
the advantage of low cost of production. Many MNC's have established their
plants in India to outsource for domestic and export markets.
Presence across value chain
Indian companies have their presence across the value chain of FMCG
sector, right from the supply of raw materials to packaged goods in the food-
processing sector. This brings India a more cost competitive advantage
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EXECUTIV
ESUMMARY
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Executive Summary
The project assigned to us was to study the financial health of any
organization in the country. We decided to choose one of Indias biggest
companies in a sector that has rapidly grown over the last few years and a
company where leaders like Mr. Y.C. Deweshwar are made, or rather, a
company that has been made my Mr. Deweshwar
Through this report, we try and analyze the environment in which ITC Limited is
operating.
Through a thorough environment, industry and company analysis, we aim
to understand the external factors influencing the company and its decision
making. Later, we try and evaluate the various ratios to appreciate their impact
on companys performance over the last three years.
A Dupont analysis is also done to check the credibility of company as per
shareholders, financial analysts and other mutual funds.
The financial statements of last three years are identified, studied and
interpreted in light of companys performance. Critical decisions of distributing
dividends, Issue of bonus Debentures and other current news are analyzed and
their impact on the bottom line of the company is assessed.
As a benchmark, we also analyze various components of the company
vis--vis other competitors in the same segment.
Finally, we also study the accounting policy of the company is also studied with
respect to valuation of Fixed Assets, Inventory, Investments and Employee
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related liabilities to end with the amount of Economic Value Added by the players
in that segment for the FY 2007.
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LITERATU
RE
REVIEW
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LITERATURE REVIEW
Literature review means the study of the previous research projects, research
papers, and past researched articles etc. that are already available in the books
or internet. A literature Review has a number of functions:
It provides a theoretical back ground to our study.
Through the literature review we are able to show how our findings have
contributed to the existing body of knowledge in our profession.
It enables us to conceptualize our findings.
Bring clarity and focus in our research problems.
Improve our research methodology.
Broaden our knowledge base in our research area.
Contexceptualise our findings.
In this project various research were done by the researchers, which was
helpful for me to successfully completion of my project. The literature review
gave me the knowledge about the financial analysis of ITC limited, India. These
literatures were available to me in ITC ltd. Saharanpur, Uttar Pradesh.
These followings are some of the literatures survey that I had studied in the ITC,
Saharanpur during my preparation of the project on the topic of financial analysis
of ITC, in India:-
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Financial Research of ITC, by ITC.
Financial Policies of ITC, by Commercial Manager.
Journals in ITC library.
ITCs monthly magazine published by ITC, Saharanpur.
Financial Analysis by V K Bhalla.
PROJECT
IN
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THE COMPANY
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Economic Value Addition
Economic Value Added (EVA), or economic rent, is a widely recognized
tool that is used to measure the efficiency with which a company has used its
resources. In other words, EVA is the difference between return achieved on
resources invested and the cost of resources. Higher the EVA, better the level of
resource unitization.
EVA is calculated as the difference between the Net Profit (after tax but
before interest) less cost of capital employed (equity + debt). Interest is not taken
as an expense since this is part of cost of capital (interest on debt).
There is no mentioning of the economic value added for the company in
the balance sheet. WE therefore try and calculate the EVA with the assumptions
that we take as per the industry trend. We first take a simple regression analysis
to calculate the average values of Kd and Ke by looking at the companies in
the FMCG industry.
Table II
Kd Ke
Estimated Values 5.90% 16.38%
We now calculate the NOPAT and the Cost of Capital as per the following
formula for the three companies for the year 2007. The following table shows the
values.
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Table III
Figures are in Rs. crores ITC Marico HLL
PAT 26,999.70 1,129.10 15,396.70
Interest 32.80 206.00 107.30Tax 0.3124 0.2478 0.1730
NOPAT 27022.25 1284.06 15485.44
We calculate the values of NOPAT for the companies as given above. We
look at the Cost to employ the capital after that.
Table IV
Figures are in Rs. crores ITC Marico HLL
Debt 2,009.00 2,509.70 726.00
Equity 107,541.60 1,923.80 27,234.90
Capital Employed 109,550.60 4,433.50 27,960.90
WaCC 0.1619 0.1045 0.1611
Cost of Capital 17733.85 463.19 4503.91
Finally, we compute the economic value added for the companies for the
year 2007, by calculating the difference between the NOPAT and the Cost of
Capital hence obtained.
Table V
Figures are in Rs. crores ITC Marico HLL
Economic Value Added 9288.41 820.87 10981.53
Thus, we see that all three companies have reported positive economic
value additions; the magnitude of value addition differs for each of the players.
According to the figures hence obtained, Hindustan Lever adds the highest value
to its products and therefore is among the better companies in the FMCG
Industry. It has also been noted in the ratio analysis that HLL is always decently
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scored when compared to the other two companies which are seen at both
extremes.
ITC on the other hand is an equally good company, though; we believe
there are certain areas that ITC Limited can improve its position upon. These
have been mentioned in the Ratio and Du-pont analysis of the company as
shown above in the report.
Finally, Marico is an upcoming company in the FMCG Industry and is
doing pretty well in the industry. The company has reflected tremendous growth
in the return on investment and is also creating a positive economic value. The
company promises to make huge impact on the overall industry and emerge as
one of the leaders of tomorrow.
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Accounting policies
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Accounting Policies
Convention
To prepare financial statements in accordance with applicable Accounting
Standards in India. A summary of important accounting policies, which have
been applied consistently, is set out below. The financial statements have also
been prepared in accordance with relevant presentational requirements of the
Companies Act, 1956.
Basis of Accounting
To prepare financial statements in accordance with the historical cost
convention modified by revaluation of certain Fixed Assets as and when
undertaken as detailed below.
Fixed Assets
To state Fixed Assets at cost of acquisition inclusive of inward freight,
duties and taxes and incidental expenses related to acquisition. In respect of
major projects involving construction, related pre-operational expenses form part
of the value of assets capitalized. Expenses capitalized also include applicable
borrowing costs. To adjust the original cost of imported Fixed Assets acquired
through foreign currency loans at the end of each financial year by any change in
liability arising out of expressing the outstanding foreign loan at the rate of
exchange prevailing at the date of Balance Sheet. To capitalize software where it
is expected to provide future enduring economic benefits. Capitalization costs
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include license fees and costs of implementation / system integration services.
The costs are capitalized in the year in which the relevant software is
implemented for use. To charge off as a revenue expenditure all up gradation /
enhancements unless they bring similar significant additional benefits.
Depreciation
To calculate depreciation on Fixed Assets and Intangible Assets in a
manner that amortizes the cost of the assets after commissioning, over their
estimated useful lives or, where specified, lives based on the rates specified in
Schedule XIV to the Companies Act, 1956, whichever is lower, by equal annual
installments. Leasehold properties are
amortized over the period of the lease. To amortize capitalized software costs
over a period of five years.
Revaluation of Assets
As and when Fixed Assets are revalued, to adjust the provision for
depreciation on such revalued Fixed Assets, where applicable, in order to make
allowance for consequent additional diminution in value on considerations of age,
condition and unexpired useful life of such Fixed Assets; to transfer to
Revaluation Reserve the difference between the written up value of the Fixed
Assets revalued and depreciation adjustment and to charge Revaluation Reserve
Account with annual depreciation on that portion of the value which is written up.
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Investments
To state Current Investments at lower of cost and fair value; and Long
Term Investments, including in Joint Ventures and Associates, at cost. Where
applicable, provision is made where there is a permanent fall in valuation of Long
Term Investments.
Inventories
To state inventories including work-in-progress at cost or below. The cost
is calculated on weighted average method. Cost comprises expenditure incurred
in the normal course of business in bringing such inventories to its location and
includes, where applicable, appropriate overheads based on normal level of
activity. Obsolete, slow moving and defective inventories are identified at the time
of physical verification of inventories and, where necessary, provision is made for
such inventories.
Sales
To state net sales after deducting taxes and duties from invoiced value of
goods and services rendered.
Investment Income
To account for Income from Investments on an accrual basis, inclusive of
related tax deducted at source.
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Proposed Dividend
To provide for Dividends (including income tax thereon) in the books of
account as proposed by the Directors, pending approval at the Annual General
Meeting.
Employee Benefits
To make regular monthly contributions to various Provident Funds which
are in the nature of defined contribution scheme and such paid / payable
amounts are charged against revenue. To administer such Funds through duly
constituted and approved independent trusts with the exception of Provident
Fund and Family Pension contributions in respect of Unionized Staff which are
statutorily deposited with the Government. To administer through duly constituted
and approved independent trusts, various Gratuity and Pension Funds which are
in the nature of defined benefit scheme. To determine the liabilities towards such
schemes and towards employee leave encashment by an independent actuarial
valuation as per the requirements of Accounting Standard 15 (revised 2005) on
Employee Benefits. To determine actuarial gains or losses and to recognize
such gains or losses immediately in Profit and Loss Account as income or
expense. To charge against revenue, actual disbursements
made, when due, under the Workers Voluntary Retirement Scheme.
Lease Rentals
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To charge Rentals in respect of leased equipment to the Profit and Loss Account.
Research and Development
To write off all expenditure other than capital expenditure on Research
and Development in the year it is incurred. Capital expenditure on Research and
Development is included under Fixed Assets.
Taxes on Income
To provide Current tax as the amount of tax payable in respect of taxable
income for the period. To provide Deferred tax on timing differences between
taxable income and accounting income subject to consideration of prudence. Not
to recognize Deferred tax assets on unabsorbed depreciation and carry forward
of losses unless there is virtual certainty that there will be sufficient future taxable
income available to realize such assets.
Foreign Currency Translation
To account for transactions in foreign currency at the exchange rate
prevailing on the date of transactions. Gains/Losses arising out of fluctuations in
the exchange rates are recognized in the Profit and Loss in the period in which
they arise except in respect of imported Fixed Assets where exchange variance
is adjusted in the carrying amount of the respective Fixed Asset. To account for
differences between the forward exchange rates and the exchange rates at the
date of transactions, as income or expense over the life of the contracts, except
in respect of liabilities incurred for acquiring imported Fixed Assets, in which case
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such differences are adjusted in the carrying amount of the respective Fixed
Asset. To account for profit/loss arising on cancellation or renewal of forward
exchange contracts and on maturity or cancellation of options as
income/expense for the period, except in case of forward exchange contracts
and options relating to liabilities incurred for acquiring imported Fixed Assets, in
which case such profit/loss are adjusted in the carrying amount of the respective
Fixed Asset. To account for gains/losses on foreign exchange rate fluctuations
relating to current assets and liabilities at the year end.
Claims
To disclose claims against the Company not acknowledged as debts after
a careful evaluation of the facts and legal aspects of the matter involved.
Segment Reporting
To identify segments based on the dominant source and nature of risks
and returns and the internal organization and management structure. To account
for inter-segment revenue on the basis of transactions which are primarily market
led. To include under Unallocated Corporate Expenses revenue and expenses
which relate to the enterprise as a whole and are not attributable to segments.
Financial and Management Information Systems
To practice an Integrated Accounting System which unifies both Financial
Books and Costing Records? The books of account and other records have been
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designed to facilitate compliance with the relevant provisions of the Companies
Act on one hand, and meet the internal requirements of information and systems
for Planning, Review and Internal Control on the other. To ensure that the Cost
Accounts are designed to adopt Costing Systems appropriate to the business
carried out by the Division with each Division incorporating into its Costing
System, the basic tenets and principles of Standard Costing, Budgetary Control
and Marginal Costing as appropriate.
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Swot
analysisof i.t.c.
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SWOT analysis of ITC
Strengths:
1. Low operational costs
2. Presence of established distribution networks in both urban and rural
areas
3. Presence of well-known brands in FMCG sector
Weaknesses:
1. Lower scope of investing in technology and achieving economies of scale,
especially in small sectors
2. Low exports levels
3. "Me-too" products, which illegally mimic the labels of the established brands.
These products narrow the scope of FMCG products in rural and semi-urban
market.
Opportunities:
1. Untapped rural market
2. Rising income levels, i.e. increase in purchasing power of consumers
3. Large domestic market- a population of over one billion.
4. Export potential
5. High consumer goods spending
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Threats:
1. Removal of import restrictions resulting in replacing of domestic brands
2. Slowdown in rural demand
3. Tax and regulatory structure
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ResearchMethodology
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Research Methodology
What is research-
There are several ways of obtaining answer to your professional question.
Research is one of the ways to find answer to your question
Characteristics of research---
Let us briefly examine these characteristics to understand what they mean-
1. Controlled
2. Rigorous
3. Systematic
4. Valid and verifiable
5. Empirical
6. Critical
Types of research;
There is three type of research.
1)Application research
Pure research
Applied research
2)Objective research
Descriptive research
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Exploratory research
Correlation research
Explanatory research
3)Inquiry mode research
Quantitative research
Qualitative research
Research process;
There are eight step in research process
1. Formulating a research problem.
2. Conceptualizing a research design.
3. Constructing an instrument for data collection .
4. Selecting a sample.
5. Writing a research proposal.
6. Collecting data.
7. Processing data.
8. Writing a research report.
Data Source: In this project report, I have used various types of the data sources from
different section. These data source are as under:-
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Secondary data- in this project report, I have used secondary data from the
sources like different books, report of the company, web site and
magazines.
Reserch instruments- a structured questionnaire helps us in getting the
necessary primary data.
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DATAANALYSES
&INTERPRETATIO
N
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Financial Statement Analysis: ITC Ltd.
1. Ratio Analysis
A) Liquidity Analysis
Working Capital:
Higher the current assets of a company and lower the current liabilities,
greater is the working capital. A larger chunk of working capital can be used to
fund the long term liabilities of the company and therefore, the larger the working
capital, the better it is for the company.
The following table gives the working capital of the three companies under
consideration for the three year period.
Figure I
Working Capital
-15000.00
-10000.00
-5000.000.00
5000.00
10000.00
15000.00
20000.00
25000.00
30000.00
2004-05 2005-06 2006-07
Year
Work
ing
Cap
ita
l
(I
nRs.
Million
)
ITC Marico HLL
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Working Capital Days
Working capital days is defined as the ratio of the working capital to the
current liabilities of the company in any year.
For ITC Limited, the working capital shows more than a proportionate
increase when compared to the current liabilities of the company across the three
years of consideration. This therefore reflects in better liquidity of the company
and is shown by the upward movement of the working capital ratio in the graph
below.
Figure II
Working Capital Days
24540.51
5234.52
17051.91
44619.10
39655.60
34896.80
0.15
0.43
0.55
0.00
5000.00
10000.00
15000.00
20000.00
25000.00
30000.00
35000.00
40000.00
45000.00
50000.00
2004-05 2005-06 2006-07
Year
InRs.Million
0.00
0.10
0.20
0.30
0.40
0.50
0.60
WorkingCapitalDays
Working Capital Current Liabilities Working Capital Days
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Current Ratio:
Current ratio is defined as an indicator of short-term debt paying ability of
a company. It is determined by dividing current assets by current liabilities. The
higher the ratio, it is believed that, the more liquid the company.
Here we observe that the current ratio of ITC is increasing over the three
year period under consideration. This is evident from the graph given below.
Figure III
Current Ratio
44619.10
34896.8039655.60
69350.80
56561.40
40264.80
1.15
1.43 1.55
0.00
10000.00
20000.00
30000.00
40000.00
50000.00
60000.00
70000.00
80000.00
2004-05 2005-06 2006-07
Year
InRs.
Million
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
Curren
tRa
tio
Current Liabilities Current Assets Current Ratio
The reason why the ratio increases mainly is because of a more than
proportionate increase of the Current Assets when compared to the Current
Liabilities.
http://www.forbes.com/tools/glossary/search.jhtml?term=debthttp://www.forbes.com/tools/glossary/search.jhtml?term=current_assetshttp://www.forbes.com/tools/glossary/search.jhtml?term=current_liabilitieshttp://www.forbes.com/tools/glossary/search.jhtml?term=current_assetshttp://www.forbes.com/tools/glossary/search.jhtml?term=current_liabilitieshttp://www.forbes.com/tools/glossary/search.jhtml?term=debt -
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B).Liquidity Ratio:
Liquidity Ratio also measures a firms ability to meet its short-term
financial obligations on time. This is calculated by taking the ratio of the current
assets (less the Inventories held by the company.) The ratio is a better measure
of liquidity of the company. The graph below shows the change in the same
across the last three years.
Figure IV
Liquid Ratio
44619.10
34896.80
39655.60
30004.10
25407.10
14834.00
0.43
0.640.67
0.00
5000.00
10000.00
15000.00
20000.00
25000.00
30000.00
35000.00
40000.00
45000.00
50000.00
2004-05 2005-06 2006-07
Year
InRs.Million
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Liqu
idRatio
Current Liabilities Current Assets (less Inventories) Liquid Ratio
The company has also shown an increasing trend in the liquidity ratio over the
years. The current assets (less inventories) have again increased more than
proportionately reflecting in an increasing liquidity ratio.
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Absolute Cash Ratio: Another measure of the liquidity of the company,
absolute cash ratio measures the ratio of the Cash and Near Cash items in the
current assets to the current liabilities of the company.
According to the graph, the absolute cash ratio follows more or less the
same trend as the other two liquidity measures. The increase again is because of
a more than proportionate increase in the cash items (and near cash items) of
ITC Limited.
Figure V
Absolute Cash Ratio
44619.10
34896.80
39655.60
22755.74
19034.69
8724.20
0.25
0.480.51
0.00
5000.00
10000.00
15000.00
20000.0025000.00
30000.00
35000.00
40000.00
45000.00
50000.00
2004-05 2005-06 2006-07
Year
InRs.Million
0.00
0.10
0.20
0.30
0.40
0.50
0.60
AbsoluteC
ashRatio
Current Liabilities Cash and Near Cash Items Absolute Cash Ratio
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Inventory days:
This measure is one part of the cash conversion cycle, which
represents the process of turning raw materials into cash. The company
possesses raw materials/finished goods as inventories that it can sell off to turn
into cash. It is important to maintain inventories for a company but it is more
important that the company maintains the level of it so that there is no liquidity
crunch on the balance sheet.The inventory days for ITC limited have fallen over
the years. This is because even though the company has maintained a larger
amount of Inventories at the end of every fiscal year so as to cater to the demand
in the following years but the cost of goods sold of the company has gone up but
more than proportionately when compared to the Inventories thereby resulting in
decreasing Inventory days.
Figure VI
Inventory Days
39346.70
25430.80
31154.30
230.49177.07132.79
191.51
175.94
170.71
0.00
5000.00
10000.00
15000.00
20000.00
25000.00
30000.00
35000.00
40000.00
45000.00
2004-05 2005-06 2006-07
Year
InRs.
Million
160.00
165.00
170.00
175.00
180.00
185.00
190.00
195.00
Inven
tory
Days
Inventories COGS per day Inventory Days
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Debtor Days:
This calculation shows the average number of days it takes a company to
receive payment from its debtors, the lower figure the better. A high figure
suggests inefficiency or potential bad debts.
The graph below for the ITC group reflects a fall in the debtor days of the
company. Though, over the period, the total debt to the company has shown an
increase, the sales have risen more than proportionately reflecting in lesser credit
given to buyers.
Figure VII
Debtor Days
7330.40
6209.40
6351.90
543.80452.41372.27
16.68
14.0413.48
0.00
1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
7000.00
8000.00
2004-05 2005-06 2006-07
Year
InRs.Million
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
DebtorDays
Debtors Sales per day Debtor Days
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Creditor Days:
Creditor days is a similar measure to debtor days. It is the average time
that a company takes to pay its creditors from whom it takes goods/raw materials
on credit facility. Lengthening creditor days may mean that a company is heading
for financial problems as it is failing to pay creditors, on the other hand it may
mean that a company is simply getting better at getting good credit terms out of
its suppliers.
ITC Group is doing well in terms of creditor days. The company pays off
its debts at regular intervals and does not try to accumulate them that could lead
to payment problems in the future. Though the amount of credit given to the
company as increased over the years, the company has registered a higher
growth rate in the sales per ay and therefore the cost of the goods sold.
Figure VIII
Creditor Days
25486.50
20413.50
22820.60
230.54177.07132.79
153.73
128.88 110.55
0.00
5000.00
10000.00
15000.00
20000.00
25000.00
30000.00
2004-05 2005-06 2006-07
Year
InRs.Million
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00
CreditorDays
Creditors COGS per day Creditor Days
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Debt-Equity Ratio:
The debt-to-equity ratio offers one of the best pictures of a company's
leverage. The higher the figure, the higher is the leverage the company enjoys.
Mathematically, it is defined as the ratio of the total debt to the total equity of the
company under consideration at any point of time.
Over the last three years, ITC Limited has shown a mix-match of the debt-
equity ratio. This is evident from the graph below that the company paid off a
significant part of its loan in the FY 06, but again went in for commercial
borrowings in the form of long term loans which resulted in an increase in the
debt to the total equity available with the company.
Figure IX
Debt-Equity Ratio
2009.002469.80
1466.80
107541.60
93032.10
80025.70
0.0309
0.0158
0.0187
0.00
20000.00
40000.00
60000.00
80000.00
100000.00
120000.00
2004-05 2005-06 2006-07
Year
InRs.
Million
0.0000
0.0050
0.0100
0.0150
0.0200
0.0250
0.0300
0.0350
Debt-EquityRatio
Debt Equity DER
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Interest Coverage Ratio:
The interest coverage ratio is a measurement of the number of times a
company could make its interest payments with its earnings before interest and
taxes. Lower the ratio, higher is the companys debt burden. This is measured as
the ratio between the profit before interest and taxes to the interest amount paid
that year.
The graph below shows the interest coverage ratio of ITC Limited over the
three year period. It is observed that ITC has reported a gradual and continuous
increase in profit over the last three years of operation. Also, the companys
interest amount has gone down significantly over the last three years. This has
resulted in a two way push in the figure for Interest coverage ratio, which is
measured as shown above.
Interest Coverage Ratio
39299.80
27155.00
32811.20
32.80119.30424.3064.00
275.03
1198.16
0.00
5000.00
10000.00
15000.00
20000.00
25000.00
30000.00
35000.00
40000.00
45000.00
2004-05 2005-06 2006-07
Year
InRs.
Million
0.00
200.00
400.00
600.00
800.00
1000.00
1200.00
1400.00
InterestCoverageRatio
PBIT Interest Interest Coverage Ratio
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Debt to Total Funds:
The ratio here is self explanatory and measures the share of the debt to
the total capital employed (funds) in the company. Capital employed for this
purpose, we define as, the amount of long term liabilities of the company, which
comprises of loans and owners fund (which includes capital and reserves.)
The diagram below shows the debt share in the total capital employed in ITC
limited. The total funds in the organization have been on the up and this
contribution is entirely due to the profits that the company is accumulating during
the years. The company over the three year period has done away with part of
the loans and has possibly substituted a part of the same for cheaper ones. This
cumulative effect results in an increase in the capital employed in the company
and hence a lower debt share.
Debt Ratio
109550.60
82495.50
94498.90
2009.001466.802469.80
0.030
0.016
0.018
0.00
20000.00
40000.00
60000.00
80000.00
100000.00
120000.00
2004-05 2005-06 2006-07
Year
InRs.
Million
0.000
0.005
0.010
0.015
0.020
0.025
0.030
0.035
De
btRa
tio
Total Funds Debt Debt Rat io
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C) Profitability
PBIT (Operating Income) to Sales:
The ratio between the profit before interest and taxes (equal to the
operating income, in our case) to that of the sales for the given period during
which the profit has been earned is a measure of the profitability of the company
for that period.
As reported earlier, ITC Limited has done well in the last few years and
has continuously reported higher and higher profit every subsequent time. The
sales of the company have also experienced a similar trend that has led to the
expansion of profit. Because the growth in the two components has nearly been
equal, the ratio between them has not changed significantly. It has marginally
dropped from 20% to about 19.8% .
ROTA
154169.70
117392.30
134154.50
39299.80
32811.2027155.00
0.231
0.245
0.255
0.00
20000.00
40000.00
60000.00
80000.00
100000.00
120000.00
140000.00
160000.00
180000.00
2004-05 2005-06 2006-07
Year
InRs.Million
0.215
0.220
0.225
0.230
0.235
0.240
0.245
0.250
0.255
0.260
ROTA
Total Assets PBIT ROTA
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Earnings per share: (EPS):
Earnings per share, as it is called, are a company's profit after tax (PAT)
divided by its number of outstanding (equity) shares. It is therefore measured as
the portion of a company's profit allocated to each outstanding share of common
stock. EPS serves as an indicator of a company's profitability.
The PAT (profit after tax or earnings) for ITC Limited has risen by over
23% in the last three years of operation. It is to be noted that there was a stock
split in the year 2005-06 due to which the face value of the shares changes from
Rs. 10/- per share to from Rs. 1/- per share. As a result, the number of shares
changed from 248,221,329 in 2004-05 to 3,762,222,780 in 2006-07.
EPS
0.883
0.072
0.060
0.000
0.200
0.400
0.600
0.800
1.000
2004-05 2005-06 2006-07
Year
EPS
ITC
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Dividend per share:
Dividend is defined as the amount of profit that is distributed among the
shareholders of the company. Declaration of this is dependent solely on the
decision of the management, whether they want to retain it for reinvestment or
distribute to the shareholders, the actual owners of the company. The total
interim dividend divided by the number of equity shares of the company
measures the dividend per share in our case.
As mentioned earlier, there was a stock split for ITC Limited in the year
2005-06 that resulted in more than a 10 fold increase in the number of equity
shares in the market. Even though the distributed dividend increased over the
last few years continuously, the dividend per share fell drastically for the
company in 2005-06 to rise again in 2006-07.
DPS
0.312
0.031
0.026
0.000
0.050
0.100
0.150
0.200
0.250
0.300
0.350
2004-05 2005-06 2006-07
Year
DPS
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D) Market Based Returns
Price-Earning Ratio (PER):
Price-Earnings ratio is a measure of the price paid for a share relative to
the income or profit earned by the firm per share. A higher P/E ratio means that
investors are paying more for each unit of income.
The market value of the shares after the stock split has shown
tremendous response from the market. From a figure of about Rs. 90/- in the
market in 2004-05, the share traded at Rs. 150/- at the end of 2006-07. Also, the
earnings per share, as a result of the split have fallen down drastically to thereby
reduce the earnings per share in the last two years. Therefore, a two way
positive movement has resulted in almost a 2000% increase in the P-E ratio for
the company
Market Capitalization: The market capitalization of the company is defined
as the market value of the number of equity shares being traded in the market at
that point of time.
It is evident from the graph below that the market capitalization for the
company has increased during the last three years by about 70%. This increase
can be owed to an increase both in the market value of shares as also a split in
the shares resulting in a higher number of shares traded in the market. The fall in
the capitalization from FY 2006 to FY 2007 is a result of the fall in market value
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of the shares and a lesser magnitude of demand for the same in the open
market.
Financial Statement Analysis: Inter CompanyRatio Analysis
A) Liquidity Analysis
Working Capital: Higher the current assets of a company and lower the current
liabilities, greater is the working capital. A larger chunk of working capital can be
used to fund the long term liabilities of the company and therefore, the larger the
working capital, the better it is for the company.
The following table gives the working capital of the three companies under
consideration for the three year period.
Figure XXV
Working Capital
-15000.00
-10000.00
-5000.00
0.00
5000.00
10000.00
15000.00
20000.00
25000.00
30000.00
2004-05 2005-06 2006-07
Year
Work
ing
Cap
ita
l
(In
Rs.
Million
)
ITC Marico HLL
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It is evident that ITC is by far the best company (among the three) in terms of
building up its net current assets. The company is increasingly using its short
term funds to pay for the long term liabilities. HLL on the other hand is
deteriorating in quality and is gradually getting overburdened by increasing
pressures due to a negative working capital.
Working Capital Days:
A comparative analysis across other companies in the FMCG segment shows
that HLL has worsened its working capital ratio. In fact, the company has
increased the magnitude of the negative working capital because of which a part
of the long term assets are used to fund the short term liabilities. Marico on the
other hand, has shown a marginal increase in the working capital ratio and still
leads ITCs working capital ratio by over 50%.
Working Capital Days
0.55
0.15
0.43
0.820.56
1.02
-0.25-0.27
-0.05
-0.40-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
2004-05 2005-06 2006-07
Year
Work
ing
Cap
ita
lDays
ITC Marico HLL
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Current Ratio:
The reason why the ratio increases mainly is because of a more than
proportionate increase of the Current Assets when compared to the Current
Liabilities.
The graph below shows the comparison of ITC vis--vis the other two
competitors chosen in the market. We observe that in the year 2004-5, Marico
had the best Current Ratio but gradually, with a rapid growth in the current assets
of ITC, it has come at par with the leaders with the falling trend in the industry (as
shown by the other two companies) in the sector.
Current Ratio
1.15
1.431.55
2.02
1.56
1.82
0.950.73 0.75
0.00
0.50
1.00
1.50
2.00
2.50
2004-05 2005-06 2006-07
Year
R
atio
ITC Marico HLL
Liquidity Ratio-
Also, when compared to the companies, while the current ratio for Marico and
ITC converges, the gap is more or less the same for liquidity ratio. This implies
that the company as been maintaining a huge amount of inventories (unlike
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Marico, whose inventory amount is almost constant) that form a part of the
companys current assets. The graph below defines the analysis presented here.
Absolute Cash Ratio:
Marico reflects a phenomenal growth in possessing liquid assets to finance its
current liabilities. Though, it is to be noted that ITC too shows a more than 100%
increase in the absolute ratio. The company is catching up with the leader
(among the three) and is therefore on a good growth path.
Inventory days:
The following graph gives a comparative performance of the company in the
sector. Both HLL an ITC have experienced a fall in the inventory days due to
larger sales and larger cost of the goods sold. Also, both companies have
maintained a larger and larger stock of inventories over the three year period,
every subsequent year. Marico on the other hand has shown more that a 50%
increase in sales in the three tear frame but has still maintained almost the same
amount of inventories every year for its operations
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Debtor Days:
A comparative analysis of the figure under consideration shows that the debtor
days in the industry have a downward trend and ITC is no exception. Companies
like HLL and Marico have shown a more significant fall in the figure owing both to
increasing sales and lesser comparative credit given.
Figure.
Debtor Days
13.48
16.68
14.04
9.68
15.8316.92
12
15.5415.93
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
2004-05 2005-06 2006-07
Year
De
btor
Days
ITC Marico HLL
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Creditor Days:
Comparatively, ITC has done very well in the FMCG industry. While the other two
companies have registered higher growth in the sales per day of the goods, ITC
has cut its costs significantly and has maintained low creditors on the other hand
to reflect in lower creditor days for the company
Creditor Days
110.55
153.73
128.88138.98
84
54.5
176.56177.27176.52
0.00
20.00
40.00
60.00
80.00
100.00
120.00140.00
160.00
180.00
200.00
2004-05 2005-06 2006-07
Year
CreditorDays
ITC Marico HLL
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B) Solvency Analysis
Debt-Equity Ratio:
Across the industry, it has been observed that there is a similar sort of a mix and
match. While HLL funds its operations from lower and lower loans every year,
Marico feels that a tradeoff between usage of capital and usage of loans needs
to be done. Increasingly, the latter is funding its operations through more and
more debt, possibly because of a lesser cost of the same.
The graph below interprets the results written above.
Interest Coverage Ratio:
ITC Limited is by far the biggest gainer in terms of the interest coverage ratio.
While HLL also intends to be a self funded company by letting off its loans from
the open market, ITC follows somewhat the same strategy thereby leading to an
increment in the Interest coverage for both. Also, while the increase in the
interest coverage for HLL is about 1287%, the ITC Group shows a fabulous
1772% increment in the interest coverage ratio in three years. On the other hand,
Marico Limited uses more and more debt to fund its operation resulting in a lower
interest coverage ratio when compared to oneself two years back!
Debt to Total Funds:
Comparatively, HLL, also a very big organization with a significant time period of
existence in the market gets self funded and thereby has let go off its debt in the
three years. This has reflected in a lower debt share for the company.
Conversely, Marico, an upcoming organization is constantly borrowing money
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from the market, at a rate that is faster than the accumulation of profits (even
though it is doing well in terms of creating wealth for the shareholders, increasing
profit.) Graphically, this is depicted below.
Reserves to Total Fund:
While ITC has shown an increment in the reserves share to the capital employed,
old companies in the market are also picking up the same trend. HLL is gradually
using more funds of its own to run its operations. On the other hand, a relatively
new organization, Marico has increased the share of debt to acquire a larger
position in the market and get more capital.
Debt Service Ratio:
Across companies, ITC and HLL follow the same trend in the form of the pattern
followed for the debt service ratio. Both companies have been reporting large
profits and have been letting go of the loans taken from the free market to make
them a more self funded organization. Marico on the other hand reflects a falling
debt service due to a more than proportionate increase in the debt when
compared to the profit for that year.
C) Profitability
PBIT (Operating Income) to Sales:
Other companies in the segment have experienced a similar trend in the ratio
defined above. While for Marico, the ratio rose from 7.6% to about 11%, the PBIT
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figure for HLL is about 14.25% of the Sales. Overall, ITC has the highest return
on the investment, if measured by this parameter.
Earnings per share: (EPS):
The earnings per share of ITC and Marico and ITC have drastically fallen over
the last three years. This is because there has been a stock split in both cases
that has brought down the face value of the shares in the market resulting
thereby in an increment in the number of equity shares available for trade.
Therefore, despite an increase in the total earnings offered by the company, the
earnings per share fall drastically. On the other hand, the number of shares of
HLL in the market remains steady and the earnings (PAT) increases every year.
This therefore results in an increment in the earnings when considered in per
share terms.
EPS
0.0720.883
0.060 1.854
14.979
12.095
6.977
6.153
5.448
0.000
2.000
4.000
6.000
8.000
10.000
12.000
14.000
16.000
2004-05 2005-06 2006-07
Year
EPS
ITC Marico HLL
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Dividend per share:
ITC Limited and Marico over the last few years have experienced a huge fall in
the dividend distributed per share because of reasons mentioned above. The
earnings per share for the third company, HLL, shows an increase in the dividend
distributed per share owing to the increasing dividend paid by the management
to the shareholders.
DPS
0.0310.312 0.026 0.641
6.200
5.350
2.999
2.500
2.500
0.000
1.000
2.000
3.000
4.000
5.000
6.000
7.000
2004-05 2005-06 2006-07
Year
DPS
ITC Marico HLL
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D) Market Based Returns
Price-Earning Ratio (PER):
The industry has altogether shown an increase in the Price-Earnings ratio. It is
observed that in the last three years, the value of P/E has risen for all the three
companies, whether or not the company has gone in for a stock split. Among the
three, Marico has experienced the highest increment in the ratio (in absolute
terms), after ITC Limited itself.
Market Capitalization:
Across companies too, the market capitalization has shown a net increase
representing a good growth component in the sector and the confidence of the
buyers who continue to buy the stocks of such companies. HLL and Marico have
consistently shown an increase in the market capitalization for the years under
consideration. This is graphically depicted as below.
Price Book Ratio:
Across companies, ITC Limited rates poorly for the Price Book Ratio. In fact,
while Marico shows a stupendous performance for the three years reflecting a
2887% increase in the PB ratio, ITC reports only a meager 26% increase. Also,
HLL reports a 16% increment in the ratio, but still manages to hold its position at
the second level pushing ITC to the lowest figure in the industry when compared
across the other two companies.
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ROCE =
0.36
OperatingDecision
=0.198
Investmen
t Decision= 1.29
Financing
Decision= 1.41
COGS /
Sales =0.42
Operating
Expenses/ Sales =
0.36
Depreciation / Sales
= 0.02
Sales /Fixed
Assets =3.32
Sales /
Inventory= 5.04
Sales /
Debtors =27.07
Sales /Other
currentAssets =
8.75
Total
Assets /Debt =
0.01
TotalAssets /
Networth= 0.70
Du-Pont AnalysisFigure XLIX
The above diagram shows the Du-pont analysis for ITC limited for the year 2006-
07. The return on the capital employed (ROCE) as per the calculation shown
above is about 36%. This can be broken down into Operating decision ratio,
PBIT/Sales, Investment decision ratio, Sales/Total Assets and Financing decision
ratio, Total Assets/Capital employed.
Further, each of the decisions can be broken down to arrive at the sub-segment
wise ratio. The company can cut its expenses wherever the ratio is very high
when compared to the other FMCG industries in the country so as to economize
its operations/financing/investments. The macro level analysis along with a part
of the micro level analysis has been done earlier. We now look at the values that
we find out after putting them in a table to make a comparative study.
Table I
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Values for 2006-07 ITC Marico HLL
COGS/Sales 0.42 0.53 0.49
Operating Expenses/Sales 0.36 0.35 0.36
Depreciation/Sales 0.02 0.03 0.01
Sales/Fixed Assets 3.32 7.40 8.86
Sales/Inventories 5.04 7.93 8.65
Sales/Debtors 27.07 37.71 30.41
Sales/Other Assets 4.16 5.60 3.51
Total Assets/Debt 76.74 2.89 100.81
Total Assets/Capital 40.98 11.92 33.17
Total Assets/Reserves 1.49 5.52 2.92
From the table above, we see that the COGS/Sales of all the companies under
consideration are about the 50% mark. Though, ITC lags behind its competitors
on this parameter. What ITC needs to do is reduce the cost of consumption of
goods that it buys as raw materials from the market. It has to make bulk
purchases and needs to increase its negotiating ability through a stronger
purchase team.
Operating Expenses/Sales is almost the same for all the three competitors and
therefore ITC is using the best practice here for the operational expenses.
Depreciation/Sales is also at a negotiable level for the company. In fact, the
company holds a better position when compared to Marico. The company can
still try and assume a greater life cycle, if possible, for its machinery and other
fixed assets to come at par with the other leading competitors in the domain for
the segment.
The company maintains a high amount of fixed assets that accounts for the high
depreciation. This is reflected here by the small value of Sales/Fixed Asset as
reflected by the companys balance sheet.
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The company also has a policy of maintaining a larger stock of inventories than
its other competitors. This is reflected in the low amount of Sales/Inventories that
the company possesses.
The company maintains a low figure for Sales/Debtors which is a good sign. The
company should make sure that such kind of an advantage over others is
maintained.
Sales/Other Assets for the company is at a medium level. The company should
try and take measures to overtake the leader by reducing the amount of other
assets maintained or conversely increasing the sales of the company if such
levels of assets are to be maintained.
Reserves are the liability of the company. ITC Limited maintains a low level for
the Total Assets to Reserves ratio thereby implying a larger reserve than
required. The company should pay off the reserves to the shareholders so as to
move towards the better circle of companies performing the best in the industry.
The higher the figure for the Total Assets to Debt, the better is the company. A
larger debt implies a larger inability on part of the company to pay off its debtors.
A larger level of fixed assets can fund the payment of debt if the current assets of
the company cannot help in funding the same.
Similarly, the company scores very well for the ratio of the Total Assets to Capital
and needs to continue to maintain such high standards.
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Limitations
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LIMITATIONS
1. Retail showrooms of the company are very less in Saharanpur NCR region.
2. Management trainee have been visited before so that customer did not so
much interest
3. Satisfaction level of customer of rural area is very much less.
4. Company have multi product but not up to standard of all class.
5. Due to the short span of time and some other reasons,the study has been
confined to limited number of dealers.
6. These finding are based on the opinion of the respond and we can not that
whatever they have expressed is fully reliable.
7. Company should require regularly survey regarding the changing behaviour
of customers and contractor.
8. Company should arrange the meeting with dealers time to time.
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suggestion
s
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Suggestions
Increase the % of the profit of the retailers
Company should arrange the meeting with dealers time to time.
Company should have increase the advertisement because it has impact
on the customer buying behavior.
Company should require regularly survey regarding the changing
behavior of customers and dealers.
Make nonexclusive dealers.
Reduce the price of the products.
Increase the quality of the shop, shampoo.
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conclusio
n
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Conclusion
Most of us in India have yet to understand the essence of marketing service.
We are still largely in are of production marketing, and a long way of from the era
of ideas marketing. And since we are on the threshold of the service marketing
era, a great deal of work still need to be done to the marketers to understand .So
that on the base of above study that as we all know no doughty that ITC is
eminent brand and giving their service different industry Indian FMCG sector
has great contribution in Indian economy and ITC played a vital role growth of it.
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bibliograph
y
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Bibliography
BOOKSFinancial Management By V. K . Bhalla
Financial Management By I . M. Pandey
Financial Management By. Shashi K. Gupta
INTERNET WEBSITES
http://www.cmie.com/
http://www.naukrihub.com/india/fmcg/
http://www.itcportal.com/
http://www.hulindia.com/
http://www.maricoindia.com/
NEWS PAPERS & MAGAZINES
Economic Times
Financial World
Business Line
The Hindu
Indian Journal Of Finance
Finance & Economy
Business Today
http://www.cmie.com/http://www.naukrihub.com/india/fmcg/http://www.itcportal.com/http://www.hulindia.com/http://www.maricoindia.com/http://www.cmie.com/http://www.naukrihub.com/india/fmcg/http://www.itcportal.com/http://www.hulindia.com/http://www.maricoindia.com/ -
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appendix
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AppendixCondensed Financial Statements
Table VI
Balance Sheet 2006 2005 2004
Capital 3,762.20 3,755.20 2,494.30
Reserves 103,779.40 89,276.90 77,531.40
LTL 2,009.00 1,466.80 2,469.80
CL 44,619.10 39,655.60 34,896.80
Total 154,169.70 134,154.50 117,392.30
Fixed Assets 59,760.00 47,612.10 43,836.20
Investments 25,058.90 29,981.00 33,291.30
CA 69,350.80 56,561.40 40,264.80
Total 154,169.70 134,154.50 117,392.30
Table VII
Income Statement 2006 2005 2004
Sales 198,415.40 165,105.10 135,853.90
COGS 84,128.90 64,631.50 48,468.90
Operating Expenses 71,357.50 64,339.00 57,101.30
Depreciation 3,629.20 3,323.40 3,128.70PBIT 39,299.80 32,811.20 27,155.00
Interest 32.80 119.30 424.30
PBT 39,267.00 32,691.90 26,730.70
Tax 12,267.30 10,338.40 4,816.70
PAT 26,999.70 22,353.50 21,914.00
Table VIII
Cash Flow Statement
2006 2005 2004
Opening CIH 9,779.40 1,277.00 1,098.80
CFF -10,549.00 -9,637.70 -4,816.60
CFI -10,841.50 -2,827.70 -10,953.60
CFO 22,476.10 20,966.10 15,872.00
Closing CIH 10,865.00 9,777.70 1,200.60
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Thank you !!