FUNDAMENTAL ANALYSIS OF THE FMCG INDUSTRY

Summer Internship Report

Submitted in partial fulfillment of the requirements

for

2 Yrs Full Time MMS Course

Academic Year 2019-2021

SUBMITTED BY

NAME: PRAGATI CHAUDHARI

MMS ROLL NO. : MG1921B027

(2019- 2021)

PROF – SASMITA SINGH

PROF – JYOTI NAIR

N. L. Dalmia Institute of Management Studies &Research, Mumbai

1
Preface

As a part of MBA curriculum and to gain practical knowledge in the field of equity
research, we are required to study the fundamentals of the companies and implement
the learning’s to forecast the value of the stock under the guidance of the company.
This project helped us to enhance our knowledge regarding FMCG sector. The
project period was from 9th May 2020 to 30th June 2020. This report is a concise
compilation and implementation of all that I learned in this 2 month period.

Acknowledgement

I would like to express my gratitude to all those who gave me the possibility to
complete this project. I want to thank N.L. Dalmia Institute of Management Studies
and Research for making it possible for me to work on this project. I am deeply
indebted to my supervisors Dr. Sashmita Singh and Dr. Jyoti Nair for their help,
stimulating suggestions and encouragement.

2
Certificate

This is to certify that the Summer Internship Project Report is submitted in partial
fulfillment for the award of MMS of N. L. Dalmia Institute of Management Studies
and Research. It is a result of the bonafide research work carried out by Ms. Pragati
Chaudhari under my supervision and guidance during Summer Internship from 9
May 2020 till 30 June 2020.

No part of this report has been submitted for award of any other Degree, Diploma,
Fellowship or other similar titles or prizes. The work has also not been published in
any Journals/Magazines.

Date: 30 July 2020 Place: Mumbai

Industry guide

Signature of the Industry Guide: ___________________________

Company : N L Dalmia institute of Management Studies & Research
Name of Industry Guide: Dr. Sasmita Singh
Designation : Professor

Internal Faculty guide

Signature of Internal Faculty Guide : _________________
Name of the Internal Faculty Guide: Dr. Jyoti Nair
Faculty : Finance

3
Executive Summary

The Fast Moving Consumer Goods (FMCG) Sector is one of the fastest growing
sectors in the Indian economy with the increasing demand and consumption. With
the increase in disposable income of the rural population, there has been a
significant boost in the sector in the past few years. With the relaxations provided
by the government and the approval of foreign investment upto 100% in single
brand retail and 51% in multi brand retail, the industry has seen a boost in the
recent years.

The main aim of this research project is to study the market environment of the
FMCG sector at present, and study the annual reports of 5 companies in the sector,
viz, Hindustan Unilever, Dabur, Nestle, ITC, and P&G with the intent of
understanding and comparing the companies’ performance to be able to draw an
inference of which is the better performing company to invest in. The project will
help investors in having a better understanding of the companies’ annual results and
determining which company they should invest in for best results with their risk
appetite.

To do so, the financial statements of all these companies were analysed, and their
growth was forecasted using a standard industry growth rate. The financials were
prepared on the basis of Percentage of Sales. Apart from that, the intrinsic value of
each share was calculated using the Discounted Cash Flow Method.

The analysis showed that while all companies were fundamentally strong, most of
them were overvalued on the stock market. As P&G was the only company which
was undervalued according to the projections, it is advised to purchase the shares of
that company. However, as the price per share is very high, not every investor
might be willing to buy the shares. In such a scenario, it is advised that they buy
shares of HUL or Dabur which are relatively lower priced and are not overly
valued.

4
TABLE OF CONTENTS

1 Preface i

2 Acknowledgment Ii

3 Executive Summary Iv

4 About FMCG Industry 6

5 Impact of COVID 19 8

6 Hindustan Unilever Ltd 10

7 Dabur India Ltd 19

8 Procter & Gamble Hygiene and Health Care Ltd 28

9 ITC Ltd 37

10 Nestle India 46

11 Comparisons 55

12 Suggestions 57

13 References & Bibliography 58

Chapter 1 : An Introduction to FMCG

5
In this fast-paced world, industries are constantly striving to cater the needs of mankind. As
the lifestyle of people changes, and their standard of living increases, their demands change.
With growing awareness, easier access, and ever changing scenarios, the Fast Moving
Consumer Goods (FMCG) sector has seen a boosting growth in the past few years. These
changes have been seen due to the liberalization, urbanization and increase in the disposable
incomes and modifications in the lifestyle of the people.
The FMCG sector is the fourth largest sector in the Indian economy. The sector includes
food & dairy products, packaged food products, household products, drinks and others. It
provides employment to around 3 million people accounting for approximately 5% of the
total factory employment in India. The sector is characterized by strong presence of leading
multinational companies, competition between organized and unorganized players, well
established distribution network, and low operational cost.
Household & Personal Care accounts for 50% of the sales for the sector, with Healthcare
taking up 31% of the share, and the remaining 19% being attributable to the Food &
Beverages sector. The urban segment (accounts for a revenue share of around 55 per cent) is
the largest contributor to the overall revenue generated by the FMCG sector in India.
However, rural development has paved the way for increase in consumer demand as well,
aiding the boom in the FMCG industry.
Online portals are expected to play a key role for companies trying to enter the hinterlands.
Internet has contributed in a big way, facilitating a cheaper and more convenient mode to
increase a company’s reach. It is estimated that 40 per cent of all FMCG consumption in
India will be made online by 2020. The online FMCG market is forecast to reach US$ 45
billion in 2020 from US$ 20 billion in 2017.
The retail market in India was estimated to reach US$ 1.1 trillion by 2020 (before the
COVID 19 pandemic broke out) from US$ 840 billion in 2017, with modern trade expected
to grow at 20-25 per cent per annum, which is likely to boost revenue of FMCG companies.
Revenue of FMCG sector reached Rs 3.4 lakh crore (US$ 52.75 billion) in FY18 and is
estimated to reach US$ 103.7 billion in 2020. FMCG market is expected to grow at 9-10 per
cent in 2020. After the breakout of the COVID 19 pandemic, Neilsen estimated a growth of
5.6% while CRISIL estimates that the market will degrow by 2-3%.

Investments :
The Government has allowed 100 per cent Foreign Direct Investment (FDI) in single-brand
retail and 51 per cent in multi-brand retail. This will boost employment, supply chain and
make for high visibility of FMCG brands across retail markets thereby increasing consumer
spending and encouraging the launch of more new products.
Some of the recent developments in the FMCG sector are :

1. In May 2020, Tata Consumer Products Limited acquired PepsiCo’s share in

NourishCo Beverages Limited.
2. In March 2020, Hindustan Unilever Limited entered into an agreement with
Glenmark Pharmaceuticals Ltd to acquire its hygiene brand VWash.
3. In March 2020, Venture Catalysts made an investment in OM Bhakti, a brand
in the puja cotton-wicks market during its seed-funding round.

6
4. In November 2019, ITC Ltd purchased 33.42 per cent stake in Delectable
Technologies, a vending machine start-up.

Government Initiatives :
Some of the major initiatives taken by the Government to promote the FMCG
sector in India are:
1. The Government has drafted a Consumer Protection Bill emphasising

setting up of an extensive mechanism to ensure simple, affordable and

timely delivery of justice to consumers.

2. GST is beneficial for the FMCG industry as many of products eg soap,

toothpaste etc come under the 18% tax bracket.

Chapter 2 : Impact of COVID 19

7
After the outbreak of the COVID 19 pandemic, Neilsen recorded consumer buying
behaviours with increase in purchase of health and safety products such as masks and
sanitizers.
As per reports, major areas of consumption affected by the outbreak are mentioned below :

1. Wallet Adjustments : Due to the COVID 19 pandemic, the incomes of

consumers have become strained. Unemployment is rampant. The strain on the
supply chain has made it difficult for businesses to function to their fullest.
Daily jobbers moving back home has affected manufacturing as well. With
such unfavourable conditions surrounding any and all businesses, income has
seen a steep decline for many. As a result of this, spending has been affected as
well. It is reasonable to expect that these people will not be frivolous with their
spending in the coming months and only try to buy the essentials. Consumers
who have not been hit by the pandemic might also cut back on their spending
in case they’re out of job soon as well, and try to save more, thereby reducing
consumption.
2. Rebalanced FMCG Baskets : With the outbreak of the pandemic, there might
be an onset of the “homebody economy” driven by consumers’ choice to
increasingly live, eat and entertain at home even as living restrictions ease. The
FMCG will definitely benefit from this shift in spending.
3. Reassessed Pricing Mechanisms : This situation offers retailers and brands the
chance to rethink and reset their direction moving forward. Everyday low
prices (EDLP), shallower discount levels, economy or bonus packs may be
better ways to incentivize loyalty to both brands and retailers as consumers
continue to limit their number of shopping trips and visits to multiple stores
once stock levels start to stabilize. As supply chains faltered and stock
replenishment and delivery issues prevailed during initial lockdowns, the retail
environment also became increasingly fragmented with smaller retailers,
direct-to-consumer models and specialty stores filling the void and offering
alternatives to traditional retail channels. Moving forward, this fragmentation
will test consumers’ traditional store loyalties as restrictions lift and stock
levels normalize.

8
4. Reprioritized Values : In this new world, health, safety and quality assurances
have become important accelerators in brand/product decision making and will
remain significant choice drivers into the future. Consumers will reassess the
brand aspects they value most, with some attributes rising in importance, or
being prioritized over others. Understanding what product claims are most
important to consumers across different categories will not only drive loyalty
but allow brands to identify the attributes that consumers are willing to pay a
premium for.
5. Rising Origin Preferences : Even before the living restrictions of COVID-19,
there was an increasing preference for local brands. As lockdowns were
implemented, consumers increasingly came to rely on and trust local products.
In many instances, local products were the only ones available. As living
restriction horizons extend, local will become increasingly important for
retailers who want a guarantee of supply, as global supply chains witness the
brunt of the lockdowns, but also for consumers who will want to purchase
brands that support their communities and boost their economies.
6. Reset Brand Relationships : In the new post COVID 19 world with changing
consumer preferences, marketeers will have to look at where audiences have
shifted their listening, viewing, engaging and socializing, as well as how they
will need to repair broken relationships or strengthen new ones. Authenticity,
trust and empathy have been the winning traits of those brands that remained
“on air” and relevant to consumers emerging needs. As horizons stretch out,
consumers will increasingly value connections with brands they trust and who
showcase they care about them and their communities.

9
Chapter 3 : Hindustan Unilever
Hindustan Unilver is a subsidiary company to Unilever, a British Dutch company. It was
established in India in 1933 as Lever Brothers. In 1956, after a merger with constituent groups,
it was called Hindustan Lever Ltd, and was renamed to Hindustan Unilever Ltd in 2007. It is
headquartered in Mumbai. They employ roughly 21,000 people across India.
The company is a part of the daily lives of millions of people in India. Their brands are
household names, eg, Lux, Lifebuoy, Wheel, Pond’s, Closeup, Brooke Bond, Bru, Kissan,
Lakme etc. They have a portfolio of about 35 brands in around 20 categories.

Management

Name Designation

Mr. Sanjeev Mehta Chairman & Managing Director

Mr. Srinivas Phatak CFO, Executive Director

Mr. William Uijen Executive Director

Mr. Aditya Narayan Independent Director

Mr. Leo Puri Independent Director

Mr. O. P Bhatt Independent Director

Dr. Sanjiv Misra Independent Director

Ms. Kalpana Morparia Independent Director

Dr. Ashish Gupta Independent Director

Mr. Dev Bajpai Company Secretary, Executive Director

A preliminary search with respect to all members of the core management shows
that none of them have been involved in any confirmed or alleged fraud,
embezzlement, or bribery, neither have they been named in any police or court
proceedings. They have a proper Audit Committee and a Nomination and

10
Remuneration Committee in place. They publish the required details for their
directors as prescribed by the Companies Act, 2013.

HUL has many policies in place for the smooth functioning of their business,
including a rigid and holistic approach to corporate governance. They have a robust
Corporate Social Responsibility policy in place which outlines their goal to achieve
sustainable growth and reduce the environmental impact of their operations. As per
the provisions of the Companies Act, 2013, they spend a minimum of 2% of the
average profits of the preceding three financial years towards CSR activities which
are governed by a CSR Committee constituted in the company. HUL governs with
integrity and has a strict quality control policy in place for the same.

Shareholding Pattern

% Share
Holder No of Shares
Holding
Foreign Institutions 347,883,400 14.81%
Banks/Mutual Funds 102,727,535 4.37%
Central Govt 20 0%
Others 85,097,080 3.62%
General Public 266,130,857 11.33%
Financial
Institutions 93,298,292 3.97%
Foreign Promoter 1,454,412,858 61.90%

Shareholding Pattern

Foreign Institutions
Banks/Mutual Funds
Central Govt
Others
General Public
Financial Institutions
Foreign Promoter

Financials

11
Balance Sheet

Balance Sheet Forecasting 19- 20- 21- 22- 23- 24- 25-
Mar Mar Mar Mar Mar Mar Mar
Equities
Equity Share Capital 216 216 216 216 216 216 216
Reserves and Surplus 7,651 8,013 8,211 9,331 10,107 11,200 12,277
Minority Interest 18 17 17 17 17 17 17
Total Shareholder's Funds 7,885 8,246 8,444 9,564 10,340 11,433 12,510
Non Current Liabilities
Long Term Borrowings - - 590 184 463 391 510
Other Financial Liabilities 394 939 709 931 945 1,081 1,167
Non Current Tax Liability 601 424 753
(net) 545 547 630 678
Long Term Provisions 1,082 1,227 1,228 1,387 1,507 1,667 1,829
Total Non Current 2,077 2,590 4,259
Liabilities 3,071 3,049 3,544 3,817
Current Liabilities
Short Term Borrowings 99 - 53 30 47 44 53
Trade Payables 7,206 7,535 7,839 8,686 9,521 10,491 11,531
Other Current Liabilities 839 1,360 1,169 1,429 1,497 1,686 1,834
Short Term Provisions 523 422 503 522 591 641 710
Total Current Liabilities 8,667 9,317 9,563 10,667 11,656 12,862 14,127
Total Equities & Liabilities 18,62 20,15 30,896
9 3 21,078 23,280 25,541 28,112
Assets
Non Current Assets
Tangible Assets 4,192 4,960 5,238 5,762 6,338 6,971 7,669
Intangible Assets 523 519 542 584 631 682 739
Capital Work-In-Progress 406 597 630 693 763 839 923
Fixed Assets 5,121 6,076 6,410 7,039 7,731 8,493 9,330
Non-Current Investments 13 5 10 8 10 11 12
Non Current Tax Assets 835 1,083 1,550
(Net) 1,020 1,188 1,272 1,418
Deferred Tax Assets [Net] 373 284 349 358 407 441 489
Long Term Loans And 215 238 357
Advances 241 271 295 326
Other Non-Current Assets 158 146 162 174 193 212 233
Total Non Current Assets 1,594 7,832 8,191 9,038 9,909 10,899 11,972
Current Assets
Current Investments 2,714 1,253 2,109 1,900 2,310 2,426 2,729
Inventories 2,574 2,767 2,840 3,168 3,462 3,820 4,196
Trade Receivables 1,816 1,149 1,577 1,540 1,796 1,922 2,142
Cash And Cash Equivalents 621 3,216 2,040 2,970 2,887 3,374 3,608
Other Bank Balance 3,136 1,897 2,676 2,584 3,031 3,235 3,610
Short Term Loans And 4 - 2
Advances 2 1 2 2

12
OtherCurrentAssets 1,049 2,039 1,642 2,080 2,144 2,434 2,638
Total Current Assets 11,91 12,32 18,925
4 1 12,887 14,242 15,632 17,213
Total Assets 18,62 20,15 30,896
9 3 21,078 23,280 25,541 28,112

Analysis

1. Sales are forecasted to grow @ 5.6% for 2020-2021 as projected by Neilsen

& 10% thereafter.
2. There is steady growth in reserves throughout the project five years as the
company is making profits.
3. While forecasting, using the percentage of sales method, it is noticed that
the forecasted assets are greater than the forecasted liabilities, thus the
company has an external fund requirement. It is assumed that the company
will borrow long term debts for the same.
4. The assets are projected on the basis of Fixed Asset Turnover calculated on
the basis of the revenue and assets as on 31 March 2020.

Profit & Loss Statement

P&L Forecasting 19- 20- 21- 22- 23- 24- 25-

Mar Mar Mar Mar Mar Mar Mar
Revenue from Operations 38,68 39,23
4 8 41,435 45,579 50,137 55,150 60,665
Less: Excise/Sevice - - - - - - -
Tax/Other Levies
Other Income 550 632 667 734 808 888 977
Total Revenue 39,86 40,41
0 5 42,103 46,313 50,944 56,039 61,643
Expenses
Cost Of Materials 18,47 18,25 19,533 21,352 23,557 25,876 28,483
Consumed 4 9
Employee Benefit 1,875 1,820 1,965 2,138 2,364 2,594 2,857
Expenses
Finance Costs 33 118 80 112 111 128 138
Depreciation And 565 1,002 561 617 679 747 822
Amortisation Expenses
Other Expenses 10,08 9,843 10,595 11,547 12,758 14,004 15,420
1
Total Expenses 31,02 31,04 32,734 35,766 39,469 43,350 47,720
8 2
Profit before 8,832 9,373 9,369 10,547 11,475 12,689 13,923
Exceptional Items
Exceptional Items (228) (200) (228) (242) (270) (295) (326)

13
Profit Before Tax 8,604 9,173 9,596 10,788 11,746 12,984 14,249
Tax - - - - -
Current Tax 2,610 2,243 2,620 2,795 3,120 3,408 3,761
Deferred Tax (66) 166 54 126 104 133 136
Total Tax Expense 2,544 2,409 2,674 2,921 3,224 3,541 3,898
Profit for the period 6,060 6,756 6,923 7,867 8,522 9,443 10,351

Notes

1. It is assumed that the revenues will grow @ 5.6% for the financial year
ending March 2021 (as projected by Neilsen) due to the impact of COVID –
19 and at a constant rate of 10% thereafter.
2. All numbers are projected on the basis of percentage of sales.

Sales Growth

Yea
Income
r
2016 31,461
2017 32,367
2018 34,878
2019 38,684
2020 39,238
2021 41,435
2022 45,579
2023 50,137
2024 55,150
2025 60,665

70,000.00

60,000.00

50,000.00

40,000.00

30,000.00 Net Sales/Income

from operations
20,000.00

10,000.00

0.00
16
17
18
19
20
21
22
23
24
25
20
20
20
20
20
20
20
20
20
20

PAT Growth

14
Year NPAT
2016 4,167
2017 4,502
2018 5,225
2019 6,060
2020 6,756
2021 6,923
2022 7,867
2023 8,522
2024 9,443
2025 10,351

12000

10000

8000

6000
NPAT
4000

2000

0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Growth in Reserves

Year Reserves
2016 6,357
2017 6,528
2018 7,065
2019 7,651
2020 8,013
2021 8,211
2022 9,331
2023 10,107
2024 11,200
2025 12,277

15
14,000.00

12,000.00

10,000.00

8,000.00

6,000.00 Reserves

4,000.00

2,000.00

0.00
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Intrinsic Valuation of Share

Forecaste
Operating Investing Financing
d Cash Net Change
Activities Activities Activities
Flow

19-Mar 5,800 (438) (5,390) (28)

16
20-Mar 7,623 1,791 (6,819) 2,595

21-Mar 8,050 1,891 (7,201) 2,740

22-Mar 8,855 2,080 (7,921) 3,014
23-Mar 9,740 2,288 (8,713) 3,316
24-Mar 10,714 2,517 (9,584) 3,647
25-Mar 11,786 2,769 (10,543) 4,012
21-Mar 7,520 1,767 (6,727) 2,560
22-Mar 7,728 1,816 (6,913) 2,631
Discounte 23-Mar 7,942 1,866 (7,104) 2,703
d@
24-Mar 8,161 1,917 (7,300) 2,778
7.0422%
25-Mar 8,387 1,970 (7,502) 2,855
Total 39,738 9,336 (35,547) 13,527
Terminal Cash Flow 293,772
PV of Terminal Cash 209,043
Flow
Total PV 222,570
No of Shares 2,349,550,042
Intrinsic Value 947

Calculation of discount rate

Cost of Equity
Risk Free Rate 6.45
Market
Premium 8.46
Company Beta 0.07
Cost (as per 7.042
CAPM) 2
Cost of Debt 0
7.042
WACC
2

Notes :

1. Perpetual growth rate is taken at 5.6% for terminal cash flows. The rate was
chosen on the basis of the fact that in the present scenario, with stunted
growth rate as a result of COVID, there is still 5.6% expected growth. So, if

17
such a situation arises in the future again, this minimal growth rate of 5.6%
is still achievable.
2. This growth rate values share at INR 947 which is lesser compared to the
market price of INR 2233 (as on 30 July 2020) making the share overvalued
in the share market.

Chapter 4 : Dabur India Limited

Dabur India was founded in 1884 by Dr. S. K. Burman, an Ayurvedic practitioner,

in Kolkata, to mass produce his Ayurvedic medicines with the mission to provide
affordable medication to ordinary people, especially in remote villages. More than a
century later, Dabur is still a family business and members of the Burman family
hold key managerial positions in the company.

Dabur is headquartered at Ghaziabad and as of 2017, employed almost 7,250

people across its various offices.

Management
Name Designation
Amit Burman Chairman
Mohit Burman Vice Chairman
Whole Time Director &
Mohit Malhotra
CEO
Lalit Malik Chief Financial Officer

18
Executive Vice President
K Jain
& Co. Secretary
A K Jain Secretary
Ajay Dua Director
Ajit Mohan Sharan Director
Falguni Sanjay Nayar Director
P N Vijay Director
R C Bhargava Director
S Narayan Director
Saket Burman Director
Sanjay Kumar
Director
Bhattacharyya
Aditya Burman Non Executive Director
P D Narang Whole Time Director

A preliminary search with respect to all members of the core management shows
that none of them have been involved in any confirmed or alleged fraud,
embezzlement, or bribery, neither have they been named in any police or court
proceedings. They have a proper Audit Committee and a Nomination and
Remuneration Committee in place. They publish the required details for their
directors as prescribed by the Companies Act, 2013.

Dabur has a holistic CSR policy focusing on various areas such as education,
gender equality, environmental sustainability amongst others. They have a separate
foundation, Sustainable Development Society, to take care of all their CSR
activities and they also collaborate with various NGOs and Section 8 companies for
CSR. A CSR Committee has been instituted for overseeing all activities undertaken
under the CSR policy.

Shareholding Pattern

%
Share
Holder's Name No of Shares
Holdin
g
1,199,190,20
Promoters 67.85%
7
Foreign Institutions 311,658,333 17.63%
Banks/MutualFunds 58,003,301 3.28%
Others 28,660,869 1.62%
General Public 96,456,737 5.46%
Financial
73,098,604 4.14%
Institutions
Foreign Promoter 345,000 0.02%

19
Shareholding Pattern

Promoters
Foreign Institutions
Banks/MutualFunds
Others
General Public
Financial Institutions
Foreign Promoter

Balance Sheet

Balance Sheet 19- 20- 21- 22- 23- 24- 25-

Forecasting Mar Mar Mar Mar Mar Mar Mar
Equities
Equity Share Capital 177 177 177 177 177 177 177
Reserves and Surplus 5,455 6,429 6,588 7,486 8,109 8,986 9,850
Minority Interest 31 36 36 41 44 49 54
Total Shareholder's
5,663 6,642 6,801 7,704 8,331 9,212 10,081
Funds
Non Current Liabilities
Long Term Borrowings 524 467 527 454 591 629 730
Total Non Current
524 467 527 454 591 629 730
Liabilities
Current Liabilities
Current Liabilities 2,060 2,016 2,167 2,364 2,611 2,866 3,156
Short Term Provisions 189 228 222 254 274 304 333
Total Current
2,249 2,244 2,389 2,618 2,885 3,170 3,489
Liabilities
Total Equities & 8,436 9,354 9,717 10,775 11,806 13,011 14,300

20
Liabilities
Assets
Non Current Assets
Fixed Assets 1,969 2,399 2,534 2,787 3,066 3,372 3,709
Capital Work in Progress 64 - - - - - -
Investment 3,359 2,800 3,275 3,432 3,865 4,205 4,650
Total Non Current
5,392 5,200 5,809 6,219 6,930 7,577 8,359
Assets
Current Assets
Inventories 1,301 1,380 1,425 1,585 1,734 1,912 2,101
Trade Receivables 834 814 876 955 1,055 1,158 1,275
Cash And Cash
328 811 606 801 811 928 1,002
Equivalents
Short Term Loans And
583 1,150 921 1,170 1,205 1,368 1,483
Advances
Total Current Assets 3,045 4,155 3,828 4,510 4,805 5,367 5,861
Total Assets 8,436 9,354 9,637 10,730 11,735 12,944 14,220

Notes :

1. Sales are forecasted to grow @ 5.6% for 2020-2021 as projected by Neilsen

& 10% thereafter.
2. There is steady growth in reserves throughout the project five years as the
company is making profits.
3. While forecasting, using the percentage of sales method, it is noticed that
the forecasted assets are greater than the forecasted liabilities, thus the
company has an external fund requirement. It is assumed that the company
will borrow long term debts for the same.
4. The assets are projected on the basis of Fixed Asset Turnover calculated on
the basis of the revenue and assets as on 31 March 2020.

21
Profit & Loss Statement

P&L Forecasting Mar-19 Mar-20 Mar- Mar-22 Mar-23 Mar-24 Mar-25

21
Net Sales/Income from 8,533 8,704 9,191 10,110 11,121 12,233 13,457
operations
Other Income 296 305 322 340 360 380 401
Total Income From 8,829 9,009 13,857
Operations 9,513 10,451 11,481 12,613
Expense
Consumption of Raw 3,493 3,751 3,863 4,301 4,704 5,189 5,700
Materials
Purchase of Traded 803 675 788 826 930 1,012 1,119
Goods
Increase/Decrease in 13 (65) (28) (53) (46) (57) (60)
Stocks
Finance Cost 60 50 58 61 69 75 83
Employees Cost 938 948 1,005 1,104 1,215 1,336 1,470
Depreciation 177 220 212 244 263 292 320
Other Expenses 1,547 1,603 1,680 1,855 2,036 2,242 2,465
Total Expenses 7,030 7,181 7,578 8,339 9,171 10,089 11,097
Profit before 1,799 1,828 1,936 2,112 2,310 2,524 2,760
Exceptional Items
Exceptional Items (75) (100) (93) (109) (117) (130) (142)
Profit before Tax 1,724 1,728 1,842 2,003 2,193 2,394 2,618
Tax 279 280 298 326 360 395 435
Net Profit For the 1,445 1,448 1,544 1,676 1,833 1,999 2,183
Period

22
Notes

1. It is assumed that the revenues will grow @ 5.6% for the financial year
ending March 2021 (as projected by Neilsen) due to the impact of COVID –
19 and at a constant rate of 10% thereafter.
2. All numbers are projected on the basis of percentage of sales.

Sales Growth

Incom
Year
e
2016 7,869
2017 7,701
2018 7,748
2019 8,533
2020 8,704
2021 9,191
2022 10,110
2023 11,121
2024 12,233
2025 13,457

16000
14000
12000
10000
8000
Net Sales/Income from
6000 operations
4000
2000
0
16
17
18
19
20
21
22
23
24
25
20
20
20
20
20
20
20
20
20
20

NPAT Growth

Net
Year
Profit
2016 1,254
2017 1,280
2018 1,358
2019 1,445

23
2020 1,448
2021 1,544
2022 1,676
2023 1,833
2024 1,999
2025 2,183

2,500

2,000

1,500

Net Profit
1,000

500

0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Growth in Reserves

Yea Reserve
r s
2016 3,995
2017 4,671
2018 5,530
2019 5,455
2020 6,429
2021 6,588
2022 7,486
2023 8,109
2024 8,986
2025 9,850

24
12,000

10,000

8,000

6,000
Reserves
4,000

2,000

0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Intrinsic Value of Share

Cash Flow Operatin Investing Financing Adjustmen Bullet Other Net Cash

25
Forecastin g Activities Activities t Repaymen s Flow
g Activities repayment t of Loan
of loan
Mar-19 1,499 337 (1,888) 272 - 1 (51)

Mar-20 1,649 371 (2,077) 299 - 1 243

Mar-21 1,741 391 (2,193) 316 (30) 1 226

Mar-22 1,916 430 (2,413) 347 - 1 282

Mar-23 2,107 474 (2,654) 382 - 1 310

Mar-24 2,318 521 (2,919) 420 - 1 341
Mar-25 2,550 573 (3,211) 463 - 1 375
Mar-21 1,605 361 (2,022) 291 (27) 1 209
Mar-22 1,628 366 (2,050) 295 - 1 239
Discounte
Mar-23 1,651 371 (2,079) 299 - 1 243
d@
Mar-24 1,674 376 (2,108) 304 - 1 246
8.4804%
Mar-25 1,697 381 (2,138) 308 - 1 250
Total 8,255 1,855 (10,398) 1,498 (27) 4 1,187
Terminal Cash Flow 13,765
PV of Terminal Cash
Flow 9,164
Total PV 10,351
1,767,413,05
No of Shares 1
Intrinsic Value 59

Calculation of
Discounting Factor
Cost of Equity
Risk Free Rate 6.45
Market Premium 8.46
Company Beta 0.31
8.476
Cost
5
Cost of Debt 0.003

26
9
8.480
WACC
4

Notes :

1. Perpetual growth rate is taken at 5.6% for terminal cash flows. The rate was
chosen on the basis of the fact that in the present scenario, with stunted
growth rate as a result of COVID, there is still 5.6% expected growth. So, if
such a situation arises in the future again, this minimal growth rate of 5.6%
is still achievable.
2. This growth rate values share at INR 59 which is lesser compared to the
market price of INR 492 (as on 30 July 2020) making the share overvalued
in the share market.

Chapter 5 : P&G

Richardson Hindustan Limited, which was established in India in 1964, became an

affiliate to Procter & Gamble (USA) in 1984. Today, P&G operates in India under
3 entities - Procter & Gamble Hygiene and Health Care Limited, Gillette India
Limited, and Procter & Gamble Home Products, the latter of which is not listed. At
present, the company employs almost 26,000 people, directly and indirectly. Some

27
of its most popular brands are Vicks, Whisper, Ariel, Pampers, Tide, Duracell, and
Head & Shoulders.

Management
Name Designation
Chairman &
Mr. R. A. Shah Independent
Director
Mr. Madhusudan
Managing Director
Gopalan
Independent
Mr. B. S. Mehta
Director
Independent
Mr. A. K. Gupta
Director
Independent
Ms. Meena Ganesh
Director
Non- Executive
Mr. Pramod Agarwal
Director
Non- Executive
Ms. Sonali Dhawan
Director
Non- Executive
Mr. Karthik Natarajan
Director
Non- Executive
Mr. Gagan Sawhney
Director
Mr. Ghanashyam Non- Executive
Hegde Director
Chief Financial
Mr. Prashant Bhatnagar
Officer
Ms. Flavia Machado Company Secretary

A preliminary search with respect to all members of the core management shows
that none of them have been involved in any confirmed or alleged fraud,
embezzlement, or bribery, neither have they been named in any police or court
proceedings. They have a proper Audit Committee and a Nomination and
Remuneration Committee in place. They publish the required details for their
directors as prescribed by the Companies Act, 2013.

P&G has a robust mechanism of corporate governance. They have a multitude of

policies in place for the smooth functioning of the business, such as, Related Party
Transaction Policy, Preservation of Documents Policy, Vigil Mechanism etc. They
also have a code of conduct for all employees and a separate code for directors to
follow. The company has in place, a CSR Committee constituted under the
requirements of the Companies Act that makes sure that all the necessary steps with
respect to the company’s CSR policy are carried out.

28
Shareholding Pattern :

%
Share
Category No. of shares
Holdin
g
Foreign Institutions 11,670,731 12.10%
NBFC and Mutual Funds 4,369,836 4.53%
Central Government 63,000 0.07%
Others 3,148,073 3.27%
General Public 12,626,966 13.10%
Financial Institutions 4,022,031 4.17%
Foreign Promoters 60,515,079 62.76%

Shareholding Pattern

Foreign Institutions
NBFC and Mutual Funds
Central Government
Others
General Public
Financial Institutions
Foreign Promoters

Balance Sheet

Balance Sheet
18-Jun 19-Jun 20-Jun 21-Jun 22-Jun 23-Jun 24-Jun
Forecasting
Equities
Equity Share Capital 32 32 32 32 32 32 32
Reserves and Surplus 773 877 1,004 1,036 1,159 1,265 1,396
Minority Interest - - - - - - -
Total Shareholder's
806 909 1,037 1,069 1,191 1,297 1,429
Funds
Non Current
Liabilities
Long Term Provisions 49 66 66 73 79 87 96

29
Total Non Current 49 66 66 73 79 87 96
Liabilities
Current Liabilities
Short Term Borrowings - - - - - - -
Trade Payables 406 547 482 572 601 683 745
Other Current
161 104 154 145 170 182 203
Liabilities
Short Term Provisions 4 5 5 6 6 7 7
Total Current
571 656 641 723 777 871 955
Liabilities
Total Equities &
1,425 1,631 1,745 1,864 2,049 2,256 2,480
Liabilities
Assets
Non Current Assets
Tangible Assets 250 234 252 272 299 329 362
Capital Work-In-
21 15 16 17 19 20 23
Progress
Fixed Assets 272 249 268 289 318 350 385
Deferred Tax Assets
23 37 35 40 42 47 52
[Net]
Long Term Loans And
42 39 47 47 54 58 65
Advances
Other Non-Current
207 217 247 255 285 311 344
Assets
Total Non Current
272 293 329 343 381 417 460
Assets
Current Assets
Inventories 124 203 190 217 231 258 282
Trade Receivables 148 181 191 205 225 248 273
Cash And Cash
400 540 547 599 651 720 790
Equivalents
Other Bank Balance - - - - - - -
Short Term Loans And
100 101 117 120 135 147 162
Advances
OtherCurrentAssets 110 65 102 92 110 116 130
Total Current Assets 882 1,090 1,148 1,233 1,352 1,489 1,637
Total Assets 1,425 1,631 1,745 1,864 2,049 2,256 2,480

Notes :

1. Sales are forecasted to grow @ 5.6% for 2020-2021 as projected by Neilsen

& 10% thereafter.
2. There is steady growth in reserves throughout the project five years as the
company is making profits.

30
3. While forecasting the numbers, it was observed that for June 2021, the
liabilities were more than assets. Since the company does not have any long
term borrowing, it was assumed that the difference was settled by payment
to creditors. Thereafter, all changes were made in the trade payables.
4. The assets are projected on the basis of Fixed Asset Turnover calculated on
the basis of the revenue and assets as on 31 June 2019.

Profit & Loss Statement

P&L Forecasting Jun- Jun- Jun- Jun- Jun- Jun- Jun-

18 19 20 21 22 23 24
Net Sales/Income from 2,455 2,947 3,144 3,355 3,69 4,059 4,465
operations 0
Other Operating Income 24 53 58 62 68 75 83
Total Income From 2,479 3,000 3,201 3,417 3,75 4,134 4,547
Operations 8
Expenditure
Consumption of Raw 545 951 870 1,003 1,06 1,191 1,299
Materials 4
Purchase of Traded Goods 342 322 387 390 441 479 530
Increase/Decrease in Stocks 62 (38) 14 (13) 0 (7) (4)
Finance Cost 5 5 6 6 7 8 9
Employees Cost 115 132 144 152 168 185 203
Depreciation 52 50 54 58 64 70 77
Admin. And Selling 261 312 333 356 391 430 473
Expenses
Other Expenses 515 658 683 738 807 890 978
Total Expenses 1,898 2,393 2,491 2,691 2,94 3,246 3,566
3
Profit before Tax 582 607 710 726 815 888 982
Tax 207 188 230 230 261 283 314
Net Profit for the period 375 419 480 495 554 605 668

Notes

1. It is assumed that the revenues will grow @ 5.6% for the financial year
ending March 2021 (as projected by Neilsen) due to the impact of COVID –
19 and at a constant rate of 10% thereafter.
2. All numbers are projected on the basis of percentage of sales. As the year
end for the company is June, growth rate is applied on a prorated basis,
assuming sales are evenly distributed throughout the year.

31
Sales Growth

Incom
Year
e
2015 2,332
2016 2,482
2017 2,320
2018 2,455
2019 2,947
2020 3,144
2021 3,355
2022 3,690
2023 4,059
2024 4,465

5,000
4,500
4,000
3,500
3,000
2,500
Income
2,000
1,500
1,000
500
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

PAT Growth

32
Year NPAT
2015 346
2016 423
2017 433
2018 375
2019 419
2020 480
2021 495
2022 554
2023 605
2024 668

800
700
600
500
400
NPAT
300
200
100
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Growth in Reserves

Years Reserves

2015 1,196
2016 1,479
2017 494
2018 773
2019 877
2020 1,004
2021 1,036
2022 1,159
2023 1,265

33
2024 1,396

1,600
1,400
1,200
1,000
800
Reserves
600
400
200
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Intrinsic Value of Share

Investin
Forecaste Operatin Financin
g
d Cash g g Net Change
Activitie
Flow Activities Activities
s
Jun-15 426 28 (105) 349

34
Jun-16 353 224 (122) 456

Jun-17 445 149 (1,559) (964)

Jun-18 415 (19) (106) 290

Jun-19 412 35 (314) 134

Jun-20

435 37 (331) 141

Jun-21 478 41 (364) 155
Jun-22 526 45 (401) 171
Jun-23 579 50 (441) 188
Jun-24 637 55 (485) 206
Jun-20 400 34 (305) 130
Jun-21 405 35 (309) 131
Discounte Jun-22 410 35 (313) 133
d@
Jun-23 415 36 (316) 135
8.6496%
Jun-24 421 36 (320) 136
Total 2,052 177 (1,563) 665
Terminal Cash Flow 40,875
PV of Terminal Cash
Flow 40,348
Total PV 41,013
No of Shares 32,460,736
Intrinsic Value 12,635

Calculation of Discounting
Factor
Cost of Equity
Risk Free Rate 6.45
Market Premium 8.46
Company Beta 0.26
8.649
Cost
6
Cost of Debt 0
8.649
WACC
6

35
Notes :

1. Perpetual growth rate is taken at 5.6% for terminal cash flows. The rate was
chosen on the basis of the fact that in the present scenario, with stunted
growth rate as a result of COVID, there is still 5.6% expected growth. So, if
such a situation arises in the future again, this minimal growth rate of 5.6%
is still achievable.
2. This growth rate values share at INR 12,635 which is lesser compared to the
market price of INR 10,318 (as on 30 July 2020) making the share
undervalued in the share market.

Chapter 6 : ITC

ITC Ltd was established in 1910 as the Imperial Tobacco Company of India Ltd. In
1970, it was renamed to the India Tobacco Company Ltd and finally to I.T.C Ltd in
1974. Now, the company is simply ITC Ltd, with its name not being an acronym
for its erstwhile name. ITC is headquartered at Kolkata and employs over 36,500
people. The company is also on the Forbes 2000 list.

The company has presence across various industries, some of them being
Hospitality, Packaging, and Cigarettes apart from FMCG.

Management
Name Designation
Sanjiv Puri Chairman & MD
Executive Director &
Rajiv Tandon
CFO
Nakul Anand Executive Director
Sumant Bhargavan Executive Director
36
Shilabhadra
Independent Director
Banerjee
Hemant Bhargava Independent Director
Arun Duggal Independent Director
Atul Jerath Independent Director
Sunil Behari Mathur Independent Director
Anand Nayak Independent Director
Nirupama Roy Independent Director
Ajit Kumar Seth Independent Director
Meera Shankar Independent Director
David Robert
Independent Director
Simpson

A preliminary search with respect to all members of the core management shows
that none of them have been involved in any confirmed or alleged fraud,
embezzlement, or bribery, neither have they been named in any police or court
proceedings. They also have a proper Audit Committee and a Nomination and
Remuneration Committee in place.

ITC has structural corporate governance policies in place. They have a 3 tier
governance structure along with various codes and policies in place. The company
also has a very robust CSR policy. The major areas of focus are rural development,
education, healthcare, and sanitation among others. It has instated a CSR &
Sustainability Committee as per the provisions of the Companies Act, 2013 that
oversees all expenditure made towards CSR.

37
Shareholding Pattern

%
Category No. of shares Share
Holding
Foreign Institutions 1,792,606,245 14.58%
NBFC and Mutual
1,160,723,528 9.44%
Funds
Others 4,005,922,622 32.59%
General Public 1,311,273,257 10.67%
Financial Institutions 4,006,483,730 32.59%
GDR 15,221,859 0.12%

Shareholding Pattern

Foreign Institutions
NBFC and Mutual Funds
Others
General Public
Financial Institutions
GDR

Balance Sheet

Balance Sheet Forecasting 19-Mar 20- 21- 22- 23-Mar 24-Mar 25-

38
Mar Mar Mar Mar
Equities
Equity Share Capital 1,226 1,229 1,229 1,229 1,229 1,229 1,229
Reserves and Surplus 57,915 64,044 112,57
74,612 85,967 92,524 102,845 0
Minority Interest 343 377 439 506 545 605 663
Total Shareholder's Funds 59,484 65,650 76,280 87,703 94,298 104,680 114,46
2
Non Current Liabilities
Long Term Borrowings 8 6 (0) (0) (0) (0) (0)
Other Financial Liabilities 79 348 405 467 503 559 612
Deferred Tax Liability (net) 2,052 1,627 1,895 2,184 2,351 2,613 2,860
Long Term Provisions 161 175 204 235 253 281 308
Total Non Current 2,300 2,156 3,779
Liabilities 2,505 2,886 3,106 3,452
Current Liabilities
Short Term Borrowings 2 1 - - - - -
Trade Payables 3,510 3,630 1,813 2,089 2,248 2,499 2,735
Other Current Liabilities 6,450 5,780 6,734 6,604 7,841 8,479 9,560
Short Term Provisions 51 148 172 199 214 238 260
Total Current Liabilities 10,013 9,559 8,719 8,891 10,303 11,216 12,555
Total Equities & Liabilities 71,797 77,366 130,79
87,504 99,480 107,707 119,348 6
Assets
Non Current Assets
Tangible Assets 18,626 23,800 25,133 27,646 30,411 33,452 36,797
Intangible Assets 759 203 203 203 203 203 203
Capital Work-In-Progress 4,126 - - - - - -
Fixed Assets 23,511 24,003 25,336 27,849 30,614 33,655 37,000
Non-Current Investments 11,696 10,715 12,483 14,383 15,480 17,207 18,834
Deferred Tax Assets [Net] 59 56 65 75 81 90 98
Long Term Loans And 8 5
Advances 6 7 7 8 9
Other Non-Current Assets 4,777 3,082 3,591 4,137 4,453 4,949 5,417
Total Non Current Assets 16,540 13,858 16,145 18,602 20,021 22,254 24,358
Current Assets
Current Investments 13,348 17,948 20,910 24,092 25,929 28,822 31,547
Inventories 7,943.97 8,879 10,345 11,919 12,828 14,259 15,607
Trade Receivables 4,035 2,562 2,985 3,440 3,702 4,115 4,504
Cash And Cash Equivalents 4,152 7,277 8,478 9,768 10,514 11,686 12,791
Short Term Loans And 7 6
Advances 7 8 9 10 11
OtherCurrentAssets 2,262 2,832 3,299 3,801 4,091 4,547 4,977
Total Current Assets 31,747 39,505 46,024 53,028 57,073 63,439 69,438
Total Assets 71,797 77,366 87,504 99,480 107,707 119,348 130,79
6

39
Notes :

1. Sales are forecasted to grow @ 5.6% for 2020-2021 as projected by Neilsen

& 10% thereafter.
2. There is steady growth in reserves throughout the project five years as the
company is making profits.
3. While forecasting the numbers, it was observed that for March 2021, the
liabilities were more than assets. After repayment of the minimal
borrowings, it was assumed that the difference was settled by payment to
creditors. Thereafter, all changes were made in the trade payables.
4. The assets are projected on the basis of Fixed Asset Turnover calculated on
the basis of the revenue and assets as on 31 March 2020.

Profit & Loss Statement

P&L 19- 20- 21- 22- 23- 24- 25-

Forecasting Mar Mar Mar Mar Mar Mar Mar
Net Sales/Income 47,83 48,97 51,72 56,89 62,58 68,84 75,72
from operations 9 9 2 4 4 2 6
Other Operating
2,687 3,023 5,986 6,825 7,382 8,186 8,970
Income
Total Income 50,52 52,00 57,70 63,72 69,96 77,02 84,69
From Operations 6 2 8 0 5 8 6
Expenditure
Consumption of 13,40 13,81 14,53 16,01 17,60 19,37 21,30
Raw Materials 3 1 8 6 5 3 6
Purchase of
4,221 4,238 4,519 4,947 5,454 5,993 6,596
Traded Goods
Increase/Decreas
(203) (703) (484) (671) (665) (770) (827)
e in Stocks
Finance Cost 45 55 53 61 66 73 80
Employees Cost 4,178 4,296 4,527 4,985 5,480 6,030 6,632
Depreciation 1,397 1,645 1,651 1,816 1,997 2,197 2,417
10,88 11,97 13,16
Other Expenses 8,348 8,503 9,002 9,890
5 0 9
31,38 31,84 33,80 37,04 40,82 44,86 49,37
Total Expenses
8 3 6 4 3 6 3
Profit before 19,13 20,15 23,90 26,67 29,14 32,16 35,32

40
exceptional items 8 8 2 5 2 1 3
Exceptional
- (132) - - - - -
Items
19,13 20,02 23,90 26,67 29,14 32,16 35,32
Profit before tax
8 6 2 5 2 1 3
Tax 6,314 4,442 5,746 5,756 6,627 7,135 7,930
Net profit for the 12,82 15,58 18,15 20,91 22,51 25,02 27,39
year 4 5 6 9 5 6 3

Notes

1. It is assumed that the revenues will grow @ 5.6% for the financial year
ending March 2021 (as projected by Neilsen) due to the impact of COVID –
19 and at a constant rate of 10% thereafter.
2. All numbers are projected on the basis of percentage of sales.

Sales Growth

Date Revenue
2016 38,804
2017 42,360
2018 43,123
2019 47,839
2020 48,979
2021 51,722
2022 56,894
2023 62,584
2024 68,842
2025 75,726

80,000.00
70,000.00
60,000.00
50,000.00
40,000.00
30,000.00 Revenue

20,000.00
10,000.00
0.00
16- 17- 18- 19- 20- 21- 22- 23- 24- 25-
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar

41
PAT Growth

Year NPAT
2016 9,492
2017 10,471
2018 11,485
2019 12,824
2020 15,585
2021 18,156
2022 20,919
2023 22,515
2024 25,026
2025 27,393

30000

25000

20000

15000
NPAT
10000

5000

0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Growth in Reserves

Year Reserves
2016 41,875
2017 45,198
2018 51,290
2019 57,915
2020 64,044
2021 74,612
2022 85,967

42
2023 92,524
2024 102,845
2025 112,570

120000

100000

80000

60000
Reserves
40000

20000

0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Intrinsic Value of Share

Forecaste Operatin Investing Financin Net Change

d Cash g Activitie g

43
Flow Activities s Activities

16-Mar 9,251 (3,750) (5,462) 40

17-Mar 10,002 (2,780) (7,138) 84

18-Mar 12,651 (6,691) (6,020) (60)

19-Mar 11,749 (5,082) (6,601) 67

20-Mar 12,924 (5,590) (7,261) 73

21-Mar 13,648 (5,903) (7,667) 78

22-Mar 15,012 (6,493) (8,434) 85

23-Mar 16,514 (7,143) (9,277) 94
24-Mar 18,165 (7,857) (10,205) 103
25-Mar 19,982 (8,643) (11,226) 113
21-Mar 12,340 (5,337) (6,933) 70
Discounte 22-Mar 12,274 (5,309) (6,895) 70
d@ 23-Mar 12,208 (5,280) (6,858) 69
10.5954% 24-Mar 12,142 (5,252) (6,821) 69
25-Mar 12,077 (5,223) (6,785) 69
Total 61,040 (26,401) (34,292) 347
Terminal Cash Flow 2,399
PV of Terminal
1,450
Cash Flow
Total PV 1,797
12,292,231,24
No of Shares
1
Intrinsic Value 1

Calculation of Discounting
Factor
Cost of Equity
Risk Free Rate 6.45
Market Premium 8.46
Company Beta 0.49
10.59
Cost
5
Cost of Debt 0

44
10.59
WACC
5

Notes :

1. Perpetual growth rate is taken at 5.6% for terminal cash flows. The rate was
chosen on the basis of the fact that in the present scenario, with stunted
growth rate as a result of COVID, there is still 5.6% expected growth. So, if
such a situation arises in the future again, this minimal growth rate of 5.6%
is still achievable.
2. This growth rate values share at INR 1 which is lesser compared to the
market price of INR 193 (as on 30 July 2020) making the share overvalued
in the share market.

Chapter 7 : Nestle

Nestle entered India in 1912, as a trading company, importing and selling finished
products in the country for several years. In 1961, it set up its first factory in India
in Punjab to help develop India’s milk economy. Nestle has been a pioneer in the
Indian market for decades now and has been a partner in India’s growth for over a
century. They have helped in employing about a million people, directly and
indirectly, through their activities, including farmers, and suppliers for various
goods.

45
Management

Name Designation
Chairman and
Mr. Suresh Narayanan
Managing Director
Executive Director –
Mr. David McDaniel Finance & Control and
CFO
Executive Director -
Mr. Martin Roemkens
Technical
Independent Non-
Ms. Rama Bijapurkar
Executive Director
Independent Non-
Mr. R. V. Kanoria
Executive Director
Independent Non-
Ms. Roopa Kudva
Executive Director
Independent Non-
Dr. Swati A. Piramal
Executive Director
Independent Non-
Mr. P. R. Ramesh
Executive Director

A preliminary search with respect to all members of the core management shows
that none of them have been involved in any confirmed or alleged fraud,
embezzlement, or bribery, neither have they been named in any police or court
proceedings. They also have a proper Audit Committee and a Nomination and
Remuneration Committee in place.

Nestle has a strict corporate governance structure. The company has various
policies in place for the employees which include – a whistleblower policy, a
remuneration policy, a retirement policy, and also policies on code of conduct and
fair practices. Nestle is committed to its Corporate Social Responsibility and has
constituted a committee for the same as per the provisions of the Companies Act.
The main focus areas of Nestle’s CSR program are nutrition, rural development,
education, and water & sanitation.

Shareholding Pattern
%
Share
Holder's Name No of Shares
Holdin
g
Promoters 619,683 1.91%
Foreign
833,788 2.57%
Institutions
Banks/Mutual Funds 1,795,870 5.53%
Central Govt 8,408 0.03%

46
Others 899,001 2.77%
General Public 3,523,004 10.85%
Financial Institutions 2,470,892 7.61%
Foreign Promoter 22,310,090 68.73%

No of Shares

Promoters
Foreign Institutions
Banks/MutualFunds
Central Govt
Others
General Public
Financial Institutions
Foreign Promoter

Balance Sheet

Balance Sheet
Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 Dec-24
Forecasting

Equities
Equity Share Capital 96 96 96 96 96 96 96
Reserves and Surplus 3,577 1,835 1,863 2,078 2,259 2,499 2,742
Total Shareholder's
3,673 1,931 1,959 2,175 2,356 2,596 2,838
Funds
Non Current Liabilities
Long Term Borrowings 35 53 (0) (0) (0) (0) (0)
Other Financial 1 - - - - - -

47
Liabilities
Non Current Tax
58 18 18 20 22 25 27
Liability (net)

Long Term Provisions 2,465 2,907 601 682 749 839 930

Total Non Current

2,559 2,978 619 702 771 863 957
Liabilities
Current Liabilities
Trade Payables 1,240 1,495 1,518 1,693 1,841 2,036 2,234
Other Current Liabilities 457 567 576 642 698 772 847
Short Term Provisions 157 85 86 96 105 116 127
Total Current
1,854 2,147 2,180 2,431 2,643 2,924 3,208
Liabilities
Total Equities &
8,086 7,056 4,758 5,308 5,770 6,382 7,002
Liabilities
Assets
Non Current Assets
Tangible Assets 2,400 2,227 2,376 2,588 2,846 3,131 3,444
Capital Work-In-Progress 105 143 153 166 183 201 221
Fixed Assets 2,505 2,370 2,529 2,754 3,029 3,332 3,665

Non-Current Investments 733 744 755 843 916 1,013 1,112

Long Term Loans And

40 47 48 53 58 64 70
Advances
Other Non-Current Assets 71 80 81 91 98 109 120
Total Non Current
844 871 884 986 1,072 1,186 1,301
Assets
Current Assets
Current Investments 1,925 1,007 1,022 1,140 1,240 1,371 1,505
Inventories 966 1,283 1,302 1,453 1,580 1,747 1,917
Trade Receivables 125 124 126 140 153 169 185
Cash And Cash
1,610 1,308 1,328 1,481 1,610 1,781 1,954
Equivalents
Short Term Loans And
18 12 12 14 15 16 18
Advances
OtherCurrentAssets 94 82 83 93 101 112 123
Total Current Assets 4,738 3,816 3,874 4,322 4,698 5,197 5,702
Total Assets 8,087 7,057 4,758 5,308 5,769 6,382 7,003

Notes :

1. Sales are forecasted to grow @ 5.6% for 2020-2021 as projected by Neilsen

& 10% thereafter.

48
2. There is steady growth in reserves throughout the project five years as the
company is making profits.
3. While forecasting, using the percentage of sales method, it is noticed that
the forecasted assets are lesser than the forecasted liabilities, thus the
company has a surplus assets. It is assumed that the company pays of debts
with the same and the rest is adjusted in long term provisions.
4. The assets are projected on the basis of Fixed Asset Turnover calculated on
the basis of the revenue and assets as on 31 December 2019.

Profit & Loss Statement

P&L Forecasting Dec-18 Dec-19 Dec-20 Dec- Dec-22 Dec-23 Dec-24

21
Net Sales/Income 11,216 12,295 13,119 14,287 15,715 17,287 19,016
from operations
Other Operating 335 321 342 372 410 451 496
Income
Total Income From 11,551 12,616 13,461 14,659 16,125 17,737 19,511
Operations
Expenditure - - - - -
Consumption of 4,366 5,150 5,310 5,880 6,417 7,085 7,780
Raw Materials
Purchase of Traded 231 218 250 263 294 321 355
Goods
Increase/Decrease in (6) (144) (84) (128) (122) (144) (153)
Stocks
Finance Cost 112 120 128 140 154 170 187
Employees Cost 1,124 1,263 1,332 1,459 1,600 1,763 1,938
Depreciation 336 316 338 368 404 445 489
Provisions And 62 25 49 41 52 53 61
Contingencies
Other Expenses 2,898 2,993 3,287 3,530 3,909 4,287 4,722

49
Total Expenses 9,122 9,941 10,609 11,553 12,709 13,980 15,378
Profit before Tax 2,429 2,675 2,852 3,106 3,416 3,758 4,133
Tax 822 705 852 876 991 1,075 1,191
Profit for the year 1,607 1,970 1,999 2,230 2,425 2,682 2,943

1. It is assumed that the revenues will grow @ 5.6% for the financial year
ending March 2021 (as projected by Neilsen) due to the impact of COVID –
19 and at a constant rate of 10% thereafter.
2. All numbers are projected on the basis of percentage of sales. As the year
end for the company is December, growth rate is applied on a prorated
basis, assuming sales are evenly distributed throughout the year.

Sales Growth

Year Income
2015 8,123
2016 9,159
2017 9,953
2018 11,216
2019 12,295
2020 13,119
2021 14,287
2022 15,715
2023 17,287
2024 19,016

20,000.00
18,000.00
16,000.00
14,000.00
12,000.00
10,000.00
Net Sales/Income
8,000.00
from operations
6,000.00
4,000.00
2,000.00
0.00
15
16
17
18
19
20
21
22
23
24
20
20
20
20
20
20
20
20
20
20

50
PAT Growth
Net
Year
Profit
2015 563
2016 927
2017 1,225
2018 1,607
2019 1,970
2020 1,999
2021 2,230
2022 2,425
2023 2,682
2024 2,934

3500

3000

2500

2000

1500 Net Profit

1000

500

0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Growth in Reserves

Year Reserves
2015 2,721
2016 2,917
2017 3,324
2018 3,577
2019 1,836
2020 1,863
2021 2,078
2022 2,259
2023 2,499
2024 2,742

51
4,000
3,500
3,000
2,500
2,000
Reserves
1,500
1,000
500
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Intrinsic Value of the Share

Forecaste Operatin Investing Adjustment
Financing
d Cash g Activitie for Net Change
Activities
Flow Activities s Dividend
Dec-15 1,098 (70) (498) - 529
Dec-16 1,466 (127) (667) - 672
Dec-17 1,818 (131) (997) - 691

52
Dec-18 2,052 (52) (1,317) - 683
Dec-19 2,234 83 (3,540) 1,735 (1,223)
Dec-20 2,359 88 (3,738) 1,833 541
Dec-21 2,595 96 (4,112) 2,016 595
Dec-22 2,854 106 (4,523) 2,218 654
Dec-23 3,140 117 (4,976) 2,439 720
Dec-24 3,453 128 (5,473) 2,683 792
Dec-20 2,176 81 (3,448) 1,691 499
Dec-21 2,208 82 (3,499) 1,715 506
Discounte Dec-22 2,240 83 (3,550) 1,741 514
d@
Dec-23 2,273 84 (3,603) 1,766 521
8.6496%
Dec-24 2,307 86 (3,656) 1,792 529
Total 11,204 416 (17,756) 8,705 2,569
Terminal Cash Flow 29,794
PV of Terminal Cash Flow 19,899
Total PV 22,468
No of Shares 96,415,716
Intrinsic Value 2,330

Calculation of Discounting
Factor
Cost of Equity
Risk Free Rate 6.45
Market Premium 8.46
Company Beta 0.26
8.4067
Cost
9
Cost of Debt 0
8.4067
WACC
9

Notes :

1. Perpetual growth rate is taken at 5.6% for terminal cash flows. The rate was
chosen on the basis of the fact that in the present scenario, with stunted
growth rate as a result of COVID, there is still 5.6% expected growth. So, if
such a situation arises in the future again, this minimal growth rate of 5.6%
is still achievable.
2. This growth rate values share at INR 2,330 which is lesser compared to the
market price of INR 16,531 (as on 30 July 2020) making the share
overvalued in the share market.

53
Chapter 8 : Comparisons

Compan
y PAT Sales P/E Market Cap
HUL 6,748 39,238 78.43 529,236
Dabur 1,170 6,310 59.25 85,684
Nestle 2,032 12,619 80.40 163,419
P&G 425 3,005 77.85 33,100
ITC 15,136 45,136 15.95 241,235

54
50,000
45,000
40,000
35,000
30,000
25,000 PAT
20,000 Sales

15,000
10,000
5,000
0
HUL Dabur Nestle P&G ITC

Compan Market
y Cap
HUL 529,236
Dabur 85,684
Nestle 163,419
P&G 33,100
ITC 241,235

600,000

500,000

400,000

300,000
Market Cap
200,000

100,000

0
HUL Dabur Nestle P&G ITC

Profitability Ratios

Ratio HUL Dabur Nestle P&G ITC

ROE (%) 86.48 22.7 68.56 21.08 23.78
ROA (%) 36.64 16.28 26.83 11.64 38.04
Operatin
g Margin 26.35 24.1 24.71 27.36 40.93
(%)

55
Net
Margin 17.17 16.07 15.74 17.06 28.25
(%)

From the above ratios, it is clear that all the companies are relatively on par with
respect to profitability apart from a few deviations here and there. As a whole, ITC
seems to be the best performing company with higher margins and better return on
assets.

Short Term Solvency Ratios

Ratio HUL Dabur Nestle P&G ITC
Current
1.31 1.98 1.78 3.8 4.13
Ratio
Quick
1.02 1.98 1.18 3.29 3.2
Ratio

From the above, it is clear that ITC & P&G are on the conservative side of the
spectrum, covering their short term liabilities with greater short term assets.

Chapter 9 : Suggestions
From the above analysis, we can draw the conclusion that all the five companies
studied are performing on par with each other, with very little difference in their
margins. Thus, all the companies are fundamentally strong. Investing in them will
guarantee returns to the investor.
However, as per the calculations of intrinsic value, taking a conservative approach
to growth, it is clear that of all the shares, only P&G is the one that is undervalued

56
in the market. Thus, purchasing that guarantees higher returns. However, the price
for the share is close to INR 10,300 which might make it difficult for an individual
investor to purchase larger amount of shares.
In that case, Dabur with a market price of around INR 490 and HUL with a market
price of around INR 2200 would be the better choice in absolute terms. However,
according to the calculations, the share is overvalued.

Chapter 10 : References & Bibliography

 Hindustan Unilver Ltd Annual Report
 ITC Ltd Annual Report
 Procter & Gamble Health & Hygiene Ltd Annual Report
 Nestle India Annual Report
 Dabur India Ltd Annual Report

57
 Money Control : www.moneycontrol.com
 Yahoo Finance : https://in.finance.yahoo.com/
 IBEF : https://www.ibef.org/
 Nielsen : https://www.nielsen.com/in/en/
 Wikipedia : https://en.wikipedia.org/wiki/Main_Page

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