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

Summary of company outcomes
Companies
Revenue (31.3.2004)
Revenue (31.3.2005)
Growth (%)
Increase in net profit (%)

HLL
102430.99
105201.90
-2.63
-32.68

ITC
78238.60
66137.00
18.30
9.75

Nirma
18804.40
22239.50
-15.45
18.53

Dabur
12310.95
10864.76
13.31
46.50

P & G
5921.25
4493.07
31.79
34.27

Britannia
16070.58
14554.21
10.42
69.29

Colgate
9920.44
9636.30
2.95
11.10

Tata Tea
9559.50
8410.31
13.66
47.21

Marico
9480.20
8474.46
11.87
20.41

GlaxoSmithkline
8841.10
8230.50
7.42
-5.37

Radico Khaitan
3138.05
2719.33
15.40
-7.21


Dynamics

According to a few experts and market analysts, FMGC sector should be dealt with active approach, as the sector will continue on to see the price wars where the business will be the prime factor for the profit growth of the company. Sector has observed good growth in the quantity but, price cuts in products by over 25% hit the value growth for the companies. Companies are also taking advantages by virtue of setting up their manufacturing units in tax havens like Himachal Pradesh, Jammu and Kashmir, Assam and Uttranchal. Many companies started manufacturing rather than outsourcing their product to protect the profit margins in absence of increasing prices. Government is also taking a step forward to make India an outsourcing hub for agri-products. It will help the farmers in expanding and increasing their efficiency. Due to increasing use of info technology, companies are improving their working capital cycle and reducing their inventory levels. This will help the company by controlling cost and increasing margins. Most of the companies are spending their money and effort in promoting their brands. Building the brand name is of utmost importance in the FMCG industry. Distribution network for the FMCG companies also helps them in achieving the growth in revenues.

On the other hand monsoon affects the industry in a major way. Despite a lower than optimal monsoon last year, agricultural production is good. However the monsoon this year has been good throughout the country and a better year for agriculture is predicted. Surge in crude oil prices also affected the margins of the companies and the volatilities in the price of the crude oil will keep pressure on the FMCG sector. Mergers and acquisitions also play a crucial factor in the dynamics of this sector. Last year, 2 major acquisitions took place in the FMCG sector – Procter & Gamble announced the global acquisition of Gillette and homegrown Dabur announced that it would take over domestic toothpaste and household care company Balsara Hygiene.

Earning:   Approval pending.