FMCG Sector Study and M&A perspective 2010
1 Richa Agarwal, PGDM – Finance (09-11)
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DECLARATION
I, Richa Agarwal, hereby declare that the project report on “FMCG Sector Study and M&A
Perspective” is a genuine research work undertaken by me based on publicly available
information
All care has been taken to keep this report error free and I sincerely regret for any unintended
discrepancies that might have crept into this report. I shall be highly obliged if errors (if any)
be brought to my attention.
Signature
RICHA AGARWAL
(Student)
FMCG Sector Study and M&A perspective 2010
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ACKNOWLEDGEMENT
A work is never a work of an individual. I owe a sense of gratitude to the intelligence and
cooperation of all those people who made easy to let me understand what I needed from time
to time for completion of this exclusive project.
I would like to forward my sincere gratitude to Mrs. Gagan Ahluwalia, Additional General
Manager – Corporate Affairs, Dabur India Ltd., who gave me the opportunity to work on this
project and always endured me; stood by me and without whom I couldn‟t have envisaged
the completion of this project.
I would like to express the deepest appreciation to Mr. Dhruv Sharma, Assistant Manager –
Corporate Affairs, Dabur India Ltd., who has the attitude and the substance of a genius: he
continually and convincingly conveyed a spirit of adventure in regard to project and an
excitement in regard to learning. Without his guidance and persistent help this dissertation
would not have been possible.
In addition, a thank you to Professor Kamble of Institute Of Management Technology, who
introduced me to various models like Porter five forces model, BCG matrix etc. and whose
enthusiasm for these had a lasting effect.
Also, I would like to thank DABUR INDIA LTD. for allowing me to use various resources
and material during commencement of my internship in their office.
Last but not least I wish to avail this opportunity for expressing a sense of gratitude and love
to my friends and my beloved parents for their manual support, strength, cooperation and for
everything.
FMCG Sector Study and M&A perspective 2010
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FMCG Sector Study and M&A perspective 2010
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CERTIFICATE OF ORIGIN
This is to certify that Ms. Richa Agarwal, a student of Post Graduate Diploma in
Management (2009-2011), Institute Of Management Technology, Nagpur has worked in
Dabur India Ltd. under the able guidance and supervision of Mrs. Gagan Ahluwalia
(Additional General Manager – Corporate Affairs).
The period for which she has worked was for 9 weeks, starting from 6th
April‟10 to 11th
June‟10. To the best of my knowledge no part of this report has been reproduced from any
other report and the contents are based on original research.
Signature
Prof. R. Kamble
Institute Of Management Technology, Nagpur
(FACULTY GUIDE)
FMCG Sector Study and M&A perspective 2010
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Table of Content
Executive summary ...................................................................................................................8
Objectives of the Study .............................................................................................................9
Methodology Followed ............................................................................................................ 10
PART-1- STUDY OF FMCG SECTOR ................................................................................. 11
Chapter 1- Introduction .......................................................................................................... 12
1.1. Introduction of FMCG Sector ...........................................................................................
1.2. FMCG Sector Segments ...................................................................................................
Chapter 2 – Socio Economic Contribution............................................................................. 14
2.1. Sector‟s Contribution ........................................................................................................
Chapter 3- Key Drivers and Players of FMCG Sector .......................................................... 15
3.1 Key Growth Drivers. ...........................................................................................................
3.2 Key Trends .........................................................................................................................
3.3 Major Issues and Challenges of FMCG Sector. ...................................................................
Chapter-4 FMCG Players ....................................................................................................... 18
4.1. Dabur India Ltd.................................................................................................................
4.2. Hindustan Unilever Ltd. ...................................................................................................
4.3. ITC Ltd. ...........................................................................................................................
4.4. Procter & Gamble Hygeine and Healthcare Ltd. ...............................................................
4.5. Nestle India Ltd. ...............................................................................................................
4.6. Colgate – Palmolive Ltd. ..................................................................................................
4.7. Godrej Consumer Care ProductsLtd..................................................................................
4.8. Marico Ltd.. ......................................................................................................................
4.9. GlaxoSmithKline Healthcare Limited ...............................................................................
Chapter-5 FMCG Sector Analysis .......................................................................................... 22
5.1. SWOT Analysis ................................................................................................................
5.2. U- Cuvre Analysis ............................................................................................................
5.3. Y-O-Y Change .................................................................................................................
FMCG Sector Study and M&A perspective 2010
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PART-2- STUDY ON DABUR INDIA LIMITED ................................................................. 29
Chapter1 Introduction ............................................................................................................ 30
1.1. Introduction to Dabur Indian Limited ...............................................................................
1.2. Strategic Business Unit .....................................................................................................
Chapter2 Strategic Business Unit ........................................................................................... 32
2.1. Consumer Care Division ...................................................................................................
2.2. Customer Health Division.................................................................................................
2.3. International Business Division ........................................................................................
Chapter 3 DABUR Analysis ................................................................................................... 38
3.1. SWOT Analysis ................................................................................................................
3.2. BCG Matrix ......................................................................................................................
3.3. Porter Five Forces Model..................................................................................................
3.4. Fundamental Analysis ......................................................................................................
3.5. Share Price Performance Analysis(20DMA & 50DMA) ..................................................
PART-3- MERGER AND ACQUISITION SIMULATION.................................................. 51
Chapter1 Amrutanjan Healthcare Ltd. - An Introduction ................................................... 52
Chapter2 Merger Rationale .................................................................................................... 53
Chapter3 Valuations ............................................................................................................... 55
3.1. Financial Projection ..........................................................................................................
3.2. Beta Calculation ...............................................................................................................
3.3. WACC Calculation ...........................................................................................................
3.4. Working Capital and CAPEX Projection ..........................................................................
3.5. DCF Valuation .................................................................................................................
Chapter4 Valuations after Merger ......................................................................................... 63
4.1. Financial Projection ..........................................................................................................
4.2. WACC Calculation ...........................................................................................................
4.3. Working Capital and CAPEX Projection ..........................................................................
4.4. DCF Valuation .................................................................................................................
Chapter5 Conclusion............................................................................................................... 67
FMCG Sector Study and M&A perspective 2010
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APPENDIX A FINANCIALS .................................................................................................. 68
APPENDIX B FORMULAE USED ......................................................................................... 86
APPENDIX C ABBREVIATIONS .......................................................................................... 87
REFERENCES ........................................................................................................................ 88
DISCLAIMER ........................................................................................................................ 90
List of Tables
Table 1 Liquidity and Leverage Ratio ............................................................................................................... 47
Table 2 Management Efficiency Ratio ............................................................................................................... 48
Table 3 Profitability Ratio ................................................................................................................................. 49
Table 4 Market Based Return ............................................................................................................................ 49
Table 5 Financial Projection - Amrutanjan ....................................................................................................... 55
Table 6 Financial Projection - Dabur ................................................................................................................. 56
Table 7 Beta Calculation .................................................................................................................................... 56
Table 8 WACC Calculation - Amrutanjan ........................................................................................................ 57
Table 9 WACC Calculation - Dabur .................................................................................................................. 58
Table 10 a & b Working Capital and CAPEX Calculation - Amrutanjan ........................................................ 59
Table 11 a & b Working Capital and CAPEX Calculation - Dabur ................................................................. 60
Table 12 DCF Valuation - Amrutanjan ............................................................................................................. 61
Table 13 DCF Valuation - Dabur ....................................................................................................................... 62
Table 14 Financial Projection post merger ........................................................................................................ 63
Table 15 WACC Calculation .............................................................................................................................. 64
Table 16 Working Capital and CAPEX Calculation ........................................................................................ 65
Table 17 DCF Valuation ..................................................................................................................................... 66
FMCG Sector Study and M&A perspective 2010
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EXECUTIVE SUMMARY
Merger and acquisitions are critical phenomena: From an economic perspective, M&A
transactions are increasingly frequent events, which reshape entire industries. From a firm
perspective, it represents the single most important economic decisions in the life of a firm,
bearing great opportunities as well as great risks. From an employee perspective, it is a
source of uncertainty and change.
Many M&A transactions fail to create value. Although the main motive for M&A is the
generation of synergies, often the synergy targets are misused and the M&A transactions do
not live up to the expectations.
Based on information in the public domain, I found after acquiring `Fem care‟, a leading
personal care brand in the domestic market, FMCG major Dabur India is inspecting for
acquisitions. Like Dabur, other FMCG players are also scouting for acquisitions.
These trends in FMCG sector uncover important implications for operating models. Global
growth will continue to be a strategic focus for many Indian companies and M&A is a
legitimate strategy to achieve this. This requires an adequate understanding of various
financial models that will enable effective and integrated projections across merged entities.
FMCG Sector Study and M&A perspective 2010
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OBJECTIVE OF STUDY
To develop a basic knowledge of FMCG Sector
To analyze FMCG sector on the basis of various key players‟ past financials using
various analytical tools such as SWOT, U – Curve Analysis, Y-O-Y Changes.
To learn the application of analytical tools.
To analyze Dabur India Ltd. using various analytical tools.
To understand the market movement by analyzing the historical share price.
To understand synergies for M&A
To develop a simulation model for Dabur India Ltd. acquiring Amrutanjan Healthcare
Ltd. operating in a different market segment.
FMCG Sector Study and M&A perspective 2010
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METHODOLOGY FOLLOWED
The initial step of the project was to study about the FMCG sector and Dabur India
using its Annual reports, website and research reports and then evaluating the
financial position of the company on the basis of ratio analysis.
Analysis of FMCG sector using various tools – SWOT Analysis, BCG Matrix, U-
Curve Analysis and financial performance based on y-o-y change.
Studying the company‟s product portfolio in various segments.
Analysis of company on the basis of ratios, SWOT, BCG, Porter five forces model,
Share price performance with 20 days and 50 days moving average.
Extracting financials for Dabur India Ltd. and a Amrutanjan Healthcare Ltd. company
to design a merger model.
Financial projections for both the companies
Calculating cost of equity, cost of debt and finally WACC.
Projecting cash flow by DCF Valuation
In the end deriving the equity value post merger.
FMCG Sector Study and M&A perspective 2010
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STUDY OF FMCG SECTOR
Introduction
Socio – Economic Contribution
Key Drivers of FMCG Sector
Key Players
FMCG Analysis
P
A
R
T
I
FMCG Sector Study and M&A perspective 2010
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1. FMCG SECTOR – An Introduction
The CNX FMCG Index is a market cap weighted
index. It is a 15 stock Index from the FMCG sector
that trade on the NSE. The base period is
December 1995 and the base value is 1000.
BSE FMCG Index is a subset of the BSE500 index.
BSE-500 index represents nearly 85% of the total
market capitalization on the Stock Exchange,
Mumbai. 1998-99 is chosen as the base year, and
within this, the date February 1, 1999 is selected as
the base date for its proximity to the current
period.
The Indian FMCG sector is the fourth
largest sector in the economy with a total
market size in excess of US$ 25 billion
(Rs. 120,000 cr.). 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 labor costs and presence across
the entire value chain gives India a
competitive advantage.
It has grown consistently over the last 3 –
4 years. India‟s FMCG sector is
fragmented and substantial part of sector
comprises of unbranded and unpackaged
products.
Based on latest trend, a report on FICCI
and Technopak project a growth of 10 – 12
percent for the next 10 years, reaching a
size of US$ 43 billion (Rs. 206,000 cr.) by
2013 and US$ 74 billion (Rs. 355,000 cr.)
by 2018. Implementation of the Goods and
Service Tax (GST) and opening up of
Foreign Direct Investment (FDI) in retail
can accelerate this growth.
CNX FMCG: Index Profile
BSETMCG: Index Profile
FMCG Sector Study and M&A perspective 2010
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FMCG comprises of following segments:
Personal Care:
Oral care, hair care, skin care, personal wash
(soaps); cosmetics and toiletries; deodorants;
perfumes; feminine hygiene; paper products.
Household :
Fabric wash (laundry soaps and synthetic
detergents); household cleaners (dish/utensil
cleaners, floor cleaners, toilet cleaners, air-
fresheners, insecticides and mosquito repellents,
metal polish and furniture polish).
Food & Beverage :
Health beverages; soft drinks; staples/cereals; bakery products (biscuits, bread,
cakes); snack food; chocolates; ice cream; tea; coffee; soft drinks; processed fruits,
vegetables; dairy products; bottled water; branded flour; branded rice; branded sugar;
juices etc.
Tobacco
Lighting
FMCG Sector Study and M&A perspective 2010
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2. SOCIO - ECONOMIC CONTRIBUTION
SECTOR’S CONTRIBUTION
Employment:
It is amongst the largest employers in India. With about 9 million “kirana” stores
selling FMCG produces, it supports livelihood of 13 million people. Another 25
million people are employed at wholesalers, distributors, stockist, etc
Intake of Agricultural Output:
US$ 2 billion (Rs. 9600 cr.) of agricultural produce is purchased by the FMCG sector,
processed and converted into value added products.
Consumption of Media and Advertising:
40% of media earnings from advertising come from the FMCG sector, contribution of
US$ 2 billion (Rs. 9600 cr.).
Contribution to Contract Manufacturing:
About 10 percent of FMCG production is outsourced to contract manufacturing units,
with ancillary industry contribution at about US$ 1.5 billion (Rs. 7200 cr.).
Fiscal Contribution:
The FMCG sector contributes US$ 6.5 billion (Rs. 31,000 cr.) through direct and in
direct taxes to the exchequer. Indirect taxes are about 30 percent of MRP, while direct
tax includes corporate income tax.
FMCG Sector Study and M&A perspective 2010
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3. KEY DRIVERS OF FMCG SECTOR
3.1 Key Growth Drivers
The FMCG industry has undergone substantial growth on account of the following
reasons:
Favorable Indian Economy & Demographics: 45% people in India are under 20 years
of age. Per capita disposable income has increased from $550 to $600 in 2007 (9%
increase). GDP is growing at a CAGR between 8 to 9%.In the next five years, affluent
and aspirers as a total will supersede strivers and will be dominated by aspirers, as per
NCAER.
Large Domestic Market: Increasing disposable income has resulted in a rise in the
domestic market size. Increasing income has translated into higher consumption
levels.
Disposable Income: There is increase in disposable income, observed in both rural
and urban consumers, which is giving opportunity to many rural consumers to shift
from traditional unorganized unbranded products to branded FMCG products and
urban fraternity to splurge on value added and lifestyle products.
Buying Pattern Shift: The crisis of declining FMCG markets during 2001-04 was
driven by new avenues of expenditure for growing consumer income such as
consumer durables, entertainment, mobiles, motorbikes etc. Now, as many consumers
have already upgraded, their income is being directed towards pampering themselves.
Presence across value chain: Indian FMCG firms have a presence across the entire
value chain of the industry, from raw material supply to final processed and packaged
goods, both in the personal care products and in the food processing sector. As a
result firms located in India have become more cost competitive.
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Growing share of organized retail: The modern trade format provides a wider
visibility to the FMCG products. Organized retail has led to a boom in consumption
by generating wide spread employment opportunities.
3.2 Key Trends
Underpenetrated Growth Categories: Within the Indian FMCG industry, there are
few categories that grew more than 20% during 2008-2009, like shaving cream,
skin/fairness cream, shampoos, skin care & cosmetics, tooth powder. Some other
growth categories were hair color, skin care, anti-aging solution, deodorants and
men‟s products.
Penetrated Growth Categories: Even mainstream categories with high penetration
levels such as washing detergents, soaps and hair oils have shown strong underlying
volume growth, despite sharp inflation led price increases in FY08. This is partly
related to the growth in organized retail (3-5% of turnover for most FMCG players)
that gives more visibility to national brands with strong brand equity.
Health Food Categories: FMCG majors are widening their health food portfolio to
cash in on the rich, urban, health conscious Indian. Sugar free Chyawanprash, organic
spices and multi grain pastas and biscuits are few examples. Urban India is high on
health and FMCG majors are cashing in on the opportunity. Also, with the Indian
consumer becoming increasingly health conscious, the demand for juices has
witnessed rapid growth.
Impact on sector due to economic slowdown:
o During economic slowdown, consumer expenditure of a household has declined
more than decline / slowdown in their income. This suggests a decline in the share
of consumption in income and a greater weight given by consumers to the
precautionary motive of saving. Also, Indian consumers have reduced their
expenditure share on Durables and Semi- durable goods.
FMCG Sector Study and M&A perspective 2010
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o In many parts of rural India, we found consumption increasing due to growing
incomes led by rising food price realizations and Government schemes like the
National Rural Employment Guarantee Scheme (NREGS).
o Simultaneously, there are some signs of down trading in urban homes with fixed
incomes given the more direct impact that such consumers have experiences due
to the downturn.
o Most FMCG products (non durables) are necessities, and therefore their volume
consumption has been largely unaffected in the current economic slowdown. A
report by FICCI and Technopak states that the sector has coped well with recent
challenges and grew by 15 percent in 2009.
3.3 Major Challenges to the Indian FMCG sector
Highly unorganized: Although the organized market is gaining strength, majority of
the share is still captured by the unorganized market. Rising income levels and a
growing middle class allows players selling branded products to push consumers
towards branded products.
High competition between large and small players: Rise in disposable incomes and
more young population have spruced up demands for products in the personal care,
processed food etc segments. This has led to competition among the FMCG
companies may put the profit margins under pressure.
FMCG Sector Study and M&A perspective 2010
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4. KEY PLAYERS
4.1 DABUR India Ltd.
Dabur India Limited is the fourth largest FMCG Company in India with Revenues of US$750
Million (Rs 3390 Crore) & Market Capitalizations of US$3.5 Billion (over Rs 16,000 Crore).
The brand name Dabur is derived from the words 'Da' for „Daktar‟ or „Doctor‟ and 'bur' from
Burman. From those humble beginnings, the company has grown into India's leading
manufacturer of consumer healthcare, personal care and food products. Building on a legacy
of quality and experience of over 125 years, Dabur operates in key consumer products
categories like Hair Care, Oral Care, Health Care, Skin Care, Home Care & Foods with key
brands like Dabur Amla, Dabur Chyawanprash, Vatika, Hajmola and Real. The company has
kept an eye on new generations of customers with a range of products that cater to a modern
lifestyle, while managing not to alienate earlier generations of loyal customers.
4.2 HUL Ltd.
Hindustan Unilever Limited is amongst the top five exporters of the country and also the
biggest exporter of tea and castor oil. The product portfolio of the company includes
household and personal care products like soaps, detergents, shampoos, skin care products,
color cosmetics, deodorants and fragrances. It is also the market leader in tea, processed
coffee, branded wheat flour, tomato products, ice cream, jams and squashes.HUL operations
involve over 2,000 suppliers and associates and distribution network covers 6.3 million retail
outlets including direct reach to over 1 million.. In the future, the company plans to
concentrate on its herbal health care portfolio (Ayush) and confectionary business (Max). Its
strategy to grow includes focusing on the power brands' growth through consumer relevant
information, cross category extensions, leveraging channel opportunities and increased focus
on rural growth.
FMCG Sector Study and M&A perspective 2010
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4.3 ITC Ltd.
Indian Tobacco Corporation Ltd is an associate of British American Tobacco with a 37 per
cent stake. In 1910 the company's operations were restricted to trading in imported cigarettes.
The company changed its name to ITC Limited in the mid seventies when it diversified into
other businesses. ITC is one of India's foremost private sector companies with a turnover of
15,388 crore INR (FY09). While ITC is an outstanding market leader in its traditional
businesses of cigarettes, hotels, paperboards, packaging and agro exports, it is rapidly gaining
market share even in its nascent businesses of branded apparel, greeting cards and packaged
foods and confectionary. After the merger of ITC Hotels with ITC Ltd, the company will
ramp up its growth plans by strengthening its alliance with Sheraton and through focus on
international projects in Dubai and the Far East. ITC's subsidiary, International Travel House
(ITH) also aims to launch new products and services by way of boutiques that will provide
complete travel services.
4.4 Procter & Gamble Hygiene and Health Care Limited
Richardson Hindustan Limited (RHL), manufacturer of the Vicks range of products, was
rechristened 'Procter & Gamble India' in October 1985, following its affiliation to the 'Procter
& Gamble Company', USA. Procter & Gamble Hygiene and Health Care Limited (PGHHCL)
acquired its current name in 1998, reflecting the two key segments of its business. P&G, USA
has a 65 per cent stake in PGHHCL. The parent also has a 100 per cent subsidiary, Procter &
Gamble Home Products (PGHP). The overall portfolio of the company includes healthcare;
feminine-care; hair care and fabric care businesses. P&G‟s Beauty Business is over US$ 10
Billion in Global Sales, making it one of the world‟s largest beauty companies. The P&G
beauty business sells more than 50 different beauty brands including Pantene®, Olay®, SK-
II®, Max Factor®, Cover Girl®, Joy®, Hugo Boss®, Herbal Essences® and Clairol Nice ‟n‟
Easy®. In India, P&G‟s beauty care business comprises of Pantene, the world‟s largest
selling shampoo, Head & Shoulders, the world‟s No. 1 Anti-dandruff shampoo and Rejoice –
Asia‟s No. 1 Shampoo.
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4.5 Nestle India Ltd.
Nestle India Ltd a 59.8 per cent subsidiary of Nestle SA, Switzerland, is a leading
manufacturer of food products in India. Its products include soluble coffee, coffee blends and
teas, condensed milk, noodles, infant milk powders and cereals. Nestle has also established
its presence in chocolates, confectioneries and other processed foods. Soluble beverages and
milk products are the major contributors to Nestlé‟s total sales. Some of Nestlé‟s popular
brands are Nescafe, Milkmaid, Maggi and Cerelac. The company has entered the chilled
dairy segment with the launch of Nestle Dahi and Nestle Butter. Nestle has also made a foray
in non-carbonated cold beverages segment through placement of Nestea iced tea and Nescafe
Frappe vending machines. Exports contribute to 20 per cent of its turnover (FY09).
4.6 Colgate Palmolive India Ltd.
Colgate Palmolive India is a 51 per cent subsidiary of Colgate Palmolive Company, USA. It
is the market leader in the Indian oral care market with 51.3% market share (year to date).
The company also has a presence in the premium toilet soap segment and in shaving
products, which are sold under the Palmolive brand. Other well known consumer brands
include Charmis skin cream and Axion dish wash. The company's strategy is to focus on
growing volumes by improving penetration through aggressive campaigning and consumer
promotions. The company plans to launch new products in oral and personal care segments
and is prepared to continue spending on advertising and marketing to gain market share.
Margin gains are being targeted through efficient supply chain management and bringing
down cost of operations.
4.7 Godrej Consumer Products Ltd.
Godrej Consumer Products (GCPL) is a leader among India's Fast Moving Consumer Goods
companies, with Personal and Home Care Products. Their brands, which include Cinthol, No.
1, Expert and Ezee, among others, are household names across the country.
Their Branch Offices in Mumbai, Delhi, Kolkata and Chennai ensure pan-India coverage,
while factories located at Malanpur (Madhya Pradesh), Thana (Himachal Pradesh), Katha
(Himachal Pradesh), Guwahati (Assam) and Sikkim cater to the diverse requirements of their
products
GCPL now owns international brands and trademarks in Europe, Australia, Canada, Africa
and the Middle East. Their mission is to continuously enhance the quality of life of
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consumers in high-growth markets with superior-quality and affordable personal care and
hygiene products.
4.8 Marico
Marico is a leading Indian Group incorporated in 1990 and operating in consumer products,
aesthetics services and global Ayurvedic businesses. The company also markets food
products and distributes third party products. Marico owns well-known brands such as
Parachute, Saffola, Sweekar, Shanti Amla, Hair & Care, Revive, Mediker, Oil of Malabar and
the Sil range of processed foods. It has six factories, and sub-contract facilities for
production. The overseas sales franchise of Marico's branded FMCG products is one of the
largest amongst Indian companies. It is also the largest Indian FMCG company in
Bangladesh.
4.9 GlaxoSmithKline Healthcare Ltd.
GlaxoSmithKline Consumer Healthcare‟s (GCH) core business is manufacturing of health
drinks under the brand Horlicks. The history of the company goes way back in 1950s when
bottled Horlicks was imported from England. But in the year 1955 due to change in import
policy, import of Horlicks was stopped.
During 1956-57 a team of Horlicks visited India to explore possibilities for setting up a plant
in India. For this the company approached Maharaja of Nabha Pratap Singh in Punjab. Later
in October 1958 with the support of Maharaja, Hindustan Milk food Manufacturer (HMML)
was established to produce Horlicks.
In the year 1969 Beecham plc acquired Horlicks England, which led the company to become
major shareholder in HMML. In 1979 Beecham India was merged with Hindustan Milk food
Manufacturer. Later Beecham plc, UK got merged with SmithKline USA.
In January 2000 the name was changed to GlaxoSmithKline Consumer Healthcare.
It exports products to countries like Bangladesh, Myanmar, Sri Lanka, Middle East, Fiji,
Mauritius, Nepal, Bhutan and many more.
GCH has manufacturing plants located at Punjab, Andhra Pradesh, Haryana, Hyderabad,
Chennai, Guwahati, Ghaziabad, Bangalore and Gurgaon.
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5. FMCG ANALYSIS
5.1 SWOT ANALYSIS
STRENGTHS
Low operational costs
Presence of established
distribution networks in both
urban and rural areas
Presence of well – known brands
in FMCG Sector
WEAKNESS
Lower scope of investing in
technology and achieving
economies of scale, especially in
small sectors.
Low export levels
“Me-too” products, which
illegally mimic the labels of the
established brands, these products
narrow the scope of FMCG
products in rural and semi- urban
market.
OPPORTUNITIES
Untapped rural market
Rising income levels, i.e. increase
in purchasing power of consumers
Large domestic market – a
population of over one billion
Export potential
High consumer good spending
THREAT
Removal of import restrictions
resulting in replacing of domestic
brands.
Slowdown in rural demand
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5.2 U – Curve Analysis
In Rs. Crore HUL Dabur Marico Godrej Colgate GSK P&G Emami
Sales 21,215.15 2,476.52 1,902.34 1,113.67 1,786.87 2,025.76 815.64 739.79
PBDIT 3,241.48 473.4 222.1 209.11 364.04 402.14 246.04 141.57
PBDIT / Sales 15.28% 19.12% 11.68% 18.78% 20.37% 19.85% 30.17% 19.14%
Generalists Specialists
Ditch
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Through market forces, markets that are largely free of major entry barriers are eventually
characterized by two kinds of competitors: full-line generalists and product/market
specialists. Full-line generalists compete across a range of products and markets, and are
volume-driven players for whom financial performance improves with gains in market share.
Specialists tend to be margin- driven players, and their financial performance deteriorates as
they increase their share of the broad market. Contrary to traditional economic theory, then,
evolved markets tend to be simultaneously oligopolistic as well as monopolistic.
Figure plots financial performance and market share of various key players of FMCG sector
viz. Emami, HUL, Godrej, Colgate Palmolive, P&G, Dabur, Marico and GSK. The figure
indicates that both at the lower volume end and at the higher volume end, there are big profits
/ margins Though there are big profits at the two ends of the parabola, the game is totally
different at the lower revenue end compared to the higher revenue. Similarly, at the middle
end of the curve [where we have medium volumes], there is a sharp fall in returns (a
phenomena that is seen across industries). This “Mid- Zone” has been defined as the Ditch.
HUL Dabur Marico Godrej Colgate GSK P&G Emami
Sales (in Rs. Cr) 10,151.54 1,246.01 957.05 580.07 999.17 1025.37 719.51 224.01
PBDIT (in Rs. Cr) 1,712.66 188.28 89.94 105.79 202.53 209.67 159.69 36.39
PBDIT/Sales 16.87% 15.11% 9.40% 18.24% 20.27% 20.45% 22.19% 16.24%
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In a competitive, mature market, there is room for only three generalists but there can be
more number of product / market specialists as is evident from the figures. Here is a
classification of the two:
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5.3 Y-o-Y Change
5.3.1 COGS as a % of Sales
Company FY10 FY09 9MFY10 9MFY09
Dabur 45.40% 48.60% 45.60% 49.30%
Marico 47.40% 53.50% 48.20% 54.50%
Godrej Consumer 46.40% 55.20% 47.00% 56.70%
HUL 49.86% 52.46%
50.60% 53.70%
ITC 36.0% 38.6% 40.00% 42.40%
Colgate 37.5% 33.5% 43.10% 43.60%
GSK Consumer Healthcare 37.10% 38.00% 37.00% 38.00%
P&G Hygiene and Healthcare 30.10% 31.30% 30.50%
Nestle 47.70% 48.70% 51.00% 52.80%
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5.3.2 Gross Profit Margin
Company FY10 FY09 9MFY10 9MFY09
Dabur 54.60% 51.40% 54.40% 50.70%
Marico 52.60% 46.50% 51.80% 45.50%
Godrej Consumer 53.60% 44.80% 53.00% 43.30%
HUL 50.14% 47.54% 49.40% 46.30%
ITC 64.05% 61.36% 60.00% 57.60%
Colgate 62.54% 66.51% 56.90% 56.40%
GSK Consumer Healthcare 62.90% 62.00% 63.00% 62.00%
P&G Hygiene and Healthcare 69.90% 68.70% 69.50%
Nestle 52.30% 51.30% 49.00% 47.20%
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5.3.3 EBITDA Margin
Company Q4FY10 04FY09
Dabur 20.53% 18.81%
Marico 14.98% 14.48%
Godrej Consumer 23.52% 22.96%
GSK Consumer Healthcare 24.20% 26.80%
P&G Hygiene and Healthcare 29.60% 27.90%
Nestle 21.50% 24.40%
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STUDY OF DABUR INDIA LIMITED
Dabur India Ltd. – An Introduction
Strategic Business Units
Dabur Analysis
P
A
R
T
2
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1. DABUR INDIA LIMITED – An Introduction
DABUR: IN SENSEX: IND
LAST PRICE (INR)
(as on June 4, 2010)
190
BSE Code 500096
NSE Code DABUR
Bloomberg Code DABUR IN
FUNDAMENTALS
Shares (Millions)
867.586
Market Cap (Millions) 166,923.50
Earnings 5.820
Price/Earnings 33.058
ROE 54.372
Beta vs. Sensex 0.604
Dabur India Ltd. with revenue of Rs. Rs 3390
Crore (FY10) made its beginnings with a small
pharmacy and has marked its presence with
significant achievements and today commands a
market leadership status. The Company has come a
long way in popularizing and making easily
available a whole range of products based on the
traditional science of Ayurveda. And Dabur has set
very high standards in developing products and
processes that meet stringent quality norms.
3 Subsidiary Group companies - Dabur
International, Fem Care Pharma and newu
8 step down subsidiaries: Dabur Nepal Pvt. Ltd
(Nepal), Dabur Egypt Ltd (Egypt), Asian
Consumer Care (Bangladesh), Asian Consumer
Care (Pakistan), African Consumer Care
(Nigeria), Naturelle LLC (Ras Al Khaimah-
UAE), Weikfield International (UAE) and
Jaquline
17 ultra-modern manufacturing units spread
around the globe over India.
Products marketed in over 60 countries.
Wide and deep penetration with 50 C&F
agents, more than 5000 distributors and over
2.8 million retails outlets all over India
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The Company's business is structured in three strategically aligned strategic business units:
Consumer Care Division (CCD)
which markets a wide range of
products across various consumer
categories. This division accounted
for 72.8% of the Company‟s
consolidated sales in 2008-09.
Consumer Health Division (CHD)
which offers over-the-counter (OTC) products, branded ethical and classical products
based on the Ayurveda platform. This Division accounted for 7.3% of Consolidated
Sales in 2008-09.
International Business Division (IBD) which has made rapid strides and become a
key growth driver for the Company. With its business spread over Middle East, North
Africa and South Asia, the division contributed to 18.5% of the consolidated sales in
2008-09.
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2. STRATEGIC BUSINESS UNITS
2.1 Consumer Care Division
Extension of existing brands to more
sub-categories and making more choice
available to consumers, coupled with
increased focus on rural penetration,
was the key platform on which CCD
leveraged its growth during 2008-09.
The division reported growth of 13.8%,
supported by strong performance
across various segments.
The CCD business is divided into four key portfolios: healthcare, personal care, home care
and foods. These cater to a number of consumer market segments including hair care, oral
care, baby and skin care, health supplements, digestives, home care and foods. Share of these
product segments in CCD sales is presented in Figure.
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Products
Health Care
FMCG Sector Study and M&A perspective 2010
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Personal Care
Hair Care
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Skin Care
Home Care
Food
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2.2 Consumer Health Division (CHD)
The Consumer Health Division, comprising a range of healthcare products that provide
Ayurveda-based solutions for health related issues, continued to be key focus area for the
Company during the year. With both the OTC (Over the Counter) and Classical product
categories continuing to drive the Company‟s
CHD business, that was initiated in 2008.
CHD registered an 18.9% growth (FY09),
with both, the Ethical &OTC portfolio doing
well across the range driven by packaging up
gradation, mass media activities and a whole
range of on ground consumer activations including Dabur Ayurvedic Health Camps.
With Juhi Chawla as its brands ambassador, the Women‟s Health portfolio comprising
Dashmularishita did well growing by 13.25 and 14.2% respectively. The newly launched
Dabur Active Blood Purifier also gained market share in this segment.
Other new product launched
during the year-Dabur Super
Thanda Tail and Dabur Active
Antacid evoked a good market
response. Dabur Badam Tail,
launched during the previous
year, recorded 20.6% growth,
with sales touching about Rs.6 crore in the second year of its launch.
The Honitus franchise in this segment grew 13.6% during 2008-09 with new variants Mulethi
Power and Honey Mint, adding to the brand portfolio.
2.3 International Business Division
The division, which has been transformed from being a small operation into a multi location
business spreading through the Middle East, North Africa, West Africa and South Asia, grew
by 39.9% during the year 2009 and emerged as the fastest growing division of the Company.
The division‟s performance was supported by strong volume-led growth as well as price
increases undertaken to offset the impact of high inflation on input costs during the year. This
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acceleration in growth of IBD led to its contribution to Dabur‟s consolidated revenue going
up to 18.5% for FY09 from 15.7% a year ago.
The key categories accelerating the division‟s growth are Hair Creams, Toothpastes, Hair
Oils and Conditioners. It is pertinent to mention that the brand architecture in the Company‟s
overseas markets remains similar to that in India, though the product sold under these brands
are customized and modified to the requirements of these markets.
A significant contributor to the division‟s growth during 2008-09 was geographical
expansion, resulting from opening up of fresh markets like Lebanon, Turkey, Algeria,
Morocco and Mauritania that offer new avenues for growth.
The division‟s top line growth was boosted by robust performance in key geographies like
GCC, Nigeria and Bangladesh.
GCC, which is one of the Company‟s key markets, grew by 46%during the year as a result of
excellent off takes witnessed in the Vatika Hair Oil franchise, and also high growth in Vatika
Naturals styling hair cream.
Egypt, which has emerged as another key geography, doubled itself with a growth of 99%
during the fiscal with strong performances from Vatika Hair Cream and Vatika Olive Lite
Hair Oil.
Nigeria, which is predominantly an Oral Care market for IBD, delivered a strong 36% growth
for the year .Brands that delivered strong performances during the year in this market were
Dabur Herbal Toothpaste and Dabur Herbal Gel.
Asian Consumer Care, Bangladesh, performed exceedingly well, reporting a growth of 56%
during the fiscal. The growth was led by increased distribution penetration and focused brand
approach.
Nepal which is one of the key markets in the Indian subcontinent, recorded a steady growth
of 11%. The Pakistan operation was, however, impacted by the political uncertainty
prevailing in the country.
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3. DABUR ANALYSIS
3.1 SWOT Analysis
STRENGTH
Differentiated products
Wide distribution network
Brand strength
WEAKNESS
Inadequate presence in South India
OPPORTUNITY
Untapped Market
Market Development
Innovation
Increasing income level of the middle
class
Creating additional consumption
pattern
THREAT
Existing Competition
New Entrants
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The analysis shows Dabur India‟s Strengths, Weaknesses, Opportunities and Threats which
is operating in FMCG sector which will give a clear picture of the business environment it is
operating in at the present time.
Strengths:
The strengths of a business or organization are positive elements, something they do well and
are under their control. The following section will outline main strengths of Dabur India
Having alliances with other strong and popular businesses is a major plus point for
Dabur India as it helps bring in new customers and make business more effective.
Being a market leader in the niche market (FMCG industry), as Dabur India is, it
boosts profit, turnover and market share.
Competitive pricing is a vital element of the overall success, as this keeps them in line
with their rivals, if not above them.
Keeping costs lower than their competitors and keeping the cost advantages helps
them pass on some of the benefits to consumers.
The products offered by them are original, meaning many people will return to Dabur
India to obtain them.
Dabur India‟s marketing strategy has proved to be effective, helping to raise profiles
and profits and standing out as a major strength.
Their innovation keeps them a front-runner in FMCG as it is regularly turning out
new patents/proprietary technology.
High quality machinery, staff, offices and equipment ensure the job is done to the
utmost standard.
Dabur India has an extensive customer base, which is a major strength regarding sales
and profit. Moreover people view it with respect and have faith in it.
Being financially strong helps them deal with any problems, ride any dip in profits
and out perform their rivals.
Dabur India‟s international operations mean a wider customer base, a stronger brand
and a bigger chunk of the global market.
Having little competition, being one of very few companies providing this product is a
major factor in Dabur India‟s performance.
Supplier relationships are strong at Dabur India, which can only be seen as strength in
their overall performance.
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Weaknesses:
Weaknesses of a company or organization are things that need to be improved or perform
better, which are under their control. Dabur India Ltd has not observed any failure on the part
of the company to correct major weakness in internal control system except that in the South,
they do not have a strong presence especially in the hair oil segment
Opportunities:
Opportunities are external changes, trends or needs that could enhance the business or
organization‟s strategic position, or which could be of a benefit to them. This section will
outline opportunities that Dabur India is currently facing.
Dabur India could benefit from Governmental support, in the form of grants,
allowances, training etc.
Looking at export opportunities is a way for them to raise profits.
Changes in technology could give an opportunity to bolster future success.
They could benefit from expanding their online presence and making more money
from online shoppers/internet users.
The changes in the way consumers spend and what they buy provides a big
opportunity for them to explore.
They are in good financial position, which is an opportunity for them to explore in
terms of investment in new projects.
Grasping the opportunity to expand the customer base is something they can aim for,
either geographically or through new products.
Takeover and merger opportunities could be explored for them and used to acquire
new customers, new resources and enter new markets.
Forming strategic alliances and joint ventures is an opportunity for them to maximize
profit and gain new business.
Structural changes in the industry open other doors and opportunities for them.
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Threats:
Threats are factors which may restrict damage or put areas of the business or organization at
risk. They are factors which are outside of the company's control. Being aware of the threats
and being able to prepare for them makes this section valuable when considering contingency
plans and strategies. This section will outline main threats Dabur India is currently facing.
Tax increases placing additional financial burdens on Dabur India could be a threat.
Change in demographics could threaten Dabur India.
The financial burden of increasing interest rates could be a threat to them.
Regulations requiring money to be spent or measures to be taken could put financial
or other pressure on Dabur India.
New products/services from rival firms could lead to their products/services being
less in demand.
Being undercut by low-cost imports is a major threat for them.
Slow growth and decline of the FMCG market.
Increased competition from overseas is another threat as it could lead to lack of
interest in their products/services.
Extra competition and new competitors entering the market.
Substitute products available in the market present a major threat to Dabur India
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3.2 BCG Matrix
High Low
High
Low
DABUR Glucose
DABUR Honey
Meswak
Dazzl
New U
New U
Fem
Chyawanprash
Hajmola
Real
STAR
S
Question
Mark
Cash
Cows
Dog
s
M A R K E T S H A R E
M
A
R
K
E
T
G
R
O
W
T
H
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3.3 Porter Five Forces Model
1) The threat of substitute products:
The existence of close substitute products increases the propensity of customers to switch to
alternatives in response to price increases (high elasticity of demand).
Buyer propensity to substitute
Relative price performance of substitutes
Buyer switching costs
Perceived level of product differentiation
In case of Dabur since it is in major areas of FMCG and health care products so it need not
fear threat of substitute products in the recent future. But it has to constantly reinvent its
existing product lines in order to cope up with the innovations of its competitors.
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2) The threat of the entry of new competitors:
Profitable markets that yield high returns will draw firms. This results in many new entrants,
which will effectively decrease profitability. Unless the entry of new firms can be blocked by
incumbents, the profit rate will fall towards a competitive level (perfect competition).
The existence of barriers to entry (patents, rights, etc.)
Economies of product differences
Brand equity
Switching costs or sunk costs
Capital requirements
Access to distribution
Absolute cost advantages
Learning curve advantages
Expected retaliation by incumbents
Government policies
Dabur India is in business for more than 100 years. Dabur India Ltd. made its beginnings
with a small pharmacy, but has continued to learn and grow to a commanding status in the
industry. The Company has gone a long way in popularizing and making easily available a
whole range of products based on the traditional science of Ayurveda. And it has set very
high standards in developing products and processes that meet stringent quality norms. So, all
the advantages of first mover, learning curve, brand loyalty, patents and economies of scale
exist with Dabur India.
The various product into which Dabur India is operating and giving edge over others are:
Personal care through Ayurveda: Dabur introduced Indian consumers to personal care
through Ayurveda, with the launch of Dabur Amla Hair Oil. So popular is the product that it
becomes the largest selling hair oil brand in India.
Launched Dabur Chyawanprash in tin pack: The ancient restorative Chyawanprash is
launched in packaged form, and becomes the first branded Chyawanprash in India.
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Entered Oral Care & Digestives segment: In rural markets, where homemade oral care is
more popular than multinational brands, Dabur introduces Lal Dant Manjan. With this a
conveniently packaged herbal toothpowder is made available at affordable costs to the
masses.
Dabur continues to make innovative products based on traditional formulations that can
provide holistic care in our daily life. An Ayurvedic medicine used as a digestive aid is
branded and launched as the popular Hajmola tablet.
Care with fun: The Ayurvedic digestive formulation is converted into a children's fun product
with the launch of Hajmola Candy. In an innovative move, a curative product is converted to
a confectionary item for wider usage.
Leadership in health care: Dabur establishes its leadership in health care as one of only two
companies worldwide to launch the anti-cancer drug Intaxel (Paclitaxel). Dabur Research
Foundation develops an eco-friendly process to extract the drug from its plant source.
Real blitzkrieg: Dabur captures the imagination of young Indian consumers with the launch
of Real Fruit Juices - a new concept in the Indian foods market. The first local brand of 100%
pure natural fruit juices made to international standards, Real becomes the fastest growing
and largest selling brand in the country.
Super specialty drugs: With the setting up of Dabur Oncology's sterile cytotoxic facility, the
Company gains entry into the highly specialized area of cancer therapy. The state-of- the-art
plant and laboratory in the UK have approval from the MCA of UK. They follow FDA
guidelines for production of drugs specifically for European and American markets.
3) The intensity of competitive rivalry:
For most industries, this is the major determinant of the competitiveness of the industry.
Sometimes rivals compete aggressively and sometimes rivals compete in non-price
dimensions such as innovation, marketing, etc.
Number of competitors
Rate of industry growth
Intermittent industry overcapacity
Diversity of competitors
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Informational complexity and asymmetry
Fixed cost allocation per value added
Level of advertising expense
Economies of scale
Sustainable competitive advantage through improvisation
Key players and competitors of Dabur India currently are Hindustan Unilever Ltd., Tata Tea,
Nestle India Ltd., Britannia Industries Ltd., Colgate Palmolive Ltd., Marico Ltd.,
GlaxoSmithKline, Cadbury India ltd., ITC Ltd., and Procter & Gamble. Since the industry is
growing at a very rapid pace and so is the no. of players. So Dabur India has to constantly
relook at its strategy in order to increase its global dominance.
4) The bargaining power of customers:
It is the ability of customers to put the firm under pressure and it also affects the customer's
sensitivity to price changes.
Buyer concentration to firm concentration ratio
Degree of dependency upon existing channels of distribution
Bargaining leverage, particularly in industries with high fixed costs
Buyer volume
Buyers Switching cost relative to firm switching costs
Buyer information availability
Availability of existing substitute products
Buyer price sensitivity
Differential advantage (uniqueness) of industry products
RFM Analysis
Bargaining powers of buyers have increased dramatically with the advent of Globalization.
With increased presence of other players in the market as mentioned previously, suppliers
have got wide range of choices. So Dabur India has to formulate strategy in such a manner to
keep abreast with the increasing competition by improving the quality and reducing the prices
over the period.
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5) The bargaining power of suppliers: (Also described as market of inputs).
Suppliers of raw materials, components, labor, and services (such as expertise) to the firm
can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g.
charge excessively high prices for unique resources.
Supplier switching costs relative to firm switching costs
Degree of differentiation of inputs
Presence of substitute inputs
Supplier concentration to firm concentration ratio
Employee solidarity (e.g. labor unions)
Threat of forward integration by suppliers relative to the threat of backward
integration by firms
Cost of inputs relative to selling price of the product.
Due to its over 100 years presence Dabur does have a very strong bond with the suppliers.
Also Dabur does follow the policy of having good relations with all the peoples with which it
deals. This helps in having a good relation with the suppliers. Also the policy of being
accountable to stakeholders be it customers, without whom it will not be in business,
shareholders, who have an important stake in Dabur‟s business and the employees, suppliers
who have a vested interest in making it all happen- are their stakeholders.
3.4 Fundamental Analysis
Liquidity and Leverage Ratio
Mar 05 Mar 06 Mar 07 Mar 08 Mar 09
Current Ratio 0.76 0.89 0.89 1.07 1.06
Quick Ratio 0.24 0.32 0.36 0.49 0.38
Debt to equity ratio 0.14 0.05 0.05 0.03 0.19
Interest Coverage Ratio 36.41 38.50 65.16 34.46 30.55
Current Ratio of Dabur for last 5 year is near to 1 and for last 2 financial years it is more than
1 this indicates that the company is in good position as Current Ratio standard for FMCG
Table 1
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industry is 1:1 which indicates that the current asset of Dabur consists of less amount of
inventory. Value of sundry debtors is quite high. The liquidity ratios have increase from
previous year which shows that Dabur has increased its liquidity further.
Debt/Equity ratio means the ratio of finance coming from Debts compared to shareholders. A
ratio exceeding 1 may be a cause for concern. As it can be seen that the Debt/Equity ratio is
near to 0.03 & 0.05 for the last three year this means that company operate the business
mainly through owner funds but this financial year Debt/Equity ratio has increased from 0.03
to 0.19 this indicate that company has taken loan from market to finance the business. With
Debt/Equity ratio we can say that in this financial year 2009 company is investing Rs 1 from
their pocket and 19 paisa from outside. As they have taken loan from market then there
Interest coverage ratio has decreased. Interest Coverage Ratio show that how Leverage the
company is the higher the ratio the less leverage
Management Efficiency Ratio
Mar05 Mar06 Mar07 Mar08 Mar09
Receivable turnover ratio 24.98 35.31 39.70 25.94 22.63
Inventory Turnover Ratio 8.26 9.03 10.72 9.52 8.66
Total Asset Turnover 3.18 3.15 3.92 4.33 4.50
Inventory turnover ratio show that how many times in a year has the company converted its
inventory into debtor. As the Inventory turnover ratio has decreased as compared to the
previous 4 year this show how slow the goods are moving in the market and also indicate the
production and sales efficiency of the company. Debtor turnover ratio show how that how
many times company can convert debtors into cash in a year.DTR has decreased as compared
to the previous 4 years which is good on behalf of the company because they are recovering
money faster from debtor. Asset turnover ratio is net sales/net asset has ATR is increasing
marginally for all the 4 year this show that company net sales is increasing year on year
which is good from company‟s point of view.
Table 2
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Profitability Ratio
Mar05 Mar06 Mar07 Mar08 Mar09
Gross Profit Margin 14.08% 18.22% 16.19% 18.48% 16.83%
Operating Profit Margin 14.73% 17.91% 17.46% 18.62% 18.44%
EBITDA Margin 15.29% 18.13% 18.17% 19.48% 19.66%
EBT Margin 13.41% 15.97% 16.29% 17.45% 17.75%
Net profit Margin 11.62% 13.78% 14.15% 14.89% 15.34%
Contribution Margin 49.94% 50.65% 47.94% 43.97% 40.20%
Return on Asset 43.90% 51.61% 64.79% 77.78% 62.17%
Return on common equity 43.80% 48.13% 59.26% 68.06% 59.02%
Return on Total Equity 43.80% 48.13% 59.26% 68.06% 59.02%
Return on Total Capital 82.19% 45.58% 57.57% 67.72% 54.57%
EBIT as percentage of sales is good and there has been significant change in it during last 4
years from 13.41 in 2005 to 17.75 in 2009. There has been a significant change in operating
Margin as compared to the last 4 years, in year 2009 it is 18.44% as compared to 2005 when
it was 14.73%. The profit generating ability is not so good as visible from the fall in ROCE to
59.02% in year 2009 from 68.06% in 2008, perhaps because of the increased in debt (change
in capital structure) and decreased in current liability (non interest bearing item).
Market Based Return
Mar05 Mar06 Mar07 Mar08 Mar09
Avg. P/E Ratio
28.9 26.7 20.7
Avg. Market Cap (Rs. Crore)
8154.2 8899.4 8131.8
Price to Book Value
17.7 14.7 10
EPS
3.3 3.9 4.5
PER ratio for Dabur is not so good with values over 25 in the year 2007 and 2008. But for
this financial year it is 20.7 that mean it is decreasing the P/E ratio which is not a good
symbol. Market capitalization of Dabur has decreased from 2008 which was 8899.4 to 8131.8
in 2009 therefore Management need to look forward to increase their market capitalization.
Table 3
Table 4
FMCG Sector Study and M&A perspective 2010
50 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
3.5 Share Price Analysis (20 DMA and 50 DMA)
From the above Moving Average Chart we can see that in the month of January to June
Dabur price line has shown upward trend as the price was moving along with 20 days moving
average. In the mid of march, 20 days moving average is suppose to cut 50 days moving
average but it does not happen if suppose it has cut the 50 days moving average then the price
should have fall. As from April the gap between 20 days moving average and 50 days
moving average goes on increasing therefore from April to June price of Dabur stock has also
gone up. But in the month of October 09, February 10 and April 10, we could see 20 days
average and 50 days average line intersecting each other causing decrease in price in those
periods. But the upward trend in the month of May 10 can forecast that the stock price of
Dabur is going to raise further and it is seems that it will go further up recommending the
buying of the stock of Dabur.
FMCG Sector Study and M&A perspective 2010
51 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
MERGER & ACQUISITION SIMULATION
Amrutanjan Healthcare Ltd. – An Introduction
Merger Rationale
Valuations
Valuation post merger
Conclusion
P
A
R
T
3
FMCG Sector Study and M&A perspective 2010
52 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
1. AMRUTANJAN HEALTHCARE LTD.– An Introduction
ARJN: IN SENSEX: IND
LAST PRICE (INR)
(as on June 4, 2010)
Rs. 763
BSE Code 590006
NSE Code AMRUTANJAN
Bloomberg Code ARJN IN
FUNDAMENTALS
Shares (Millions)
3.03
Market Cap(Millions) 2,330.4
Earnings 290.5
Price/Earnings 2.65
ROE 154.8
Beta vs. Sensex 0.648
Amrutanjan Healthcare Ltd. with revenue of Rs.
Rs 96.07 Crore (FY09) started in the year 1893 by
the social reformer, journalist and freedom fighter,
Desodharaka" Sri.Nageswara Rao Pantulu Garu, and
today it is one of the household names in South
India.
The Company's OTC (Over The Counter) segment's
Gross Sales is higher by 12.5% at Rs. 88.06 crores
while Company's FGD (Fine Chemicals Division)
segment's sales is higher by 8.6% at Rs.8.01 crores.
Profit before extraordinary items is at Rs. 18.72
crores, which is higher by 88% when compared to
the previous year. This achievement was possible on
account of higher interest income earned on
investment of surplus monies and better operational
efficiency achieved during the year.
While Amrutanjan Pain Balm (Yellow Balm) is the
flagship brand of the company with a rich heritage
of over 100 years. With a wide range of ayurvedic
and allopathic products, Amrutanjan has helped
millions of people relieve themselves from the pain
and discomfort of headaches, colds, sprains,
muscular pains, rheumatic pains and stands a real
pain management specialist for its loyal customers.
FMCG Sector Study and M&A perspective 2010
53 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
2. MERGER RATIONALE
One plus one makes three: this equation is the special alchemy of a merger or an acquisition.
A merger happens when two firms agree to go forward as a single new company rather than
remain separately owned and operated. This kind of action is more precisely referred to as a
"merger of equals". The firms are often of about the same size. Both companies' stocks are
surrendered and new company stock is issued in its place. For example, in the 1999 merger of
Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist when they merged,
and a new company, GlaxoSmithKline, was created.
In practice, however, actual mergers of equals don't happen very often. Usually, one company
will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim
that the action is a merger of equals, even if it is technically an acquisition.
The key principle behind buying a company is to create shareholder value over and above
that of the sum of the two companies. Two companies together are more valuable than two
separate companies - at least, that's the reasoning behind M&A. This rationale is particularly
alluring to companies when times are tough. Strong companies will act to buy other
companies to create a more competitive, cost-efficient company. The companies will come
together hoping to gain a greater market share or to achieve greater efficiency. Because of
these potential benefits, target companies will often agree to be purchased when they know
they cannot survive alone.
Working on the same lines, following are the key rationales behind Acquisition of
Amrutanjan Healthcare Ltd.
Synergy: After acquiring the firm, Dabur would have a greater value than the sum of
its parts as a result of enhanced revenues and the cost base.
Cost Reduction: Dabur would be able to reduce its fixed costs by removing duplicate
departments or operations, lowering the costs of the company relative to the same
revenue stream, thus increasing profit margins.
FMCG Sector Study and M&A perspective 2010
54 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
Entry to New Markets / Geographical Diversification: This would enable Dabur to
expand regional presence as 55% of Amrutanjan‟s revenue is from south. These
would complement Dabur's regional saliency, as Dabur has a higher revenues share
coming from the markets in the north and the east.
Cross Selling: Following the strategy of pushing new products to current customers
based on their past purchases, it is designed to widen the customer's reliance on the
company and decrease the likelihood of the customer switching to a competitor.
Increase Product Range: By acquiring Dabur would be able to have the technical
knowhow of pain relieving ointments hence would be able to increase their product
range and add another segment to their product portfolio.
The acquisition also marks Dabur's entry into niche segments of pain relieving
product segment providing it completely new area of growth – which could be
capitalized on in the future.
Empire Building: A bigger company to manage and hence more power.
FMCG Sector Study and M&A perspective 2010
55 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
3. VALUATIONS
3.1 Financial Projections
3.1.1 Amrutanjan Healthcare Ltd.
in Rs. Crores 2007A 2008A 2009A
2010
E
2011
E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E
Revenue 73.4 75.0 97.6 113.4 131.8 153.1 177.9 206.7 237.7 273.4 314.4 361.6 415.8
Growth (YoY) %
2.2% 30.2% 16.2% 16.2% 16.2% 16.2% 16.2% 15.0% 15.0% 15.0% 15.0% 15.0%
Personnel Expenses 9.0 9.4 10.9 12.7 14.8 17.2 19.9 23.2 26.6 30.6 35.2 40.5 46.6
Operating and Other Expenses 48.0 53.3 66.3 77.0 89.5 104.0 120.9 140.4 161.5 185.7 213.6 245.6 282.5
EBITDA 16.4 12.2 20.4 22.5 26.1 30.4 35.3 41.0 47.1 54.2 62.3 71.7 82.5
EBITDA margin (%) 22.4% 16.3% 20.9% 19.8% 19.8% 19.8% 19.8% 19.8% 19.8% 19.8% 19.8% 19.8% 19.8%
Depreciation 1.5 1.5 1.5 1.8 1.9 2.1 2.3 2.5 2.6 3.0 3.2 3.3 3.8
EBIT 14.9 10.7 18.9 20.7 24.3 28.2 33.0 38.5 44.5 51.2 59.2 68.4 78.6
EBIT margin (%)
14.3% 19.3% 18.3% 18.4% 18.4% 18.5% 18.6% 18.7% 18.7% 18.8% 18.9% 18.9%
Transfer to Revaluation Reserve 0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Financial Expenses 0.54 0.747 0.15 0.7 0.8 0.7 1.0 1.1 1.2 1.5 1.7 1.9 2.2
Financial Expenses/ Revenue 0.7% 1.0% 0.2% 0.6% 0.6% 0.5% 0.6% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%
PBT 14.3 10.0 18.7 20.0 23.5 27.5 32.0 37.4 43.3 49.7 57.5 66.5 76.4
Taxes 4.8 3.7 6.5 7.0 8.3 9.7 11.2 13.2 15.2 17.5 20.2 23.4 26.9
Effective Tax Rate 33.3% 36.5% 34.9% 34.9% 35.4% 35.1% 35.1% 35.2% 35.1% 35.2% 35.2% 35.2% 35.2%
PAT 9.6 6.3 12.2 13.0 15.2 17.9 20.7 24.2 28.1 32.2 37.3 43.1 49.5
Net Income margin (%) 13.0% 8.5% 12.5% 11.5% 11.5% 11.7% 11.7% 11.7% 11.8% 11.8% 11.9% 11.9% 11.9%
Table 5
FMCG Sector Study and M&A perspective 2010
56 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
3.1.2 Dabur India Ltd.
in Rs. Crores 2007A 2008A 2009A 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E
Revenue 2,069.0 2,395.1 2,852.3 3,422.7 4,107.3 4,928.7 5,914.5 7,097.4 8,303.9 9,715.6 11,367.2 13,299.7 15,560.6
Growth (YoY) %
15.8% 19.1% 20.0% 20.0% 20.0% 20.0% 20.0% 17.0% 17.0% 17.0% 17.0% 17.0%
Personnel Expenses 166.7 199.3 234.7 281.6 338.0 405.6 486.7 584.0 683.3 799.4 935.4 1,094.4 1,280.4
Operating and Other
Expenses 1,533.2 1,758.1 2,104.7 2,525.6 3,030.7 3,636.8 4,364.2 5,237.1 6,127.4 7,169.0 8,387.7 9,813.6 11,482.0
EBITDA 369.2 437.7 512.9 617.2 740.7 888.8 1,066.6 1,279.9 1,497.5 1,752.0 2,049.9 2,398.3 2,806.1
EBITDA margin (%) 17.8% 18.3% 18.0% 18.0% 18.0% 18.0% 18.0% 18.0% 18.0% 18.0% 18.0% 18.0% 18.0%
Depreciation 34.3 36.4 44.9 54.3 62.8 72.1 82.0 103.6 114.8 126.4 138.5 162.2 189.7
EBIT 334.9 401.3 468.1 562.9 677.9 816.7 984.6 1,176.3 1,382.7 1,625.6 1,911.3 2,236.2 2,616.3
EBIT margin (%) 16.2% 16.8% 16.4% 16.4% 16.5% 16.6% 16.6% 16.6% 16.7% 16.7% 16.8% 16.8% 16.8%
Transfer to Revaluation
Reserve 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Financial Expenses 15.4 16.8 23.2 25.8 31.0 38.2 45.0 54.2 63.6 74.2 86.9 101.7 118.9
Financial / Revenue 0.7% 0.7% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8%
PBT 319.5 384.5 444.8 537.1 646.8 778.5 939.5 1,122.0 1,319.0 1,551.4 1,824.4 2,134.4 2,497.4
Taxes 37.3 50.6 54.0 66.2 81.2 96.1 116.6 139.5 163.5 192.6 226.5 264.9 310.0
Effective Tax Rate 11.7% 13.2% 12.1% 12.3% 12.6% 12.3% 12.4% 12.4% 12.4% 12.4% 12.4% 12.4% 12.4%
PAT 282.2 333.8 390.8 470.9 565.6 682.4 822.9 982.5 1,155.5 1,358.8 1,597.9 1,869.6 2,187.4
Net Income margin
(%) 13.6% 13.9% 13.7% 13.8% 13.8% 13.8% 13.9% 13.8% 13.9% 14.0% 14.1% 14.1% 14.1%
Table 6
FMCG Sector Study and M&A perspective 2010
57 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
3.2 Beta Calculation
Company Levered Beta Debt Equity D/E Ratio Unlevered Beta Levered Beta
HUL 0.541 421.95 2,061.51 0.20 0.46
Marico 0.492 308.53 367.68 0.84 0.29
Godrej 0.501 62.89 536.92 0.12 0.46
Colgate 0.358 4.69 216.3 0.02 0.35
GSK 0.578 0 905.1 0.00 0.58
P&G 0.519 0 440.04 0.00 0.52
Emami 0.628 440.08 296.03 1.49 0.29
DABUR 0.605 138.98 818.809 0.17 0.53 0.49
Sectoral Unlevered Beta 0.44
Adjusted beta 0.62
3.3 WACC Calculation
3.3.1. Amrutanjan Healthcare Ltd.
Cost of Equity 12.7%
Risk free rate (Yield on 10 - yr Govt. of India bond)
7.6%
Equity Risk Premium for U.S.
4.5%
India - Country Risk Premium
4.5%
India - Equity Risk Premium
9.0%
Unlevered Beta
0.4
Levered Beta
0.6
Effective Cost of Debt 5.8%
Cost of Debt
7.3%
Tax Rate
20.0%
D/E Ratio (FY 2009) 0.36x
WACC 10.9%
Table 8
Table 7
FMCG Sector Study and M&A perspective 2010
58 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
3.3.2 Dabur India Ltd.
Cost of Equity 12.5%
Risk free rate (Yield on 10 - yr Govt. of India bond)
7.6%
Equity Risk Premium for U.S.
4.5%
India - Country Risk Premium
4.5%
India - Equity Risk Premium
9.0%
Unlevered Beta
0.4
Levered Beta
0.5
Effective Cost of Debt 8.2%
Cost of Debt
10.2%
Tax Rate
20.0%
D/E Ratio (FY 2009) 0.32x
WACC 11.4%
Table 9
FMCG Sector Study and M&A perspective 2010
59 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
3.4 CAPEX and Net working capital Projection
3.4.1 Amrutanjan Healthcare Ltd.
in Rs. Crores 2007A 2008A 2009A
2010
E
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
2019
E
Net
PPE/revenue
(%) 17.1% 25.7% 16.3% 16.3% 16.0% 15.0% 14.0% 13.0% 12.0% 12.0% 11.0% 10.0%
10.0
%
Net PPE 12.6 19.3 15.9 18.5 21.1 23.0 24.9 26.9 28.5 32.8 34.6 36.2 41.6
Depreciation
/net PPE 12.1% 7.6% 9.3% 9.7% 8.8% 9.3% 9.3% 9.1% 9.2% 9.2% 9.2% 9.2% 9.2%
Depreciation 1.5 1.5 1.5 1.8 1.9 2.1 2.3 2.5 2.6 3.0 3.2 3.3 3.8
CAPEX 14.1 8.2 -1.9 4.4 4.5 4.0 4.2 4.4 4.3 7.3 5.0 4.9 9.2
in Rs. Crores 2007A 2008A 2009A 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E
2019
E
Debt 9.8 12.5 34.2
Cash and Cash
Equivalents 7.8 2.7 67.5
Current Assets 25.8 25.2 92.4
Current Liabilities 8.2 9.5 13.8
Net Working
Capital 19.6 25.4 45.3 52.7 61.2 71.1 82.6 96.0 110.4 127.0 146.0 168.0 193.1
Shareholders'
Equity 23.2 25.5 93.8
Net Working
Capital Turnover 3.7 2.9 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2
Net Working
Capital Days 97.5 123.7 169.5 169.5 169.5 169.5 169.5 169.5 169.5 169.5 169.5 169.5 169.5
Table 10 a
Table 10 b
FMCG Sector Study and M&A perspective 2010
60 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
3.4.2 Dabur India Ltd.
in Rs. Crores 2007A 2008A 2009A 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E
Debt 185.8 126.4 258.1
Cash and Cash
Equivalents 60.7 76.6 148.4
Current Assets 640.5 773.9 950.8
Current Liabilities 451.8 732.1 807.6
Net Working Capital 313.8 91.7 252.8 303.4 364.0 436.8 524.2 629.0 736.0 861.1 1,007.5 1,178.7 1,379.1
Shareholders' Equity 479.6 617.6 818.8
Net Working Capital
Turnover 6.6 26.1 11.3 11.3 11.3 11.3 11.3 11.3 11.3 11.3 11.3 11.3 11.3
Net Working Capital
Days 55.4 14.0 32.3 32.3 32.3 32.3 32.3 32.3 32.3 32.3 32.3 32.3 32.3
in Rs. Crores 2007A 2008A 2009A 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E
Net
PPE/revenues 18.3% 19.4% 19.6% 19.1% 19.0% 18.0% 17.0% 18.0% 17.0% 16.0% 15.0% 15.0% 15.0%
Net PPE 379.2 465.3 559.2 654.4 780.4 887.2 1,005.5 1,277.5 1,411.7 1,554.5 1,705.1 1,994.9 2,334.1
Depreciation/
net PPE 9.0% 7.8% 8.0% 8.3% 8.0% 8.1% 8.2% 8.1% 8.1% 8.1% 8.1% 8.1% 8.1%
Depreciation 34.3 36.4 44.9 54.3 62.8 72.1 82.0 103.6 114.8 126.4 138.5 162.2 189.7
Table 11 a
Table 11 b
FMCG Sector Study and M&A perspective 2010
61 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
3.5 DCF Valuation
3.5.1 Amrutanjan Healthcare Ltd.
in Rs. Crores 2007A 2008A
2009
A
2010
E
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E 2019 E
EBIT 15 11 19 21 24 28 33 39 45 51 59 68 79
Less: Taxes 5 4 7 4 5 6 7 8 9 10 12 14 16
Add: Depreciation and Amortization 2 1 1 2 2 2 2 2 3 3 3 3 4
Less: Increase in Net Working Capital 20 6 20 7 9 10 12 13 14 17 19 22 25
Less: Capex 14 8 -2 4 4 4 4 4 4 7 5 5 9
FCF -22 -5 -4 7 8 11 13 15 20 20 27 31 32
Discount Factor 1.00 0.90 0.81 0.73 0.66 0.60 0.54 0.49 0.44 0.40
Discounted FCF
7 7 9 9 10 12 11 13 14 13
Sum of Discounted FCF (1) 104
Terminal Growth Rate
5.0%
Terminal Value
579
Discounted Terminal Value (2) 229
Valuation in Rs. Crores (1) + (2) 333
Equity Value 366.5
Terminal Value as a % of Overall Value 68.7%
Table 12
FMCG Sector Study and M&A perspective 2010
62 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
3.5.2 Dabur India Ltd.
in Rs. Crores 2007A 2008A 2009A 2010 E
2011
E
2012
E
2013
E
2014
E
2015
E
2016
E
2017
E
2018
E
2019
E
EBIT 335 401 468 563 678 817 985 1,176 1,383 1,626 1,911 2,236 2,616
Less: Taxes 37 51 54 112 135 163 196 235 276 324 381 446 522
Add: Depreciation and
Amortization 34 36 45 54 63 72 82 104 115 126 139 162 190
Less: Increase in Net Working
Capital 314 -222 161 51 61 73 87 105 107 125 146 171 200
Less: Capex 413 123 139 150 189 179 200 376 249 269 289 452 529
FCF -395 487 159 305 356 474 582 565 866 1,033 1,233 1,329 1,555
Discount Factor 1.00 0.90 0.81 0.72 0.65 0.58 0.52 0.47 0.42 0.38
Discounted FCF
305 320 382 421 367 505 541 580 561 589
Sum of Discounted FCF (1) 4,571
Terminal Growth Rate
5.0%
Terminal Value
25,569
Discounted Terminal Value (2) 9,689
Valuation in Rs. Crores (1) + (2) 14,259
Equity Value 14149.8
Terminal Value as a % of
Overall Value 67.9%
Table 13
FMCG Sector Study and M&A perspective 2010
63 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
4. VALUATION AFTER MERGER
4.1 Financial Projections
in Rs. Crores 2007A 2008A 2009A 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E Revenue (Acquirer) 2,069.0 2,395.1 2,852.3 3,349.2 3,932.8 4,618.0 5,422.6 6,367.4 7,322.5 8,420.9 9,684.0 11,136.7 12,807.2
Revenue (Target) 73.4 75.0 97.6 113.4 131.8 153.1 177.9 206.7 237.7 273.4 314.4 361.6 415.8
Revenue 2,142.4 2,470.0 2,949.9 3,462.6 4,064.6 4,771.1 5,600.5 6,574.1 7,560.3 8,694.3 9,998.5 11,498.2 13,223.0
Synergie 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
107.1 123.5 147.5 173.1 203.2 238.6 280.0 328.7 378.0 434.7 499.9 574.9 661.1
Revenue synergie 2,249.5 2,593.5 3,097.4 3,635.8 4,267.8 5,009.7 5,880.6 6,902.9 7,938.3 9,129.0 10,498.4 12,073.1 13,884.1
Cost (Acquirer) 1,699.9 1,957.4 2,339.4 2,807.2 3,368.7 4,042.4 4,850.9 5,821.1 6,810.6 7,968.4 9,323.1 10,908.0 12,762.4
Cost (Target) 57.0 62.8 77.3 89.8 104.3 121.2 140.8 163.6 188.2 216.4 248.8 286.2 329.1
Cost 1,756.9 2,020.1 2,416.6 2,897.0 3,473.0 4,163.6 4,991.7 5,984.7 6,998.8 8,184.8 9,571.9 11,194.2 13,091.4
Synergie 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
175.7 202.0 241.7 289.7 347.3 416.4 499.2 598.5 699.9 818.5 957.2 1,119.4 1,309.1
Cost Synergie 1,581.2 1,818.1 2,174.9 2,607.3 3,125.7 3,747.2 4,492.5 5,386.2 6,298.9 7,366.3 8,614.7 10,074.7 11,782.3
EBITDA 668.4 775.4 922.4 1,083.3 1,271.8 1,492.9 1,752.4 2,057.1 2,365.6 2,720.5 3,128.5 3,597.8 4,137.5
EBIDTA Margin % 29.7% 29.9% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8% 29.8%
EBIT 632.6 737.5 876.1 1,028.1 1,209.8 1,419.3 1,670.5 1,967.2 2,268.4 2,608.7 3,000.1 3,450.0 3,978.9
EBIT Margin % 28.1% 28.4% 28.3% 28.3% 28.3% 28.3% 28.4% 28.5% 28.6% 28.6% 28.6% 28.6% 28.7%
Financial Expense (Acquirer) 15.4 16.8 23.2 Financial Expense (Target) 0.5 0.7 0.2
Financial Expense 15.9 17.5 23.4 25.9 30.5 36.4 42.2 49.7 57.3 65.7 75.6 87.0 100.0 Financial Expense / Revenue 0.7% 0.7% 0.8% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7%
PBT 616.6 720.0 852.7 1,002.2 1,179.3 1,382.9 1,628.3 1,917.5 2,211.1 2,543.0 2,924.5 3,363.0 3,878.9
Tax (Acquirer) 37.3 50.6 54.0
Tax (Target) 4.8 3.7 6.5
Tax 42.1 54.3 60.6 71.7 85.7 99.2 117.2 138.3 159.1 183.2 210.7 242.2 279.4
Effective Tax Rate 6.8% 7.5% 7.1% 7.2% 7.3% 7.2% 7.2% 7.2% 7.2% 7.2% 7.2% 7.2% 7.2%
PAT 574.6 665.7 792.2 930.5 1,093.6 1,283.7 1,511.1 1,779.2 2,052.0 2,359.8 2,713.8 3,120.9 3,599.5
Table 14
FMCG Sector Study and M&A perspective 2010
64 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
4.2 WACC Calculation
Cost of Equity 12.4% Risk free rate (Yield on 10 - yr Govt. of India bond)
7.6%
Equity Risk Premium for U.S.
4.5%
India - Country Risk Premium
4.5%
India - Equity Risk Premium
9.0%
Unlevered Beta
0.4
Levered Beta
0.5
Effective Cost of Debt 8.2%
Cost of Debt
10.2%
Tax Rate
20.0%
D/E Ratio (FY 2009) 0.32x
WACC 11.4%
Table 15
FMCG Sector Study and M&A perspective 2010
65 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
4.3 CAPEX and Net Working Capital Projection
in Rs. Crores 2007A 2008A 2009A 2010
E 2011 E 2012 E 2013 E 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E
Debt(Acquirer) 185.8 126.4 258.1
Debt(Target) 9.8 12.5 34.2
Debt 195.6 138.9 292.3
Cash and Cash Equivalents (Acquirer) 60.7 76.6 148.4 Cash and Cash Equivalents (Target) 7.8 2.7 67.5
Cash and Cash Equivalents 68.5 79.3 215.9
Current Assets (Acquirer) 640.5 773.9 950.8
Current Assets (Target) 25.8 25.2 92.4
Current Assets 666.3 799.1 1,043.2
Current Liabilities (Acquirer) 451.8 732.1 807.6
Current Liabilities (Target) 8.2 9.5 13.8
Current Liabilities 460.0 741.6 821.4
Net Working Capital 333.4 117.1 298.1 351.0 338.5 454.4 522.5 595.7 703.5 802.6 919.8 1,063.0 1,219.9 Net working capital turnover 6.7 22.1 10.4 10.4 12.6 11.0 11.3 11.6 11.3 11.4 11.4 11.4 11.4
Net working capital days 54.1 16.5 35.1 35.2 29.0 33.1 32.4 31.5 32.3 32.1 32.0 32.1 32.1
Shareholders' Equity (Acquirer) 479.6 617.6 818.8 Shareholders' Equity (Target) 23.2 25.5 93.8
Shareholders' Equity 502.8 643.0 912.6 928.4 1,135.1 1,362.6 1,555.1 1,846.3 2,127.2 2,434.1 2,806.8 3,227.4 3,708.5 Shareholders' Equity / Revenue 22.3% 24.8% 29.5% 25.5% 26.6% 27.2% 26.4% 26.7% 26.8% 26.7% 26.7% 26.7% 26.7%
Fixed Asset (Acquirer) 379.2 465.3 559.2
Fixed Asset (Target) 12.6 19.3 15.9
Net Fixed Asset/ Revenue 17.4% 18.7% 18.6% 18.2% 18.0% 18.0% 17.0% 16.0% 15.0% 15.0% 15.0% 15.0% 14.0%
Total Fixed Asset 391.7 484.5 575.1 662.5 768.2 901.7 999.7 1,104.5 1,190.7 1,369.4 1,574.8 1,811.0 1,943.8
Depreciation (Acquirer) 34.3 36.4 44.9 54.3 62.8 72.1 82.0 103.6 114.8 126.4 138.5 162.2 189.7
Depreciation (Target) 1.5 1.5 1.5 1.8 1.9 2.1 2.3 2.5 2.6 3.0 3.2 3.3 3.8 Depreciation / total fixed asset 9.1% 7.8% 8.1% 8.3% 8.1% 8.2% 8.2% 8.1% 8.2% 8.2% 8.2% 8.2% 8.2%
Total Depreciation 35.8 37.9 46.3 55.2 62.0 73.5 81.9 89.9 97.2 111.8 128.4 147.8 158.6
CAPEX 130.7 136.9 142.6 167.7 207.1 179.8 194.7 183.5 290.4 333.8 384.0 291.4
Table 16
FMCG Sector Study and M&A perspective 2010
66 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
4.4 DCF Valuation
in Rs. Crores 2007A 2008A 2009A 2010 E 2011
E 2012
E 2013
E 2014
E 2015
E 2016
E 2017
E 2018
E 2019
E
EBIT 633 738 876 1,028 1,210 1,419 1,671 1,967 2,268 2,609 3,000 3,450 3,979
Less: Taxes 42 54 61 205 241 283 333 392 453 520 599 688 794 Add: Depreciation and Amortization 36 38 46 55 62 74 82 90 97 112 128 148 159 Less: Increase in Net Working Capital 333 -216 181 53 -12 116 68 73 108 99 117 143 157
Less: Capex 0 131 137 143 168 207 180 195 183 290 334 384 291
FCF 293 807 544 683 875 887 1,171 1,397 1,622 1,810 2,079 2,382 2,895
Discount Factor 1.00 0.90 0.81 0.72 0.65 0.58 0.52 0.47 0.42 0.38
Discounted FCF
683 786 715 848 908 946 949 978 1,006 1,098
Sum of Discounted FCF (1) 8,917
Terminal Growth Rate
5.0%
Terminal Value
47,703
Discounted Terminal Value (2) 18,093
Deal Value 367
Valuation in Rs. Crores (1) + (2) 26,644
Equity Value 26567.4
Terminal Value as a % of Overall Value 67.9%
Table 17
FMCG Sector Study and M&A perspective 2010
67 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
5. CONCLUSION
There are many reasons of wishing to engage in Merger and Acquisition but creating value is
the primary reason for it. In some cases, the company might be a good bargain with future
potential gains. In other cases, one of the companies may be in financial trouble and the
merger might be a way to fix their predicament. Even a company that is in financial disrepair
maybe a good bargain once the problems are fixed.
Sometimes the backing of a larger company is all that the smaller companies need to return to
profitability. In the case of an acquisition, the purchaser is speculating that the company will
be of greater value at some future point in time. There are many financially motivated reasons
why a company may choose to merge or acquire another company.
In the project I have taken a comparatively smaller company for acquisition but with a
different product portfolio speculating various synergies as a rationale for M&A. The
objective was to analyze whether the acquisitions would pronounce success with respect to
increase in equity value. I have made an effort to judge the justifiability of merger on the
ground of value creation. In this purpose I have used DCF approach of business valuation.
As a result, the Equity Value of Dabur India Ltd. before acquiring “Amrutanjan Healthcare
Ltd.” was Rs. 14149.8 crore with enterprise value Rs. 14259 crore and Equity value of Target
was Rs. 366.5 crore with enterprise value Rs. 333 crore but post merger the equity value
reached Rs. 26,567.4 crore and Enterprise Value Rs. 26,644 crore which is much greater than
the combined equity value of both the companies hence, it is very likely that if Dabur plans
for acquiring such company, it would definitely create value for the shareholders of both the
companies.
FMCG Sector Study and M&A perspective 2010
68 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
FINANCIALS
A.1 DABUR – Balance Sheet
in Rs. Crore 2007 2008 2009
SOURCES OF FUNDS
Shareholder's funds
Share Capital 86.29 86.4 86.51
Reserve and Surplus 393.28 531.173 732.299
479.57 617.573 818.809
Minority Interest 4.47 4.75 4.577
Loan Funds
Secured Loans 120.38 97.56 95.651
Unsecured Loans 39.51 1.6 131.938
Deferred Tax Liability 25.9 27.28 30.485
TOTAL 669.83 748.769 1081.46
APPLICATION OF FUNDS
Fixed Assets
Gross Block 617.23 729.66 858.51
Less: Depreciation 238.07 264.41 299.34
Net Block 379.16 465.26 559.169
Capital Work in Progress 0 0 0
379.16 465.26 559.169
Investments 80.7 203.72 346.965
Deferred Tax Asset
24.007 23.531
Inventories 257.11 302.48 375.468
Sundry Debtors 141.97 172.32 177.88
Cash & Bank Balances 60.67 76.57 148.425
Interest Accrued 0 0 0
Loans & Advances 180.72 222.53 249.02
640.47 773.9 950.793
Current Liabilities 361.52 457.97 481.65
Provisions 90.24 274.1 325.995
451.76 732.07 807.645
Net Current Assets 188.71 41.84 143.15
Miscellaneous Expense 19.82 13.95 8.64
TOTAL 669.83 748.777 1081.455
A
P
P
E
N
D
I
X
A
FMCG Sector Study and M&A perspective 2010
69 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.2 DABUR – P&L Account
DABUR 2007 2008 2009
Income
Sales Turnover 2,080.24 2,396.29 2,834.11
Excise Duty 37.11 35.22 28.68
Net Sales 2,043.13 2,361.07 2,805.43
Other Income 25.91 34.01 46.84
Stock Adjustments 0 0 0
Total Income 2,069.04 2,395.08 2,852.27
Expenditure
Raw Materials 971.08 1,115.39 1,376.18
Manufacturing Expenses 74.26 85.767 99.179
Employee Cost 166.67 199.306 234.699
Financial Expense 15.37 16.798 23.208
Selling and Admin Expenses 481.38 551.26 624.916
Miscellaneous Expenses 6.49 5.66 4.38
Depreciation 34.29 36.43 44.85
Total Expenses 1,749.54 2,010.61 2,407.41
Net Operating PBT 319.50 384.46 444.86
Provision for Taxation - Current 34.94 42.77 49.938
Provision for Taxation - Deferred -1.36 0.75 -2.55
Provision for Taxation - Fringe Benefit 3.74 7.12 6.65
Net PAT and before Extraordinary Items 282.18 333.82 390.82
Credit Balance from merged entity 0 0.185 0
Net PAT and Extraordinary Items 282.18 334.01 390.82
Minority Interest -0.87 -0.13 -0.407
Net Profit after Minority Interest 283.05 334.14 391.23
Balance Brought Forward 215.86 322.7 433.77
Provision for taxation for earlier year written back 0.22 0.68 0.00011
Provision for taxation for earlier year -1.55 -1.66 0.71
Profit Available for appropriation 497.58 655.86 825.71
Appropriation / Allocation
Interim Dividend 122.12 64.8 64.88
Proposed Dividend - Final 0 64.8 86.51
Corporate Tax on Interim Dividend 17.12 11.01 11.02
Corporate Tax on Proposed Dividend 0 11.01 14.7
Transferred to Capital Reserve 3.34 0.4 0.00095
Transferred to Legal Reserve 0.19 0.003 0
Transferred to General Reserve 30 70 90
Balance Carried over to Balance Sheet 324.81 433.84 558.60
Earnings Per Share (Rs)
Basic 3.27 3.86 4.53
Diluted 3.24 3.83 4.51
No. of Shares
Basic 860884512 863826759 864907642
Diluted 869534762 868807461 869156529
FMCG Sector Study and M&A perspective 2010
70 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.3 Hindustan Unilever Ltd. – Balance Sheet
Balance Sheet ------------------- in Rs. Cr. -------------------
Dec '04 Dec '05 Dec '06 Dec '07 Mar '09
12 mths 12 mths 12 mths 12 mths 15 mths
Sources Of Funds
Total Share Capital 220.12 220.12 220.68 217.75 217.99
Equity Share Capital 220.12 220.12 220.68 217.75 217.99
Share Application Money 0 0 0 0 0
Preference Share Capital 0 0 0 0 0
Reserves 1,871.92 2,084.84 2,502.14 1,220.82 1,842.85
Revaluation Reserves 0.67 0.67 0.67 0.67 0.67
Net worth 2,092.71 2,305.63 2,723.49 1,439.24 2,061.51
Secured Loans 1,453.06 24.5 37.13 25.52 144.65
Unsecured Loans 18.06 32.44 35.47 63.01 277.3
Total Debt 1,471.12 56.94 72.6 88.53 421.95
Total Liabilities 3,563.83 2,362.57 2,796.09 1,527.77 2,483.46
Application Of Funds
Gross Block 2,314.22 2,375.11 2,462.69 2,669.08 2,881.73
Less: Accum. Depreciation 891.08 989.61 1,061.94 1,146.57 1,274.95
Net Block 1,423.14 1,385.50 1,400.75 1,522.51 1,606.78
Capital Work in Progress 94.42 98.03 110.26 185.64 472.07
Investments 2,229.56 2,148.72 2,522.22 1,440.81 332.62
Inventories 1,470.44 1,321.77 1,547.71 1,953.60 2,528.86
Sundry Debtors 489.27 522.83 440.37 443.37 536.89
Cash and Bank Balance 102.98 103.77 170.8 200.11 190.59
Total Current Assets 2,062.69 1,948.37 2,158.88 2,597.08 3,256.34
Loans and Advances 1,013.04 902.04 1,150.06 1,083.28 1,196.95
Fixed Deposits 595.07 251.26 246.15 0.75 1,586.76
Total CA, Loans & Advances 3,670.80 3,101.67 3,555.09 3,681.11 6,040.05
Deferred Credit 0 0 0 0 0
Current Liabilities 2,730.64 3,077.97 3,362.52 4,028.41 4,440.08
Provisions 1,123.46 1,293.39 1,429.71 1,273.90 1,527.98
Total CL & Provisions 3,854.10 4,371.36 4,792.23 5,302.31 5,968.06
Net Current Assets -183.3 -
1,269.69 -
1,237.14 -
1,621.20 71.99
Miscellaneous Expenses 0 0 0 0 0
Total Assets 3,563.82 2,362.56 2,796.09 1,527.76 2,483.46
Contingent Liabilities 476.41 468.33 476.4 494.46 417.26
Book Value (Rs) 9.5 10.47 12.34 6.61 9.45
FMCG Sector Study and M&A perspective 2010
71 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.4 Hindustan Unilever Ltd. – P&L Account
Profit & Loss account ------------------- in Rs. Cr. -------------------
Dec '04 Dec '05 Dec '06 Dec '07 Mar '09
12 mths 12 mths 12 mths 12 mths 15 mths
Income
Sales Turnover 10,996.72 12,108.86 13,189.70 14,937.88 21,927.23
Excise Duty 939.61 914.98 945.68 1,057.32 1,422.95
Net Sales 10,057.11 11,193.88 12,244.02 13,880.56 20,504.28
Other Income 171.12 218.01 512.6 428.37 276.54
Stock Adjustments -76.69 -48.12 129.97 162.06 434.33
Total Income 10,151.54 11,363.77 12,886.59 14,470.99 21,215.15
Expenditure
Raw Materials 5,413.77 6,170.98 6,687.30 7,542.78 11,380.05
Power & Fuel Cost 164.77 168.74 180.79 198.89 301.37
Employee Cost 574.84 591.32 642.81 767.81 1,152.12
Other Manufacturing Expenses 193.84 191.82 187.37 204.1 297.34
Selling and Admin Expenses 1,713.73 2,010.10 2,328.51 2,561.12 3,857.48
Miscellaneous Expenses 377.93 429.09 541.52 691.49 985.31
Preoperative Exp Capitalized 0 0 0 0 0
Total Expenses 8,438.88 9,562.05 10,568.30 11,966.19 17,973.67
Operating Profit 1,541.54 1,583.71 1,805.69 2,076.43 2,964.94
PBDIT 1,712.66 1,801.72 2,318.29 2,504.80 3,241.48
Interest 129.98 19.19 10.73 25.5 25.32
PBDT 1,582.68 1,782.53 2,307.56 2,479.30 3,216.16
Depreciation 120.9 124.45 130.16 138.36 195.3
Other Written Off 0 0 0 0 0
Profit Before Tax 1,461.78 1,658.08 2,177.40 2,340.94 3,020.86
Extra-ordinary items 56.29 44.04 -0.21 1.67 48.53
PBT (Post Extra-ord Items) 1,518.07 1,702.12 2,177.19 2,342.61 3,069.39
Tax 320.74 294 321.8 417.14 572.94
Reported Net Profit 1,197.34 1,408.10 1,855.37 1,769.06 2,500.71
Total Value Addition 3,025.11 3,391.08 3,881.00 4,423.41 6,593.62
Preference Dividend 0 0 0 0 0
Equity Dividend 1,100.62 1,100.62 1,325.48 1,976.12 1,634.51
Corporate Dividend Tax 145.53 159.62 185.9 355.5 277.79
Per share data (annualized)
Shares in issue (lakhs) 22,012.44 22,012.44 22,067.76 21,774.63 21,798.76
Earnings Per Share (Rs) 5.44 6.4 8.41 8.12 11.47
Equity Dividend (%) 500 500 600 900 750
Book Value (Rs) 9.5 10.47 12.34 6.61 9.45
FMCG Sector Study and M&A perspective 2010
72 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.5 Godrej Consumer Product Ltd. – Balance Sheet
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 22.64 22.58 22.58 22.58 25.7
Equity Share Capital 22.64 22.58 22.58 22.58 25.7
Share Application Money 0 0 0 0 0
Preference Share Capital 0 0 0 0 0
Reserves 27.21 53.57 88.32 127.91 511.22
Revaluation Reserves 0 0 0 0 0
Net worth 49.85 76.15 110.9 150.49 536.92
Secured Loans 4.13 4.87 47.86 40.59 14.89
Unsecured Loans 2 0 65 94 48
Total Debt 6.13 4.87 112.86 134.59 62.89
Total Liabilities 55.98 81.02 223.76 285.08 599.81
Application Of Funds
Gross Block 179.88 159.21 243.65 265.56 266.54
Less: Accum. Depreciation 79.12 86.39 95.52 110.98 96.75
Net Block 100.76 72.82 148.13 154.58 169.79
Capital Work in Progress 0.66 7.06 39.81 71.58 2.5
Investments 0 50.01 71.79 77.61 97.89
Inventories 73.81 87.89 117.23 164.91 126.67
Sundry Debtors 5.18 6.52 9.8 12.2 9.86
Cash and Bank Balance 8.97 13.49 21.06 18.69 23.67
Total Current Assets 87.96 107.9 148.09 195.8 160.2
Loans and Advances 16.17 14.18 46.93 66.78 126.14
Fixed Deposits 0 0.24 0.67 1.15 320.89
Total CA, Loans & Advances 104.13 122.32 195.69 263.73 607.23
Deferred Credit 0 0 0 0 0
Current Liabilities 141.93 163.47 223.43 254.75 244.67
Provisions 7.61 7.72 8.21 30.53 32.94
Total CL & Provisions 149.54 171.19 231.64 285.28 277.61
Net Current Assets -45.41 -48.87 -35.95 -21.55 329.62
Miscellaneous Expenses 0 0 0 2.87 0
Total Assets 56.01 81.02 223.78 285.09 599.8
Contingent Liabilities 12.33 55.64 67.99 48.93 45.42
Book Value (Rs) 8.81 13.49 4.91 6.66 20.9
FMCG Sector Study and M&A perspective 2010
73 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.6 Godrej Consumer Products Ltd. – P&L Account
Profit & Loss account ------------------- in Rs. Cr. -------------------
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Income
Sales Turnover 603.46 691.92 799.41 922.78 1,135.37
Excise Duty 40.79 36.3 38.56 30.86 39.5
Net Sales 562.67 655.62 760.85 891.92 1,095.87
Other Income 2.6 8.12 12.35 -3.34 38.71
Stock Adjustments 14.8 12.45 24.22 13.99 -20.91
Total Income 580.07 676.19 797.42 902.57 1,113.67
Expenditure
Raw Materials 297.6 320.17 396.35 436.8 606.74
Power & Fuel Cost 16.43 20.99 23.94 24.53 35.49
Employee Cost 32.9 43.15 40.5 54.6 58.44
Other Manufacturing Expenses 7.32 9.61 13.53 16.05 18.26
Selling and Admin Expenses 108.93 119.74 140.67 162.18 173.08
Miscellaneous Expenses 11.1 16.03 17.83 13.11 12.55
Preoperative Exp Capitalized 0 0 0 0 0
Total Expenses 474.28 529.69 632.82 707.27 904.56
Operating Profit 103.19 138.38 152.25 198.64 170.4
PBDIT 105.79 146.5 164.6 195.3 209.11
Interest 1.36 4.44 7.59 10.38 8.82
PBDT 104.43 142.06 157.01 184.92 200.29
Depreciation 10.66 10.78 12.49 15.7 14.37
Other Written Off 0 0 0 0 0
Profit Before Tax 93.77 131.28 144.52 169.22 185.92
Extra-ordinary items 3.53 0.5 4.81 0 0.64
PBT (Post Extra-ord Items) 97.3 131.78 149.33 169.22 186.56
Tax 7.69 10.57 17.18 21.12 25.01
Reported Net Profit 89.59 121.2 122.03 148.12 161.55
Total Value Addition 176.69 209.52 236.46 270.47 297.81
Preference Dividend 0 0 0 0 0
Equity Dividend 67.93 79.05 84.69 92.76 102.98
Corporate Dividend Tax 9.12 11.09 12.72 15.76 17.5
Per share data (annualized)
Shares in issue (lakhs) 566.04 564.61 2,258.44 2,258.44 2,569.54
Earnings Per Share (Rs) 15.83 21.47 5.4 6.56 6.29
Equity Dividend (%) 300 350 375 400 400
Book Value (Rs) 8.81 13.49 4.91 6.66 20.9
FMCG Sector Study and M&A perspective 2010
74 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.7 Marico – Balance Sheet
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 58 58 60.9 60.9 60.9
Equity Share Capital 58 58 60.9 60.9 60.9
Share Application Money 0 0 0 0 0
Preference Share Capital 0 0 0 0 0
Reserves 160.54 219.36 122.59 219.33 306.78
Revaluation Reserves 0 0 0 0 0
Net worth 218.54 277.36 183.49 280.23 367.68
Secured Loans 3.25 203.25 50.48 121.23 107.51
Unsecured Loans 49.14 20.26 116.77 184.36 201.02
Total Debt 52.39 223.51 167.25 305.59 308.53
Total Liabilities 270.93 500.87 350.74 585.82 676.21
Application Of Funds
Gross Block 170.41 402.11 213.87 228.89 262.16
Less: Accum. Depreciation 81.3 112.56 118.81 131.9 146.25
Net Block 89.11 289.55 95.06 96.99 115.91
Capital Work in Progress 11.65 18.97 8.97 49.1 45.61
Investments 29.09 36.39 80.91 106.52 112.58
Inventories 112.47 119.59 196.21 218.59 273.69
Sundry Debtors 35.36 49.53 41.29 41.68 61.05
Cash and Bank Balance 13.67 25.93 22.28 7.75 13.37
Total Current Assets 161.5 195.05 259.78 268.02 348.11
Loans and Advances 99.57 132.15 231.88 292.04 275.8
Fixed Deposits 4.13 2.15 2.52 22.18 11.59
Total CA, Loans & Advances 265.2 329.35 494.18 582.24 635.5
Deferred Credit 0 0 0 0 0
Current Liabilities 109.06 153.87 315.61 206.4 202.52
Provisions 15.06 19.52 12.77 42.63 30.87
Total CL & Provisions 124.12 173.39 328.38 249.03 233.39
Net Current Assets 141.08 155.96 165.8 333.21 402.11
Miscellaneous Expenses 0 0 0 0 0
Total Assets 270.93 500.87 350.74 585.82 676.21
Contingent Liabilities 15.96 16.78 16.18 21.04 26.32
Book Value (Rs) 37.68 47.82 3.01 4.6 6.04
FMCG Sector Study and M&A perspective 2010
75 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.8 Marico – P & L Account
Profit & Loss account ------------------- in Rs. Cr. -------------------
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Income
Sales Turnover 953.23 1,046.47 1,375.60 1,578.10 1,923.92
Excise Duty 5.21 1.31 2.33 2.11 2.07
Net Sales 948.02 1,045.16 1,373.27 1,575.99 1,921.85
Other Income 8.04 7.87 2.79 2.89 -47.3
Stock Adjustments 0.99 5.82 41.14 25.24 27.79
Total Income 957.05 1,058.85 1,417.20 1,604.12 1,902.34
Expenditure
Raw Materials 602.95 579.88 790.72 918.13 1,184.82
Power & Fuel Cost 3.97 4.13 4.97 5.38 5.53
Employee Cost 42.14 62.16 66.83 77.18 84.18
Other Manufacturing Expenses 35.81 41.71 56.11 63.36 73.27
Selling and Admin Expenses 159.48 214.36 293.16 316.56 326.42
Miscellaneous Expenses 22.76 13.89 13.46 11.56 6.02
Preoperative Exp Capitalized 0 0 0 0 0
Total Expenses 867.11 916.13 1,225.25 1,392.17 1,680.24
Operating Profit 81.9 134.85 189.16 209.06 269.4
PBDIT 89.94 142.72 191.95 211.95 222.1
Interest 3.03 5.02 20.01 19.75 28.92
PBDT 86.91 137.7 171.94 192.2 193.18
Depreciation 11.6 33.23 35.19 18.93 17.03
Other Written Off 0 0 0 0 0
Profit Before Tax 75.31 104.47 136.75 173.27 176.15
Extra-ordinary items 4.33 2.22 7.84 0 18.32
PBT (Post Extra-ord Items) 79.64 106.69 144.59 173.27 194.47
Tax 5.85 7.83 28.43 29.86 52.37
Reported Net Profit 73.79 98.88 116.16 143.41 142.1
Total Value Addition 264.16 336.25 434.53 474.04 495.42
Preference Dividend 0 0 1.65 0 0
Equity Dividend 31.03 35.96 39.06 39.89 39.89
Corporate Dividend Tax 4.15 5.04 5.71 6.78 6.78
Per share data (annualized)
Shares in issue (lakhs) 580 580 6,090.00 6,090.00 6,090.00
Earnings Per Share (Rs) 12.72 17.05 1.88 2.35 2.33
Equity Dividend (%) 53.5 62 65.5 65.5 65.5
Book Value (Rs) 37.68 47.82 3.01 4.6 6.04
FMCG Sector Study and M&A perspective 2010
76 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.9 Emami – Balance Sheet
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 12.23 12.23 12.23 12.43 12.43
Equity Share Capital 12.23 12.23 12.23 12.43 12.43
Share Application Money 0 0 0.2 0 0.7
Preference Share Capital 0 0 0 0 0
Reserves 66.02 84.4 216.99 276.57 282.9
Revaluation Reserves 238.59 238.59 0 0 0
Net worth 316.84 335.22 229.42 289 296.03
Secured Loans 33.76 31.24 22.81 35.19 373.06
Unsecured Loans 0.22 0.22 0.36 0 67.02
Total Debt 33.98 31.46 23.17 35.19 440.08
Total Liabilities 350.82 366.68 252.59 324.19 736.11
Application Of Funds
Gross Block 320.21 321.96 68.59 105.73 706.44
Less: Accum. Depreciation 105.63 128.79 21.79 27.91 93.87
Net Block 214.58 193.17 46.8 77.82 612.57
Capital Work in Progress 4.05 9.28 34.49 13.47 36.7
Investments 53.91 87.1 78.18 102.97 39.89
Inventories 36.75 36.62 41.2 40.1 73.2
Sundry Debtors 35.25 36.68 45.77 34.03 50.75
Cash and Bank Balance 0.31 0.8 3.38 2.77 10.71
Total Current Assets 72.31 74.1 90.35 76.9 134.66
Loans and Advances 26.76 46.79 56.01 156.01 79.94
Fixed Deposits 0.03 0.02 15.04 0.04 0.06
Total CA, Loans & Advances 99.1 120.91 161.4 232.95 214.66
Deferred Credit 0 0 0 0 0
Current Liabilities 13.86 25.18 50.63 56.21 115.7
Provisions 6.97 18.61 17.63 46.8 52.02
Total CL & Provisions 20.83 43.79 68.26 103.01 167.72
Net Current Assets 78.27 77.12 93.14 129.94 46.94
Miscellaneous Expenses 0 0 0 0 0
Total Assets 350.81 366.67 252.61 324.2 736.1
Contingent Liabilities 7.73 23.14 29.23 26.45 117.49
Book Value (Rs) 12.8 15.8 37.49 46.5 47.52
FMCG Sector Study and M&A perspective 2010
77 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.10 Emami – P&L Account
Profit & Loss account ------------------- in Rs. Cr. -------------------
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Income
Sales Turnover 225.62 307.37 519.22 585.9 739.6
Excise Duty 6.77 6.5 3.43 2.19 17.25
Net Sales 218.85 300.87 515.79 583.71 722.35
Other Income 1.68 5.65 13.91 21.62 5.86
Stock Adjustments 3.48 -1.85 -0.65 -0.52 11.58
Total Income 224.01 304.67 529.05 604.81 739.79
Expenditure
Raw Materials 129.81 173.85 225.56 248.14 321.17
Power & Fuel Cost 1.03 1.21 1.15 1.29 3.42
Employee Cost 11.89 14.47 21.95 31.18 44.69
Other Manufacturing Expenses 0.64 0.73 0.99 1.26 1.75
Selling and Admin Expenses 35.56 46.77 178.49 194.22 214.17
Miscellaneous Expenses 8.69 9.32 20.7 11.09 13.02
Preoperative Exp Capitalized 0 0 0 0 0
Total Expenses 187.62 246.35 448.84 487.18 598.22
Operating Profit 34.71 52.67 66.3 96.01 135.71
PBDIT 36.39 58.32 80.21 117.63 141.57
Interest 2 1.41 1.08 5.43 31.57
PBDT 34.39 56.91 79.13 112.2 110
Depreciation 2.97 6.69 4.65 7.28 17.89
Other Written Off 0 0 0 0 0
Profit Before Tax 31.42 50.22 74.48 104.92 92.11
Extra-ordinary items 0.16 0.07 0.01 0 0.26
PBT (Post Extra-ord Items) 31.58 50.29 74.49 104.92 92.37
Tax 2.09 0.95 8.57 12.18 14.5
Reported Net Profit 29.44 49.36 65.92 92.75 87.52
Total Value Addition 57.81 72.49 223.28 239.04 277.05
Preference Dividend 0 0 0 0 0
Equity Dividend 6.12 12.23 24.86 27.97 34.05
Corporate Dividend Tax 0.86 1.72 3.67 4.75 5.79
Per share data (annualized)
Shares in issue (lakhs) 611.5 611.5 611.5 621.45 621.45
Earnings Per Share (Rs) 4.81 8.07 10.78 14.92 14.08
Equity Dividend (%) 50 100 200 225 225
Book Value (Rs) 12.8 15.8 37.49 46.5 47.52
FMCG Sector Study and M&A perspective 2010
78 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.11 Colgate Palmolive – Balance Sheet
Balance Sheet ------------------- in Rs. Cr. -------------------
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 135.99 135.99 135.99 13.6 13.6
Equity Share Capital 135.99 135.99 135.99 13.6 13.6
Share Application Money 0 0 0 0 0
Preference Share Capital 0 0 0 0 0
Reserves 113.78 135.08 144.53 148.61 202.7
Revaluation Reserves 0 0 0 0 0
Net worth 249.77 271.07 280.52 162.21 216.3
Secured Loans 0 0 0 0 0
Unsecured Loans 3.98 4.36 4.28 4.69 4.69
Total Debt 3.98 4.36 4.28 4.69 4.69
Total Liabilities 253.75 275.43 284.8 166.9 220.99
Application Of Funds
Gross Block 324.45 403.54 411.46 449.59 425.26
Less: Accum. Depreciation 244.7 243.51 243.78 258.19 251.33
Net Block 79.75 160.03 167.68 191.4 173.93
Capital Work in Progress 67.46 9.09 24.34 7.59 4.67
Investments 160.78 148.34 133.34 72.59 38.33
Inventories 74.47 74.36 80.33 75.64 82.42
Sundry Debtors 17.35 7.4 9.33 9.19 11.13
Cash and Bank Balance 16.53 57.76 60.61 41.67 43.69
Total Current Assets 108.35 139.52 150.27 126.5 137.24
Loans and Advances 114.32 149.7 194.94 215.76 232.48
Fixed Deposits 39.61 30.21 51.11 102.6 207.45
Total CA, Loans & Advances 262.28 319.43 396.32 444.86 577.17
Deferred Credit 0 0 0 0 0
Current Liabilities 222.97 292.72 329.95 362.27 411.93
Provisions 97.11 68.74 106.93 187.27 161.19
Total CL & Provisions 320.08 361.46 436.88 549.54 573.12
Net Current Assets -57.8 -42.03 -40.56 -104.68 4.05
Miscellaneous Expenses 3.56 0 0 0 0
Total Assets 253.75 275.43 284.8 166.9 220.98
Contingent Liabilities 69.06 42.89 102.37 46.67 46.46
Book Value (Rs) 18.37 19.93 20.63 11.93 15.9
FMCG Sector Study and M&A perspective 2010
79 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.12 Colgate Palmolive – P&L Account
Profit & Loss account of Colgate Palmolive (India) ------------------- in Rs. Cr. -------------------
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Income
Sales Turnover 1,072.53 1,237.99 1,421.18 1,597.30 1,810.65
Excise Duty 111.05 89.96 89.19 78.42 59.89
Net Sales 961.48 1,148.03 1,331.99 1,518.88 1,750.76
Other Income 24.56 17.09 -28.32 23.91 35.07
Stock Adjustments 13.13 -7.54 4.51 0.76 1.04
Total Income 999.17 1,157.58 1,308.18 1,543.55 1,786.87
Expenditure
Raw Materials 496.71 533.72 586.04 639.13 750.79
Power & Fuel Cost 3.75 6.68 7.63 7.74 11.1
Employee Cost 68.35 86.45 111.91 117.28 138.54
Other Manufacturing Expenses 14.6 31.41 41.47 52.37 69.15
Selling and Admin Expenses 168.71 245.65 279.46 337.29 357.04
Miscellaneous Expenses 44.52 30.11 59.63 91.02 96.21
Preoperative Exp Capitalized 0 0 0 0 0
Total Expenses 796.64 934.02 1,086.14 1,244.83 1,422.83
Operating Profit 177.97 206.47 250.36 274.81 328.97
PBDIT 202.53 223.56 222.04 298.72 364.04
Interest 4.54 4.24 5.17 1.44 1.1
PBDT 197.99 219.32 216.87 297.28 362.94
Depreciation 22.37 31.43 15.26 19.84 22.95
Other Written Off 0 0 0 0 0
Profit Before Tax 175.62 187.89 201.61 277.44 339.99
Extra-ordinary items 2.5 0 0 14.62 5.3
PBT (Post Extra-ord Items) 178.12 187.89 201.61 292.06 345.29
Tax 64.85 50.28 41.44 60.34 55.09
Reported Net Profit 113.29 137.6 160.17 231.71 290.22
Total Value Addition 299.92 400.3 500.1 605.7 672.04
Preference Dividend 0 0 0 0 0
Equity Dividend 95.19 101.99 129.19 176.79 203.99
Corporate Dividend Tax 12.64 14.3 18.93 50.85 34.14
Per share data (annualized)
Shares in issue (lakhs) 1,359.93 1,359.93 1,359.93 1,359.93 1,359.93
Earnings Per Share (Rs) 8.33 10.12 11.78 17.04 21.34
Equity Dividend (%) 70 75 95 1,300.00 1,500.00
Book Value (Rs) 18.37 19.93 20.63 11.93 15.9
FMCG Sector Study and M&A perspective 2010
80 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.13 GlaxoSmithKline – Balance Sheet
Balance Sheet ------------------- in Rs. Cr. -------------------
Dec '05 Dec '06 Dec '07 Dec '08 Dec '09
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 42.06 42.06 42.06 42.06 42.06
Equity Share Capital 42.06 42.06 42.06 42.06 42.06
Share Application Money 0 0 0 0 0
Preference Share Capital 0 0 0 0 0
Reserves 433.06 500.66 604.29 718.82 863.04
Revaluation Reserves 0 0 0 0 0
Net worth 475.12 542.72 646.35 760.88 905.1
Secured Loans 0 0 0 0 0
Unsecured Loans 0 0 0 0 0
Total Debt 0 0 0 0 0
Total Liabilities 475.12 542.72 646.35 760.88 905.1
Application Of Funds
Gross Block 506.91 521.69 523.68 539.47 558.48
Less: Accum. Depreciation 233.95 270.32 297.65 329.24 364
Net Block 272.96 251.37 226.03 210.23 194.48
Capital Work in Progress 10.83 6.53 17.31 16.33 37.79
Investments 0 219.68 297.84 0 0
Inventories 131.04 145.57 194.82 277.17 266.03
Sundry Debtors 24.12 28.09 27.36 43.25 31.36
Cash and Bank Balance 32.27 36.42 32.17 20.48 36.6
Total Current Assets 187.43 210.08 254.35 340.9 333.99
Loans and Advances 66.13 80.77 62.15 73.61 620.15
Fixed Deposits 153.52 11.5 61.5 450.5 783.2
Total CA, Loans & Advances 407.08 302.35 378 865.01 1,737.34
Deferred Credit 0 0 0 0 0
Current Liabilities 209.48 216.88 243.65 268.24 393.79
Provisions 6.28 20.32 29.17 62.45 670.71
Total CL & Provisions 215.76 237.2 272.82 330.69 1,064.50
Net Current Assets 191.32 65.15 105.18 534.32 672.84
Miscellaneous Expenses 0 0 0 0 0
Total Assets 475.11 542.73 646.36 760.88 905.11
Contingent Liabilities 29.31 3.86 7.03 72.85 59.92
Book Value (Rs) 112.97 129.05 153.69 180.92 215.21
FMCG Sector Study and M&A perspective 2010
81 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.14 GlaxoSmithKline – P&L Account
Profit & Loss account ------------------- in Rs. Cr. -------------------
Dec '05 Dec '06 Dec '07 Dec '08 Dec '09
12 mths 12 mths 12 mths 12 mths 12 mths
Income
Sales Turnover 1,095.24 1,240.62 1,429.97 1,742.84 2,077.22
Excise Duty 124.43 101.34 122.09 158.51 100.25
Net Sales 970.81 1,139.28 1,307.88 1,584.33 1,976.97
Other Income 16.47 24.55 31.67 47.79 34.96
Stock Adjustments 38.09 1.45 27.34 45.87 13.83
Total Income 1,025.37 1,165.28 1,366.89 1,677.99 2,025.76
Expenditure
Raw Materials 352.69 387.58 471.61 633.48 729.61
Power & Fuel Cost 27.34 29.93 30.44 44.24 39.64
Employee Cost 121.45 136.38 154.94 171.95 200.7
Other Manufacturing Expenses 87.58 102.47 113.41 131.64 152.35
Selling and Admin Expenses 202.09 247.48 270.5 323.56 457.79
Miscellaneous Expenses 24.55 23.92 32.03 37.34 43.53
Preoperative Exp Capitalized 0 0 0 0 0
Total Expenses 815.7 927.76 1,072.93 1,342.21 1,623.62
Operating Profit 193.2 212.97 262.29 287.99 367.18
PBDIT 209.67 237.52 293.96 335.78 402.14
Interest 4.22 3.53 4.61 6.97 4.27
PBDT 205.45 233.99 289.35 328.81 397.87
Depreciation 41.85 42.71 43.49 41.95 42.02
Other Written Off 0 0 0 0 0
Profit Before Tax 163.6 191.28 245.86 286.86 355.85
Extra-ordinary items 3.48 0.03 0.02 0 2.61
PBT (Post Extra-ord Items) 167.08 191.31 245.88 286.86 358.46
Tax 58.75 63.66 82.46 95.75 123.69
Reported Net Profit 107.15 126.93 162.68 188.33 232.78
Total Value Addition 463.02 540.17 601.32 708.73 894.01
Preference Dividend 0 0 0 0 0
Equity Dividend 33.64 42.06 50.47 63.08 75.7
Corporate Dividend Tax 4.72 5.9 8.58 10.72 12.87
Per share data (annualized)
Shares in issue (lakhs) 420.56 420.56 420.56 420.56 420.56
Earnings Per Share (Rs) 25.48 30.18 38.68 44.78 55.35
Equity Dividend (%) 80 100 120 150 180
Book Value (Rs) 112.97 129.05 153.69 180.92 215.21
FMCG Sector Study and M&A perspective 2010
82 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.15 P&G – Balance Sheet
Balance Sheet ------------------- in Rs. Cr. -------------------
Jun '05 Jun '06 Jun '07 Jun '08 Jun '09
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 32.46 32.46 32.46 32.46 32.46
Equity Share Capital 32.46 32.46 32.46 32.46 32.46
Share Application Money 0 0 0 0 0
Preference Share Capital 0 0 0 0 0
Reserves 193.22 240.2 258.72 314.18 407.58
Revaluation Reserves 0 0 0 0 0
Net worth 225.68 272.66 291.18 346.64 440.04
Secured Loans 0 0 0 0 0
Unsecured Loans 0 0 0 0 0
Total Debt 0 0 0 0 0
Total Liabilities 225.68 272.66 291.18 346.64 440.04
Application Of Funds
Gross Block 178.76 127.01 163.62 203.09 221.82
Less: Accum. Depreciation 99.69 61.64 69.61 80.01 89.54
Net Block 79.07 65.37 94.01 123.08 132.28
Capital Work in Progress 9.96 29.18 33.47 12.88 24.51
Investments 0.01 0 0 0 0
Inventories 54.9 28.31 31.36 46.52 53.98
Sundry Debtors 43.48 8.77 14.64 13.34 22.51
Cash and Bank Balance 47.73 54.49 4.35 6.67 88.03
Total Current Assets 146.11 91.57 50.35 66.53 164.52
Loans and Advances 83.38 70.75 260.73 208.95 330.29
Fixed Deposits 178.26 191.27 24.89 159.81 0
Total CA, Loans & Advances 407.75 353.59 335.97 435.29 494.81
Deferred Credit 0 0 0 0 0
Current Liabilities 120.72 79.93 93.14 142.58 121.08
Provisions 150.38 95.56 79.13 82.03 90.5
Total CL & Provisions 271.1 175.49 172.27 224.61 211.58
Net Current Assets 136.65 178.1 163.7 210.68 283.23
Miscellaneous Expenses 0 0 0 0 0
Total Assets 225.69 272.65 291.18 346.64 440.02
Contingent Liabilities 51.87 136.22 98.56 25.55 55.06
Book Value (Rs) 69.52 84 89.7 106.79 135.56
FMCG Sector Study and M&A perspective 2010
83 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.16 P&G – P&L Account
Profit & Loss account ------------------- in Rs. Cr. -------------------
Jun '05 Jun '06 Jun '07 Jun '08 Jun '09
12 mths 12 mths 12 mths 12 mths 12 mths
Income
Sales Turnover 738.1 596.75 552.95 652.65 773.03
Excise Duty 56.1 30.98 15.37 8.7 0.22
Net Sales 682 565.77 537.58 643.95 772.81
Other Income 25.86 28.01 15.99 13.53 38.73
Stock Adjustments 11.65 -13.08 1.8 13.18 4.1
Total Income 719.51 580.7 555.37 670.66 815.64
Expenditure
Raw Materials 332.36 182.86 152.54 190.78 239.68
Power & Fuel Cost 6.85 5.52 5.66 8.26 7.84
Employee Cost 37.37 33.99 37.72 54.65 34.64
Other Manufacturing Expenses 60.34 69.01 58.83 64.07 15.65
Selling and Admin Expenses 84.62 90.92 103.61 131.29 0
Miscellaneous Expenses 38.28 41.4 42.53 29.38 271.79
Preoperative Exp Capitalized 0 0 0 0 0
Total Expenses 559.82 423.7 400.89 478.43 569.6
Operating Profit 133.83 128.99 138.49 178.7 207.31
PBDIT 159.69 157 154.48 192.23 246.04
Interest 0.05 0.11 0.01 0.02 0
PBDT 159.64 156.89 154.47 192.21 246.04
Depreciation 12.4 7.92 8.98 12.12 14.37
Other Written Off 0 0 0 0 0
Profit Before Tax 147.24 148.97 145.49 180.09 231.67
Extra-ordinary items 25.79 44.36 -10.72 0.48 0
PBT (Post Extra-ord Items) 173.03 193.33 134.77 180.57 231.67
Tax 48.42 53.83 44.96 49.15 52.81
Reported Net Profit 124.61 139.51 89.82 131.42 178.85
Total Value Addition 227.47 240.84 248.34 287.65 329.92
Preference Dividend 0 0 0 0 0
Equity Dividend 129.84 81.15 64.92 64.92 73.04
Corporate Dividend Tax 18.21 11.38 11.03 11.03 12.41
Per share data (annualized)
Shares in issue (lakhs) 324.61 324.61 324.61 324.61 324.61
Earnings Per Share (Rs) 38.39 42.98 27.67 40.48 55.1
Equity Dividend (%) 400 250 200 200 225
Book Value (Rs) 69.52 84 89.7 106.79 135.56
FMCG Sector Study and M&A perspective 2010
84 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.17 AMRUTANJAN – Balance Sheet
in Rs. Crore 2007 2008 2009
SOURCES OF FUNDS
Shareholder's funds
Share Capital 3.2 3.2 3.1
Reserve and Surplus 19.99 22.25 90.72
23.19 25.45 93.82
Minority Interest
Loan Funds
Secured Loans 7.69 6.46 2.06
Unsecured Loans
2 0
7.69 8.46 2.06
Deferred Tax Liability 2.1 4 32.16
TOTAL 32.99 37.92 97.24
APPLICATION OF FUNDS
Fixed Assets
Gross Block 25.43 33.52 24.71
Less: Depreciation 12.88 14.25 8.81
Net Block 12.56 19.28 15.9
Capital Work in Progress 2.71 2.59 2.29
15.26 21.86 18.19
Investments 0.11 0.43 0.43
Deferred Tax Asset
Current Assets, Loans and Advances
Inventories 8.86 9.4 5.31
Sundry Debtors 4.96 7.59 12.94
Cash & Bank Balances 7.82 2.69 67.51
Interest Accrued 0.07 0.02 0.79
Loans & Advances 4.1 5.44 5.83
25.83 25.16 92.39
Less Current Liabilities and Provisions
Current Liabilities 7.24 8.07 8.31
Provisions 0.97 1.45 5.44
8.21 9.52 13.76
Net Current Assets 17.61 15.63 78.63
Miscellaneous Expense 0 0 0
TOTAL 32.98 37.92 97.25
FMCG Sector Study and M&A perspective 2010
85 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
A.18 AMRUTANJAN – P&L Account
INCOME 2007 2008 2009 Sales 72.38 74.55 90.66
Other Income 0.989 0.39 6.95
73.37 74.95 97.61
EXPENDITURE
Cost of Materials Consumed 26.77 29.33 36.95
Employee's Renumeration and Benefits 8.97 9.41 10.94
Interest 0.54 0.747 0.15
Other Expenses 21.23 24.01 29.36
Depreciation 1.52 1.46 1.48
59.04 64.97 78.89
Profit before extraordinary items 14.33 9.97 18.72
Loss on destruction of assets -0.07
Prior Year Adjustments (net) 0.02 -0.03 -0.04
Profit for the year before tax 14.27 9.94 18.68
Provision for Taxation
Income Tax -4.8 -1.45 -7
Fringe Benefit Tax -0.14 -0.25 -0.3
Deferred Tax 0.17 -1.95 0.78
Short Provision of I.T. of eaarlier years -0.24 -0.035 -0.057
Profit after tax before exceptional items 9.27 6.26 12.11
Exceptional Items -0.13 -1.27 80.75
Provision for advances
Provision for diminution in value of investments -3.22
Profit after Tax after exceptional items 5.91 4.98 92.85
Surplus from previous year brought forward 1.28 2.99 3.36
Profits for Appropriation 7.199 7.98 96.21
APPROPRIATION
General Reserve 2 2 50
Special one time interim dividend - Paid
0 12.8
Tax on special one time interim dividend
0 2.18
Interim Dividend - Paid 1.28 1.28 1.57
Tax on Interim Dividend 0.179 0.217 0.267
Final Dividend - Proposed 0.64 0.96 3.63
Tax on Proposed Dividend 0.11 0.16 0.61
4.21 4.62 71.07
Balance Profit carried to Balance Sheet 2.99 3.36 25.14
7.19 7.98 96.22
Basic and Diluted Earnings per share
Before exceptional items (Rs) 28.97 19.57 38.07
After exceptional items (Rs.) 18.48 15.59 291.98
FMCG Sector Study and M&A perspective 2010
86 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
FORMULAS USED
Working Capital Days = 365 / working capital turnover
Working capital turnover = Revenue / net working capital
Net Working Capital = (Current Assets – Cash) – (Current Liabilities – debt)
Cost of Equity = Risk free rate + Levered Beta * (India Equity risk premium)
India Equity Risk Premium = India - Country Risk Premium + Equity Risk Premium US
Cost of Debt = Interest / Loan funds
WACC = cost of equity*Shareholders‟ equity + cost of debt*debt
Levered Beta = Unlevered Beta * [1 + (1 - Tax Rate) * Debt / Equity ]
Adjusted Beta = (Unlevered Beta * 2/3)+(1/3)
Discount Factor = 1/(1+WACC)T
FCF = EBIT + Depreciation + Amortization – Taxes – Capex – Increase in Net
working capital
CAPEX = Change in Fixed Asset + Depreciation
Terminal Value = Projected FCF*(1+terminal growth rate)/(WACC – terminal growth
rate)
Enterprise Value = Market Cap + Debt – Cash
A
P
P
E
N
D
I
X
B
FMCG Sector Study and M&A perspective 2010
87 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
ABBREVIATIONS
1. NSE – National Stock Exchange
2. BSE – Bombay Stock Exchange
3. WACC – Weighted Average Cost of Capital
4. FMCG – Fast Moving Consumer Goods
5. COGS – Cost of Goods Sold
6. CAPEX – Capital Expenditure
7. EV – Enterprise Value
8. MARKET CAP – Market Capitalization
9. EBITDA – Earnings Before Interest Tax Depreciation and Amortization
10. EBIT – Earnings Before Interest and Tax
11. PBT – Profit Before Tax
12. DMA – Days Moving Average
13. DCF – Discounted Cash Flow
14. D/E – Debt to Equity
15. BCG – Boston Consulting Group
16. PP&E – Property, plant and equipment
17. P&L A/c – Profit and Loss Account
A
P
P
E
N
D
I
X
C
FMCG Sector Study and M&A perspective 2010
88 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
PRINT MEDIA
“India Equity Research - FMCG” by AVENDUS dated March 08, 2010
“Changing Gears – The emerging states for FMCG in India” by Nielsen dated November 4, 2009
“Constant Change” by Nielsen dated November 6, 2009
“FMCG Sector – A road ahead” by FICCI and Technopak, July – August 2009
“Market Outlook - India Research” by Angel Securities Institutional Investment Services, May 6, 2010
“Rural India” by IIFL – a report of 1Q 2010.
Dabur India Ltd. Annual Report FY09
Dabur India Ltd. Investor Presentation 3QFY10 and 4QFY10
VALUATION: Measuring and Managing the Value of Companies - Fourth Edition by McKinsey & Company
Financial Management by Prasanna Chandra
R
E
F
E
R
E
N
C
E
S
FMCG Sector Study and M&A perspective 2010
89 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
ELECTRONIC MEDIA
http://www.hul.co.in
http://www.dabur.com
http://www.pg-india.com/hp/index.htm
http://www.colgate.com
http://www.gsk.com
http://www.godrejindia.com
http://www.marico.com
http://www.itcportal.com
http://www.nestle.in
http://www.bloomberg.com
http://www.indiainfoline.com
http://www.money.rediff.com
http://www.bseindia.com
http://www.nse-india.com
http://www.equitymaster.com
http://www.info.shine.com/Industry-Information/FMCG/780.aspx
http://www.moneycontrol.com
http://www.incademy.com/courses/Technical-analysis-II/Moving-averages/2/1032/10002
http://www.tradingeconomics.com/Economics/Government-Bond-Yield.aspx?Symbol=INR
http://www.pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html
http://www.fmcg-marketing.blogspot.com/2007/11/pest-analysis.html
http://www.fmcgmarketers.blogspot.com/2008/07/fmcg-growth-drivers-and-category-trends.html
http://www.stockmarketsreview.com/pricetargets/fast_moving_consumer_goods_fmcg_sector_review_analysis
_and_recommendations_20090902/
FMCG Sector Study and M&A perspective 2010
90 Richa Agarwal, PGDM – Finance (09-11)
INSTITUTE OF MANAGEMENT
TECHNOLOGY
DISCLAIMER
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I have not independently verified all the information given in this document. Accordingly, no representation or
warranty, express or implied is made as to accuracy, completeness or fairness of the information and opinion
contained in this report. The information given in this report is as of the date of this report and there can be no
assurance that future results or events will be consistent with this information. There is no representation that all
information relating to the context has been taken care off in the report and neither I undertake any obligation as
to the regular updating of the information as a result of new information, future events or otherwise. I will
accept no liability whatsoever for any loss arising directly or indirectly from the use of, reliance of any
information contained in this document or for any omission of the information. It is advised that prior to acting
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etc may be done at your end. You may also contact me directly for any questions or clarifications at my end.
This report contain certain statements of future expectations and other forward-looking statements, including
those relating to company‟s business plans and strategy, their future financial condition and growth prospects. In
addition to statements which are forward looking by reason of context, the words „may, will, should, expects,
plans, intends, anticipates, believes, estimates, predicts, potential or continue‟ and similar expressions identify
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