ssrn-3989613
ssrn-3989613
ssrn-3989613
of India
FMCG industry is one of the most important industries of the world. India‟s FMCG sector is
the fourth largest industry in India. It provides employment for more than four million people
in downstream activities. Its principal components are Household care, Personal care
and Food and Beverages. The total F.M.C.G. market is of more than Rs. 200,000
Crore. Its current growth rate is in double digit and is expected to maintain a high
growth rate. The financial performance is an indicator of the overall soundness of a
business concern. In broader sense, financial performance refers to the degree to which
financial objectives have been accomplished. It is a technique of measuring the results
of a firm's policies and operations in monetary terms. It is used to measure firm‟s overall
financial performance over a given period of time. In the current study the overall
financial performance of selected FMCG Companies of India is analysed using Ratio
Analysis and various other statistical techniques. The study takes a fresh look at the
financial performance of the FMCG sector. It will help the future investors to choose a
safe investment and to identify the growth opportunities. The scope of the study is
limited because it is based in secondary data using financial statements and reports
published by the company.
Introduction-
India is one of the largest economies in the world with a population of over one billion,
in terms of purchasing power and consumer spending. A country whose middle class
populace is as big as the entire populace of USA is a market which no FMCG player can
afford to overlook. As the fruits of economic growth become available to the masses and
more people start to move up the economic strata, the Indian market only keeps on growing.
Further, with a population where the median age is only 27, consumerism is on the rise
in India with growing aspiration levels. This has been further aided by government‟s
efforts to expand financial inclusion and creation of social security nets.
The FMCG sector in India has grown at an average of about 11 per cent over the last decade.
India‟s vigorous economic growth and rising household incomes are expected to increase
consumer spending to US$ 4 trillion by 2025.
Rural India accounting for more than 700 million consumers and accounting for 50 per cent
of the total FMCG market, there exists huge opportunity at the so called „bottom of the
pyramid‟. The market in India is unevenly fragmented with half the market being dominated
by unbranded, unpackaged, home-made products, operating mostly in the rural markets.
The Indian FMCG sector is the fourth largest sector of Indian economy with a market size of
US billion. This sector has strong presence of multinational companies and is characterised
by a well-established distribution network. There is intense competition between the
organised and unorganised segments and low operational cost.
Review of literature-
The researcher and financial advisors have observed that profitability is the main factor to
analyse and improve the financial performance of the sector. Many studies have been
conducted in the field of operation and financial performance of FMCG Companies. A brief
review of some of these studies has been presented.
Tawinder and Kaur (2020) in their research paper on “Economic Slowdown: An analysis of
rural distress and informal sector” have laid a massive emphasis on the employability of the
rural population and the informal sector workers who do not have secure jobs and are major
contributors to the consumption of FMCG products. They have included the unemployment
rate of the country in order to find the relation between it and the performance of the index.
Reeti Gaur, Rajinder Kaur (2018) in their research paper on the “Effect of Firm-Specific and
macroeconomic conditions on corporate cash holding: Evidence from FMCG companies in
Beaver (2017) contented that standard financial ratios can predict the financial performance
of firms; many subsequent studies have attempted to demonstrate the predictive value of
various techniques for estimating actual business performance.
Sarvanan and Abarna (2014) conducted study on liquidity analysis of selected FMCG
companies in India using ANOVA. They concluded that there is significant difference among
the absolute liquid ratios of the selected companies.
ITC Limited:
ITC's wholly-owned subsidiary and India‟s leading FMCG Company. It is leader in the
Indian paperboard and packaging industry. It has developed wide-reaching Agri Business in
India and pioneer in farmer‟s empowerment. It also has eminent hotel chain in India. ITC
InfoTech provides digital solution at the global level. ITC's new Consumer Goods
Businesses, during the last few years have established a popular portfolio of 25 world- class
Indian brands that create and retain value in India. Its world class FMCG brands including
Aashirvaad, Sunfeast, Yippee!, Bingo!, B Natural, ITC Master Chef, Fabelle, Sunbean,
Fiama, Engage, Vivel, Savlon, and others have garnered encouraging consumer franchise
within a short span of time. Most of these brands are market leaders in their segments.
RESEARCH METHODOLOGY:
The study is about profitability and financial performance of selected FMCG companies
listed in BSE. The selected Companies for the study are Britannia, HUL and ITC. This study
is based on the secondary data obtained from the Annual reports of these companies for
financial years 2014 to 2019. For more information different Journals and related Websites
are also taken into consideration as and when required for the study. The collected data is
analysed with the help of ratio analysis and ANOVA.
SOURCES OF DATA
The study is based on secondary data. Information required for the study has been collected
from the Annual Reports of Britannia Industries, ITC Ltd, and Hindustan Unilever and
different books, journal, magazines, and data collected from various websites. The study
covers years from 2014 to 2019.
TOOLS APPLIED
In this study various tools: Financial Tools – Ratio Analysis and Statistical Tools (i.e.) Mean
and ANOVA test have been used for data analysis.
Performance appraisal –
Analysing a company‟s profitability is an important part of financial statement analysis.
Profitability of a company measures the ability to earn more. Profitability ratios are classified
into two main categories namely:
Margin Ratio
Rate of Return Ratio.
Margin Ratio: It shows the relationship between Profit and Net Sales.
Gross Margin Ratio: It shows the profit left after meeting the manufacturing expenses. It
also reflects the efficiency of production by a firm.
Gross Margin Ratio = Gross Profit / Sales
The Table.1 depicts that ITC Ltd has the highest Mean Value while Britannia Industries has
lowest Mean Value in comparison to other Companies. Standard deviation of Britannia
Industries is 2.44, the highest while Coefficient of Variation of Britannia Industries is
maximum and ITC Ltd the minimum.
Total 1540.976 14
Above analysis shows that the F-value (188.2573) is more than the table value (3.88529383)
therefore null hypothesis is rejected. Therefore it is concluded that there is significant
relationship between Gross Profit Margin of the above FMCG Companies.
The Table.4 depicts that ITC Ltd has the highest Mean Value while Britannia Industries has
lowest Mean Value in comparison to other FMCG Companies. Standard deviation of
Britannia Industries is 3.48, the highest while Coefficient of Variation of Britannia Industries
is maximum and ITC Ltd the minimum.
Hypothesis:
H0: μ1 = μ2 = μ3 (There is no significant relationship between Operating Profit Margin of
the above Companies)
H1: μ1 ≠ μ2 ≠ μ3 (There is significant relationship between Operating Profit Margin of the
above Companies).
Total 2605.11 14
Above analysis shows that the F value (216.2282) is more than the table value (3.885293835)
therefore null hypothesis is rejected. Therefore it is concluded that there is significant
relationship between Operating Profit Margin of the above FMCG Companies.
Net Margin Ratio: It shows the relationship between Net profit and sales i.e. Profit left for
equity shareholders as a percentage of Net sales.
Table.7. Net Profit Margin (%)
Year Britannia ITC Ltd HUL
Industries
2014 2.92 22.52 11.52
2015 3.66 23.90 11.95
2016 4.23 24.29 14.22
2017 5.79 25.42 13.53
2018 7.39 25.14 13.69
2019 10.10 25.37 12.33
The Table.7 depicts that ITC Ltd has the highest Mean Value while Britannia Industries has
lowest Mean Value in comparison to other FMCG Companies. Standard deviation of
Britannia Industries is 2.69, the highest while Coefficient of Variation of Britannia Industries
is maximum and ITC Ltd the minimum.
Hypothesis:
H0: μ1 = μ2 = μ3 (There is no significant relationship between Net Profit Margin of the
above Companies)
H1: μ1 ≠ μ2 ≠ μ3 (There is significant relationship between Net Profit Margin of the above
Companies)
The Table depicts that HUL has the highest mean in terms of Return on Capital Employed
followed by ITC Ltd and Britannia Industries. The Compounded Annual Growth Rate (CAGR
%) of Britannia Industries is maximum.
Hypothesis:
H0: μ1 = μ2 = μ3 (There is no significant relationship between Return on Capital Employed
of the above Companies)
H1: μ1 ≠ μ2 ≠ μ3 (There is significant relationship between Return on Capital Employed of
the above Companies)
Above analysis shows that the F value (67.64404) is more than the table value (3.885293835)
therefore null hypothesis is rejected. Therefore it is concluded that there is significant
relationship between Return on Investment of the above FMCG Companies.
Earnings per Share (EPS): It shows the relationship between profit after tax and number of
equity shares outstanding
The Table depicts that Britannia Industries has the highest Mean Value while, ITC Ltd has
lowest Mean Value in comparison to other Companies. The Compounded Annual Growth
Rate (CAGR %) of Britannia Industries is maximum followed by ITC Ltd and HUL.
Hypothesis:
H0: μ1 = μ2 = μ3 (There is no significant relationship between Earnings per share of the
above Companies)
H1: μ1 ≠ μ2 ≠ μ3 (There is significant relationship between Earnings per share of the above
Companies)
Table.14. Earnings per Share (EPS) - ANOVA Single Factor
SUMMARY
Groups Count Sum Average Variance
Britannia 5 189.4 37.88 468.182
Industries
ITC LTD 5 53 10.6 3.215
HUL 5 78.9 15.78 7.057
Debt–Asset Ratio: It measures the total Debt of a company as a percentage of its total Capital
Employed.
The Table.17 depicts that Britannia Industries has the highest Mean Value while, ITC Ltd has
lowest Mean Value in comparison to other Companies. The Compounded Annual Growth
Rate (CAGR %) of all FMCG Companies are Negative except HUL.
Hypothesis:
H0: μ1 = μ2 = μ3 (There is no significant relationship between Debt–Asset Ratio of the
above Companies)
H1: μ1 ≠ μ2 ≠ μ3 (There is significant relationship between Debt–Asset Ratio of the above
Companies)
Above analysis shows that the F value (3.942468) is more than the table value (3.885293835)
therefore null hypothesis is rejected. Therefore it is concluded that there is significant
relationship between Debt–Asset Ratio of the above FMCG Companies.
CONCLUSION-
The current study on five leading FMCG companies has been conducted to examine the
profitability, liquidity and sustainability of the Leading FMCG Companies by using Ratio
Analysis during the period 2014 to 2019 (six years). The study reveals that:
In terms of Margin Ratios: Gross Profit, Operating Profit and Net Profit ITC are in the
top position.
In terms of Rate of Return Ratios: Return on Capital Employed HUL is on the top
position.
Structural Ratios include both Leverage and Coverage Ratios, In terms of Leverage
Britannia is in the top position for both Debt Equity and Debt–Asset Ratios.
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