ABSTRACT
In this paper, an attempt has been made to examine the financial performance of two leading FMCG companies in India – NIRMA LTD. and DABUR INDIA, over a period of FIVE years (2006-07 to 2010-11). FMCG sector in India has been experiencing a phenomenal pace of growth since last decade, thanks to increasing consumer incomes and rapidly changing consumer tastes and preferences. Large scale and low cost production, modern retailing strategies, branding and maintenance of intense distribution network have given FMCGs an edge over others in raising hovering revenues. In this study, I have used various accounting ratios and statistical tools. The results reveal that though Nirma Ltd. is passing through hard times in terms of profitability, Dabur India is enjoying its enhanced performance and continuous growth in the sector.
KEYWARD: NIRMA LTD. DABUR INDIA, Liquidity Analysis, profitability Analysis Etc.
INTRODUCTION TO FMCG COMPANIES
The Fast Moving Consumer Goods (FMCG) industry primarily deals with the production, distribution and marketing of consumer packaged goods, i.e. those categories of products that are consumed at regular intervals. Examples include food & beverage, personal care, pharmaceuticals, plastic goods, paper & stationery and household products etc. The industry is vast and offers a wide range of job opportunities in functions such as sales, supply chain, finance, marketing, operations, purchasing, human resources, product development and general management.
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In India, the FMCG industry is the fourth largest sector with a total (organized) market size of over US$15 billion in 2007, as per ASSOCHAM, and can be classified under the premium and popular segments. The premium segment (25%) caters mostly to the higher/upper middle income consumers while the price sensitive popular or mass segment (75%) consists of consumers belonging mainly to the semi-urban or rural areas who are not, and cannot afford to be, brand conscious. The market growth over the past 5 years has been phenomenal, primarily due to consumers’ growing disposable income which is directly linked to an increased demand for FMCG goods and services. Indeed, it is widely acknowledged that the large young population in the rural and semi-urban regions is driving demand growth, with the continuous rise in their disposable income, life style, food habits etc. On the supply side, the wide availability of raw materials, vast agricultural produce, low cost of labor and increased organized retail have helped the competitiveness of players.
FMCG sector in India play a very important role in economy. It is the fourth largest sector in our economy with a market size of more than US$ 13.1 billion. It has a strong MNC presence and is characterized by a well established distribution network, intense competition between the organized and unorganized segments and low operational cost. There are more comparative advantage to FMCG companies in India as raw material availability, cheaper labour cost, and presence across the entire value chain. FMCG companies are among the top contenders that pursue the brand positioning process to establish their products in the market. Despite recent inflationary pressures and price hikes, various FMCG companies continued their growth momentum through product diversification and introducing new variants of the existing products. Moreover the FMCG companies are also successful in passing on the increasing cost to consumers through a well-thought-out blend of price hikes, reduction in packaged size and alternative product mix. The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015.
OBJECTIVES
With keeping in view the importance of FMCGs in India’s economic and social development, the study generally aims at evaluating the financial performance of the two leading FMCG companies – Britannia Industries and Dabur India, over a period of 10 years (2000-01 to 2009-10). The specific objectives of the study are:
To study the profitability and liquidity trend of the selected FMCG companies.
Comparative analysis of the selected companies based on the given ratios.
To analyze the factors determining the behaviour of profitability and liquidity.
METHODOLOGY
The study covers two leading companies in the FMCG segment – Nirma Ltd. and Dabur India. The relevant data have been collected from secondary sources like, Economic Survey, Statistical Abstract India, Monthly Review of the Indian Economy by Centre for Monitoring Indian Economy (CMIE), Prowess Database of CMIE and Reserve Bank of India (RBI) Monthly Bulletin and Annual reports of the respective companies. In order to analyze profitability and liquidity of the selected FMCG companies, various accounting ratios and statistical tools have been used. The study has been undertaken for a period of 5years from 2006-07 to 2010-11.
ANALYSIS AND FINDINGS This section deals with behaviour of profitability and liquidity of the selected FMCG companies using accounting and statistical measures.
PROFITABILITY ANALYSIS
Profitability analysis shows how efficiently the firm is applying its resources to get the maximum returns. In the present study, the following ratios have been selected for analyzing profitability of Nirma ltd. and Dabur India.
Earning ratio/ Net Profit margin ratio:
Earnings ratio/
Net profit margin (NPM)
=
Net Profit
X 100
Sales
Capital Turnover ratio
Capital Turnover ratio (CTR)
=
Sales
Capital employed
Return on Investment
Return on Investment (ROI)
=
Net Profit
X
Sales
Sale
Capital Employed
Or
Return on Investment (ROI)
=
Net Profit
Capital employed
Return on Shareholders’ Equity (ROSE)
Return on Shareholders’ Equity (ROSE)
=
Net profit Available for Equity Shareholders
Equity Shareholders fund
TABLE 1
PROFITABILITY RATIOS OF NIRMA LTD
Year
NPM %
CTR (times)
ROI %
ROSE %
2006-07
4.29
0.9
6.73
4.75
2007-08
8.66
0.8
6.06
9.04
2008-09
2.78
1.2
5.11
4.94
2009-10
7.14
1.2
7.97
8.69
2010-11
2.11
1.2
3.57
4.22
Source; Annual reports
TABLE 1I
PROFITABILITY RATIOS OF DABUR INDIA
Year
NPM %
CTR(times)
ROI %
ROSE %
2006-07
13.55
4.11
51.93
61.56
2007-08
13.92
4.76
66.25
55.31
2008-09
13.83
4.08
56.20
48.29
2009-10
14.72
4.01
58.77
53.74
2010-11
13.85
2.14
29.66
44.72
Source; Annual reports
There was a steep fall in NPM of Nirma ltd. in 2008-09 (table 1) and again in 2010-11, the NPM plunges down to 2.11%, which is the lowest ever in last 5 years, indicating that the company is going through rough weather. Consequently, ROI was also affected which also recorded its lowest ever 3.57% in 2010-11, during last 5 years. However, the company was able to maintain satisfactory CTR, though ROSE of NIRMA Ltd. is much lower than Dabur India. On the other hand, it has been found that in spite of global economic recession in recent past, dabur india (table 2) sustained a good NPM, ROI and ROSE, which is far better than Nirma Ltd. Even, dabur india was capable to boost its ROI averagely 60.00% except 2010-11.
LIQUIDITY ANALYSIS
Liquidity means the ability of a firm to meet its current obligations. Adequate liquidity indicates sound financial position of a firm while insufficient liquidity reflects poor credit worthiness. The following ratios have been analyzed and interpreted to assess the liquidity position of Britannia Industries and Dabur India for the present study:
Current ratio;
CURRENT RATIO
=
Current Assets
Current Liabilities
Quick ratio
QUICK RATIO
=
Quick Assets
Current Liabilities
Super Quick ratio
SUPER QUICK RATIO
=
Cash + Bank
Current Liabilities
Debt Equity ratio
DEBT EQUITY RATIO
=
External Debt
Shareholders’ fund
TABLE: 3
LIQUIDITY RATIOS OF NIRMA LTD.
YEAR
CR
QR
SQR
DER
2006-07
3.91
2.48
.19
.13
2007-08
3.41
1.97
.18
.50
2008-09
3.77
2.34
.43
.65
2009-10
3.54
2.26
.27
.46
2010-11
3.82
2.35
.17
.43
Source; Annual reports
TABLE: 4
LIQUIDITY RATIOS OF DABUR INDIA
YEAR
CR
QR
SQR
DER
2006-07
1.41
.84
.13
.33
2007-08
1.05
.64
.10
.16
2008-09
1.17
.71
.18
.27
2009-10
1.20
.73
.21
.19
2010-11
1.27
.78
.19
.75
Source; Annual reports
The standard for current ratio is 2:1. In Nirma ltd. the current ratio is better than the current ratio in Dabur India. It is said that the creditors of Nirma Ltd. is more safe than the creditors of Dabur India during the study period. In the case of quick ratio the condition of Nirma Ltd. is better than the condition of Dabur India because the paying capacity to creditors on quick ratio base is better in Nirma Ltd. Nirma ltd. able to maintain more satisfactory CR (table 3) during the study period and QR was slightly more than one (1.97 to 2.48) during the study period,.SQR ranged between 0.17 and 0.43. The der was below one for the entire study period. This implies better short term and long term liquidity position of the firm, though CR and QR need to be improved. CR of Dabur India (Table 4) varied between 1.05 and 1.41. QR was between 0.64 and 0.84,. DER was less than one, throughout the study period. Thus, in order to enjoy healthy long term liquidity condition, both Nirma and Dabur India continued to keep DER below one.
CONCLUSION
The year 2010-11 witnessed unprecedented commodity inflation, particularly in sugar, wheat and milk products, coupled with a fiercely competitive environment. This adverse economic scenario and harder competition in the sector had a high adverse impact on margins and profitability of Nirma ltd. A steep fall in NPM and ROI indicates tough times for the company in the coming days. Moreover, the company also needs to improve its short term liquidity situation. On the contrary, Dabur India continued to ride on its growth path by maintaining good NPM, ROI and ROSE even during the period of global economic recession. In 2009-10, Dabur India was capable to boost its ROI and ROSE by more than 6.00%.. But, it is suggested that Dabur India should marginally enhance its long term borrowings so as to take the benefit of ‘Trading on Equity’.
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