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Transcript of Cf Project on Hul.
Corporate finance pROJECT
ON
HINDUSTAN UNILIVER Pvt Ltd
SUBMITTED TO:- SUBMITTED BY:-
Prof. T.V.RAO AANCHAL SETHI (02)
ABHIJIT CHOWDHURY (03)
ABHISHEK SHARMA (05)
SHUCHI BHARGAVA (84)
Table of contentsChapter 1: Introduction
Chapter 2:Qualitative analysis using CRISIL
2.1 CRISIL criteria for rating FMCG companies
2.2 HUL new growth strategy
2.3 Distribution Network
2.4 Supply chain management
2.5 Brand equity
2.6 Price protection
Chapter 3: Ratio Analysis
3.1 Introduction
3.2 Objective
3.3 Importance
3.4 Limitations
3.5 Classification
3.6 Ratio Analysis of HUL
Chapter 4: Cost of Capital
4.1 Components of cost of capital
Chapter 5: Bibliography
CHAPTER-1
INTRODUCTION :
The FMCG market in India is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in
2015. Penetration level as well as per capita consumption in most product categories like jams,
toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential.
Burgeoning Indian population, particularly the middle class and the rural segments, presents an
opportunity to makers of branded products to convert consumers to branded products. HUL's
brands, spread across 20 distinct consumer categories, touch the lives of two out of three Indians.
They endow the company with a scale of combined volumes of about 4 million tonnes and sales
of Rs. 13,718 crores. The mission that inspires HUL's over 15,000 employees is to "add vitality
to life". With 35 Power Brands, HUL meets every day needs for nutrition, hygiene, and personal
care with brands that help people feel good, look good and get more out of life.
HUL is India's largest FMCG Company. It is a 52.11 per cent (as on March 31, 2008) subsidiary
of Unilever, an Anglo-Dutch international marketer of leading brands in food products, home
care, and personal care segments. HUL’s key brands include Wheel, Lux, Lifebuoy, Surf, Fair &
Lovely, Ponds, Clinic, and Sunsilk. For 2007, HUL reported a consolidated net profit of
Rs.19.25 billion on sales of Rs.137.18 billion, as against a net profit of Rs.18.55 billion and sales
of Rs.121.03 billion, the previous year. For the three months ended March 31, 2008, HUL
reported a standalone profit after tax of Rs.3.81 billion (Rs.3.93 billion in the corresponding
period of 2007) and net sales of Rs.37.94 billion (Rs.31.84 billion).
CHAPTER-2
QULATITIVE ANALYSIS ON “HUL”
CRISIL’S CRITERIA FOR RATING FMCG COMPANIES :
1) PRODUCT MIX :
HUL’s business activities are divided into four broad areas : Home and personal care
Personal wash : Lux. Lifebuoy, Liril , Hamam, Breeze, Moti , Dove, Pears and Rexona
Laundry : Surf Excel, sun light, Rin ,Wheel & Ala bleech
Dishwasher : Vim
Dis-infectants : Domex, cif
Beauty Products : Fair & Lovely, Lakme, Ponds, Vaseline and Aviance
Hair-Care : Sunsilk naturals, Clinic , Dove and Lifebouy
Oral-Care : Pepsodent and Close-up
Deo spray : Axe and Rexona
2) FOODS :
Kissan(Jam,Ketchup,Squashes), Annapurna(Aata and salt), Knorr Soups, Modern Bread
Ice-cream:Kwality Wall's
Bewerages :
Tea:- Brooke bond, Lipton, taj mahal Coffee:- Brooke bond bru.
3 ) New Ventures
Hindustan Lever Network, Ayush ayurvedic products and
services, Sangam, Pureit water purifiers.
4) Exports
HPC, beverages, marine products,
HUL s brands are household names across the country. They
include:
Lifebuoy, Lux, Surf Excel, Rin, Wheel, Fair & Lovely, Pond s, Sunsilk,Clinic,
Pepsodent, Close-up, Lakme, Brooke Bond, Kissan, Knorr-Annapurna and Kwality
Walls.
B) HUL’S NEW GROWTH STRATEGY/INNOVATION TRACK RECORD
After having fought a bitter price battle for market share with its rivals, Hindustan Unilever Ltd
(HUL), Indian subsidiary of the Anglo-Dutch consumer goods company Unilever Plc, is now
working on anew growth strategy for its laundry business.
“Price cut or hike is not a long-term growth strategy. Pricing, infact, is now pass,” insists
Sudhanshu Vats, category head, homecare.
“Our strategy for growth, now is focused on product innovation, new consumer and retail trends
and aggressive marketing and promotions,” he said.
This comes even as Unilever is scouting for a potential buyer for its
laundry business in the US.
HUL says it is quite upbeat about the segment and says the
laundry segment is one of its “key growth areas. “We have done key innovations across the
product portfolio and itis working for us,” says Vats. “We successfully migrated from Rin
Supreme to Surf Excel and Wheel Smart Srimati—which was rolled out in 2006—is also on the
right track.”
HUL’s market share in the laundry segment grew to around 37.8%in the quarter ended June from
35.5% in the same period last year, according the market research firm ACNielsen. However,
this time, the increase was not at the expense of price war with it multinational rival Procter &
Gamble Co. P&G also gained 0.5percentage points, up to a 7.6% share. Nirma Ltd, the
Ahmedabad-based manufacturer, however, saw its market share dip by 1.7%percentage points to
13.5%.
Wheel, a value brand that, according to Vats contributes around50% of HUL’s laundry segment
revenues, increased its market share by 2 percentage points in the same period, with a total share
of about 18%.
According to ACNielsen, the laundry industry in India was worth
Rs7,908 crore in 2006 and rose 8.4% over 2005. HUL doesn’t
” “We have done key innovations across the product portfolio and it is working for us,” says
Vats. “We successfully migrated from Rin Supreme to Surf Excel and Wheel Smart Srimati—
which was rolled out in 2006—is also on the right track.”
HUL’s market share in the laundry segment grew to around 37.8%in the quarter ended June from
35.5% in the same period last year, according the market research firm ACNielsen. However,
this time, the increase was not at the expense of price war with its multinational rival Procter &
Gamble Co. P&G also gained 0.5percentage points, up to a 7.6% share. Nirma Ltd, the
Ahmedabad-based manufacturer, however, saw its market share dip by 1.7%percentage points to
13.5%.
Wheel, a value brand that, according to Vats contributes around50% of HUL’s laundry segment
revenues, increased its market share by 2 percentage points in the same period, with a total share
of about 18%.
According to ACNielsen, the laundry industry in India was worth
Rs7,908 crore in 2006 and rose 8.4% over 2005. HUL doesn’t
report its laundry revenues separately but puts them under the
soaps and detergent category.
In 2006, HUL’s soaps and detergents segment contributed around
Rs5,596 crore to the company’s total sales of Rs12,103 crore.
“Laundry has been an attractive segment in the past and is likely to keep growing in the near
future. The recent price war between companies led to erosion in their profitability but now, the
industry is stabilizing,” says Unmesh Sharma, an analyst at MacquarieSecurities here.
According to Vats, the laundry business is witnessing a surge in demand from cities and HUL is
focusing on Tier I and II cities to tap that demand
C) DISTRIBUTION NETWORK,,,
HLL
CARRYING AND FORWARD AGENT
REDISTRIBUTION NETWORK
WHOLESELLER
URBAN AND RURAL RETAILER
CONSUMER
Hindustan Unilever's distribution network is recognised as one of its key strengths. Its focus is
not only to enable easy access to our brands, but also to touch consumers with a three-way
convergence - of product availability, brand communication, and higher levels of brand
experience.
HUL's products, manufactured across the country, are distributed through a network of about
7,000 redistribution stockists covering about one million retail outlets. The distribution network
directly covers the entire urban population.
The general trade comprises grocery stores, chemists, wholesale, kiosks and general stores.
Hindustan Unilever services each with a tailor-made mix of services. The emphasis is equally on
using stores for direct contact with consumers, as much as is possible through in-store
facilitators.
Hindustan Unilever, which once pioneered distribution in India, is today reinventing distribution
- creating new channels, and redefining the way current channels are serviced. In the process it is
converging product availability, with brand communication and brand experience
D) Supply Chain Management
This is the most important factor that drives the sales and promote customer loyalty. It is the
ability of any industry to offer a new product whenever customer wants.
At the supermarkets: To service modern retailing outlets in the metros, HUL has set up a full-
scale sales organisation, exclusively for this channel. The business system delivers excellent
customer service, while driving growth for the company and the store. At the same time,
innovative marketing initiatives are taken to provide consumers with experience of our brands at
the store itself, through product tests and in-store sampling
In the villages: The company, to fully meet the emerging needs and increased purchasing power
of the rural population has brought all markets with populations of below 50,000 under one rural
sales organisation. The sales teams are formed, dedicated leaders are assigned to build the brand
availability and enabling brand building in the deepest sections. HUL's distribution network in
rural India already directly covers about 50,000 villages, reaching about 250 million consumers,
through about 6000 sub-stockists
E) Brand Equity
It is the degree of consumer loyalty that a company product enjoys. HUL has various brands in
the Indian market with the highest market share. The main challenge was to reverse the down
trading the categories and reestablish the relevance of their brands in the minds of the customers.
In 2000 they had 110 brands, many undifferentiated and lacking scale. Then they focus on 35
main brands covering all consumer appeal and pricing segments.
They are already seeing the benefits . Six brands – Brooke Bond, Lifebuoy, Lux, Fair & Lovely,
Rin and Wheel – have emerge as megabrands with salary of more than Rs.500 crores.
As a corporate, HLL wants to be a leader in every one of its businesses and the strategy is to
fight on the strength of the competitive advantage arising from the possession of strong brands. It
is this strategy that is getting reflected in the development of a multitude of strong brands. If we
take the business of bathing soaps, as an example, HLL has the objective of being a national
player (not a niche or a regional marketer) and the leader therein. HLL also wants about 30 per
cent of the corporate income to come from this line.
F) Price Protection
The products of HUL enjoys the price protection in various segments of goods and services
provided by the company. They have increased the prices of several main products and reduced
on those products consumed by mass population
CHAPTER-3
RATIO ANALYSIS
INTRODUCTION
Ratio Analysis is a widely used tool of financial analysis. The ratio analysis and
industry analysis tools below are very useful for individuals to instantly assess a company or
industry by making two basic types of comparisons.
OBJECTIVES
1. To allow comparisons to be made which assist in predicting the future.
2. To investigate the reason for changes.
3. To construct a simple explanation of a coplicated financial statement by its expression in
one figure.
4. To permit the charting of a firm’s history and the evaluation of its present position.
5. To provide indicators of a firm’s past performance in terms of its operational activity and
profitability; and near-present financial condition.
IMPORTANCE/ADVANTAGES
Aid to the management
Aid in business forecasting
Aid in cost control
To know efficiency
To know liquidity and solvency position
Useful for decision making
Investment decision
Aid in comparision and Trend Analysis
LIMITATIONS/DISADVANTAGES
Lack of proper standard
Different methods
Lack of qualitative analysis also various Accounting limitation
CLASSIFICATION OF RATIOS
Ratios are classifibd according to the need of different interested
groups(e.g., shareholders, lenders, investors, management, etc.). these ratios are as follows:-
(A) PROFITABILITY RATIOS
1. GROSS PROFIT RATIO.
2. NET PROFIT RATIO.
3. OPERATING PROFIT RATIO.
4. OPERATING RATIO.
(B) LEAVERAGE RATIOS:-
1. DEBT-EQUITY RATIO.
2. CAPITAL EMPLOYEED TO NET WORTH RATIO.
(C) LIQUIDITY RATIOS:-
1. CURRENT RATIO.
2. QUICK RATIO ( Acid test ratio).
(D) TURN OVER RATIOS:-
1. INVENTORY TURN OVER RATIO.
2. FIXED ASSETS TURNOVER RATIO.
3. WORKING CAPITAL TURNOVER RATIO.
4. TOTAL ASSETS TURNOVER RATIO.
(E) VALUATION RATIOS:-
1. DIVIDEND YEILD RATIO.
2. DIVIDEND PAY OUT RATIO.
3. PRICE-EARNING RATIO.
4. EARNING PER SHARE..
RATIO ANALYSIS OF HUL
1. Debt equity Ratio
The Debt equity ratio of (HUL)is {0.09} means that debts are 9 % of the
equity in the company. Means, the position is quite safe and there is very less chance that
there will be any kind of debt problem i.e. the company can raise the loans very easily if
required in future while that of Industry: is {0.06} This ratio is very close to HUL. And
that of Competitor: (Colgate-Palm.)is {0.02} The ratio of the competitor is only 2%. The
too low ratio can be harmful for the company. There may be a lot of power in the hands
of equity-holders if the ratio remained to be too low at this level.
IndustryColgate-Palm.
HUL
00.010.020.030.040.050.060.070.080.09
Debt-Equity Ratio
Debt-Equity Ratio
2. Interest coverage Ratio
The (HUL) has interest coverage of404.94 and is in position to
give interest as much as 400 times. It means that the profitability is so high that HUL can
give interest 400 times than t what actual interest is while that of Industry is 107.52, so
the position of company is 3.893% more than the capacity of the industry and that of
Competitor: (Colgate-Palm. ) is 324.0 which is also good and is generating sufficient
revenue to satisfy interest expenses.
IndustryColgate-Palm.
HUL
050
100150200250300350400450
Interest Cover Ratio
Interest Cover Ratio
3. CURRENT RATIO
The Current Ratio of HUL is 0.89 while that of the industry is 0.93 and that of
Colgate –Palm is 1.05. As a convention the minimum of ‘two to one ratio’ is referred to as a
banker’s rule of thumb. Current Ratio of HUL is 0.89 is matter of concern. As there is more
investment in the FMCG but current assets also to be increased accordingly to improve the
current ratio.
IndustryColgate-Palm.
HUL
0.8
0.85
0.9
0.95
1
1.05
Current Ratio
Current Ratio
4. INVENTORY TURNOVER RATIO
Inventory turnover ratio is concerned with the maintenance of level of inventory
of finished goods so as to be able to meet the requirements of the business. Level of
inventory should neither be too high nor too low. Of HUL it is 7.73% which means that
the inventory is replaced with new supply about 8 times in a year while that of Industry
is 9.7% which is also close to HUL while that of Competitor (Colgate-Palm. )is 20.98%
which means that the inventory is changed 21 times in a year.
It shows the good efficiency of HUL to manage their inventory.
IndustryColgate-Palm.
HUL
0
5
10
15
20
25
Inventory Turnover Ratio
Inventory Turnover Ratio
5. DEBTORS TURNOVER RATIO
Debtor Turnover Ratio indicates the number of times the debtors are turned over
during a year. Debtors turnover ratio of HUL is 29.95
AVERAGE COLLECTION PERIOD =
NO.OF WORKING DAYS/ DEBTORS TURNOVER RATIO
= 365/20.95
= 17 days
Debtors turnover ratio of HUL is higher it shows more efficient management of debtors.
While that of Industry is 25.75 but that of COMPETITOR (Colgate-Palm.)is 193.65 which is
far better than that of HUL as it covers money in just 1.5 days.
IndustryColgate-Palm.
HUL
020406080
100120140160180200
Debtors Turnover Ratio
Debtors Turnover Ratio
6. PBITM :
Since PBITM represents the amount of cash that the companies can earn to pay
off creditors. Profit before interest and tax of HUL: 15.53, which is satisfactory while that of
INDUSTRY is 24.02 which is very good as compared to standard value while that of
COMPETITOR (Colgate-Palm.) is 14.89 which is also satisfactory and close to that of HUL.
IndustryColgate-Palm.
HUL
0
5
10
15
20
25
PBITM (%)
PBITM (%)
CHAPTER-4
COST OF CAPITAL
COMPONENTS OF CAPITAL:
a) DEBENTURES
b) PREFERENCE SHARES
c) EQUITY SHARES
d) RETAINED EARNINGS
Cost of capital is the cost at which the company acquires its funds for different operations. It
is taken from the investor’s point of view. It is the expected return of the investors on their
different type of investments in different portfolios. The cost of capital helps the company to
evaluate the financial feasibility of a venture or project. It can be done by seeing that the
minimum rate of profit should be at least equal to the expected rate of return.
1. COST OF DEBT
FORMULA:
COST OF DEBT = INTEREST (1-TAX RATE)
SALES VOLUME
Flotation cost = Nil
Corporate Tax Rate = 30%
The secured loans that are taken by the company are the irredeemable debts that are taken by
the company.
In the annual report of the company the debt taken by the company is mentioned to be
nil thus cost of debt is zero.
2. COST OF EQUITY CAPITAL
The cost of equity capital can be calculated by two methods
A) DIVIDEND APPROACH
CALCULATION OF COST OF EQUITY CAPITAL (Dividend Approach Method)
FORMULA:
= EXPECTED DIVIDEND PER SHARE + GROWTH RATE FOR CURRENT YEAR
CURRENT MARKET PRICE
Expected dividend cannot be predicted and hence we cannot calculate cost of equity using
this method, so we will calculate it using the other method i.e.
B) CAPITAL ASSET PRICING METHOD (CAPM)
FORMULA:
Ke = Rf + ß(Km-Rf)
Ke – cost of capital
Rf – risk free return on equity which is 6.9%
ß – beta of the stock
Km – market return (Calculated from average returns indicated by SENSEX index of last 10
years)
YEAR CLOSE Market return
1999 5,005.82
2000 3,972.12 -20.64%
2001 3,262.33 -17.86%
2002 3,377.28 3.52%
2003 5,838.96 72.88%
2004 6,602.69 13.07%
2005 9,397.93 42.33%
2006 13,786.91 46.7%
2007 20,286.99 51.06%
2008 9,647.31 -52.44%
2009 17,464.81 81.03%
2010 20,509.09 17.42%
Average=237.05/11= 21.55
Here β=0.5222(from capital line)
KE=6.9+ 0.522(21.55-6.9)= 14.5%
COST OF RETAINED EARNINGS
Since cost of capital for retained earnings is also the opportunity cost hence it is equivalent to
fully subscribed issue or additional shares, which is measured from cost of equity shares.
No retained earnings are mentioned in the balance sheet of the company. So cost of retained
earnings is zero.
CHAPTER-5
Bibliography
www.capitaline.com Financial Accounting by I.M pandey Corporate Finance by Prasansa Chandra
www.hul.co.in
www.bse.com