summer training report (complete)

A Summer Training Report ON FINANCIAL ANALYSIS OF HINDUSTAN UNILEVER LIMITED & INDIAN TOBACCO COMPANY

Submitted to GURUKUL KANGRI UNIVERSITY,HARIDWAR

In partial fulfillment of the requirement for the two years full time post graduate degree in

MASTER OF BUSINESS ADMINISTRATION(MBA)

Supervised by:

Submitted by:

Dr. Bindu Arora

Akansha Tyagi(MBA)

Department of Management Studies Kanya Gurukul Mahavidyalaya, Dehradun 2nd Campus, Gurukul kangri University, Haridwar 2009-2011

ACKNOWLEDGEMENT I wish to thank Indian Tobacco Company Limited, Sidcul and its employees, who gave me their precious time to make me learn some important aspects of the Organization, its Structure, about its functioning. I express my sincere thanks to Mr. Arun Raghav(DGM - HR) for giving me an opportunity to work with them through this summer project. I am very pleased that, I got the opportunity to work under and thank Mr.Kapil(Manager in Finance & Accounts,Sidcul) for his invaluable guidance, constant encouragement & practical suggestions based on the experience to focus my efforts because of which this work has come to the presentable form. Gracious help from Dr. Surekha Rana, have contributed tremendously to the completion of this project work. I offer my sincere thanks to , Dr. Bindu Arora who guided me in the completion of the project.

CONTENTS PREFACE…………………………………………………... OBJECTIVES OF STUDY…………………………………. RESEARCH METHODOLOGY……………………………. COMPANY PROFILE • The Indian FMCG sector…………………………. • ITC profile………………………………………... • HUL profile………………………………………. INTRODUCTION • Financial Analysis………………………………... • Ratio Analysis……………………………………. ANALYSIS & INTERPRETATION Inter Company Analysis…………………………… FINDINGS & CONCLUSION…………………………... RECOMMENDATIONS……………………………………. .. BIBLIOGRAPHY………………………………………...

PREFACE The project assigned to me was to study the financial health of any organization in the country. I decided to choose one of India’s biggest companies in a sector that has rapidly grown over the last few years and a company where leaders like Mr. Y.C. Deweshwar are made, or rather, a company that has been made by Mr. Deweshwar. Through a thorough industry and company analysis, I aim to understand the external factors influencing the company and its decision making. Later, I try and evaluate the various ratios to appreciate their impact on company’s performance over the last three years. The financial statements of last three years are identified, along with analysis of various components of the company vis-à-vis other competitors in the same segment. Critical decisions of distributing dividends, Issue of bonus Debentures and other current news are analyzed and their impact on the bottom line of the company is assessed. As a benchmark, I Finally, I also study the accounting policy of the company is also studied with respect to valuation of Fixed Assets, Inventory, Investments and Employee related liabilities for the FY 2010.

OBJECTIVES OF STUDY

•

To have a deeper insight into the comparative study of Hindustan Unilever Limited & Indian Tobacco Company using ratios.

•

To know about the past and present trends as well as predict about the future.

RESEARCH METHODOLOGY Research problem: To access the comparative financial position of the company and suggest remedial measure to improve the financial position in future.

Research objective: The main objective of this project is to have a deeper insight into the financial position of the company and make comparative analysis of balance sheet and profit and loss account of the company with the major competitor of the market i.e. HUL. The study will help us to know about the past and present trends as well as predict about the future. Research design: Research design is a best plan or a model for the collection of formal information. Descriptive type of research has been used; it is concerned with describing the characteristics of a particular individual or a group. Collection of data: Basically there are two sources through which data is collected i.e., primary and secondary sources. But in my project report only secondary data is used. Secondary data: Secondary data means data that is already available i.e., they refer to that data which have alreadt been collected.This method involves the study of various documents available in the organisation which may contain information required for the study. It includes the following documents: •

Annual report and financial statement of the company.

THE INDIAN FMCG INDUSTRY

The Indian FMCG sector is the fourth largest in the economy and has a market size of US$13.1 billion. Well-established distribution networks, as well as intense competition between the organised and unorganised segments are the characteristics of this sector. FMCG in India has a strong and competitive MNC presence across the entire value chain. It has been predicted that the FMCG market will reach to US$ 33.4 billion in 2015 from US $ billion 11.6 in 2003. The middle class and the rural segments of the Indian population are the most promising market for FMCG, and give brand makers the opportunity to convert them to branded products. Most of the product categories like jams, toothpaste, skin care, shampoos, etc, in India, have low per capita consumption as well as low penetration level, but the potential for growth is huge. The Indian Economy is surging ahead by leaps and bounds, keeping pace with rapid urbanization, increased literacy levels, and rising per capita income. The big firms are growing bigger and small-time companies are catching up as well. According to the study conducted by AC Nielsen, 62 of the top 100 brands are owned by MNCs, and the balance by Indian companies. Fifteen companies own these 62 brands, and 27 of these are owned by Hindustan Lever. Pepsi is at number three followed by Thums Up. Britannia takes the fifth place, followed by Colgate (6), Nirma (7), Coca-Cola (8) and Parle (9). These are figures the soft drink and cigarette companies have always shied away from revealing. Personal care, cigarettes, and soft drinks are the three biggest categories in FMCG. Between them, they account for 35 of the top 100 brands.

THE TOP 10 COMPANIES IN FMCG SECTOR

1. Hindustan Unilever Ltd. 2. ITC (Indian Tobacco Company) 3. Nestle India 4. GCMMF (AMUL) 5. Dabur India 6. Asian Paints (India) 7. Cadbury India 8. Britannia Industries 9. Procter & Gamble Hygiene and Health Care 10.Marico Industries

Size of The Sector: IN TERMS OF MONEY. The FMCG sector is the fourth largest sector in the Indian economy with a total market size of around Rs 45,000 crore.

According CII figures for 2005, the size of the fabric wash market is estimated to be Rs 4,500 crore; of household cleaners to be Rs 1,100 crore; of personal wash products to be Rs 4,000 crore; of hair care and oral care products to be Rs 2,600 crore each; of health beverages to be Rs 1,100 crore; of bread and biscuits to be Rs 8,000 crore; of chocolates to be Rs 350 crore and of ice cream to be Rs 900 crore.

CONTRIBUTION TO GDP. The sector accounts for barely 2% of India's GD

SWOT Analysis of FMCG sector Strengths: • Low operational costs • Presence of established distribution networks in both urban and rural areas • Presence of well-known brands in FMCG sector

Weaknesses: • Lower scope of investing in technology and achieving economies of scale, especially in small sectors • Low exports 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 goods spending

Threats: • Removal of import restrictions resulting in replacing of domestic brands • Slowdown in rural demand • Tax and regulatory structure

GROWTH PROSPECT Large Market India has a population of more than 1.150 Billions which is just behind China. According to the estimates, by 2030 India population will be around 1.450 Billion and will surpass China to become the World largest in terms of population. FMCG Industry which is directly related to the population is expected to maintain a robust growth rate.

Spending Pattern An increase is spending pattern has been witnessed in Indian FMCG market.There is an upward trend in urban as well as rural market and also an increase in spending in organ-ized retail sector. An increase in disposable income, of household mainly because of in-crease in nuclear family where both the husband and wife are earning, has leads to growth rate in FMCG goods.

Changing Profile And Mind Set Of Consumer People are becoming conscious about health and hygienic. There is a change in the mind set of the Consumer and now looking at “Money for Value” rather than “Value for Money”. We have seen willingness in consumers to move to evolved products/ brands, because of changing lifestyles, rising disposable income etc. Consumers are switching from economy to premium product even we have witnessed a sharp increase in the sales of packaged water and water purifier. Findings according to a recent survey by A. C. Nielsen shows about 71 per cent of Indian take notice of packaged goods labels containing nutritional information compared to two years ago which was only 59 per cent.

FACTORS AFFECTING THE GROWTH Over the years, demand for consumer durables has increased with rising income levels, double-income families, changing lifestyles, availability of credit, increasing consumer awareness and introduction of new models. Products like air conditioners are no longer perceived as luxury products. The biggest attraction for MNCs is the growing Indian middle class. This market is characterised with low penetration levels. MNCs hold an edge over their Indian counterparts in terms of superior technology combined with a steady flow of capital, while domestic companies compete on the basis of their well-acknowledged brands, an extensive distribution network and an insight in local market conditions. With companies opting for information technology a reduction in inventory levels and an improvement in the working capital cycle is likely. This will benefit companies by controlling costs and improving margins.

COMPANY PROFILE- ITC ITC is one of India's foremost private sector companies with a market capitalisation of nearly US $ 19 billion and a turnover of over US $ 5 billion. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by BusinessWorld and among India's Most Valuable Companies by Business Today. ITC ranks among India's `10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times. ITC also ranks among Asia's 50 best performing companies compiled by Business Week. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery. As one of India's most valuable and respected corporations, ITC is widely perceived to be dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a commitment beyond the market". In his own words: "ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC practises this philosophy by not only driving each of its businesses towards international competitiveness but by also consciously contributing to enhancing the competitiveness of the larger value chain of which it is a part."

ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building capabilities, effective supply chain management and acknowledged service skills in hoteliering. Over time, the strategic forays into new businesses are expected to garner a significant share of these emerging high-growth markets in India. ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the country's biggest foreign exchange earners. (US $ 3.2 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach. ITC's wholly owned Information Technology subsidiary, ITC Infotech India Limited, is aggressively pursuing emerging opportunities in providing end-to-end IT solutions, including e-enabled services and business process outsourcing ITC's production facilities and hotels have won numerous national and international awards for quality, productivity, safety and environment management systems. ITC was the first company in India to be rated for Corporate Governance by ICRA, an associate of Moody's Investors Service, which accorded it the second highest rating, signifying "a high level of assurance on the quality of corporate governance." ITC employs over 26,000 people at more than 60 locations across India. Ranked among India's most valuable companies by the 'Business Today' magazine, ITC continuously endeavors to enhance its wealth generating capabilities in a globalising environment to consistently reward all its shareholders, fulfill the aspirations of its stakeholders and meet societal expectations. This over-arching vision of the company is expressively captured in its corporate positioning statement: "Enduring

COMPANY PROFILE-HUL

Hindustan Unilever Limited (HUL) (BSE: 500696) is India's largest fast moving consumer goods company, touching the lives of two out of three Indians with over 20 distinct categories in home & personal care products and food & beverages. They endow the company with a scale of combined volumes of about 4 million tonnes and sales of over Rs. 13,000 crores. HUL is also one of the country's largest exporters; it has been recognised as a Golden Super Star Trading House by the Government of India. The AngloDutch company Unilever owns a majority stake (52%) in Hindustan Unilever Limited. HUL was formed in 1933 as Lever Brothers India Limited and came into being in 1956 as Hindustan Lever Limited through a merger of Lever Brothers, Hindustan Vanaspati Mfg. Co. Ltd. and United Traders Ltd.. It is headquartered in Mumbai, India and has an employee strength of over 15,000 employees and contributes for indirect employment of over 52,000 people. The company was renamed in June 2007 to “Hindustan Unilever Limited”. In 2007, Hindustan Unilever was rated as the most respected company in India for the past 25 years by Businessworld, one of India’s leading business magazines.[2] The rating was based on a compilation of the magazines annual survey of India’s Most Reputed Companies over the past 25 years. HUL is the market leader in Indian consumer products with presence in over 20 consumer categories such as soaps, tea, detergents and shampoos amongst others with over 700 million Indian consumers using its products. It has over 35 brands. Sixteen of HUL’s brands featured in the ACNielsen Brand Equity

list of 100 Most Trusted Brands Annual Survey (2008). According to Brand Equity, HUL has the largest number of brands in the Most Trusted Brands List. It’s a company that has consistently had the largest number of brands in the Top 50 and in the Top 10 (with 4 brands). Hindustan Unilever's distribution covers over 1 million retails outlets across India directly and its products are available in over 6.3 million outlets in India, i.e., nearly 80% of the retail outlets in India. It has 39 factories in the country. Two out of three Indians use the company’s products and HUL products have the largest consumer reach being available in over 80 per cent of consumer homes across India. HUL was one of the eight Indian companies to be featured on the Forbes list of World’s Most Reputed companies in 2007 The company has a distribution channel of 6.3 million outlets and owns 35 major Indian brands. Some of its brands include Kwality Wall's ice cream, Knorr soups & meal makers, Lifebuoy, Lux, Pears, Breeze, Liril, Rexona, Hamam and Moti soaps, Pureit water purifier, Lipton tea, Brooke Bond(3 Roses, Taj Mahal, Taaza, Red Label) tea, Bru coffee, Pepsodent and Close Up toothpaste and brushes, and Surf, Rin and Wheel laundry detergents, Kissan squashes and jams, Annapurna salt and atta, Pond's talcs and creams, Vaseline lotions, Fair and Lovely creams, Lakmé beauty products, Clear, Clinic Plus, Clinic All Clear, Sunsilk and Dove shampoos, Vim dishwash, Ala bleach, Domex disinfectant, Modern Bread, and Axe deosprays, Comfort fabric softners. HUL is also one of the country's largest exporters; it has been recognised as a Golden Super Star Trading House by the Government of India.

The Hindustan Unilever Research Centre (HURC) was set up in 1967 in Mumbai, and Unilever Research India in Bangalore in 1997. Staff at these centres developed many innovations in products and manufacturing processes. In 2006, the company's research facilities were brought together at a single site in Bangalore. HUL also renders services to the community, focusing on health & hygiene education, empowerment of women, and water management. It is also involved in education and rehabilitation of underprivileged children, care for the destitute and HIV-positive, and rural development. HUL has also responded to national calamities, for instance with relief and rehabilitation after the 2004 tsunami caused devastation in South India. In 2001, the company embarked on a programme called Shakti, through which it creates micro-enterprises for rural women. Shakti also includes health and hygiene education through the Shakti Vani Programme, which now covers 15 states in India with over 45,000 women entrepreneurs in 135,000 villages. By the end of 2010, Shakti aims to have 100,000 Shakti entrepreneurs covering 500,000 villages, touching the lives of over 600 million people. HUL is also running a rural health programme, Lifebuoy Swasthya Chetana. The programme endeavours to induce adoption of hygienic practices among rural Indians and aims to bring down the incidence of diarrhoea. So far it has reached 120 million people in over 50,000 villages

FINANCIAL ANALYSIS

Financial analysis refers to an assessment of the viability, stability and profitability of a business sub-business or project. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. These reports are usually presented to top management as one of their bases in making business decisions. Based on these reports, management may: •

Continue or discontinue its main operation or part of its business;

•

Make or purchase certain materials in the manufacture of its product;

•

Acquire or rent/lease certain machineries and equipment in the production of its goods;

•

Issue stocks or negotiate for a bank loan to increase its working capital;

•

Make decisions regarding investing or lending capital;

•

Other decisions that allow management to make an informed selection on various alternatives in the conduct of its business.

Goals Financial analysts often assess the firm's: 1. Profitability - its ability to earn income and sustain growth in both shortterm and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; 2. Solvency - its ability to pay its obligation to creditors and other third parties in the long-term; 3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate obligations; Both 2 and 3 are based on the company's balance sheet, which indicates the financial condition of a business as of a given point in time. 4. Stability- the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and non-financial indicators. Methods Financial analysts often compare financial ratios (of solvency, profitability, growth, etc.): •

Past Performance - Across historical time periods for the same firm (the last 5 years for example),

•

Future Performance - Using historical figures and certain mathematical and statistical techniques, including present and future values, This extrapolation method is the main source of errors in financial analysis as past statistics can be poor predictors of future prospects.

•

Comparative Performance - Comparison between similar firms.

These ratios are calculated by dividing a (group of) account balance(s), taken from the balance sheet and / or the income statement, by another, for example : Net income / equity = return on equity (ROE) Net income / total assets = return on assets (ROA) Stock price / earnings per share = P/E ratio Comparing financial ratios is merely one way of conducting financial analysis. Financial ratios face several theoretical challenges: •

They say little about the firm's prospects in an absolute sense. Their insights about relative performance require a reference point from other time periods or similar firms.

•

One ratio holds little meaning. As indicators, ratios can be logically interpreted in at least two ways. One can partially overcome this problem by combining several related ratios to paint a more comprehensive picture of the firm's performance.

•

Seasonal factors may prevent year-end values from being representative. A ratio's values may be distorted as account balances change from the beginning to the end of an accounting period. Use average values for such accounts whenever possible.

•

Financial ratios are no more objective than the accounting methods employed. Changes in accounting policies or choices can yield drastically different ratio values.

•

They fail to account for exogenous factors like investor behavior that are not based upon economic fundamentals of the firm or the general economy (fundamental analysis) .

Financial analysts can also use percentage analysis which involves reducing a series of figures as a percentage of some base amount. For example, a group of items can be expressed as a percentage of net income. When proportionate changes in the same figure over a given time period expressed as a percentage is known as horizontal analysis. Vertical or common-size analysis, reduces all items on a statement to a “common size” as a percentage of some base value which assists in comparability with other companies of different sizes . Another method is comparative analysis. This provides a better way to determine trends. Comparative analysis presents the same information for two or more time periods and is presented side-by-side to allow for easy analysis.

RATIO ANALYSIS Meaning Ratio is an expression of relationship of one figure with another it may be defined as the relationships or proportion that one amount bears to other financial ratios express arithmetical relationships between two figures or two groups of figures which are related to other. OBJECTIVE OF RATIO ANALYSIS Ratio analysis is the important technique of financial analysis. It can be called as the heart of financial analysis. The way, in which we estimate the health of our body through heart beats, similarly through the technique of ratio analysis, estimation can be made regarding the financial position of a business concern. The main objectives of ratio analysis are: 1. Relative study: The facts and figures expressed in financial statements if studied in isolation, may make no sense but if two related items are studied in comparison to the others may suggest something significant. 2. Conciseness: With the help of Ratio, large figures or group of figures are presented precisely so as to make them understandable. 3. Analysis of business activities: On the basis of the comparative study of ratios, results related to the progress or failure of a business concern can be easily obtained.

IMPORTANCE OF RATIO ANALYSIS

Ratio analysis is the most important tool of financial analysis: 1. Helpful to management: The ratio analysis is proves to be of significant

value to the

management in the process of discharge of its elementary

functions such as planning, co-ordination, communication and control. 2. Helpful in trend analysis: The ratio analysis facilitates a firm to

consider the time dimension into account, i.e. whether the financial position of a firm is showing any improvement or deterioration over years. This is effected through the use of trend analysis. With the help of the financial analysis one can ascertain whether the trend is favorable or unfavorable. 3. Useful in comparative study: Ratio analysis is also helps in comparative

study. It helps to make an inter-firm comparison either between the different departments of a firm or between two firms employed in the identical types of business or between the same firms on two different dates. 4. Helpful in communication: Through ratio analysis it is possible to know

the changes that had taken place in business between two periods. 5. Helpful in determining the standards: Keeping in mind the old ratios

and present operating efficiency, the standard can be fixed. In this way ratio analysis is considered to be the essential part of budgetary control and standard costing. 6. Helpful in effective control: On the basis of ratios, by establishing

standards the effective control can be exercised upon the activity of the firm.

On the comparison of standard ratios with actual ratios adverse financial position can be found out and corrective measures can be taken. 7. Helpful in evaluation of financial soundness: With the help of

liquidity, solvency, profitability and capital gearing ratios is detailed information can be gathered related to financial soundness of any institution.

LIMITATIONS OF RATIO ANALYSIS 1.

Limited Use of a Single Ratio: A single ratio in itself is meaningless; it

does not furnish a complete picture. In other words, one single ratio used without reference to other ratios may produce misleading results. Hence, a number of financial statements. For example, to test the Liquidity, make use of all the Liquidity ratios. 2.

Ignores Qualitative Factors: The ratio facilitates wholly quantitative

analysis only. The qualitative factors which are so important for the successful functioning of the organisation are completely ignored and hence, whatever conclusion drawn may get distorted. For example, the grant of credit to an enterprise may depend more upon the character and capacity of the owner than on the conclusion drawn from the so called Ratio analysis. 3.

Only a part of the information needed in the process of decision

taking: It should also be remembered that ratio analysis helps in providing only a part of the information needed in the process of decision making.

4.

Possibility of window-dressing:

Ratio depends on figures of the

financial statements. But in most cases, the figures are window dressed. As a result, the correct picture cannot be drawn up by the ratio analysis. Different meaning to accounting terms Comparisons are also made difficult due to differences in definition of various terms used in computing ratios. 1.

Variations in Accounting Policies: Comparison between two variables

proves worth provided their basis of valuation is identical but in reality it is not possible. 2.

Difficulty in Evolving Standard Ratio: It is very difficult to ascertain

the normal or standard ratio in order to make proper comparison. 3.

Historical Analysis: Ratios delve in the past as they are obtaining from

the financial statements which are considered to be historical documents. A financial analyst is more concerned the probable happenings in the future rather than those in the past. 4.

Effect of price changes are not taken into account: A change in the

price level can seriously affect the validity of comparisons of ratios computed for different time periods. 5.

Personal bias: Ratios are only means of financial analysis and

not end

in itself. They can be affected with the personal ability and bias of the analyst.

CLASSIFICATION OF FINANCIAL RATIOS 1.

Liquidity Ratios

2.

Capital Structure Ratios

3.

Activity or Turnover Ratios

4.

Profitability or Profit Earning Capacity Ratio.

INTER COMPANY ANALYSIS & INTERPRETATION Key Ratios: 1) Current Ratio: Current ratio is defined as an indicator of short-term debt paying ability of a company. It is determined by dividing current assets by current liabilities. The higher the ratio, it is believed that, the more liquid the company. Here we observe that the current ratio of ITC increases over the FY 2007-2008 and 2008-2009 but decreases in the last year. This is evident from the graph given below. Current Ratio 3 1.73

Ratios

2.5 2

1.58 1.009

1.5

HUL 0.968

1

0.797 0.5

ITC

0.641

0 2007-2008

2008-2009

Years

2009-2010

The graph above also shows the comparison of ITC visà-vis the competitor chosen in the market. We observe that in all the three years HUL have lower current ratio than ITC in the sector.The ideal current ratio is 2:1

2) Return On Net Worth

The ratio of net income after taxes to total end of the year net-worth of the company is called the RONW for that company. This ratio indicates the return on stockholder's total equity that is invested in the business. Clearly, from the diagram below, it is evident that HUL is better performers in terms of RONW. While HUL maintains its high return on the networth but in the FY 2009-2010 it has decreased yet it fares well as compared to ITC.

Return On Net Worth 1.2 1.03 1 0.88

Ratio

0.8 0.8

HUL

0.6

ITC 0.4

0.2

0.28

0.25

0.23

2007-2008

2008-2009

0 2009-2010

Years

3) Return on Total Assets (ROTA):

The return on Total Assets is yet another method of calculating the return of the company. This is calculated by taking the ratio between the PBIT (Profit before Interest and Taxes) to the Total Assets of the company. When considered on the basis of ROTA, ITC fares well in the year 2009-2010 as compared to HUL.ITC shows a steady increase which is a positive sign for future growth.On the other hand HUL shows a sharp increase and then a sharp decrease which shows high fluctuation which shows some instability in this area.This is presented in the diagram below. Return On Total Assets

1.2 1.096

Ratio

1 0.8 0.6 HUL 0.4

0.435 0.357

0.2

0.405

ITC

0.327 0.05

0 2007-2008

2008-2009

2009-2010

Years

4) Earnings per share: (EPS):

Earnings per share, as it is called, is a company's profit after tax (PAT) divided by its number of outstanding (equity) shares. It is therefore measured as the portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. The EPS of ITC has increased over the last three years, this is because the number of shares of ITC in the market remains steady and the earnings (PAT) increases every year. This therefore results in an increment in the earnings when considered in per share terms.

Earning Per Share 14 11.46

Rs. in Crores

12 10 8

8.73

10.62 10.1

8.64

8.2

6

HUL ITC

4 2 0 2007-2008

2008-2009

2009-2010

Years

On the other hand HUL shows an increase and then a slight decrease in the EPS in the last FY.This could be because of the changing face values of the share in the market.The effect of decrease in EPS will be reflected in the DPS.

5) Dividend per share:

Dividend is defined as the amount of profit that is distributed among the shareholders of the company. Declaration of this is dependent solely on the decision of the management, whether they want to retain it for reinvestment or distribute to the shareholders, the actual owners of the company. The total interim dividend divided by the number of equity shares of the company measures the dividend per share in our case.

Dividend Per Share

10 9

9

Rs. in Crores

8

7.5

7

6.5

6

HUL

5 4.5

4 3

3.5

ITC

3.7

2 1 0 2007-2008

2008-2009

2009-2010

Years

ITC Limited over the last few years have experienced a steady increase in the dividend distributed per share because of reasons mentioned above owing to the increasing dividend paid by the managemen to the shareholders. The earnings per share for HUL, shows an increase and then a decrease hence there is a decrese in the dividend distributed per share.

6) Market Capitalization:

The market capitalization of the company is defined as the market value of the number of equity shares being traded in the market at that point of time. Across companies too, the market capitalization has shown a net increase representing a good growth component in the sector and the confidence of the buyers who continue to buy the stocks of such companies.

Market Capitalisation

120000

100476

Rs. in Crores

100000

80000

77765

HUL

69751

60000

52077 40000

46575

ITC

51770

20000

0

2007-2008

2008-2009

2009-2010

Years

7) Price Book Ratio

The Price Book ratio is defined as the ratio between the market capitalizations to the networth of the company at any given point of time.

Price Book Ratio

25 21.4

21.44

21.84

20

15

HUL ITC

Ratios 10

7.14 5

6.4 5.07

0 2007-2008

2008-2009

2009-2010

Years

Across companies, ITC Limited rates poorly for the Price Book Ratio. HUL reports a steady increase in PB ratio and manages to hold its position pushing ITC to the lowest figure in the industry.

FINDINGS & CONCLUSION

COMPARATIVE CHART

KEY RATIOS

CURRENT

HUL

RATIO

ITC

2007-08

2008-09

2009-10

2007-08

2008-09

2009-10

0.641

0.96

0.79

1.58

1.73

1.009

RETURN WORTH

ON

NET 0.8

1.03

0.88

0.25

0.23

0.28

RETURN ASSETS

ON

NET 0.43

1.096

0.05

0.357

0.327

0.405

EARNING SHARE

PER 8.73

11.46

10.62

8.2

8.64

10.1

DIVIDEND SHARE

PER 9

7.5

6.5

3.5

3.7

4.5

51770

52077

77765

69751

100476

21.4

21.8

6.4

5.07

7.14

MARKET CAPITALISATION PRICE RATIO

46575

BOOK 21.4

FINDINGS • The liquidity position of the company is quite stable as compared to HUL. •

HUL fares well as compared to ITC in producing return on net worth.

• Earning per share of ITC has increased over the last three years which indicates pretty good profit allocation to each stock. •

There is a good growth component in both the companies indicated by the increasing market capitalization.

• The net worth of ITC has shown a steady increase over the last three years.

CONCLUSION HUL have been an established legend in FMCG space since decades and ITC is relatively a new player. From the above comparative study it is concluded that though HUL is posing a very strong competition for ITC but ITC also has responded well by performing reasonably good by diversifying/de-risking their business by venturing into new spaces like Retail(Rural retail-eChoupals,Uban retail-Wills Lifestyle),Hospitality,Home & Personal Care,Foods,etc .

RECOMMENDATIONS

• Need improvement in distribution network for the FMCG products mainly for home & personal care. • To improve the net worth,ITC should scout for acquisitions in premium hospitality space ,also they can plan for venturing into budget hotels space(which is growing very fast). • To strenghthen their Agri-commodity business they can plan for venturing into cold-storage spaces through public –private partnership.

LIMITATIONS

• It took a lot of time in collection of data as the data available in the annual report is so wide and covers great deal of extensive information. • The organisation is so wide that’s why the employees do not have much time to teach the trainees and there is no separate section for the training of the students. • The employee cannot provide the whole financial data to the trainees because it is so much confidential and they are not allowed to disclose that.

BIBLIOGRAPHY

1. “Management Accounting” by: K.G. Gupta 2. “Financial Accounting” by: M.L. Aggarwal 3.

www.itcportal.com

4.

www.hul.com

5.

www.wikipedia.com