birla institute of 1

8/2/2019 Birla Institute of 1

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BIRLA INSTITUTE OF TECHNOLOGY

NOIDA, U.P

BACHELOR OF BUSINESS ADMINISTRATION

FUNDAMENTAL ANALYSIS OFBRITANNIA INDUSTRIES LTD.

JERIN ABRAHAM

BBA 4556/09


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OBJECTIVE OF THE STUDY

1. PRIMARY OBJECTIVE:

The primary objective of the study is to analyse the fundamental analysis

with reference to Britannia Industries Ltd. (BSE; 500825, NSE; BRITANNIA)

2. SECONDARY OBJECTIVES:

To estimate the earning capacity of the firm To analyse the financial statements of the company by using financial tools. To evaluate the financial position of the company in terms of solvency, profitability,

activity, and earnings ratios. To analyse the working capital changes over a period of five years i.e., 2006-07 to

2010-11 To determine the debt capacity of the firm.


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INTRODUCTION TO TOPIC

Fundamental Analysis

Fundamental analysis of a business involves analysing its financial statements and health, its

management and competitive advantages, and its competitors and markets. When applied

to futures and forex, it focuses on the overall state of the economy, interest rates, production,

earnings, and management. When analysing a stock, futures contract, or currency using

fundamental analysis there are two basic approaches one can use; bottom up analysis and top

down analysis. The term is used to distinguish such analysis from other types ofinvestment

analysis, such as quantitative analysis and technical analysis.

Fundamental analysis is performed on historical and present data, but with the goal of making

financial forecasts.

There are several possible objectives:

To conduct a company stock valuation and predict its probable price evolution, To make a projection on its business performance, To evaluate its management and make internal business decisions, To calculate its credit risk.
http://competitors/http://contract/http://analysis/http://analysis/http://analysis/http://forecasts/http://valuation/http://risk/http://risk/http://valuation/http://forecasts/http://analysis/http://analysis/http://analysis/http://contract/http://competitors/


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Weaknesses of Fundamental Analysis

Time Constraints

Fundamental analysis may offer excellent insights, but it can be extraordinarily time-

consuming.

Industry/Company Specific

Valuation techniques vary depending on the industry group and specifics of each company.

For this reason, a different technique and model is required for different industries and

different companies.

Subjectivity

Fair value is based on assumptions. Any changes to growth or multiplier assumptions can

greatly alter the ultimate valuation


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COMPANY PROFILE

The story of one of India's favourite brands reads almost like a fairy tale. Once upon a

time, in 1892 to be precise, a biscuit company was started in a nondescript house in Calcutta

(now Kolkata) with an initial investment of Rs. 295. The company we all know as Britannia

today.

The beginnings might have been humble-the dreams were anything but. By 1910, with the

advent of electricity, Britannia mechanised its operations, and in 1921, it became the first

company east of the Suez Canal to use imported gas ovens. Britannia's business was

flourishing. But, more importantly, Britannia was acquiring a reputation for quality andvalue. As a result, during the tragic World War II, the Government reposed its trust in

Britannia by contracting it to supply large quantities of "service biscuits" to the armed forces.

As time moved on, the biscuit market continued to grow and Britannia grew along with it.

In 1975, the Britannia Biscuit Company took over the distribution of biscuits from Parry's

who till now distributed Britannia biscuits in India. In the subsequent public issue of 1978,

Indian shareholding crossed 60%, firmly establishing the Indianans of the firm. The

following year, Britannia Biscuit Company was re-christened Britannia Industries Limited

(BIL). Four years later in 1983, it crossed the Rest. 100 cores revenue mark.

On the operations front, the company was making equally dynamic strides. In 1992, it

celebrated its Platinum Jubilee. In 1997, the company unveiled its new corporate identity -

"Eat Healthy, Think Better" - and made its first foray into the dairy products market. In 1999,

the "Britannia Khao, World Cup Jao" promotion further fortified the affinity consumers had

with 'Brand Britannia'.

Britannia strode into the 21st Century as one of India's biggest brands and the pre-eminent

food brand of the country. It was equally recognised for its innovative approach to products

and marketing: the Lagaan Match was voted India's most successful promotional activity of

the year 2001 while the delicious Britannia 50-50 Maska-Chaska became India's most

successful product launch. In 2002, Britannia's New Business Division formed ajoint venturewith Fonterra, the world's second largest Dairy Company, and Britannia New Zealand Foods

Pvt. Ltd. was born. In recognition of its vision and accelerating graph, Forbes Global rated

Britannia 'One amongst the Top 200 Small Companies of the World', and The Economic

Times pegged Britannia India's 2nd Most Trusted Brand.

Today, more than a century after those tentative first steps, Britannia's fairy tale is not only

going strong but blazing new standards, and that miniscule initial investment has grown by

leaps and bounds to crores of rupees in wealth for Britannia's shareholders. The company's


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offerings are spread across the spectrum with products ranging from the healthy and

economical Tiger biscuits to the more lifestyle-oriented Milkman Cheese. Having succeeded

in garnering the trust of almost one-third of India's one billion population and a strong

management at the helm means Britannia will continue to dream big on its path of innovation

and quality. And millions of consumers will savour the results, happily ever after.


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MISSION

The mission statement of the company is as follows:

Britannia is committed to supply quality food products at competitive prices to customers.

Customer satisfaction, concern for environment and safety are our priorities.

They intend to achieve:

1. Cost effectiveness in all our operation.

2. Regular up gradation of technologies used in processing.

3. Compliance with law and statutory regulations.

CORPORATE OBJECTIVE

The company states in its objective the following:

1. To maintain optimum level of efficiency and productivity so as to secure optimum returns

on investment.

2. To maximize profits from projects taken up.


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LIMITATIONS OF THE STUDY

1. Data availed were insufficient to make an in depth study

2. Due to security reasons all the enquires were not get answered3. The study does not disclose reasons for changes.4. The basic nature of financial statement is historic.5. Due to time limitations, detailed study could not be conducted.6. Authorities were reluctant to reveal full information about the working of

the company.


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RESEARCH METHODOLOGY

RESEARCH DESIGN

The research is exploratory in nature.

TYPES OF DATA

The methodology used in the study involves the collection of primary data as well as

secondary data. Majority of the data was collected with the help of the annual reports

provided by the company.

SOURCE OF DATA

Secondary data: Secondary data were obtained from the internal records of the company i.e.

from the published annual reports, website of the company, journals and magazines and also

other books related to the analysis of financial performance.

TOOLS OF DATA ANALYSIS

Ratio analysis

Trend analysis


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I. ECONOMIC ANALYSIS:

POLITICO-ECONOMIC ANALYSIS:

No industry or company can exist in isolation. It may have splendid managers and a

tremendous product. However, its sales and its costs are affected by factors, some

of which are beyond its control - the world economy, price inflation, taxes and a host

of others. It is important, therefore, to have an appreciation of the politico-economic

factors that affect an industry and a company.

The political equation a stable political environment is necessary for steady,

balanced growth. If a country is ruled by a stable government which takes decisions

for the long-term developmentof the country, industry and companies will prosper.

Foreign Exchange Reserves

A country needs foreign exchange reserves to meet its commitments, pay for its

imports and service foreign debts.

Foreign Exchange Risk

This is a real risk and one must be cognizant of the effect of a revaluation or

devaluation of the currency either in the home country or in the country the company

deals in.

Restrictive Practices

Restrictive practices or cartels imposed by countries can affect companies and

industries. Crystallizing the exposure.

Foreign Debt and the Balance of Trade

Foreign debt, especially if it is very large, can be a tremendous burden on an

economy. India pays around $ 5 billion a year in principal repayments and interest

payments.


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InflationInflation has an enormous effect in the economy. Within the country it erodes

purchasing power. As a consequence, demand falls. If the rate of inflation in the

country from which a company imports is high then the cost of production in that

country will automatically go up.

The Threat of Nationalization

The threat of nationalization is a real threat in many countries the fear that a

company may become nationalized.

Interest Rates

A low interest rate stimulates investment and industry. Conversely, high interest

rates result in higher cost of production and lower consumption.

Taxation

The level of taxation in a country has a direct effect on the economy. If tax rates are

low, people have more disposable income.

Government Policy

Government policy has a direct impact on the economy. A government that is

perceived to be pro industry will attract investment.

THE ECONOMIC CYCLE:

It affects investment decisions, employment, demand and the profitability of

companies. The

four stages of an economic cycle are:

Depression

At the time of depression, demand is low and falling. Inflation is high and so are

interest rates. Companies, crippled by high borrowing and falling sales, are forced to

curtail production, close down plants built at times of higher demand, and let workers

go.


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Recovery

During this phase, the economy begins to recover. Investment begins anew and the

demand grows. Companies begin to post profits. Conspicuous spending begins once

again.

Boom

In the boom phase, demand reaches an all-time high. Investment is also high.

Interest rates are low. Gradually as time goes on, supply begins to exceed the

demand. Prices that had been rising begin to stabilize and even fall. There is an

increase in demand.

Then as the boom period matures prices begin to rise again.

Recession

The economy slowly begins to downturn. Demand starts falling... Interest rates and

inflation are high. Companies start finding it difficult to sell their goods. The

economy slowly begins to downturn.


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II. INDUSTRY ANALYSIS

The importance of industry analysis is now dawning on the Indian investor as never

before.

Cycle

The first step in industry is to determine the cycle it is in, or the stage of maturity of

the industry. All industries evolve through the following stages:

1. Entrepreneurial, sunrise or nascent stage

2. Expansion or growth stage

3. Stabilization, stagnation or maturity stage, and

4. Decline or sunset stage to properly establish itself. In the early days, it may

actually make losses.

The Entrepreneurial or Nascent Stage

At the first stage, the industry is new and it can take some time for it to properly

establish it.

The Expansion or Growth Stage

Once the industry has established itself it enters a growth stage. As the industry

grows, many new companies enter the industry.

The Stabilization or Maturity Stage

After the halcyon days of growth, an industry matures and stabilizes. Rewards are

low and so too is the risk. Growth is moderate. Though sales may increase, they do

so at a slower rate than before. Products are more standardized and less innovative

and there are several competitors.

The Decline or Sunset Stage

Finally, the industry declines. This occurs when its products are no longer popular.

This may be on account of several factors such as a change in social habits the film

and video industries.


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1. BARRIER TO ENTRY

New entrants increase the capacity in an industry and the inflow of funds. The

question that arises is how easy is it to enter an industry?

There are some barriers to entry:

a) Economies of scale

b) Product differentiation

c) Capital requirement

d) Switching costs

e) Access to distribution channels

f) Cost disadvantages independent of scale

g) Government policy

h) Expected retaliation

j) International cartels

2. THE THREAT OF SUBSTITUTION

New inventions are always taking place and new and better products replace

existing ones.

An industry that can be replaced by substitutes or is threatened by substitutes is

normally an industry one must be careful of investing in. An industry where this

occurs constantly is the packaging industry -bottles replaced by cans, cans replaced

by plastic bottles, and the like. To ward off the threat of substitution, companies often

have to spend large sums of money in advertising and promotion.

3. BARGAINING POWER OF THE BUYERS

In an industry where buyers have control, i.e. in a buyer's market, buyers are

constantly forcing prices down, demanding better services or higher quality and this

often erodes profitability. The factors one should check are whether:

a) A particular buyer buys most of the products (large purchase volumes). If such

buyers withdraw their patronage, they can destroy an industry. They can also force

prices down.

b) Buyers can play one company against another to bring prices down.

4. BARGAINING POWER FOR THE SUPPLIERSAn industry unduly controlled by its suppliers is also under threat. This occurs when:


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a) The suppliers have a monopoly, or if there are few suppliers.

b) Suppliers control an essential.

c) Demand for the product exceeds.

d) The supplier supplies to various industries.

e) The switching costs are high.

f) The supplier's product does not have a substitute.

g) The supplier's product is an important input for the buyer's.

h) The buyer is not important to the supplier.

i) The supplier's product is unique.

5. RIVALRY AMONG COMPETITORS

Rivalry among competitors can cause an industry great harm. This occurs mainly by

price cuts, heavy advertising, additional high cost services or offers, and the like.

This rivalry occurs mainly when:

a) There are many competitors and supply exceeds demand. Companies resort to

price cuts and advertise heavily in order to attract customers for their goods.

b) The industry growth is slow and companies are competing with each other for a

greater market share.

c) The economy is in a recession and companies cut the price of their products and

offer better service to stimulate demand.

d) There is lack of differentiation between the product of one company and that of

another. In such cases, the buyer makes his choice on the basis of price or service.

e) In some industries economies of scale will necessitate large additions to existing

capacities in a company. The increase in production could result in over capacity &

price cutting.

f) Competitors may have very different strategies in selling their goods and in

competing they may be continuously trying to stay ahead


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III. COMPANY ANALYSIS:

At the final stage of fundamental analysis, the investor analyses the company. This

analysis has two thrusts:

How has the company performed vis--vis other similar companies and

How has the company performed in comparison to earlier years?

It is imperative that one completes the politico economic analysis and the industry

analysis before a company is analysed because the company's performance at a

period of time is to an extent a reflection of the economy, the political situation and

the industry. What does one look at when analysing a company?

The different issues regarding a company that should be examined are:

THE MANAGEMENT:

The single most important factor one should consider when investing in a company

and on often never considered is its management.

In India management can be broadly divided in two types:

Family Management

Professional Management

THE COMPANY:

An aspect not necessarily examined during an analysis of fundamentals is the

company. A company may have made losses consecutively for two years or more

and one may not wish to touch its shares - yet it may be a good company and worth

purchasing into. There are several factors one should look at.

1. How a company is perceived by its competitors?

One of the key factors to ascertain is how a company is perceived by its competitors.

It is held in high regard. Its management may be known for its maturity, vision,

competence and aggressiveness. The investor must ascertain the reason and then

determine whether the reason will continue into the foreseeable future.

2. Whether the company is the market leader in its products or in its segment

Another aspect that should be ascertained is whether the company is the market

leader in its products or in its segment. When you invest in market leaders, the risk is


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less. The shares of market leaders do not fall as quickly as those of other

companies. There is a magic to their name that would make individuals prefer to buy

their products as opposed to others.

3. Company Policies

The policy a company follows is also important. What are its plans for growth? What

is its vision? Every company has a life. If it is allowed to live a normal life it will grow

upto a point and then begin to level out and eventually die. It is at the point of

leveling out that it must be given new life. This can give it renewed vigour and a new

lease of life.

4. Labour Relations

Labour relations are extremely important. A company that has motivated, industrious

work force has high productivity and practically no disruption of work. On the other

hand, a company that has bad industrial relations will lose several hundred man-

days as a consequence of strikes and go slows.

5. Where the company is located and where its factories are?

One must also consider where the companies Plants and Factories are located...

THE ANNUAL REPORT:

The primary and most important source of information about a company is its Annual

Report. By law, this is prepared every year and distributed to the shareholders.

Annual Reports are usually very well presented. A tremendous amount of data is

given about the performance of a company over a period of time.

The Annual Report is broken down into the following specific parts:

A. The Directors Report

The Directors Report is a report submitted by the directors ofa company to its

shareholders, advising them of the performance of the company under their

stewardship.

1. It enunciates the opinion of the directors on the state of the economy and thepolitical situation vis--vis the company.


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2. Explains the performance and the financial results of the company in the period

under review. This is an extremely important part. The results and operations of the

various separate divisions are usually detailed and investors can determine the

reasons for their good or bad performance.

3. The Directors Report details the company's plans for modernization, expansion

and diversification. Without these, a company will remain static and eventually

decline.

4. Discusses the profit earned in the period under review and the dividend.

Recommended by the directors. This paragraph should normally be read with some

skepticism, as the directors will always argue that the performance was satisfactory.

If adverse economic conditions are usually at fault.

5. Elaborates on the directors' views of the company's prospects in the future.

6. Discusses plans for new acquisition and investments. An investor must

intelligently evaluate the issues raised in a Directors Report. Industry conditions and

the management's knowledge of the business must be considered.

B. The Auditor's Report

The auditor represents the shareholders and it is his duty to report to the

shareholders and the general public on the stewardship of the company by its

directors. Auditors are required to report whether the financial statements presented

do, in fact, present a true and fair view of the state of the company. Investors must

remember that the auditors are their representatives and that they are required by

law to point out if the financial statements are not true and fair.

C. Financial Statements

The published financial statements of a company in an Annual Report consist of its

Balance Sheet as at the end of the accounting period detailing the financing

condition of the company at that date, and the Profit and Loss Account or Income

Statement summarizing the activities of the company for the accounting period.


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ECONOMY ANALYSIS:

The economy of India is the eleventh largest economy in the world by nominal GDP

and the fourth largest by purchasing power parity (PPP). Following strong economic

reforms from the socialist inspired economy of a post-independence Indian nation,

the country began to develop a fast-paced economic growth, as free market

principles were initiated in 1990 for international competition and foreign investment.

India is an emerging economic power with a very large pool of human and natural

resources, and a growing large pool of skilled professionals. According to the book

'Contours of the World Economy, 1-2030AD' by Angus Maddison, India was the

largest economy from the year 1 AD until the colonial period

Where upon it was taken over by other countries such as China and the U.K.

Economists predict that by 2020, India will be among the leading economies of the

world. According to the BRIC report, published by Goldman Sachs, India will be the

second largest economy after China by 2043. India's large service industry accounts

for 55% of the country's Gross

Domestic Product (GDP) while the industrial and agricultural sector contributes 28%

and 17% respectively. Agriculture is the predominant occupation in India, accounting

for about 52% of employment. The service sector makes up a further 34% and

industrial sector around 14%. The labour force totals half a billion workers. Major

agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane,

potatoes, cattle, water buffalo, sheep, goats, poultry and fish. Major industries

include telecommunications, textiles, chemicals,

Food processing, steel, transportation equipment, cement, mining, petroleum,

machinery, information technology enabled services and pharmaceuticals.

Important Economic Indicators:

Rank 11th (Nominal) 4th (PPP)

Currency `

Fixed Exchange USD=44.5400 `

Fiscal Year 1 Apr to 31 March

Trade Organizations WTO, SAFTA, G-20 and others

GDP $1.235 trillion (nominal: 11th; 2009)

$3.526 trillion (PPP: 4th; 2009)GDP growth 8.8% (2010, Q1)


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GDP per capita $1,032 (nominal: 142th; 2009)

$3,015 (PPP: 127th; 2009

GDP by sector Agriculture (18%), industry (22%), services (60%) (2009)

Inflation (CPI) 8.62% (September 2010)

Population below poverty line 37% (2010) [5]

Labour force 467 million (2nd; 2009)

Labour force by occupation Agriculture (52%), industry (14%), services (34%)

(2009 est.)

Unemployment 10.7% (2010 est.)

Main industries telecommunications, textiles, chemicals, food processing, steel,

transportation, cement, mining, petroleum, machinery, information, pharmaceuticals

Ease of Doing Business Rank 133rd


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COMPANY: BRITANNIA

FOOD PROCESSING INDUSTRY IN INDIA

According to a report published by market research firm RNCOS in April 2010, titled

Indian Food and Drinks Market: Emerging Opportunities the Indian food andbeverages market is expanding rapidly and is projected to grow at a compound

annual growth rate (CAGR) of about 7.5 per cent during 2009-13 and would touch

US$ 330 billion by 2013.

The food retail industry, currently at US$ 70 billion is predicted to grow more than

double to US$ 150 billion by 2025, according to KPMG, a global audit and advisory

firm. Indias food retail industry is poised for exponential growth. With the evolution of

innovative food processing capacity and the emergence of organized retail, change

in consumption patterns along with fast changing demographics and habits is fuelling

the next growth trajectory for the food industry in India.

The Indian fast food market is growing at an annual rate of 25-30 per cent; according

to a report published by market research firm RNCOS in September 2010, titled

Indian Fast Food Market Analysis. Foreign fast food chains are aggressively

increasing their presence in the country. For instance, Dominos has planned to open

60-65 outlets every year for the next three years (2010-2012) while Yum Brands Inc.

is also preparing for massive expansion across the country with plans to open 1000

fast food outlets by 2015.

Exports

Exports of agricultural products from India are expected to cross around US$ 22billion mark by 2014 and account for 5 per cent of the worlds agriculture exports,according to the Agricultural and Processed Food Products Export DevelopmentAuthority (APEDA).

Exports of floriculture, fresh fruits and vegetables, processed fruits and vegetables,animal products, other processed foods and cereals stood at US$ 7,347.07 million in2009-10, according to DGCIS annual data published by APEDA.Moreover, India exported schedule products, floriculture and seeds, fruits andvegetables, processed fruits and vegetables, livestock products, other processedfoods and cereals worth US$ 1.77 billion between April-June 2009-2010, accordingto APEDA.


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Spices

The export of spices and spice-based value added products during April-August2010 increased 13 per cent in volume and 19 per cent in value terms. The increasein dollar terms was 25 per cent. According to the latest estimates of the Spices

Board, a total of 239,850 tonnes, valued at US$ 564.85 million, was exported asagainst 211,950 tonnes valued at US$ 450.50 million in April-August 2009.

Fishery

The Indian Fisheries occupies third position in global scenario in terms of productionof fish which is 4.4 per cent of global fish production. The contribution of fisheriessector is 1.10 per cent to the total GDP and 5.3 per cent to the agricultural GDP.Fishery sector has emerged as the largest group in agricultural export of India withquantity of 5.20 lakh tonnes and value of US$ 1.78 billion, respectively. The sectoremploys 14.0 million of the population.

Food Processing

In order to further grow the food processing industry, the Ministry of Food ProcessingIndustries (MOFPI) have formulated a Vision 2015 action plan under which specifictargets have been set. This includes trebling the size of the food processing industry,raising the level of processing of perishables from 6 per cent to 20 per cent,increasing value addition from 20 per cent to 35 per cent, and enhancing Indiasshare in global food trade from 1.5 per cent to 3 per cent.According to Mr Subodh Kant Sahai, Union Minister for Food Processing Industries,the Central Government is envisaging an investment of US$ 21.9 billion in the foodprocessing industry over the next five years, a major chunk of which it plans toattract from the private sector and financial institutions.Moreover, the food processing sector has grown from 6 per cent a year ago to 14.9per cent in 2010, according to Mr Sahai. The Minister further said that at present thecountry was processing 10 per cent of the total food produce and aimed to enhanceit to 20 per cent by 2015. Exports are also targeted to increase from 1.5 per cent to 3per cent. Furthermore according to Mr Sahai, foreign direct investment (FDI) in foodprocessing is likely to rise 27 per cent to US$ 264.6 million in 2010-11. "This year,FDI is expected to cross Rs 1,000 crore and touch Rs 1,200 crore," Sahai said onthe side lines of the second national conference of the National Meat and Poultry

Processing Board (NMPPB) in NewDelhi in May 2010. The cumulative FDI received by the food processing industryfrom April 2000-September 2010 stood at US$ 1,102.03 million, according to datareleased by the Department of Industrial Policy and Promotion (DIPP).

Beverages

According to a report published by market research firm RNCOS in August 2009,titled"Indian Non-Alcoholic Drinks Forecast to 2012", the Indian non-alcoholic drinksmarket was estimated at around US$ 4.43 billion in 2008 and is expected to grow at

a CAGR of around 15 per cent during 2009-2012.


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As per the report, the fruit/vegetable juice market will grow at a CAGR of around 30per cent in value terms during 2009-2012, followed by the energy drinks segmentwhich will grow at a CAGR of around 29 per cent during the same period.

Major investmentsSome of the major investments in the industry are:

Chennai-based FMCG company CavinKare is planning to invest around US$109.50 million over the next two years in various expansion plans, including agreenfield facility for namkeen at Thane, cool drinks in the North and others.Nestle, the fast moving consumer goods major, plans to invest US$ 50.49 million toset up its first research and development (R&D) centre in India at Manesar inadjoining Gurgaon district. The facility will be made operational by July 2012.

Packaged consumer goods company GlaxoSmithKline Consumer Healthcare(GSKCH) plans to invest over US$ 64.87 million on repositioning milk food drinkHorlicks as the companys umbrella brand.

Yum! Restaurants India, the operator of the Pizza Hut , KFC and Taco Bellrestaurant chains, plans to invest US$ 100 million to more than treble the number ofeateries it operates across the country to 1,000 by 2015, said Niren Chaudhary,Managing Director, Yum! Restaurants India.

FieldFresh Foods , joint venture of the Bharti Enterprises and Del Monte PacificLtd, has inaugurated their Research and Development and manufacturing facility inHosur, Tamil Nadu at an investment of US$ 25.93 million.

Agri solutions provider Buhler India plans to invest US$ 22.55 million in anintegrated manufacturing unit and other expansion projects in the next four years, inline with its plans to achieve US$ 225.49 million turnover by 2014.

Soft drinks and snacks major Pepsico is planning to invest US$ 500 million in Indiain the next two years.

Atlanta-based Coca Cola Company plans to invest up to US$ 120.75 million to set

up a new bottling plant in Karnataka, India.

Government InitiativesThe Centre has announced a series of new initiatives which include a separatepolicy at the state level, thrust on contract farming and making the sector tax-free.

The government plans to open 30 mega food parks by the end of the 11th FiveYear Plan (2007-2012).

In the Union Budget of 2010-11, the government has announced setting up of five

more mega food park projects in addition to the ten already being set up. Moreover,external commercial borrowing will be made available for cold storage or cold room


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facility including for farm level pre cooling, for preservation or storage of agricultureand allied produce, marine products and meat.

As per information published on MOFPI

Income Tax rebate is allowed, 100 per cent of profits for 5 years and 25 per cent ofprofits for the next 5 years, for new industries to process, preserve and packagefruits and vegetables.

Excise duty on ready to eat packaged foods and instant food mixes has beenbrought down to 8 per cent from 16 per cent.

Excise duty on aerated drinks has been reduced to 16 per cent from 24 per cent.

Looking ahead

According to an industry body and E&Y study on the Indian food industry called'Flavours of Incredible India Opportunities in the Food Industry', published inOctober 2009, investment opportunities in the Indian food industry are set to shootup by a huge 42.5 per cent to US$ 181 billion in 2015 and to US$ 318 billion by2020.Exchange rate used: 1 USD = 46.95 INR (as of August 2011)

Competition in food processing industry

LastPrice

MarketCap.(Rs. cr.)

SalesTurnover

Net Profit TotalAssets

GlaxoSmithCon

2,099.25 8,828.51 2,373.75 299.85 905.11

Britannia 349.45 4,174.21 3,416.60 116.50 825.87KwalityDairy

108.90 3,397.68 1,053.82 20.17 266.39

Rei Agro 25.35 2,428.49 2,448.23 61.63 5,378.24KRBL 28.00 680.71 1,582.06 107.12 1 104.38Usher Agro 93.00 307.45 342.00 23.53 317.76LakshmiEnergy

44.05 278.35 1,169.38 88.86 1,104.33

HeritageFoods

164.90 190.12 900.38 5.60 271.34

LT Foods 47.05 122.89 694.40 10.70 714.60KohinoorFoods

41.15 116.02 772.80 8.22 922.43


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COMPANY ANALYSIS OF BRITANNIA INDUSTRIES LTD

The story of one of India's favourite brands reads almost like a fairy tale. Once upon

a time, in 1892 to be precise, a biscuit company was started in a nondescript housein Calcutta (now Kolkata) with an initial investment of Rs. 295. The company we allknow as Britannia today.The beginnings might have been humble-the dreams were anything but. By 1910,with the advent of electricity, Britannia mechanised its operations, and in 1921, itbecame the first company east of the Suez Canal to use imported gas ovens.Britannia's business was flourishing.But, more importantly, Britannia was acquiring a reputation for quality and value. Asa result, during the tragic World War II, the Government reposed its trust in Britanniaby contracting it to supply large quantities of "service biscuits" to the armed forces.As time moved on, the biscuit market continued to grow and

Britannia grew along with it. In 1975, the Britannia Biscuit Company took over thedistribution of biscuits from Parry's who till now distributed Britannia biscuits in India.In the subsequent public issue of 1978, Indian shareholding crossed 60%, firmlyestablishing the Indianness of the firm. The following year, Britannia BiscuitCompany was re-christened Britannia Industries Limited (BIL). Four years later in1983, it crossed the Rs.100 crores revenue mark.On the operations front, the company was making equally dynamic strides. In 1992,it celebrated its Platinum Jubilee. In 1997, the company unveiled its new corporateidentity - "Eat Healthy, Think Better" - and made its first foray into the dairy productsmarket. In 1999, the "Britannia Khao, World Cup Jao" promotion further fortified theaffinity consumers had with 'Brand Britannia'. Britannia strode into the 21st Centuryas one of India's biggest brands and the pre-eminent food brand of the country. Itwas equally recognised for its innovative approach to products and marketing: theLagaan Match was voted India's most successful promotional activity of the year2001 while the delicious Britannia 50-50 Maska-Chaska became India's mostsuccessful product launch. In 2002, Britannia's New Business Division formed a jointventure with Fonterra, the world's second largest Dairy Company, andBritannia New Zealand Foods Pvt. Ltd. was born. In recognition of its vision andaccelerating graph, Forbes Global rated Britannia 'One amongst the Top 200 SmallCompanies of the World', and The Economic Times pegged Britannia India's 2ndMost Trusted Brand.

Today, more than a century after those tentative first steps, Britannia's fairy tale isnot only going strong but blazing new standards, and that miniscule initial investmenthas grown by leaps and bounds to crores of rupees in wealth for Britannia'sshareholders. The company's offerings are spread across the spectrum withproducts ranging from the healthy and economical Tiger biscuits to the more lifestyleoriented Milkman Cheese. Having succeeded in garnering the trust of almost one-third of India's one billion population and a strong management at the helm meansBritannia will continue to dream big on its path of innovation and quality. And millionsof consumers will savour the results, happily ever after.


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GROWTH AND PROFITABILITY

The company is a growing and profitable one. Between 2006 and 2011, thecompany's sales grew at a compound annual rate of 16 per cent against the market,and operating profits reached 18 per cent. More recently, the company has been

growing at 27 per cent a year, compared to the industry's growth rate of 20 per cent.At present, 90 per cent of Britannias annual revenue of Rs2, 200 crore comes frombiscuits.

'07 Mar '08 Mar '09 Mar '10 Mar '11Mar

Face value 10 10 10 10 10

Dividend PerShare

15.00 15.00 18.00 40.00 25.00

Net ProfitMargin(%)

8.48 4.86 7.31 5.75 3.38

OperatingProfit PerShare

84.12 53.87 97.24 93.84 85.42

Net OperatingProfit PerShare

717.17 920.60 1083.23 1302.79 1423.73

Free reservesper share

211.46 234.99 294.86 322.15 154.03

Earnings PerShare

61.29 45.06 79.95 75.51 48.77

Book Value 229.84 257.35 316.37 345.14 165.86

Bonus inequity capital

91.82 91.82 91.82 91.82 91.82

Current Ratio 1.07 1.17 1.22 1.27 0.94

Quick Ratio 0.47 0.52 0.68 0.65 0.43

Key Fundamentals

Market cap 4352.79EPS 6.26P/E 58.21Book value 33.17Dividend (%) 250%Div. Yield (%) 1.37Face value 2.00Industry P/E 42.81


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FINANCIAL ANALYSIS

FINANCIAL PERFORMANCE ANALYSIS:

Financial performance analysis is the process of identifying the financial strengths and

weaknesses of the firm by properly establishing the relationship between the items of balancesheet and profit and loss account. It also helps in short term and long term forecasting and

growth can be identified with the help of financial performance analysis. The dictionary

meaning of analysis is to resolve or separate a thing into its elements or components parts

for tracing their relation to the things as a whole and to each other.

FINANCIAL AND OPERATIONAL PERFORMANCE

Despite the increasing competition and the adverse impact of commodity inflation, grosssales of domestic bakery business and exports from India recorded a growth of almost 24%to

Rs. 42,460 MM driven by volume, mix and better realization and profit from operations

increased from Rs. 1,248 MM to Rs. 1,794 MM.

Cash flow statement

Rs. MM

2010-11 2009-10Gross sales 42,460 34,266

Total expenditure 40,744 32,869

Profit before exceptional 1,981 1,674

items and tax

Exceptional items - 466

Profit before tax 1,981 1,208

Income tax 528 43

Profit after tax 1,453 1,165


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ANALYSIS AND INTERPRETATION

FINANCIAL ANALYSIS

RATIOS:

Ratios express mathematically the relationship between performance figures and/or

assets/liabilities in a form that can be easily understood and interpreted.

PROFITABILITY RATIO

1. Gross profit ratio

2. Net profit ratio

3. Operating ratio

4. Return on total asset

5 Return on capital employed 6. Earnings per share

LIQUIDITY RATIOS

1. Current ratio

2. Quick ratio

ACTIVITY RATIOS

1. Fixed asset turnover ratio

2. Inventory turnover ratio

3. Debtors turnover ratio

LEVERAGE RATIOS

1. Debt equity ratios

2. Proprietary ratio


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I PROFITABILITY RATIO

1. GROSS PROFIT RATIO:

The ratio serves as a valuable indicator of the firms ability to utilize effectively outside

sources of fund.

Secondly, this ratio also serves as important tool in shaping the pricing policy of the firm.

Gross profit ratio = Gross profit * 100/Net sales

Table showing the Gross profit ratio of Britannia:

YEAR GROSS PROFIT(in

million)

SALES(in million) G/P Ratio

2010 1,208 34,266 3.52

2011 1,981 42,460 4.66

INTERPRETATION:

Gross profit ratio indicates the degree to which selling price per unit may decline withoutresulting in losses from operations to the firm.

Here in the case of Britannia the gross profit ratio shows an increasing trend in the year 2010,

but during the year 2010-2011 it shows a decreasing trend.

Therefore, it means that companys performance in terms of trade is not satisfactory.


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2. NET PROFIT RATIO:

This ratio is also called as the net profit to sales or net profit margin ratio. It is determined bydividing the net income after tax to the net sales for the period and measures the profit perrupee of sales. This ratio is used to measure the overall profitability.

Net profit ratio = Net profit x 100/sales

Table showing Net profit ratio of Britannia ltd.

YEAR NET PROFIT(Rs.in million)

SALES(Rs. inmillion)

N/P Ratio

2010 1,165 34,266 3.392011 1,453 42,460 3.42

INTERPRETATION:

Net profit ratio is used to measure the overall profitability of the organization. Herethe company is running at a loss except 2009-2010 and 2010-2011.

The cost of raw material is increasing day by day and the company could notincrease the selling price corresponding with the increase in cost. As compared tothe loss in 2010, the company is in a bad position now.

2. OPERATING RATIO:

Operating ratio is an indicative of the proportion that the cost of sales bears to sales.Cost of sales includes direct cost of goods sold as well as other operating expenses.

It is calculated by dividing the total operating cost by sales. Total operating expensesinclude all costs like administration, selling and distribution expenses, etc. but do notinclude financing cost and income tax.

Operating Ratio = (Cost of goods sold + Operating expenses) 100/Net sales

Table showing operating ratio of Britannia ltd.

YEAR Cost of goodssold

Expenses Sales Ratio

2010 2184.98 32,869 3403.46 10299.95

2011 2782.23 40,744 4213.71 1032.96


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INTERPRETATION:

Operating ratio is an indicative of the proportion that the cost of sales bears to sales.It is also used to measure the general profitability of the concern. Here in the case ofBritannia almost all the ratios are near or above 100. For the last five years,

companys position in cost of sales to sales is better as compared with the beginningperiod, because during the beginning periods the cost of sales to sales was farabove the sales.

II. LIQUIDITY RATIOS:

Liquidity is the ability of the firm to meet its current liabilities as they fall due. Sinceliquidity is basic to continuous operations of the firm, it is necessary to determine thedegree of liquidity of the firm

1. CURRENT RATIO:

It represents the ratio of current assets to current liabilities. It is also called workingcapital ratio.In a sound business, a current ratio of 2:1 is considered as an ideal one.It is calculated by dividing current assets by current liabilities.

Current Ratio = Current Assets-Current liabilities

Table showing Current Ratio of Britannia:

YEAR CA(in millions) CL(In millions) Current ratio2010 3576.06 5859.42 0.612011 3717.33 5583.33 0.67

INTERPRETATION:

The current ratio of firm measures its short-term solvency, i.e., its ability to meetshort-term obligations Standard current ratio of a sound business is two and TCCscurrent ratio is below one for the last two years. The highest ratio was 0.67 in 2010-

2011, and the lowest was in 2009-2011 i.e., 0.61.

Therefore, we can interpret that the company is suffering from inadequate workingcapital. That is they cannot meet their short-term obligations in time. The mainreason for the decrease in current ratio is that, in all the five years the currentliabilities of the company are more than the current assets.

The company should try to increase their current asset, so that they can easily meettheir short -term obligations.


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2. QUICK RATIO:

It is the relation between quick assets to current liabilities. It is determined by dividingquick assets by current liabilities. Quick ratio is the true test of bus iness solvency. Ahighest ratio indicates sound financial position and vice-versa.

Quick Ratio = Quick or Liquid Assets/Current Liabilities

Table showing Quick Ratio of Britannia:

YEAR QA (Rs in millions) CL (Rs in million) Quick Ratio2010 2568.69 5859.42 0.442011 2644.85 5583.33 0.47

INTERPRETATION:

An Acid Test Ratio of 1:1 is considered satisfactory as a firm can easily meet all itscurrent liabilities. If the ratio is less than 1:1, then the financial position of the concernshall be deemed unsound.

Here in the case of Britannia the Acid Test Ratio for the three years are below onetherefore the financial position of Britannia shall be deemed unsound. In most cases,the quick ratio of Britannia could not achieve the standard quick ratio of 1:1. The

highest Quick Ratio was 0.47 in 2010-2011.

The greater amount of current liability is the main reason for the low Quick Ratio ofthe company.

III. LEVERAGE RATIOS:

1. DEBT-EQUITY RATIO

The relationship between borrowed funds and owners capital is a popular measureof the long- term financial solvency of a firm. This relationship is shown by the debt-

equity ratio. This ratio indicates the relative proportion of debt and equity in financingthe assets of a firm.

This ratio is computed by dividing the total debt of the firm by its net worth.

Debt-equity ratio = Debt/ Equity

Table showing Debt-Equity Ratio of Britannia:

YEAR QA (Rs in millions) CL (Rs in millions) Ratio

2010 7518.66 2131.19 3.532011 8356.89 2131.19 3.92


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INTERPRETATION:

An acceptable norm for this ratio is considered 2:1. A high ratio shows that theclaims of creditors are greater than those of owners. A very high ratio isunfavourable from the point of view of the firm.

In debt-equity ratio; also, the company is not coming to the satisfactory level. Theentire debt- equity ratio is higher than the standard level of 2. There by we caninterpret that the claim of creditors of Britannia are much above than of owners. Thehighest debt-equity ratio was 3.92 in

2010-2011 and the lowest were 3.53 in 2009-2010.

2. PROPRIETARY RATIO:

Proprietary Ratio relates to the shareholders fund to total assets. This ratio shows

the long-term solvency of the business. It is calculated by dividing shareholdersfunds by the total assets.

Proprietary Ratio = Shareholders funds/ Total assets

Total assets include all assets including goodwill. The acceptable norm of the ratio is1:3(i.e., 0.33)

Table showing the Proprietary Ratio of Britannia:

YEAR DEBT EQUITY RATIO2010 7518.66 2131.19 3.532011 8356.89 2131.19 3.92

INTERPRETATION:

Proprietary ratio shows the financial strength of the company. It helps the creditors tofind out the proportion of shareholders fund in the total assets. Higher ratio indicatesa secured position to creditors and a low ratio indicates greater risk to creditors. Itindicates the long-term solvency of the firm.

Here the proprietary ratio of Britannia never touches the acceptable ratio of 0.33;therefore, we can assume that the creditors are in great risk... The main reason forthe unsatisfactory level of proprietary ratio is the high value of total assets of thecompany and the low value of shareholders fund.

IV. ACTIVITY RATIOS:

These ratios are also called as Turnover ratios. This ratio highlights upon theactivity and operational efficiency of the business concern. Activity ratios measurehow efficiently the firm employs the assets. These ratios indicate the speed withwhich assets are being converted into sales. These ratios are also called as

efficiency ratios.


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1. WORKING CAPITAL TURNOVER RATIO:

This ratio reflects the turnover of the firms net working capital in the course of theyear. It is a good measure of over-trading and under-trading. It includes cash inhand, cash at bank, bill receivable, sundry debtors, stock, prepaid expenses, short-

term investments, etc. Net working capital can be positive or negative. A positive networking capital will arise when current assets exceed current liabilities. A negativenet working capital occurs when current liabilities are in excess of current assets.The ratio is calculated as follows:

Working capital turnover ratio = Net sales/Net working capital

Table showing the Working capital turnover Ratio of Britannia:

YEAR Sales Net workingCapital

RATIO

2010 10877.3 -2283.36 -4.762011 12313.8 -1866 -6.59

INTERPRETATION:

Here all the working capital turnover ratio of Britannia is found to be negative,because of the negative working capital. In all years the current liabilities exceeds

the current assets. If we ignore the negatives all ratios are found satisfactory. Fromthis, we can understand that the working capital turnover ratio is fluctuating. That isin the beginning period it shows an increasing trend then declines and againincreases and then shows a decreasing trend.

2. FIXED ASSETS TURNOVER RATIO:

This ratio indicates the extent to which the investments in fixed assets contributetowards sales. If compared with a previous year, it indicates whether the investmentin fixed assets has been judicious or not.

The ratio is calculated as follows:

Fixed assets turnover ratio = Net sales/Fixed assets

Table showing fixed assets turnover ratio of Britannia:

YEAR COST OFGOODS SOLD

AVERAGE F.A. RATIO

2010 7256.2 7198.7 1.02011 8150.57 8702.32 0.9


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INTERPRETATION:

Here all fixed assets to turnover ratio are near and above one. That means sales arealmost equal to the fixed assets. There was an increasing trend for the past yearsbecause of increase in sales and decrease in fixed assets. We can see that increase

or decrease in fixed assets does not results to increase or decrease in the sales.

DEBTORS TURNOVER RATIO:

The purpose of this ratio is to discuss the credit collection power and policy of thefirm. For this ratio, a relationship is established between accounts receivables andnet credit sales of the period. The debtors turnover ratio is calculated as follows:

Debtors turnover ratio = Net credit sales/ Average accounts receivable

The term accounts receivable includes trade debtors and bill receivables. This ratioindicates the efficiency of the staff entrusted with collection of book debts. The higherthe ratio, the better it is, since it would indicate that debts are being collectedpromptly.

Table showing the Debtors turnover ratio of Britannia:

YEAR SALES (Rs inmillions)

DEBTORS(Rs inMillions).

RATIO

2010 10877.3 1098.56 9.92011 12313.8 1424.95 8.6

INTERPRETATION:

Debtors turnover ratio indicates the efficiency of the staff entrusted with collection ofbook debts. The higher the ratio the better it is. Since it would indicate that debts arebeing collected promptly

During the year 2010-2011, it declines to 8.64. Therefore we can interpret thatcompany should improve their debt collection program so that the company gets

more money for use.


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Recommendation

Earnings per share of the company is fluctuating and eventually decreasing. Since

EPS is decreasing the DPS is also decreasing from 40 to 25. So if we go by thecurrent situation of the company the investor should stay from the company. Thecurrent P/E ratio of the company is very high which shows it is highly risky situation.So the investor should avoid investing in the company.

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