itc project report by manoj kumar[1].roll no 3048

7/28/2019 ITC Project Report by Manoj Kumar[1].Roll No 3048

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A

ON

OF

SUBMITTED IN THE PARTIALFULFILLMENT

FOR THE DEGREE OF MBA (2007-2009)

Submitted to

Miss. Shruti VermaFaculty

H.I.M., Kala-AmbSirmaur(H. P.)

Submitted by

Manoj Kumar

s/o Mr. Navab Singh

Univ. Roll. No. 920Institute Roll No. 3048

Univ. Reg. No. 07-HIM-19

HIMALAYAN INSTITUTE OF MANAGEMENT, KALA-AMB.Under the patronage of Maa Saraswati Educational Trust,( Regd. )

Approved By AICTE, Delhi.(Government of India)Affiliated to- Himachal Pradesh University, Shimla


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ACKNOWLEDGEMEN

TThere is joy in work. There is no happiness except inthe realization that we have accomplished

something

Henry

Ford

The making of any project requires contribution from

many people, right from inception till its completion.

In my case also, there had been a few people who

have made this happen. It was not only learning but

also an enriching experience.

I would like to thank Mr. Shantanu Sarkar (Asst.

Commercial Mng.), Miss Shruti Verma (Faculty, HIM

Kala-Amb),Dr. Vikas Arora(Director, HIM Kala-Amb)

for being a source of inspiration and for the valuable

suggestions provided throughout. His constant


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follow-ups and result orientation ensured that we

successfully meet the deadlines.

I also thank my colleagues and friends for providing

constant encouragement and help. Finally, I am

grateful to my family members for their moral

support and understanding.

MANOJ KUMARMBA


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DECLARATION

I here by declare that the report entitled the study

of estimate the candies industry & identify the

critical success factor under I.T.C. ltd. Saharanpur is

the original work conducted by me, and all the data

in this report are original to the best of my

knowledge and submitted by me for the award of

master of business administration, from Himachal

Pradesh University, Shimla, Himachal Pradesh.

This report is not submitted to any other institute/

university for the award of any other degree of

diploma.


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Manoj kumar

MBA


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PREFACE

Financial analysis is very complex phenomenon and

its proper understanding by each and every

employee and trainees are crucial to attain success

and efficiency in financial operations. This project will

help to understand the financial process of FMCG in

different territories of India. ITC net profit was US $

4.75 Billion (approximately) in year 2007-2008.

As the FMCG scenario is changing very fast and

the market has become highly competitive, ITC has

to rework its marketing strategy oriented to meet

contemporary challenges and yet relating the basic

philosophy of ITC,-Lets put India

First....Citizen First .

This report is based on my training experiences

in Indian Tobacco Company, Limited (ITC,Ltd.)


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Saharanpur. It is an attempt to write M.B.A. training

report.

Manoj KumarMBA


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Table of Contents

Company Overview

Industry profile

Objective of the study

Scope of the project

Executive Summary

Literature review

Project in the company

SWOT analysis of ITC

Research Methodology

Data analysis & interpretation

Findings

Limitations

Suggestions

Conclusion

Bibliography

Annexure


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Companyoverview


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Company Overview: ITC Group

ITC is one of India's foremost private sector companies with a market

capitalization of nearly US $ 15 billion and a turnover of over US $ 4.75 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 also ranks among India's top 10 `Most

Valuable (Company) Brands', in a study conducted by Brand Finance and

published by the Economic Times.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards &

Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery,

Information Technology, Branded Apparel, Greeting Cards, 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 and Greeting Cards.

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


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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 $ 2.8

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 voluntarily seek a

corporate governance rating.


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ITC employs over 21,000 people at more than 60 locations across India.

The Company continuously endeavors to enhance its wealth generating

capabilities in a globalizing environment to consistently reward more than

4,46,000 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 Value. For the nation. For the

Shareholder.


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Industry

Profile


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Industryprofile 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


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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

Hindustan Unilever Ltd.

ITC (Indian Tobacco Company)

Nestle India

GCMMF (AMUL)

Dabur India

Asian Paints (India)

Cadbury India

Britannia Industries

Procter & Gamble Hygiene and Health Care

Marico Industries

The companies mentioned are the leaders in their respective sectors. The

personal care category has the largest number of brands, i.e., 21, inclusive of

Lux, Lifebuoy, Fair and Lovely, Vicks, and Ponds. There are 11 HLL brands in

the 21, aggregating Rs. 3,799 crore or 54% of the personal care category.

Cigarettes account for 17% of the top 100 FMCG sales, and just below the

personal care category. ITC alone accounts for 60% volume market share and

70% by value of all filter cigarettes in India.


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The foods category in FMCG is gaining popularity with a swing of launches by

HLL, ITC, Godrej, and others. This category has 18 major brands, aggregating

Rs. 4,637 crore. Nestle and Amul slug it out in the powders segment. The food

category has also seen innovations like softies in ice creams, chapattis by HLL,

ready to eat rice by HLL and pizzas by both GCMMF and Godrej Pillsbury. This

category seems to have faster development than the stagnating personal care

category. Amul, India's largest foods company, has a good presence in the food

category with its ice-creams, curd, milk, butter, cheese, and so on. Britannia also

ranks in the top 100 FMCG brands, dominates the biscuits category and has

launched a series of products at various prices.

In the household care category (like mosquito repellents), Godrej and Reckitt are

two players. Goodnight from Godrej, is worth above Rs 217 crore, followed by

Reckitt's Mortein at Rs 149 crore. In the shampoo category, HLL's Clinic and

Sunsilk make it to the top 100, although P&G's Head and Shoulders and Pantene

are also trying hard to be positioned on top. Clinic is nearly double the size of

Sunsilk.

Dabur is among the top five FMCG companies in India and is a herbal specialist.

With a turnover of Rs. 19 billion (approx. US$ 420 million) in 2005-2006, Dabur

has brands like Dabur-Amla, Dabur-Chyawanprash, Vatika, Hajmola and Real.

Asian Paints is enjoying a formidable presence in the Indian sub-continent,

Southeast Asia, Far East, Middle East, South Pacific, Caribbean, Africa and


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Europe. Asian Paints is India's largest paint company, with a turnover of Rs.22.6

billion (around USD 513 million). Forbes Global magazine, USA, ranked Asian

Paints among the 200 Best Small Companies in the World.

Cadbury India is the market leader in the chocolate confectionery market

with a 70% market share and is ranked number two in the total food drinks

market. Its popular brands include Cadbury's Dairy Milk, 5 Star, Eclairs, and

Gems. The Rs.15.6 billion (USD 380 Million) Marico is a leading Indian group in

consumer products and services in the Global Beauty and Wellness space.

There is a huge growth potential for all the FMCG companies as the per

capita consumption of almost all products in the country is amongst the lowest in

the world. Again the demand or prospect could be increased further if these

companies can change the consumer's mindset and offer new generation

products. Earlier, Indian consumers were using non-branded apparel, but today,

clothes of different brands are available and the same consumers are willing to

pay more for branded quality clothes. It's the quality, promotion and innovation of

products, which can drive many sectors.

The performance of the industry was inconsistent in terms of sales and

growth for over 4 years. The investors in the sector were not gainers at par with

other booming sectors. After two years of sinking performance of FMCG sector,

the year 2005 has witnessed the FMCGs demand growing. Strong growth was

seen across various segments in FY06. With the rise in disposable income and

the economy in good health, the urban consumers continued with their shopping

spree.


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Objective

s of thestudy

Objective of the study


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To find out that, what is the market position of I.T.C. in FMCG sector.

To find that which kind of products that ITC produced.

To find out financial positions of ITC, like working capital, liquidly ratio and

many more.

To analysis the view of financial need regarding the product.

To find out main factor which influence the financial need of company.

To compare the competitor of the company with the ITC.

Analysis the growth of the company on the base of past and present sales

of the company.


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Scope of

theproject

Environmental Analysis


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Well-established distribution networks, intense competition between the

organized and unorganized segments characterize the FMGC sector.

It is expected to grow by over 60% by 2010. That will translate into an annual

growth of 10% over a 5-year period. It has been estimated that FMCG sector will

rise from around Rs 56,500 crores in 2005 to Rs 92,100 crores in 2010.

Hair care, household care, male grooming, female hygiene, and the chocolates

and confectionery categories are estimated to be the fastest growing segments,

says an HSBC report. Though the sector witnessed a slower growth in 2002-

2004, it has been able to make a fine recovery since then. For example, Indian

Tobacco Company Limited (ITC) has shown a healthy growth in the last quarter.

An estimated double-digit growth over the next few years shows that the good

times are likely to continue.

Growth ProspectWith the presence of 12.2% of the world population in the villages of India,

the Indian rural FMCG market is something no one can overlook. Increased

focus on farm sector will boost rural incomes, hence providing better growth

prospects to the FMCG companies.

Better infrastructure facilities will improve their supply chain. FMCG sector

is also likely to benefit from growing demand in the market. Because of the low

per capita consumption for almost all the products in the country, FMCG

companies have immense possibilities for growth. And if the companies are able

to change the mindset of the consumers, i.e. if they are able to take the


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consumers to branded products and offer new generation products, they would

be able to generate higher growth in the near future. It is expected that the rural

income will rise in 2007, boosting purchasing power in the countryside.

However, the demand in urban areas would be the key growth driver over the

long term. Also, increase in the urban population, along with increase in income

levels and the availability of new categories, would help the urban areas maintain

their position in terms of consumption.

At present, urban India accounts for 66% of total FMCG consumption, with

rural India accounting for the remaining 34%. However, rural India accounts for

more than 40% consumption in major FMCG categories such as personal care,

fabric care, and hot beverages. In urban areas, home and personal care

category, including skin care, household care and feminine hygiene, will keep

growing at relatively attractive rates. Within the foods segment, it is estimated

that processed foods, bakery, and dairy are long-term growth categories in both

rural and urban areas.

The following factors make India a competitive player in FMCG sector:

Availability of raw materials

Because of the diverse agro-climatic conditions in India, there is a large

raw material base suitable for food processing industries. India is the largest

producer of livestock, milk, sugarcane, coconut, spices and cashew and is the

second largest producer of rice, wheat and fruits &vegetables. India also

produces caustic soda and soda ash, which are required for the production of


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soaps and detergents. The availability of these raw materials gives India the

location advantage.

Low cost labor

Low cost labor gives India a competitive advantage. India's labor cost is

amongst the lowest in the world, after China & Indonesia. Low labor costs give

the advantage of low cost of production. Many MNC's have established their

plants in India to outsource for domestic and export markets.

Presence across value chain

Indian companies have their presence across the value chain of FMCG

sector, right from the supply of raw materials to packaged goods in the food-

processing sector. This brings India a more cost competitive advantage


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EXECUTIV

ESUMMARY


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Executive Summary

The project assigned to us was to study the financial health of any

organization in the country. We decided to choose one of Indias 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 my Mr. Deweshwar

Through this report, we try and analyze the environment in which ITC Limited is

operating.

Through a thorough environment, industry and company analysis, we aim

to understand the external factors influencing the company and its decision

making. Later, we try and evaluate the various ratios to appreciate their impact

on companys performance over the last three years.

A Dupont analysis is also done to check the credibility of company as per

shareholders, financial analysts and other mutual funds.

The financial statements of last three years are identified, studied and

interpreted in light of companys performance. 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, we also analyze various components of the company

vis--vis other competitors in the same segment.

Finally, we also study the accounting policy of the company is also studied with

respect to valuation of Fixed Assets, Inventory, Investments and Employee


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related liabilities to end with the amount of Economic Value Added by the players

in that segment for the FY 2007.


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LITERATU

RE

REVIEW


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LITERATURE REVIEW

Literature review means the study of the previous research projects, research

papers, and past researched articles etc. that are already available in the books

or internet. A literature Review has a number of functions:

It provides a theoretical back ground to our study.

Through the literature review we are able to show how our findings have

contributed to the existing body of knowledge in our profession.

It enables us to conceptualize our findings.

Bring clarity and focus in our research problems.

Improve our research methodology.

Broaden our knowledge base in our research area.

Contexceptualise our findings.

In this project various research were done by the researchers, which was

helpful for me to successfully completion of my project. The literature review

gave me the knowledge about the financial analysis of ITC limited, India. These

literatures were available to me in ITC ltd. Saharanpur, Uttar Pradesh.

These followings are some of the literatures survey that I had studied in the ITC,

Saharanpur during my preparation of the project on the topic of financial analysis

of ITC, in India:-


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Financial Research of ITC, by ITC.

Financial Policies of ITC, by Commercial Manager.

Journals in ITC library.

ITCs monthly magazine published by ITC, Saharanpur.

Financial Analysis by V K Bhalla.

PROJECT

IN


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THE COMPANY


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Economic Value Addition

Economic Value Added (EVA), or economic rent, is a widely recognized

tool that is used to measure the efficiency with which a company has used its

resources. In other words, EVA is the difference between return achieved on

resources invested and the cost of resources. Higher the EVA, better the level of

resource unitization.

EVA is calculated as the difference between the Net Profit (after tax but

before interest) less cost of capital employed (equity + debt). Interest is not taken

as an expense since this is part of cost of capital (interest on debt).

There is no mentioning of the economic value added for the company in

the balance sheet. WE therefore try and calculate the EVA with the assumptions

that we take as per the industry trend. We first take a simple regression analysis

to calculate the average values of Kd and Ke by looking at the companies in

the FMCG industry.

Table II

Kd Ke

Estimated Values 5.90% 16.38%

We now calculate the NOPAT and the Cost of Capital as per the following

formula for the three companies for the year 2007. The following table shows the

values.


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Table III

Figures are in Rs. crores ITC Marico HLL

PAT 26,999.70 1,129.10 15,396.70

Interest 32.80 206.00 107.30Tax 0.3124 0.2478 0.1730

NOPAT 27022.25 1284.06 15485.44

We calculate the values of NOPAT for the companies as given above. We

look at the Cost to employ the capital after that.

Table IV


Debt 2,009.00 2,509.70 726.00

Equity 107,541.60 1,923.80 27,234.90

Capital Employed 109,550.60 4,433.50 27,960.90

WaCC 0.1619 0.1045 0.1611

Cost of Capital 17733.85 463.19 4503.91

Finally, we compute the economic value added for the companies for the

year 2007, by calculating the difference between the NOPAT and the Cost of

Capital hence obtained.

Table V


Economic Value Added 9288.41 820.87 10981.53

Thus, we see that all three companies have reported positive economic

value additions; the magnitude of value addition differs for each of the players.

According to the figures hence obtained, Hindustan Lever adds the highest value

to its products and therefore is among the better companies in the FMCG

Industry. It has also been noted in the ratio analysis that HLL is always decently


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scored when compared to the other two companies which are seen at both

extremes.

ITC on the other hand is an equally good company, though; we believe

there are certain areas that ITC Limited can improve its position upon. These

have been mentioned in the Ratio and Du-pont analysis of the company as

shown above in the report.

Finally, Marico is an upcoming company in the FMCG Industry and is

doing pretty well in the industry. The company has reflected tremendous growth

in the return on investment and is also creating a positive economic value. The

company promises to make huge impact on the overall industry and emerge as

one of the leaders of tomorrow.


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Accounting policies


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Accounting Policies

Convention

To prepare financial statements in accordance with applicable Accounting

Standards in India. A summary of important accounting policies, which have

been applied consistently, is set out below. The financial statements have also

been prepared in accordance with relevant presentational requirements of the

Companies Act, 1956.

Basis of Accounting

To prepare financial statements in accordance with the historical cost

convention modified by revaluation of certain Fixed Assets as and when

undertaken as detailed below.

Fixed Assets

To state Fixed Assets at cost of acquisition inclusive of inward freight,

duties and taxes and incidental expenses related to acquisition. In respect of

major projects involving construction, related pre-operational expenses form part

of the value of assets capitalized. Expenses capitalized also include applicable

borrowing costs. To adjust the original cost of imported Fixed Assets acquired

through foreign currency loans at the end of each financial year by any change in

liability arising out of expressing the outstanding foreign loan at the rate of

exchange prevailing at the date of Balance Sheet. To capitalize software where it

is expected to provide future enduring economic benefits. Capitalization costs


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include license fees and costs of implementation / system integration services.

The costs are capitalized in the year in which the relevant software is

implemented for use. To charge off as a revenue expenditure all up gradation /

enhancements unless they bring similar significant additional benefits.

Depreciation

To calculate depreciation on Fixed Assets and Intangible Assets in a

manner that amortizes the cost of the assets after commissioning, over their

estimated useful lives or, where specified, lives based on the rates specified in

Schedule XIV to the Companies Act, 1956, whichever is lower, by equal annual

installments. Leasehold properties are

amortized over the period of the lease. To amortize capitalized software costs

over a period of five years.

Revaluation of Assets

As and when Fixed Assets are revalued, to adjust the provision for

depreciation on such revalued Fixed Assets, where applicable, in order to make

allowance for consequent additional diminution in value on considerations of age,

condition and unexpired useful life of such Fixed Assets; to transfer to

Revaluation Reserve the difference between the written up value of the Fixed

Assets revalued and depreciation adjustment and to charge Revaluation Reserve

Account with annual depreciation on that portion of the value which is written up.


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Investments

To state Current Investments at lower of cost and fair value; and Long

Term Investments, including in Joint Ventures and Associates, at cost. Where

applicable, provision is made where there is a permanent fall in valuation of Long

Term Investments.

Inventories

To state inventories including work-in-progress at cost or below. The cost

is calculated on weighted average method. Cost comprises expenditure incurred

in the normal course of business in bringing such inventories to its location and

includes, where applicable, appropriate overheads based on normal level of

activity. Obsolete, slow moving and defective inventories are identified at the time

of physical verification of inventories and, where necessary, provision is made for

such inventories.

Sales

To state net sales after deducting taxes and duties from invoiced value of

goods and services rendered.

Investment Income

To account for Income from Investments on an accrual basis, inclusive of

related tax deducted at source.


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Proposed Dividend

To provide for Dividends (including income tax thereon) in the books of

account as proposed by the Directors, pending approval at the Annual General

Meeting.

Employee Benefits

To make regular monthly contributions to various Provident Funds which

are in the nature of defined contribution scheme and such paid / payable

amounts are charged against revenue. To administer such Funds through duly

constituted and approved independent trusts with the exception of Provident

Fund and Family Pension contributions in respect of Unionized Staff which are

statutorily deposited with the Government. To administer through duly constituted

and approved independent trusts, various Gratuity and Pension Funds which are

in the nature of defined benefit scheme. To determine the liabilities towards such

schemes and towards employee leave encashment by an independent actuarial

valuation as per the requirements of Accounting Standard 15 (revised 2005) on

Employee Benefits. To determine actuarial gains or losses and to recognize

such gains or losses immediately in Profit and Loss Account as income or

expense. To charge against revenue, actual disbursements

made, when due, under the Workers Voluntary Retirement Scheme.

Lease Rentals


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To charge Rentals in respect of leased equipment to the Profit and Loss Account.

Research and Development

To write off all expenditure other than capital expenditure on Research

and Development in the year it is incurred. Capital expenditure on Research and

Development is included under Fixed Assets.

Taxes on Income

To provide Current tax as the amount of tax payable in respect of taxable

income for the period. To provide Deferred tax on timing differences between

taxable income and accounting income subject to consideration of prudence. Not

to recognize Deferred tax assets on unabsorbed depreciation and carry forward

of losses unless there is virtual certainty that there will be sufficient future taxable

income available to realize such assets.

Foreign Currency Translation

To account for transactions in foreign currency at the exchange rate

prevailing on the date of transactions. Gains/Losses arising out of fluctuations in

the exchange rates are recognized in the Profit and Loss in the period in which

they arise except in respect of imported Fixed Assets where exchange variance

is adjusted in the carrying amount of the respective Fixed Asset. To account for

differences between the forward exchange rates and the exchange rates at the

date of transactions, as income or expense over the life of the contracts, except

in respect of liabilities incurred for acquiring imported Fixed Assets, in which case


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such differences are adjusted in the carrying amount of the respective Fixed

Asset. To account for profit/loss arising on cancellation or renewal of forward

exchange contracts and on maturity or cancellation of options as

income/expense for the period, except in case of forward exchange contracts

and options relating to liabilities incurred for acquiring imported Fixed Assets, in

which case such profit/loss are adjusted in the carrying amount of the respective

Fixed Asset. To account for gains/losses on foreign exchange rate fluctuations

relating to current assets and liabilities at the year end.

Claims

To disclose claims against the Company not acknowledged as debts after

a careful evaluation of the facts and legal aspects of the matter involved.

Segment Reporting

To identify segments based on the dominant source and nature of risks

and returns and the internal organization and management structure. To account

for inter-segment revenue on the basis of transactions which are primarily market

led. To include under Unallocated Corporate Expenses revenue and expenses

which relate to the enterprise as a whole and are not attributable to segments.

Financial and Management Information Systems

To practice an Integrated Accounting System which unifies both Financial

Books and Costing Records? The books of account and other records have been


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designed to facilitate compliance with the relevant provisions of the Companies

Act on one hand, and meet the internal requirements of information and systems

for Planning, Review and Internal Control on the other. To ensure that the Cost

Accounts are designed to adopt Costing Systems appropriate to the business

carried out by the Division with each Division incorporating into its Costing

System, the basic tenets and principles of Standard Costing, Budgetary Control

and Marginal Costing as appropriate.


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Swot

analysisof i.t.c.


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SWOT analysis of ITC

Strengths:

1. Low operational costs

2. Presence of established distribution networks in both urban and rural

areas

3. Presence of well-known brands in FMCG sector

Weaknesses:

1. Lower scope of investing in technology and achieving economies of scale,

especially in small sectors

2. Low exports levels

3. "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:

1. Untapped rural market

2. Rising income levels, i.e. increase in purchasing power of consumers

3. Large domestic market- a population of over one billion.

4. Export potential

5. High consumer goods spending


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Threats:

1. Removal of import restrictions resulting in replacing of domestic brands

2. Slowdown in rural demand

3. Tax and regulatory structure


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ResearchMethodology


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Research Methodology

What is research-

There are several ways of obtaining answer to your professional question.

Research is one of the ways to find answer to your question

Characteristics of research---

Let us briefly examine these characteristics to understand what they mean-

1. Controlled

2. Rigorous

3. Systematic

4. Valid and verifiable

5. Empirical

6. Critical

Types of research;

There is three type of research.

1)Application research

Pure research

Applied research

2)Objective research

Descriptive research


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Exploratory research

Correlation research

Explanatory research

3)Inquiry mode research

Quantitative research

Qualitative research

Research process;

There are eight step in research process

1. Formulating a research problem.

2. Conceptualizing a research design.

3. Constructing an instrument for data collection .

4. Selecting a sample.

5. Writing a research proposal.

6. Collecting data.

7. Processing data.

8. Writing a research report.

Data Source: In this project report, I have used various types of the data sources from

different section. These data source are as under:-


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Secondary data- in this project report, I have used secondary data from the

sources like different books, report of the company, web site and

magazines.

Reserch instruments- a structured questionnaire helps us in getting the

necessary primary data.


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DATAANALYSES

&INTERPRETATIO

N


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Financial Statement Analysis: ITC Ltd.

1. Ratio Analysis

A) Liquidity Analysis

Working Capital:

Higher the current assets of a company and lower the current liabilities,

greater is the working capital. A larger chunk of working capital can be used to

fund the long term liabilities of the company and therefore, the larger the working

capital, the better it is for the company.

The following table gives the working capital of the three companies under

consideration for the three year period.

Figure I

Working Capital

-15000.00

-10000.00

-5000.000.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

2004-05 2005-06 2006-07

Year

Work

ing

Cap

ita

l

(I

nRs.

Million

)

ITC Marico HLL


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Working Capital Days

Working capital days is defined as the ratio of the working capital to the

current liabilities of the company in any year.

For ITC Limited, the working capital shows more than a proportionate

increase when compared to the current liabilities of the company across the three

years of consideration. This therefore reflects in better liquidity of the company

and is shown by the upward movement of the working capital ratio in the graph

below.

Figure II


24540.51

5234.52

17051.91

44619.10

39655.60

34896.80

0.15

0.43

0.55

0.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

35000.00

40000.00

45000.00

50000.00

2004-05 2005-06 2006-07

Year

InRs.Million

0.00

0.10

0.20

0.30

0.40

0.50

0.60

WorkingCapitalDays

Working Capital Current Liabilities Working Capital Days


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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 is increasing over the three

year period under consideration. This is evident from the graph given below.

Figure III

Current Ratio

44619.10

34896.8039655.60

69350.80

56561.40

40264.80

1.15

1.43 1.55

0.00

10000.00

20000.00

30000.00

40000.00

50000.00

60000.00

70000.00

80000.00

2004-05 2005-06 2006-07

Year

InRs.

Million

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

Curren

tRa

tio

Current Liabilities Current Assets Current Ratio

The reason why the ratio increases mainly is because of a more than

proportionate increase of the Current Assets when compared to the Current

Liabilities.
http://www.forbes.com/tools/glossary/search.jhtml?term=debthttp://www.forbes.com/tools/glossary/search.jhtml?term=current_assetshttp://www.forbes.com/tools/glossary/search.jhtml?term=current_liabilitieshttp://www.forbes.com/tools/glossary/search.jhtml?term=current_assetshttp://www.forbes.com/tools/glossary/search.jhtml?term=current_liabilitieshttp://www.forbes.com/tools/glossary/search.jhtml?term=debt


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B).Liquidity Ratio:

Liquidity Ratio also measures a firms ability to meet its short-term

financial obligations on time. This is calculated by taking the ratio of the current

assets (less the Inventories held by the company.) The ratio is a better measure

of liquidity of the company. The graph below shows the change in the same

across the last three years.

Figure IV

Liquid Ratio

44619.10

34896.80

39655.60

30004.10

25407.10

14834.00

0.43

0.640.67

0.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

35000.00

40000.00

45000.00

50000.00

2004-05 2005-06 2006-07

Year

InRs.Million

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

Liqu

idRatio

Current Liabilities Current Assets (less Inventories) Liquid Ratio

The company has also shown an increasing trend in the liquidity ratio over the

years. The current assets (less inventories) have again increased more than

proportionately reflecting in an increasing liquidity ratio.


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Absolute Cash Ratio: Another measure of the liquidity of the company,

absolute cash ratio measures the ratio of the Cash and Near Cash items in the

current assets to the current liabilities of the company.

According to the graph, the absolute cash ratio follows more or less the

same trend as the other two liquidity measures. The increase again is because of

a more than proportionate increase in the cash items (and near cash items) of

ITC Limited.

Figure V

Absolute Cash Ratio

44619.10

34896.80

39655.60

22755.74

19034.69

8724.20

0.25

0.480.51

0.00

5000.00

10000.00

15000.00

20000.0025000.00

30000.00

35000.00

40000.00

45000.00

50000.00

2004-05 2005-06 2006-07

Year

InRs.Million

0.00

0.10

0.20

0.30

0.40

0.50

0.60

AbsoluteC

ashRatio

Current Liabilities Cash and Near Cash Items Absolute Cash Ratio


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Inventory days:

This measure is one part of the cash conversion cycle, which

represents the process of turning raw materials into cash. The company

possesses raw materials/finished goods as inventories that it can sell off to turn

into cash. It is important to maintain inventories for a company but it is more

important that the company maintains the level of it so that there is no liquidity

crunch on the balance sheet.The inventory days for ITC limited have fallen over

the years. This is because even though the company has maintained a larger

amount of Inventories at the end of every fiscal year so as to cater to the demand

in the following years but the cost of goods sold of the company has gone up but

more than proportionately when compared to the Inventories thereby resulting in

decreasing Inventory days.

Figure VI

Inventory Days

39346.70

25430.80

31154.30

230.49177.07132.79

191.51

175.94

170.71

0.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

35000.00

40000.00

45000.00

2004-05 2005-06 2006-07

Year

InRs.

Million

160.00

165.00

170.00

175.00

180.00

185.00

190.00

195.00

Inven

tory

Days

Inventories COGS per day Inventory Days


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Debtor Days:

This calculation shows the average number of days it takes a company to

receive payment from its debtors, the lower figure the better. A high figure

suggests inefficiency or potential bad debts.

The graph below for the ITC group reflects a fall in the debtor days of the

company. Though, over the period, the total debt to the company has shown an

increase, the sales have risen more than proportionately reflecting in lesser credit

given to buyers.

Figure VII

Debtor Days

7330.40

6209.40

6351.90

543.80452.41372.27

16.68

14.0413.48

0.00

1000.00

2000.00

3000.00

4000.00

5000.00

6000.00

7000.00

8000.00

2004-05 2005-06 2006-07

Year

InRs.Million

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

DebtorDays

Debtors Sales per day Debtor Days


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Creditor Days:

Creditor days is a similar measure to debtor days. It is the average time

that a company takes to pay its creditors from whom it takes goods/raw materials

on credit facility. Lengthening creditor days may mean that a company is heading

for financial problems as it is failing to pay creditors, on the other hand it may

mean that a company is simply getting better at getting good credit terms out of

its suppliers.

ITC Group is doing well in terms of creditor days. The company pays off

its debts at regular intervals and does not try to accumulate them that could lead

to payment problems in the future. Though the amount of credit given to the

company as increased over the years, the company has registered a higher

growth rate in the sales per ay and therefore the cost of the goods sold.

Figure VIII

Creditor Days

25486.50

20413.50

22820.60

230.54177.07132.79

153.73

128.88 110.55

0.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

2004-05 2005-06 2006-07

Year

InRs.Million

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

CreditorDays

Creditors COGS per day Creditor Days


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Debt-Equity Ratio:

The debt-to-equity ratio offers one of the best pictures of a company's

leverage. The higher the figure, the higher is the leverage the company enjoys.

Mathematically, it is defined as the ratio of the total debt to the total equity of the

company under consideration at any point of time.

Over the last three years, ITC Limited has shown a mix-match of the debt-

equity ratio. This is evident from the graph below that the company paid off a

significant part of its loan in the FY 06, but again went in for commercial

borrowings in the form of long term loans which resulted in an increase in the

debt to the total equity available with the company.

Figure IX

Debt-Equity Ratio

2009.002469.80

1466.80

107541.60

93032.10

80025.70

0.0309

0.0158

0.0187

0.00

20000.00

40000.00

60000.00

80000.00

100000.00

120000.00

2004-05 2005-06 2006-07

Year

InRs.

Million

0.0000

0.0050

0.0100

0.0150

0.0200

0.0250

0.0300

0.0350

Debt-EquityRatio

Debt Equity DER


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Interest Coverage Ratio:

The interest coverage ratio is a measurement of the number of times a

company could make its interest payments with its earnings before interest and

taxes. Lower the ratio, higher is the companys debt burden. This is measured as

the ratio between the profit before interest and taxes to the interest amount paid

that year.

The graph below shows the interest coverage ratio of ITC Limited over the

three year period. It is observed that ITC has reported a gradual and continuous

increase in profit over the last three years of operation. Also, the companys

interest amount has gone down significantly over the last three years. This has

resulted in a two way push in the figure for Interest coverage ratio, which is

measured as shown above.

Interest Coverage Ratio

39299.80

27155.00

32811.20

32.80119.30424.3064.00

275.03

1198.16

0.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

35000.00

40000.00

45000.00

2004-05 2005-06 2006-07

Year

InRs.

Million

0.00

200.00

400.00

600.00

800.00

1000.00

1200.00

1400.00

InterestCoverageRatio

PBIT Interest Interest Coverage Ratio


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Debt to Total Funds:

The ratio here is self explanatory and measures the share of the debt to

the total capital employed (funds) in the company. Capital employed for this

purpose, we define as, the amount of long term liabilities of the company, which

comprises of loans and owners fund (which includes capital and reserves.)

The diagram below shows the debt share in the total capital employed in ITC

limited. The total funds in the organization have been on the up and this

contribution is entirely due to the profits that the company is accumulating during

the years. The company over the three year period has done away with part of

the loans and has possibly substituted a part of the same for cheaper ones. This

cumulative effect results in an increase in the capital employed in the company

and hence a lower debt share.

Debt Ratio

109550.60

82495.50

94498.90

2009.001466.802469.80

0.030

0.016

0.018

0.00

20000.00

40000.00

60000.00

80000.00

100000.00

120000.00

2004-05 2005-06 2006-07

Year

InRs.

Million

0.000

0.005

0.010

0.015

0.020

0.025

0.030

0.035

De

btRa

tio

Total Funds Debt Debt Rat io


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C) Profitability

PBIT (Operating Income) to Sales:

The ratio between the profit before interest and taxes (equal to the

operating income, in our case) to that of the sales for the given period during

which the profit has been earned is a measure of the profitability of the company

for that period.

As reported earlier, ITC Limited has done well in the last few years and

has continuously reported higher and higher profit every subsequent time. The

sales of the company have also experienced a similar trend that has led to the

expansion of profit. Because the growth in the two components has nearly been

equal, the ratio between them has not changed significantly. It has marginally

dropped from 20% to about 19.8% .

ROTA

154169.70

117392.30

134154.50

39299.80

32811.2027155.00

0.231

0.245

0.255

0.00

20000.00

40000.00

60000.00

80000.00

100000.00

120000.00

140000.00

160000.00

180000.00

2004-05 2005-06 2006-07

Year

InRs.Million

0.215

0.220

0.225

0.230

0.235

0.240

0.245

0.250

0.255

0.260

ROTA

Total Assets PBIT ROTA


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Earnings per share: (EPS):

Earnings per share, as it is called, are 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 PAT (profit after tax or earnings) for ITC Limited has risen by over

23% in the last three years of operation. It is to be noted that there was a stock

split in the year 2005-06 due to which the face value of the shares changes from

Rs. 10/- per share to from Rs. 1/- per share. As a result, the number of shares

changed from 248,221,329 in 2004-05 to 3,762,222,780 in 2006-07.

EPS

0.883

0.072

0.060

0.000

0.200

0.400

0.600

0.800

1.000

2004-05 2005-06 2006-07

Year

EPS

ITC


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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.

As mentioned earlier, there was a stock split for ITC Limited in the year

2005-06 that resulted in more than a 10 fold increase in the number of equity

shares in the market. Even though the distributed dividend increased over the

last few years continuously, the dividend per share fell drastically for the

company in 2005-06 to rise again in 2006-07.

DPS

0.312

0.031

0.026

0.000

0.050

0.100

0.150

0.200

0.250

0.300

0.350

2004-05 2005-06 2006-07

Year

DPS


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D) Market Based Returns

Price-Earning Ratio (PER):

Price-Earnings ratio is a measure of the price paid for a share relative to

the income or profit earned by the firm per share. A higher P/E ratio means that

investors are paying more for each unit of income.

The market value of the shares after the stock split has shown

tremendous response from the market. From a figure of about Rs. 90/- in the

market in 2004-05, the share traded at Rs. 150/- at the end of 2006-07. Also, the

earnings per share, as a result of the split have fallen down drastically to thereby

reduce the earnings per share in the last two years. Therefore, a two way

positive movement has resulted in almost a 2000% increase in the P-E ratio for

the company

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.

It is evident from the graph below that the market capitalization for the

company has increased during the last three years by about 70%. This increase

can be owed to an increase both in the market value of shares as also a split in

the shares resulting in a higher number of shares traded in the market. The fall in

the capitalization from FY 2006 to FY 2007 is a result of the fall in market value


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of the shares and a lesser magnitude of demand for the same in the open

market.

Financial Statement Analysis: Inter CompanyRatio Analysis

A) Liquidity Analysis

Working Capital: Higher the current assets of a company and lower the current

liabilities, greater is the working capital. A larger chunk of working capital can be

used to fund the long term liabilities of the company and therefore, the larger the

working capital, the better it is for the company.

The following table gives the working capital of the three companies under

consideration for the three year period.

Figure XXV

Working Capital

-15000.00

-10000.00

-5000.00

0.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

2004-05 2005-06 2006-07

Year

Work

ing

Cap

ita

l

(In

Rs.

Million

)

ITC Marico HLL


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It is evident that ITC is by far the best company (among the three) in terms of

building up its net current assets. The company is increasingly using its short

term funds to pay for the long term liabilities. HLL on the other hand is

deteriorating in quality and is gradually getting overburdened by increasing

pressures due to a negative working capital.

Working Capital Days:

A comparative analysis across other companies in the FMCG segment shows

that HLL has worsened its working capital ratio. In fact, the company has

increased the magnitude of the negative working capital because of which a part

of the long term assets are used to fund the short term liabilities. Marico on the

other hand, has shown a marginal increase in the working capital ratio and still

leads ITCs working capital ratio by over 50%.


0.55

0.15

0.43

0.820.56

1.02

-0.25-0.27

-0.05

-0.40-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2004-05 2005-06 2006-07

Year

Work

ing

Cap

ita

lDays

ITC Marico HLL


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Current Ratio:

The reason why the ratio increases mainly is because of a more than

proportionate increase of the Current Assets when compared to the Current

Liabilities.

The graph below shows the comparison of ITC vis--vis the other two

competitors chosen in the market. We observe that in the year 2004-5, Marico

had the best Current Ratio but gradually, with a rapid growth in the current assets

of ITC, it has come at par with the leaders with the falling trend in the industry (as

shown by the other two companies) in the sector.

Current Ratio

1.15

1.431.55

2.02

1.56

1.82

0.950.73 0.75

0.00

0.50

1.00

1.50

2.00

2.50

2004-05 2005-06 2006-07

Year

R

atio

ITC Marico HLL

Liquidity Ratio-

Also, when compared to the companies, while the current ratio for Marico and

ITC converges, the gap is more or less the same for liquidity ratio. This implies

that the company as been maintaining a huge amount of inventories (unlike


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Marico, whose inventory amount is almost constant) that form a part of the

companys current assets. The graph below defines the analysis presented here.

Absolute Cash Ratio:

Marico reflects a phenomenal growth in possessing liquid assets to finance its

current liabilities. Though, it is to be noted that ITC too shows a more than 100%

increase in the absolute ratio. The company is catching up with the leader

(among the three) and is therefore on a good growth path.

Inventory days:

The following graph gives a comparative performance of the company in the

sector. Both HLL an ITC have experienced a fall in the inventory days due to

larger sales and larger cost of the goods sold. Also, both companies have

maintained a larger and larger stock of inventories over the three year period,

every subsequent year. Marico on the other hand has shown more that a 50%

increase in sales in the three tear frame but has still maintained almost the same

amount of inventories every year for its operations


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Debtor Days:

A comparative analysis of the figure under consideration shows that the debtor

days in the industry have a downward trend and ITC is no exception. Companies

like HLL and Marico have shown a more significant fall in the figure owing both to

increasing sales and lesser comparative credit given.

Figure.

Debtor Days

13.48

16.68

14.04

9.68

15.8316.92

12

15.5415.93

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

2004-05 2005-06 2006-07

Year

De

btor

Days

ITC Marico HLL


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Creditor Days:

Comparatively, ITC has done very well in the FMCG industry. While the other two

companies have registered higher growth in the sales per day of the goods, ITC

has cut its costs significantly and has maintained low creditors on the other hand

to reflect in lower creditor days for the company

Creditor Days

110.55

153.73

128.88138.98

84

54.5

176.56177.27176.52

0.00

20.00

40.00

60.00

80.00

100.00

120.00140.00

160.00

180.00

200.00

2004-05 2005-06 2006-07

Year

CreditorDays

ITC Marico HLL


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B) Solvency Analysis

Debt-Equity Ratio:

Across the industry, it has been observed that there is a similar sort of a mix and

match. While HLL funds its operations from lower and lower loans every year,

Marico feels that a tradeoff between usage of capital and usage of loans needs

to be done. Increasingly, the latter is funding its operations through more and

more debt, possibly because of a lesser cost of the same.

The graph below interprets the results written above.

Interest Coverage Ratio:

ITC Limited is by far the biggest gainer in terms of the interest coverage ratio.

While HLL also intends to be a self funded company by letting off its loans from

the open market, ITC follows somewhat the same strategy thereby leading to an

increment in the Interest coverage for both. Also, while the increase in the

interest coverage for HLL is about 1287%, the ITC Group shows a fabulous

1772% increment in the interest coverage ratio in three years. On the other hand,

Marico Limited uses more and more debt to fund its operation resulting in a lower

interest coverage ratio when compared to oneself two years back!

Debt to Total Funds:

Comparatively, HLL, also a very big organization with a significant time period of

existence in the market gets self funded and thereby has let go off its debt in the

three years. This has reflected in a lower debt share for the company.

Conversely, Marico, an upcoming organization is constantly borrowing money


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from the market, at a rate that is faster than the accumulation of profits (even

though it is doing well in terms of creating wealth for the shareholders, increasing

profit.) Graphically, this is depicted below.

Reserves to Total Fund:

While ITC has shown an increment in the reserves share to the capital employed,

old companies in the market are also picking up the same trend. HLL is gradually

using more funds of its own to run its operations. On the other hand, a relatively

new organization, Marico has increased the share of debt to acquire a larger

position in the market and get more capital.

Debt Service Ratio:

Across companies, ITC and HLL follow the same trend in the form of the pattern

followed for the debt service ratio. Both companies have been reporting large

profits and have been letting go of the loans taken from the free market to make

them a more self funded organization. Marico on the other hand reflects a falling

debt service due to a more than proportionate increase in the debt when

compared to the profit for that year.

C) Profitability

PBIT (Operating Income) to Sales:

Other companies in the segment have experienced a similar trend in the ratio

defined above. While for Marico, the ratio rose from 7.6% to about 11%, the PBIT


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figure for HLL is about 14.25% of the Sales. Overall, ITC has the highest return

on the investment, if measured by this parameter.

Earnings per share: (EPS):

The earnings per share of ITC and Marico and ITC have drastically fallen over

the last three years. This is because there has been a stock split in both cases

that has brought down the face value of the shares in the market resulting

thereby in an increment in the number of equity shares available for trade.

Therefore, despite an increase in the total earnings offered by the company, the

earnings per share fall drastically. On the other hand, the number of shares of

HLL 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.

EPS

0.0720.883

0.060 1.854

14.979

12.095

6.977

6.153

5.448

0.000

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

2004-05 2005-06 2006-07

Year

EPS

ITC Marico HLL


75/90

Dividend per share:

ITC Limited and Marico over the last few years have experienced a huge fall in

the dividend distributed per share because of reasons mentioned above. The

earnings per share for the third company, HLL, shows an increase in the dividend

distributed per share owing to the increasing dividend paid by the management

to the shareholders.

DPS

0.0310.312 0.026 0.641

6.200

5.350

2.999

2.500

2.500

0.000

1.000

2.000

3.000

4.000

5.000

6.000

7.000

2004-05 2005-06 2006-07

Year

DPS

ITC Marico HLL


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D) Market Based Returns

Price-Earning Ratio (PER):

The industry has altogether shown an increase in the Price-Earnings ratio. It is

observed that in the last three years, the value of P/E has risen for all the three

companies, whether or not the company has gone in for a stock split. Among the

three, Marico has experienced the highest increment in the ratio (in absolute

terms), after ITC Limited itself.

Market Capitalization:

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. HLL and Marico have

consistently shown an increase in the market capitalization for the years under

consideration. This is graphically depicted as below.

Price Book Ratio:

Across companies, ITC Limited rates poorly for the Price Book Ratio. In fact,

while Marico shows a stupendous performance for the three years reflecting a

2887% increase in the PB ratio, ITC reports only a meager 26% increase. Also,

HLL reports a 16% increment in the ratio, but still manages to hold its position at

the second level pushing ITC to the lowest figure in the industry when compared

across the other two companies.


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ROCE =

0.36

OperatingDecision

=0.198

Investmen

t Decision= 1.29

Financing

Decision= 1.41

COGS /

Sales =0.42

Operating

Expenses/ Sales =

0.36

Depreciation / Sales

= 0.02

Sales /Fixed

Assets =3.32

Sales /

Inventory= 5.04

Sales /

Debtors =27.07

Sales /Other

currentAssets =

8.75

Total

Assets /Debt =

0.01

TotalAssets /

Networth= 0.70

Du-Pont AnalysisFigure XLIX

The above diagram shows the Du-pont analysis for ITC limited for the year 2006-

07. The return on the capital employed (ROCE) as per the calculation shown

above is about 36%. This can be broken down into Operating decision ratio,

PBIT/Sales, Investment decision ratio, Sales/Total Assets and Financing decision

ratio, Total Assets/Capital employed.

Further, each of the decisions can be broken down to arrive at the sub-segment

wise ratio. The company can cut its expenses wherever the ratio is very high

when compared to the other FMCG industries in the country so as to economize

its operations/financing/investments. The macro level analysis along with a part

of the micro level analysis has been done earlier. We now look at the values that

we find out after putting them in a table to make a comparative study.

Table I


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Values for 2006-07 ITC Marico HLL

COGS/Sales 0.42 0.53 0.49

Operating Expenses/Sales 0.36 0.35 0.36

Depreciation/Sales 0.02 0.03 0.01

Sales/Fixed Assets 3.32 7.40 8.86

Sales/Inventories 5.04 7.93 8.65

Sales/Debtors 27.07 37.71 30.41

Sales/Other Assets 4.16 5.60 3.51

Total Assets/Debt 76.74 2.89 100.81

Total Assets/Capital 40.98 11.92 33.17

Total Assets/Reserves 1.49 5.52 2.92

From the table above, we see that the COGS/Sales of all the companies under

consideration are about the 50% mark. Though, ITC lags behind its competitors

on this parameter. What ITC needs to do is reduce the cost of consumption of

goods that it buys as raw materials from the market. It has to make bulk

purchases and needs to increase its negotiating ability through a stronger

purchase team.

Operating Expenses/Sales is almost the same for all the three competitors and

therefore ITC is using the best practice here for the operational expenses.

Depreciation/Sales is also at a negotiable level for the company. In fact, the

company holds a better position when compared to Marico. The company can

still try and assume a greater life cycle, if possible, for its machinery and other

fixed assets to come at par with the other leading competitors in the domain for

the segment.

The company maintains a high amount of fixed assets that accounts for the high

depreciation. This is reflected here by the small value of Sales/Fixed Asset as

reflected by the companys balance sheet.


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The company also has a policy of maintaining a larger stock of inventories than

its other competitors. This is reflected in the low amount of Sales/Inventories that

the company possesses.

The company maintains a low figure for Sales/Debtors which is a good sign. The

company should make sure that such kind of an advantage over others is

maintained.

Sales/Other Assets for the company is at a medium level. The company should

try and take measures to overtake the leader by reducing the amount of other

assets maintained or conversely increasing the sales of the company if such

levels of assets are to be maintained.

Reserves are the liability of the company. ITC Limited maintains a low level for

the Total Assets to Reserves ratio thereby implying a larger reserve than

required. The company should pay off the reserves to the shareholders so as to

move towards the better circle of companies performing the best in the industry.

The higher the figure for the Total Assets to Debt, the better is the company. A

larger debt implies a larger inability on part of the company to pay off its debtors.

A larger level of fixed assets can fund the payment of debt if the current assets of

the company cannot help in funding the same.

Similarly, the company scores very well for the ratio of the Total Assets to Capital

and needs to continue to maintain such high standards.


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Limitations


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LIMITATIONS

1. Retail showrooms of the company are very less in Saharanpur NCR region.

2. Management trainee have been visited before so that customer did not so

much interest

3. Satisfaction level of customer of rural area is very much less.

4. Company have multi product but not up to standard of all class.

5. Due to the short span of time and some other reasons,the study has been

confined to limited number of dealers.

6. These finding are based on the opinion of the respond and we can not that

whatever they have expressed is fully reliable.

7. Company should require regularly survey regarding the changing behaviour

of customers and contractor.

8. Company should arrange the meeting with dealers time to time.


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suggestion

s


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Suggestions

Increase the % of the profit of the retailers

Company should arrange the meeting with dealers time to time.

Company should have increase the advertisement because it has impact

on the customer buying behavior.

Company should require regularly survey regarding the changing

behavior of customers and dealers.

Make nonexclusive dealers.

Reduce the price of the products.

Increase the quality of the shop, shampoo.


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conclusio

n


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Conclusion

Most of us in India have yet to understand the essence of marketing service.

We are still largely in are of production marketing, and a long way of from the era

of ideas marketing. And since we are on the threshold of the service marketing

era, a great deal of work still need to be done to the marketers to understand .So

that on the base of above study that as we all know no doughty that ITC is

eminent brand and giving their service different industry Indian FMCG sector

has great contribution in Indian economy and ITC played a vital role growth of it.


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bibliograph

y


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Bibliography

BOOKSFinancial Management By V. K . Bhalla

Financial Management By I . M. Pandey

Financial Management By. Shashi K. Gupta

INTERNET WEBSITES

http://www.cmie.com/

http://www.naukrihub.com/india/fmcg/

http://www.itcportal.com/

http://www.hulindia.com/

http://www.maricoindia.com/

NEWS PAPERS & MAGAZINES

Economic Times

Financial World

Business Line

The Hindu

Indian Journal Of Finance

Finance & Economy

Business Today
http://www.cmie.com/http://www.naukrihub.com/india/fmcg/http://www.itcportal.com/http://www.hulindia.com/http://www.maricoindia.com/http://www.cmie.com/http://www.naukrihub.com/india/fmcg/http://www.itcportal.com/http://www.hulindia.com/http://www.maricoindia.com/


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appendix


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AppendixCondensed Financial Statements

Table VI

Balance Sheet 2006 2005 2004

Capital 3,762.20 3,755.20 2,494.30

Reserves 103,779.40 89,276.90 77,531.40

LTL 2,009.00 1,466.80 2,469.80

CL 44,619.10 39,655.60 34,896.80

Total 154,169.70 134,154.50 117,392.30

Fixed Assets 59,760.00 47,612.10 43,836.20

Investments 25,058.90 29,981.00 33,291.30

CA 69,350.80 56,561.40 40,264.80

Total 154,169.70 134,154.50 117,392.30

Table VII

Income Statement 2006 2005 2004

Sales 198,415.40 165,105.10 135,853.90

COGS 84,128.90 64,631.50 48,468.90

Operating Expenses 71,357.50 64,339.00 57,101.30

Depreciation 3,629.20 3,323.40 3,128.70PBIT 39,299.80 32,811.20 27,155.00

Interest 32.80 119.30 424.30

PBT 39,267.00 32,691.90 26,730.70

Tax 12,267.30 10,338.40 4,816.70

PAT 26,999.70 22,353.50 21,914.00

Table VIII

Cash Flow Statement

2006 2005 2004

Opening CIH 9,779.40 1,277.00 1,098.80

CFF -10,549.00 -9,637.70 -4,816.60

CFI -10,841.50 -2,827.70 -10,953.60

CFO 22,476.10 20,966.10 15,872.00

Closing CIH 10,865.00 9,777.70 1,200.60


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Thank you !!

itc project report by manoj kumar[1].roll no 3048

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