ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 3, March 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/

FINANCIAL PERFORMANCE OF FMCG COMPANIES IN INDIA: A COMPARATIVE STUDY BETWEEN BRITANNIA INDUSTRIES AND DABUR INDIA DR. BHASKAR BAGCHI*; DR. BASANTA KHAMRUI** *Assistant Professor, Department of Commerce, Alipurduar College, Jalpaiguri, West Bengal. **Assistant Professor, Department of Commerce, Dr. Gour Mohan Roy College, Burdwan, West Bengal.

ABSTRACT In this paper, an attempt has been made to examine the financial performance of two leading FMCG companies in India – Britannia Industries and Dabur India, over a period of ten years (2000-01 to 2009-10). 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, we have used various accounting ratios and statistical tools like, linear regression analysis and multiple correlation analysis. The results reveal that though Britannia Industries is passing through hard times in terms of profitability, Dabur India is enjoying its enhanced performance and continuous growth in the sector. KEYWORDS: Britannia Industries, Dabur India, FMCG, Liquidity Analysis, Profitability Analysis. ___________________________________________________________________________

The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential.

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The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of 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. Availability of key raw materials, cheaper labour costs and presence across the entire value chain gives India a competitive advantage. 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.

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I INTRODUCTION

ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 3, March 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/

In 2009-10, Britannia Industries Limited (BIL) experienced hard times in its business due to unprecedented inflationary pressures on the consumer food basket as well as commodity inflation for the food industry along with strong challenge from new and existing players in the sector. Consequently, whilst profit from operations declined by 778 MM, it continued to focus on its growth strategy led by its power brands and at the same time restructured operations to reduce cost. Britannia bakery brands including cake, rusk and bread grew by 23.90% with biscuit brands outpacing market growth. Britannia Industries Limited was ranked as the ‘Most Respected FMCG Company’ by Business World in 2010. It has reported a market capitalization of 5504 crores and turnover of 3400 crores in 2009-10, with biscuits contributing around 3000 crores. (http://www.britannia.co.in/Britannia_AR_2010). Another FMCG major Dabur India Limited has marked its presence with significant achievements, and today commands a market leadership status. Over the years Dabur India has improved performance with innovation and strong distribution channels. Its key categories have strengthened its presence and out performed peers in the FMCG sector. In addition, the company is successful in reviving its presence in the semi-urban and rural markets. It has three major strategic business units – Consumer Care Division, Consumer Health Division and International Division (http://www.dabur.com/About%20DaburHistory). It has been ranked as ‘7th Most Respected Company’ in the FMCG space in India with market capitalization of 16968 crores and turnover of 2897.60 crores for the financial year 2009-10 (http://www.indiainfoline.com/Markets/Company/.../DaburIndia.../500096). With this background, the present study aims at analyzing the financial performance of two leading FMCG companies in India, Britannia Industries Limited and Dabur India. The next section of this paper states the objectives of the study. Section III is the research methodology that shapes the entire study and section IV analyses the findings of the study. This paper ends with a brief concluding remark in section V. II OBJECTIVES

To study the profitability and liquidity trend of the selected FMCG companies.

ii.

Comparative analysis of the selected companies based on the given ratios.

iii.

To analyze the factors determining the behaviour of profitability and liquidity.

III METHODOLOGY The study covers two leading companies in the FMCG segment – Britannia Industries 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.

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i.

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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:

ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 3, March 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/

In order to analyze profitability and liquidity of the selected FMCG companies, various accounting ratios and statistical tools like, multiple regression analysis and correlation analysis have been used. The study has been undertaken for a period of 10 years from 2000-01 to 2009-10. IV 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 Britannia Industries and Dabur India.  EARNING RATIO OR NET PROFIT MARGIN (NPM) = (NET PROFIT/SALES) X100  CAPITAL TURNOVER RATIO (CTR) = SALES/CAPITAL EMPLOYED  RETURN ON INVESTMENT (ROI) = (NET PROFIT/SALES) X (SALES/CAPITAL EMPLOYED)  RETURN ON SHAREHOLDERS EQUITY (ROSE) = (NET PROFIT AVAILABLE SHAREHOLDERS FUND) X 100

FOR

EQUITY

SHAREHOLDER/

EQUITY

NPM (%)

CTR (times)

ROI (%)

ROSE (%)

2000-01

5.51

3.2

17.63

29.00

2001-02

14.53

2.8

40.68

55.00

2002-03

7.65

3.1

23.72

25.00

2003-04

8.25

3.7

30.53

28.00

2004-05

9.92

3.5

34.72

34.00

2005-06

8.55

3.1

26.51

27.00

2006-07

4.75

3.8

18.05

18.00

2007-08

7.38

3.5

25.83

25.00

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Year

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TABLE 1 PROFITABILITY RATIOS OF BRITANNIA INDUSTRIES

ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 3, March 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/

2008-09

5.65

3.9

22.04

22.00

2009-10

3.38

4.2

14.20

29.00

TABLE 2 PROFITABILITY RATIOS OF DABUR INDIA Year

NPM (%)

CTR (times)

ROI (%)

ROSE (%)

2000-01

6.96

2.2

15.31

21.00

2001-02

5.87

2.2

12.91

16.00

2002-03

7.30

2.4

17.52

21.00

2003-04

9.31

3.7

34.44

38.00

2004-05

12.02

3.5

42.07

44.00

2005-06

14.07

3.2

45.02

42.00

2006-07

15.70

4.1

64.37

62.00

2007-08

15.09

4.0

60.36

60.00

2008-09

15.48

3.3

51.08

51.00

2009-10

15.10

3.8

57.38

58.00

REGRESSION ANALYSIS IMPACT OF NPM AND CTR ON ROI Roi is one of the most important financial indicators. It is the product of npm and ctr. Therefore, roi may be considered as dependent variable and npm and ctr as independent variables and both are equally important factors to maximize the profit of the firm. An attempt has been made here to analyze the impact of these two variables (npm and ctr) on roi with the help of following multiple regression model:

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There was a steep fall in npm of britannia industries in 2002-03 (table 1) and again in 2006-07, and finally in 2009-10 the npm plunges down to 3.38%, which is the lowest ever in last 10 years, indicating that the company is going through rough weather. Consequently, roi was also affected which also recorded its lowest ever 14.20% in 2009-10, during last 10 years. However, the company was able to maintain satisfactory ctr, though rose of britannia industries 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 britannia industries. Even, dabur india was capable to boost its roi and rose by more than 6.00% in 2009-10.

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Source: CMIE. Results Computed.

ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 3, March 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/

Y= A + B1X1 + B2 X2 + E Where,

Y = ROI; X1 = NPM; X 2 = CTR b1, b2 = Regression Co-efficient e = Error and a = Intercept

HERE, THE VALUES OF DIFFERENT COMPONENTS OF THE REGRESSION MODEL OF BRITANNIA INDUSTRIES AND DABUR INDIA HAVE BEEN SHOWN. TABLE 3 REGRESSION CO-EFFICIENT OF INDEPENDENT VARIABLES ON ROI OF BRITANNIA INDUSTRIES Independent variable

Regression co-efficient

Standard Error

T-value

NPM

3.204

0.340

9.429

CTR

9.980

1.842

5.419

Constant

-29.740

3.487

-8.529

R2

0.990

F-Statistics

341.788

* Significant at 5% level.

REGRESSION CO-EFFICIENT OF INDEPENDENT VARIABLES ON ROI OF DABUR INDIA Independent variable

Regression co-efficient

Standard Error

T-value

NPM

2.675

0.215

12.442

CTR

10.330

1.072

9.640

Constant

-29.263

4.357

-6.716

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TABLE 4

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In case of Britannia Industries (Table 3), a unit increase in NPM results in an increase in ROI by 3.204 units. On the contrary, a unit increases in CTR results in an increase in ROI by 9.980 units. This impact of two independent variables on ROI indicates that the influence of CTR is more than that of NPM on ROI. From the regression statistics, we have, R2 = 0.990. This means that 99.00% of variation in ROI is explained by NPM and CTR and only 1.00% is accounted by error.

ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 3, March 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/

R2

0.962

F-Statistics

88.343

*Significant at 5% level. From table 4, it can be seen that a unit increase in npm of dabur india, results an increase in roi by 2.675 units. On the other hand, a unit increases in ctr results an increase in roi by 10.330 units. Hence, the effect of ctr is more than the influence of npm on roi. From the regression statistics, we have, r2 = 0.962. This means that 96.20% of variation in roi is explained BY BOTH INDEPENDENT VARIABLES AND 3.80 % IS ACCOUNTED BY ERROR. CORRELATION ANALYSIS OF PROFITABILITY RATIOS The correlation matrix table amid various profitability ratios (table 5 and table 6) shows both positive and negative association. In case of britannia industries (table 5), ctr had negative association with the other three ratios (npm, roi, and rose). For dabur india (table 6), very high positive relationship between all the ratios has been observed. Highest positive correlation was found between roi and rose of dabur india (table 6). TABLE 5 CORRELATION ANALYSIS AMONG PROFITABILITY RATIOS OF BRITANNIA INDUSTRIES

CORRELATIONS

CTR

ROI

CTR

ROI

ROSE

1

-.745(*)

.963(**)

.827(**)

-.745(*)

1

-.582

-.566

.963(**)

-.582

1

.739(*)

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NPM

NPM

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RATIOS

ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 3, March 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/

.827(**)

ROSE

-.566

.739(*)

1

* Correlation is significant at the 0.05 level (2-tailed). ** Correlation is significant at the 0.01 level (2-tailed). TABLE 6 CORRELATION ANALYSIS AMONG PROFITABILITY RATIOS OF DABUR INDIA

CORRELATIONS

NPM

CTR

ROI

ROSE

CTR

ROI

ROSE

1

.838(**)

.973(**)

.958(**)

.838(**)

1

.928(**)

.941(**)

.973(**)

.928(**)

1

.995(**)

.958(**)

.941(**)

.995(**)

1

** Correlation is significant at the 0.01 level (2-tailed). 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:

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NPM

228

RATIOS

ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 3, March 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/



CURRENT RATIO (CR) = CURRENT ASSETS/CURRENT LIABILITIES



QUICK RATIO (QR) = QUICK ASSETS/CURRENT LIABILITIES



SUPER QUICK RATIO (SQR) = (CASH + BANK)/CURRENT LIABILITIES

 DEBT-EQUITY RATIO (DER) = EXTERNAL EQUITIES OR DEBTS/ EQUITY CAPITAL TABLE 7

TABLE 8

LIQUIDITY RATIOS OF BRITANNIA

LIQUIDITY RATIOS OF DABUR

Year

CR

QR

SQR

DER

Year

CR

QR

SQR

DER

2000-01

1.51

1.03

0.20

0.79

2000-01

3.63

2.41

0.21

0.56

2001-02

1.83

1.35

0.36

0.53

2001-02

3.35

2.13

0.17

0.54

2002-03

1.98

1.46

0.44

0.42

2002-03

2.68

1.58

0.24

0.27

2003-04

2.03

1.14

0.05

0.10

2003-04

1.51

0.85

0.07

0.15

2004-05

1.66

0.94

0.09

0.06

2004-05

1.21

0.67

0.04

0.15

2005-06

1.75

0.88

0.17

0.04

2005-06

1.87

1.27

0.20

0.05

2006-07

1.85

0.94

0.21

0.01

2006-07

1.79

1.23

0.18

0.05

2007-08

2.47

1.23

0.18

0.15

2007-08

2.26

1.62

0.21

0.03

2008-09

2.22

1.26

0.15

0.03

2008-09

2.83

2.05

0.43

0.19

2009-10

1.75

0.90

0.07

1.09

2009-10

2.72

2.04

0.38

0.14

Source: CMIE. Results computed. Britannia industries able to maintain more or less satisfactory cr (table 7) during the study period. Though qr was slightly less than one (0.88 to 0.94) during some time of the study period, but for the remaining six years the ratio found to be acceptable. Sqr ranged between 0.05 and 0.44. The der was below one for the entire study period except for 2009-10. 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 8) varied between 1.21 and 3.63. QR was between 0.67 and 2.41, which signifies better short term liquidity of the firm, in comparison to Britannia Industries. DER was less than one, throughout the study period. Thus, in order to enjoy

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INDIA

229

INDUSTRIES

ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 3, March 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/

healthy long term liquidity condition, both Britannia Industries and Dabur India continued to keep DER below one. CORRELATION ANALYSIS OF LIQUIDITY RATIOS Here, the correlations between different liquidity ratios of britannia industries and dabur india have been analyzed (table 9 and table 10). For britannia industries, a positive association has been observed between sqr and other three ratios (cr, qr and der). In case of dabur india, positive relationship has been observed amid cr with other three ratios and also among qr with other three ratios. TABLE 9 CORRELATION ANALYSIS AMONG LIQUIDITY RATIOS OF BRITANNIA INDUSTRIES

CORRELATIONS

QR

SQR

DER

QR

SQR

DER

1

.535

.036

-.424

.535

1

.697(*)

-.033

.036

.697(*)

1

.101

-.424

-.033

.101

1

* Correlation is significant at the 0.05 level (2-tailed).

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CR

CR

230

RATIOS

ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 3, March 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/

TABLE 10 CORRELATION ANALYSIS AMONG LIQUIDITY RATIOS OF DABUR INDIA

CORRELATIONS

RATIOS

CR

QR

SQR

DER

CR

QR

SQR

DER

1

.970(**)

.550

.776(**)

.970(**)

1

.690(*)

.629

.550

.690(*)

1

-.013

.776(**)

.629

-.013

1

** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed).

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%. The company also showed good performance in terms of maintaining both short term and long term liquidity. 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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The year 2009-10 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 Britannia Industries. 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.

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V CONCLUSION

ZENITH International Journal of Business Economics & Management Research Vol.2 Issue 3, March 2012, ISSN 2249 8826 Online available at http://zenithresearch.org.in/

REFERENCES 1. Centre for monitoring indian economy (cmie) (2001-02 to 2009-10). Monthly review of the indian economy. New delhi: cmie. 2.

centre for monitoring indian economy (cmie) (2000-01 to 2009-10). Prowess database. New delhi: cmie.

3. Government of india (1990-91 to 2009-10). Economic survey. New delhi: ministry of finance, department of economic affairs, government of india. 4. Reserve bank of india (1995 to 2010). Monthly bulletin. Mumbai: department of statistics and information management, reserve bank of india. 5. Government of india (1990 to 2008). Statistical abstract india. New delhi: ministry of statistics and programme implementation, central statistical organization, government of india. 6. Website: http:// www.britannia.co.in/britannia_ar_2010 http://www.dabur.com/about%20dabur-historyhttp://

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http://www.indiainfoline.com/markets/company/.../dabur-india.../500096