Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis – II - Question Paper

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Security Analysis-II (212): January 2006

part D : Case Study

1. The consumer markets in India are constantly evolving. Indian market was characterized by a few major structural modifications like modifications in income distribution, increased product availability (in terms of both quality and quantity), increased competition, increased media penetration and improved advertising (impacting lifestyle). These raised the levels of consumer awareness and propensity to consume, etc. The consumer markets in India have entered the new phase of evolution with the turn of the century. And, therefore, the need for detailed and consolidated market info. Among other factors, an analyst should research those relating to supply and demand for FMCG products.

Demand is affected by demographics, household income, occupational demographics, consumer finance and the overall market structure based on household well–being. These factors affect the demand positively and negatively and the analyst should predict the direction and magnitude these factors have on FMCG companies. Along with Demand of the products in the sector, analyst should also forecast the supply side of the products to know the exact market situation. Supply is affected by Availability of raw materials, Technological capability, Availability of substitutes, Cost of production, Entry and exit barriers, Market size, Access of distribution network, modifications in governmental policies, Climatic modifications etc.

Thus, for forecasting the revenue of the companies an analyst should know the demand and supply factor affecting the product. An analysis of company’s economic and industry situation is the 1st step in understanding the company, as similar economic and technological factors typically affect all companies in an industry. An analyst should know the basic inputs for the industry and how those inputs are affected by the economic, political, social and technological factors.

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2.

(Rs. million)

Particulars
31.3.2005
31.3.2004
31.3.2003
31.3.2002
31.3.2001

Net sales
12,310.95
10,864.76
11,629.27
11,069.97
11,132.54

Profit Before Tax
1,609.86

Earning:   Approval pending.