N. L.

Dalmia Institute of Management Studies & Research

Financial analysis for Comparative Performance Measurements

Summer Internship Report

Submitted in partial fulfilment of the requirements

for
2 Yrs. Full Time MMS Course
Batch 2019-2021

SUBMITTED BY
Name: AKSHI ANIL SHARMA
(MMS) Roll No. MG1921-B05
Batch 2019-2021
 PREFACE

As a part of the MBA curriculum and in order to gain Practical Knowledge in the field of
management, we are required to make a report on “Financial analysis for comparative
performance measurements”. The basic objective behind doing this project in association
with internship program was to familiarize the student with the implementation of the
knowledge we earned in the campus. The practical knowledge is far different from the
bookish knowledge that a student achieves in an institution.

In this project we have included some impacts of change in policy on a particular industry,
effects of slowdown and trend analysis of the selected companies.

Doing this project report helped us to enhance our knowledge about the companies, their
performance and how to practically do ratio analysis of a company. In this report we have
shared our views about the same based on our analysis

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 ACKNOWLEDGEMENT

The internship opportunity I had with Margin’sview Consultancy Pvt Ltd was a great chance
for learning and professional development. Therefore, I consider myself as a very lucky
individuals I was provided this opportunity amidst a pandemic. I am grateful for having a
chance to meet so many people and professionals who led me through this internship period.

Bearing in mind previous I am using this opportunity to express my deepest gratitude and
special thanks to the CEO & Director of Margin’s view consultancy Pvt Ltd who in spite of
being extraordinarily busy with her duties, took time out to hear, guide and keep me on the
correct path.

I express my deepest thanks to Dr. Sonali Tipre, Director – Strategy consultant for giving
necessary advices and guidance and arranged all facilities. I Didn’t feel am working from
home. I choose this moment to acknowledge her contribution gratefully.

It is my radiant sentiment to place on record my best regards, deepest sense of gratitude to

Mrs Jyoti Nair for mentoring me to complete my project.

I perceive this opportunity as a big milestone in my career development. I will strive to use
gained knowledge and skills in the best possible way, and will continue to work on their
improvement, in order to attain career objectives.

Sincerely,

Name: Akshi Sharma

Place: Mumbai

Date: 30th July 2020

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 Certificate

This is to certify that the Summer Internship Project Report is submitted in partial fulfilment
for the award of Masters of Management Studies of N. L. Dalmia Institute of Management
Studies and Research. It is a result of the bonafide research work carried out by Ms. Akshi
Anil Sharma under my supervision and guidance during Summer Internship of 08 weeks
from 4th May 2020 till 3rd July 2020.

No part of this report has been submitted for award of any other Degree, Diploma,
Fellowship or other similar titles or prizes. The work has also not been published in any
Journals/Magazines.

Date:30th July 2020 Place: Mumbai

Industry guide
Signature of the Industry Guide: _____________________________
Company: Margin’sview Consultancy Pvt Ltd.
Name of Industry Guide: Dr. Sonali Tipre
Designation: Director

Internal Faculty guide

Signature of Internal Faculty Guide: ___________________________

Name of the Internal Faculty Guide: Prof. Jyoti Nair
Faculty <Finance>: _______________________

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 EXECUTIVE SUMMARY

The report showcases the analysis of FMCG sector and assessment of financial performance
of the 2 companies in the sector. The project report outlines the overview of the sector and
the two companies namely Nestle S.A. and Dabur Ltd. Looking at the performance of the
two companies and commenting on the same.

Chapter 1 brief us about the whole Industry globally as well as from the point of view of our
nation. It talks about the plans and the performance of the industry for the timeline. Impact
of national policies on the sector namely GST, demonetisation. How the sector is coping
with the same and their expectations. This chapter also talks about the initiatives taken by
the government for the sector. The impact of different economic factors on the industry like
recession and covid-19 pandemic. Since the pandemic is a hot topic in the world while
working on this report, we would like to consider that aspect as well in the report.

Chapter 2 gives us a brief understanding about the company of our study – Nestle SA. We
talk about the acronym S.A, its competitors, growth drivers and cost drivers.

Chapter 3 talks about the other company of our study. Its business structure, growth drivers,
area of functioning to give us a fair idea about the company.

Chapter 4 & 5 is where we start our financial analysis of comparative measures. In this
chapter we do a trend analysis of Nestle and dabur using their financial statements. We
comment on the same individually about the companies. We have done a trend analysis for
3,5 and finally 10 years down the line of our base year.

Chapter 6 entails with the comparative analysis of the two companies. We use some frequent
financial ratios and some uncommon ratios like basic defense ratio etc to compare the two.
We have differentiated the ratios into categories and with the help of tables, graphs and our
analysis we may compare the companies. The timeline chosen for the whole project is
FY2009-10 to FY 2018-19. We tried to establish a trend for the timeline in comparison and
have compared the latest financial year’s performance i.e. 2018-19 of our study.

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 INDEX

Sr. No. Contents Page no.

1 Preface ii

2 Acknowledgement Iii

3 Certificate Iv

4 Executive Summary v

5 Industry Overview 07

6 Company overview 1 12

7 Company overview 2 15

8 Trend analysis Nestle 19

9 Trend Analysis Dabur 22

10 Comparative Analysis 25

11 Conclusion 48

12 Bibliography 52

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 CHAPTER 1: INDUSTRY OVERVIEW

The economic downturn of 2008/09 hit every sector under the sun, but some were less
affected than others. One such sector was fast moving consumer goods, or FMCG, which
remained a relatively haven for investors. The reason is apparent — in the FMCG sector,
there is no cyclicity involved. FMCG scrips rarely soar, but they do not fall steeply either.
(The same is true of pharmaceutical stocks.) The demand for these goods may not be entirely
immune to market-moving factors like GDP growth, inflation or interest rates, but it is not
wholly dependent on them either. People will keep buying soap and toothpaste; for instance,
or medicines, even if the prices shoot up. Thus, FMCG and pharma stocks are termed
'defensive stocks'.

In India too, FMCG scrips appeared relatively sluggish when the markets were booming
from late 2006 to early 2008. But, all through the financial crisis and even thereafter, FMCG
scrips have either performed better than, or been neck and neck with, the broader
BSE Sensex.

Fast moving consumer goods (FMCG) is the largest combination of consumer goods with
different product categories that include home, health, and personal care and food & drinks
including its marketing, production, and distribution. The personal care segment is
anticipated to witness substantial growth owing to the rise in the disposable income of
consumers, thus enabling them to spend considerable amount on luxury personal care
products. Other factors such as surge in trend of online shopping, R&D for the new brands
& products, and expansion of FMCG network in rural areas of the developing countries are
expected to open new avenues for the FMCG market players in the future.

However, high competition among major market players and retail execution is expected to
hamper the global FMCG market growth. Fast moving consumer goods (FMCG) is the
fourth largest sector in the Indian economy. There are three main segments in the sector —
food and beverages, which accounts for 19 percent of the sector; healthcare, which accounts
for 31 percent of the share; and household and personal care, which accounts for the
remaining 50 percent share.

7
FMCG market is expected to grow 9-10 percent in 2020. FMCG’s urban segment grew by
8 percent, whereas, its rural segment grew 5 percent in the quarter ending September 2019,
supported by moderate inflation, increase in private consumption and rural income.

Accounting for a revenue share of around 45 percent, rural segment is a large contributor to
the overall revenue generated by the FMCG sector in India. Demand for quality goods and
services have been in demand in rural areas on the back of improved distribution channels
of manufacturing and FMCG companies. Urban segment accounted for a revenue share of
55 percent of the overall revenue recorded by the FMCG sector in India.

FMCG companies are looking to invest in energy efficient plants to benefit the society and
lower cost in the long-term. Dabur had plans to invest Rs 250-300 crore (US$ 38.79-46.55
million) in FY19 for capacity expansion and possible acquisitions in the domestic market.
The sector witnessed healthy FDI inflow of US$ 16.28 billion during April 2000-March
2020. Investment intentions related to FMCG sector arising from paper pulp, sugar,
fermentation, food processing, vegetable oils and vanaspati, soaps, cosmetics, and toiletries
industries worth Rs 19,846 crore (US$ 2.84 billion) was implemented until December 2019.

However, the fluctuating cost of raw materials is one of the major factors expected to hamper
growth of the global market. Moreover, fragmentation of the market is another factor
expected to challenge the target market growth to a certain extent.

An FMCG company has generated total revenue of $288 million. And, UK has the highest
share, $87.9 million, among all the countries. Two biggest growing economies have
contributed, $65.6M and $46.6 million only.

Out of India’s $46.6 million, ‘stores’ have bought $17.5 million, ‘direct sales’ about $15.6
million and ‘partners’ helped them gain $13.4 M. India’s market is so vast that companies
often fail to penetrate. Also, frequently face challenges with India’s distribution network.

IMPACT OF GST ON FMCG

The GST rates for all different goods or products under the FMCG has been announced by
the Indian Government. Most of the products or goods have been categorized under the tax
brackets as expected by the FMCG industry experts.

Basic food products such as milk, rice, wheat and fresh vegetables have been kept under the
NIL bracket which is in line with the expectation from the FMCG experts. Paneer branded

8
and sold like mother dairy paneer or Nestle Paneer and Frozen vegetables have been kept
under the 5% bracket which would be largely neutral.

Products like butter, cheese and ghee are expensive under GST as they are placed in the 12%
bracket. Gifting dry fruits at the time of Diwali is going to be more expensive as dry fruits
have been placed under the 12% bracket under GST law.

The FMCG sector is very pleased with the rates announced under GST law for FMCG
products. The FMCG industry is going to benefit from the lower logistics cost and better
competitive market and rates for most of the products being kept under the expected tax
bracket. Ayurvedic products are taxed at 12%, slightly higher than the prevailing rate. This
upsets Dabur, which has a wide portfolio of ayurvedic products.

Ayurvedic players were expecting the tax rate to go down, given the government’s shove on
popularizing traditional Indian medicine.

IMPACT OF DEMONETIZATION ON FMCG

According to an article of economic times it was found that demonetization had a negative
impact on FMCG industry. The people were cautious while spending on the consumer
goods. Approximately 3.8k crores of FMCG sales crumbled. It was revealed that goods were
stocked less by the retailers due to cash and supply constraints.

Classification of FMCG Sector

There are three main segments in the sector – food and beverages, healthcare, and household
and personal care. Refer chart no.1

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 Percent of the sector

19%

Food and beverages

50% Healthcare
Household and personal care

31%

Chart No. 1: FMCG segments market share

Slowdown in FMCG Sector?

After Automobile sector, FMCG sector is now in gloom. According to the latest GDP report
the fear of slowdown in FMCG sector is factual. In 2019 Q1 results shows private
consumption growth a little low over 3%. There were reports that India's FMCG sector is
likely to witness the worst revenue growth in 15 years on account of domestic as well as
global factors. Employment challenges for small businesses started with demonetisation and
GST, and was aggravated due to liquidity. The simultaneous impact of these factors is
playing out.

However, fall in crude oil prices and GST savings helped FMCG firms expand their margins
during the same period but the same factors are unlikely to play ball and the sector is staring
at a challenge of shrinking margins.

We have already discussed the impact of demonetisation on FMCG sector - Approximately

3.8k crores of FMCG sales crumbled. It was revealed that goods were stocked less by the
retailers due to cash and supply constraints. This happened in 2016 but, it seems like there
are after effects to it, though everyone recovered from the demonetisation impact but rural
growth was impacted for longer time. We have rural income, even though we had a good
harvest this rural income is not going up. With Employments not growing, rural income not
outliving, on top of that Government have been decreasing interest rates which is totally for
keeping the economy into functioning. The decrease in interest rates is counterproductive

10
when we are talking for this sector as there are a lot of households that live on household
income.

We witnessed that the consumption is not increasing, we had NBFC’s which were taking the
issue of financing some consumables was doing well until IL&FS struck. So NBFC’s started
facing problems, there were liquidity problems after which problems kept on rising in the
economy- banks failing and a lot more.

Companies had a hope that during festive season things might turnaround and that in Q3
thing would not as bad as Q1. But little did we know about what was next. It was just a
matter of time and whole world was dealing with a pandemic. Now saving business and
more importantly saving our lives was biggest concern.

Under these conditions. When there was economic slowdown consumer’s confidence started
going down. They started to save money for an unforeseen expenditure in future.

According to data of Ace Equity, there are stocks in the sector, such as Nestle and Dabur,
that look bright despite the fears of a slowdown and have the potential to give healthy returns
in the long term. shares of Nestle have gained 16 percent so far in CY2019, while Dabur has
clocked a gain of 6 percent against the 8 percent fall in BSE FMCG index

Government Initiatives

The slowdown in FMCG industry was noticed by everyone. The Finance minister of India
in her union budget 2020 announced that would partially boost the consumption and aid
these companies. The FM announced reduction in IT slabs, this would bring more money in
the hands of the consumer which would then lead to spending more and thus hitting the
vicious cycle.

We also saw increased allocation to agriculture sector and their supporting groups will
increase income realisation on agriculture and allied activities and would swell up disposable
income. As government withdrew custom duty from some agricultural products, some
products are set to get cheaper. These include vegetable oils of edible grade butter ghee,
butter oil, maize up to 5 lakh tonnes and milk up to 10k tonnes.

Increase in custom duties on footwear would likely boost the Make in India concept of Prime
minister of India. Thus, beneficial for Indian brands of footwear.

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 CHAPTER:2 COMPANY OVERVIEW 1

NESTLE S.A.

The first company I am considering for this project is Nestle. Nestlé SA is a nutrition, health
and wellness company, which engages in the manufacture, supply and production of
prepared dishes and cooking aids, milk-based products, pharmaceuticals and ophthalmic
goods, baby foods and cereals. The company products portfolio includes powdered and
liquid beverages, water, milk products and ice cream, nutrition and health science, prepared
dishes and cooking aids, confectionery, and pet care. It operates through the following
segments: Zone EMENA, Zone Americas, Zone Asia, Oceania & Africa, Nestlé Waters,
Nestlé Nutrition, and Other Businesses. The Other Business segment is comprised of
Nespresso, Nestle Health Science and Nestle Skin Health. The company was founded by
Henri Nestlé in 1866 and is headquartered in Vevey, Switzerland.

Nestlé is incorporated (and headquartered) in Switzerland, where the S.A. designation is

often used for corporations. Nestlé is incorporated (and headquartered) in Switzerland,
where the S.A. designation is often used for corporations.

It has 447 no. of plants and has a presence in 189 countries. It has operation in 84 countries,
as per the latest data it was found that it has employed 352000 people.

Competitors:

Nestle has many competitors but we will be sharing a little information about a few.

 Unilever: it was founded in 1929, headquartered at London, Great Britain. It

produces and supplies fast moving consumer goods in food, home and personal care
categories. Valuation of $1.4 billion. It has 400 brands, has a presence in 190
countries and 300 manufacturing facilities.
 Kraft Heinz: Kraft Heinz manufactures and markets food and beverage products. It
was founded in the year 2015, headquartered at Chicago, US with a valuation of
$39.7 billion.
 Danone: It operates as a food company worldwide, was founded in 1919. It is mainly
food and beverages company headquartered at Paris, France. Valuation of $ 44.8
billion and has 202 manufacturing facilities.

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  PepsiCo: It operates as a food and beverage company worldwide was founded in
1965. Headquartered at Harrison, US with a valuation of $187.2 billion. This
company has a presence in 200 countries.
 Mars: is a global manufacturer of confectionery, pet nutrition, and other food
products and a provider of pet care services. Founded in 1911, headquartered at
McLean, US. This company has its presence in 80 countries.
 Hershey: This is a producer of chocolate and non-chocolate confectionery. Founded
in 1909 headquartered at Hershey, US. It has a valuation of $ 26.6 billion has 80
brands and has a presence in 70 countries with 19 manufacturing facilities.
 Mondelez International: It is a multinational confectionery, food, and beverage
company. Founded in 2012 and has a headquarter in East Hanover, US. Valuation of
$ 73.4 billion and has 132 manufacturing facilities.
 Dabur: An Indian origin company which manufactures ayurvedic medicines and
natural consumer goods. It is one of the largest fastmoving consumer goods company
in India. Headquartered at Ghaziabad.

Growth drivers

Research and development: Nestle takes immense pleasure in its innovation of having an
integrated and developmental research aimed in improving different types of products.
Nestle looks into the physiology of the customers including nutrition. This is important
because if products don’t perform to customer’s expectations there will be no growth in
revenues. The primary productions is done by Nestle but its raw materials are outsourced.

Decentralization: Nestle utilises different cultures, mentalities and realities of different

regions the company tells its subsidiary to have policies and practices in harmony with thos
regions. This would give employees a sense of affinity because they share the same value
system and belief as their management. This is important for the existing market share to
strengthen and be more acceptable

Sustainability: people and generally millennials are too concerned about the environment
and if companies don’t follow environmental policies or don’t do something for the society,
they boycott the company and its products. Nestle is very particular about these things and
hence is innovative in its packaging of products for example Asian markets are more into
soft packs and pouches which Nestle utilizes in its products while in the US, plastic container

13
is still the trend. This simple consideration of the company to the nature of the regional
market has helped them establish their name in the said regions. These efforts of Nestle
would help them market their products since most of the consumers nowadays are also
seeking to support companies that could help save the environment.

Cost Drivers:

There is usually a segment of market that strictly buys products based on low cost. To
successfully cater this issue, a firm must necessarily be a low-cost produce. However, this
does not actually guarantee profitability.

With the advancement in technology and innovations, the cost of products can be changed
as per the needs of the company and the consumers as well.

Because of the globalisation, different countries are being able to produce different products
on low labour cost without quality being compromised. This could be possible with the
advancement of transportation and technologies.

This business entails of a give and take procedure, company is getting quality goods with
low labour cost in return they are providing jobs to the people of those countries. In 2005,
Nestle announced that their new coffee brand called “Nescafe Partners Blend”, supports fair-
trade. (Nestle and Fairtrade, 2005). This tells us that the production of this coffee brand
supported the living wages of its local farmers to name one.

Labour policies can be a cost driver. Though nestle makes sure that the policies are not
according to the mother company but in accordance to that nation still, there were issues
regarding the same in Columbia and issue escalated to union learder etc.

Outsourcing is another cost driver as in when the raw materials are outsourced by the
company they are thoroughly checked for the quality, if it is not done it can impact a
consumer’s health. There was and instance in India about the quality of the product (increase
in the quantity of lead).

Legal cases: if matter is escalated to much cases goes on and on for years and cost of the
company is impacted.

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 CHAPTER 3: COMPANY OVERVIEW 2

Dabur

Dabur India Ltd. engages in the distribution of fast-moving consumer goods. It operates
through the following segments: Consumer Care Business, Foods Business, and Other. The
Consumer Care Business segment involves in providing home care, personal care, and health
care. The Foods Business segment offers packaged fruit juices, beverages, and culinary. The
Other segment includes guar gum, pharma, and others. The company was founded by Saket
K. Burma in 1884 and is headquartered in Ghaziabad, India.

It has 17 plants/ manufacturing facilities and has a presence in 120 countries. It has operation
in 84 countries, as per the latest data it was found that it has employed 7243 people.

Dabur's products also have huge presence in the overseas markets and are today available in
over 100 countries across the globe. Its brands are highly popular in the Middle East,
SAARC countries, Africa, US, Europe and Russia. Dabur's overseas revenue today accounts
for over 27% of the total turnover.

The 135-year-old ayurvedic company, promoted by the Burman family started as an

ayurvedic medicine company. From its humble beginnings in the by lanes of Calcutta, Dabur
India Ltd has come a long way today to become one of the biggest Indian-owned consumer
goods companies with the largest herbal and natural product portfolio in the world.
Overall, Dabur has successfully transformed itself from being a family-run business to
become a professionally managed enterprise. Dabur is today India’s most trusted name and
the world’s largest Ayurvedic and Natural Health Care Company.

Dabur India Ltd. is one of India’s leading FMCG Companies with Revenues of over Rs
8,500 Crore & Market Capitalisation of over Rs 72,500 Crore.

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Growth drivers

Dabur is enhancing its international business for which it is coming up with the following
initiatives that would drive the growth

Winning in consumer’s mind: the company is trying to launch products with more variants
and modern formats. To connect to the younger generation with the help of enhancing digital
foot prints.

Winning in new geographies: Dabur is trying to expand its business Internationally ith its
presence in over 100 countries, it is looking for new untapped markets for it to grow.

Winning in new categories: seeding new categories of products will increase revenues and
finally increase the growth. Dabur is planning to Foray into adjacencies.

Sales and distribution: To enhance the key retailers in KSA and UAE. Expanding
distribution across geographies and driving for merchandising and activations.

Power brand strategy: enhancing chemist reach, developing modern formats and
communication for youth and kids. It also includes strengthening immunity positioning.
Dabur is considering on creating portfolio for baby care. Being the best ayurvedic company
and having the roots in Ayurveda it is considering to strengthen its ayurvedic positioning.

Digitalization: enhancing online formats for advertisements and business would in turn
beneficial for the company. Trying to connect with millennial and helping the initiative of
prime minister of India of digitalisation

Accessibility: increasing accessibility in rural areas of the country and also to gain market
share from non-natural players. Strengthening distribution in weak geographies

Driving innovation and renovation: with coming up new variants in Indian market like real
aloe vera and kiwi fusion or any other masala real ranges company is looking at it as growth
driver. Real ORS and lemoneez are to name few of those new products and variants.

Distribution expansion: dabur has one of the largest distribution networks in FMCG covering
6.7mn+ outlets. They are focussing on urban in 2 parts

 Modern trade: enhance shelf share in shops and by increasing engagement through
in-shop promoters and in- store activations.

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  E-commerce: with the help of digitalisation and connecting with millennial who
want to order with ease dabur is coming up in online platforms with saliency of 2.5%

Rural focus: customisation of portfolio as per the preferences of rural consumers, increasing
village coverage and building infrastructure. Regional focus through regional insights and
speed of execution in north east

Operational excellence: Dabur has 8 international manufacturing facilities - from centralised

manufacturing to localised manufacturing for speed and flexibility.

Business Structure

Domestic FMCG business verticals

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Organic International business has evolved from just been hair oil business to
diversified personal care business

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 CHAPTER 4: TREND ANALYSIS - NESTLE

Balance sheet

Base year 2009-10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Total current assets 38997 33324 35205 30066 33961 29434 32042 32190 41003 35663
Trend % 85% 90% 77% 87% 75% 82% 83% 105% 91%
Cash and cash equivalents 8057 4938 5840 6415 7448 4884 7990 7938 4500 7469
Trend % 61% 72% 80% 92% 61% 99% 99% 56% 93%
Accounts receivables 12083 13340 13404 12206 13459 12252 12411 12422 11167 11766
Trend % 110% 111% 101% 111% 101% 103% 103% 92% 97%
Total assets 111641 114091 126229 120342 133440 123992 131901 130380 137015 127940
Trend % 102% 113% 108% 120% 111% 118% 117% 123% 115%
Fixed assets 21438 23971 26903 26895 28421 26576 27554 27775 29956 28762
Trend % 112% 125% 125% 133% 124% 129% 130% 140% 134%
Intangible assets 7728 9356 13643 12673 19800 19236 20397 20615 18634 17824
Trend % 121% 177% 164% 256% 249% 264% 267% 241% 231%
Inventories 7925 9255 9125 8328 9172 8153 8401 9061 9125 9343
Trend % 117% 115% 105% 116% 103% 106% 114% 115% 118%
Current liabilities 30146 35232 38753 32917 32895 33321 37517 36054 43030 41615
Trend % 117% 129% 109% 109% 111% 124% 120% 143% 138%
Non current Liabilities 18897 20585 24872 23386 28671 26685 28403 31549 35582 33463
Trend % 109% 132% 124% 152% 141% 150% 167% 188% 177%
Accounts payables 12592 13584 14455 16072 17437 17038 18629 18872 17800 18803
Trend % 108% 115% 128% 138% 135% 148% 150% 141% 149%
Total liabilities 49043 55817 63625 56203 61556 60006 65920 67603 78612 75078
Trend % 114% 130% 115% 126% 122% 134% 138% 160% 153%
Total equity 62598 58274 62604 64139 71884 63986 65981 62777 58403 52862
Trend % 93% 100% 102% 115% 102% 105% 100% 93% 84%

P& L

Base year 2010 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Sales 109722 83642 92186 92158 91612 88785 89469 89791 91439 92568
Trend % 76% 84% 84% 83% 81% 82% 82% 83% 84%
COGS 45849 44127 48398 48111 47553 44730 44199 44923 46070 46647
Trend % 96% 106% 105% 104% 98% 96% 98% 100% 102%
Gross Profit 63873 39515 43788 44047 44059 44055 45270 44868 45369 45921
Trend % 62% 69% 69% 69% 69% 71% 70% 71% 72%
Purchases 45658 42797 48528 48908 46709 45749 43951 44263 46006 46429
Trend % 94% 106% 107% 102% 100% 96% 97% 101% 102%
EBITDA 16751 15023 16354 15932 13687 15269 16295 13339 17676 19791
Trend % 90% 98% 95% 82% 91% 97% 80% 106% 118%
Depri 2713 2552 2422 2864 2782 2861 3132 3227 3924 3713
Trend % 94% 89% 106% 103% 105% 115% 119% 145% 137%
EBIT 14038 12471 13932 13068 10905 12408 13163 10112 13752 16078
Trend % 89% 99% 93% 78% 88% 94% 72% 98% 115%
Interest 834 536 591 850 772 725 758 771 1008 1216
Trend % 64% 71% 102% 93% 87% 91% 92% 121% 146%
PAT 9048 9804 11060 10445 14904 9467 8883 7538 10468 12904
Trend % 108% 122% 115% 165% 105% 98% 83% 116% 143%
EPS 2.6 2.97 3.33 3.14 4.54 2.9 2.76 2.32 3.36 4.32
Trend % 114% 128% 121% 175% 112% 106% 89% 129% 166%
Dividend 12135 5939 6213 6552 6863 6950 6937 7126 7124 7230
Trend % 49% 51% 54% 57% 57% 57% 59% 59% 60%

19
Analysis of the above tables:

short term performance:

In the year 2011-12 (3 yrs. down the line), Nestle's profit increased by 22% but gross profit
reduced by 31% this shows that the company has a way to control its operating expenses.
The company overhead is not factored into the gross profit margin. It tells you whether the
product is a viable selling option or not. the other operating expenses/ costs affect the
operating margin and ultimately the net profits of the company. The company's operating
margin just decreased by 1% when compared to previous year the decrease was of 10%. This
surely speaks about the solution company found to keep operating expenses uptight. Another
reason for the decline in gross profits is decrease in sales but increase in cost of goods sold.
The liabilities of the company have increased be it current or non-current, in future this may
have an adverse effect on the bottom line of the company. As debt increases the cost to
service those also increases and eventually company just ends up paying the cost of debt and
stop making profits. hence, company should inhibit further increase of debt.

5 years down the line:

When compared with the base year of our study it was found that the company's gross profit
has decreased by 31%, which was pretty same as in the year 2011-2012. The profits
increased by 65%. This scenario is not exactly similar to that of 2011-12. In that year we
saw that company was keeping its operating expenses uptight but 5 years down the line (to
the base year) even operating expenses were shooting up having an impact on operating
profit. The operating profit decreased by 22%. This case where in gross profit and operating
profit are declining still pat increased by 65% shows that the company must be selling its
assets to show profits. when checked the current assets have declined by 13% proving us
right. The liabilities side is also rising.

10 years down the line:

When we speak about a longer term, in 10 years' time company has just increased its profits
by 43% with more or less same percentage rise in interests to pay off its debt. The liabilities
be it current or noncurrent are also on rise. Assets on decline, which brings us to question
the liquidity of the company. Yes, big companies require debt to diversify its business. when
increase in debt makes it difficult for the company to service its own debts that's when the

20
company struggles. 10 years and sales haven’t increased rather it declined by 16%. the
company has acquired more of fixed assets and thus depreciation cost has also increased.

21
 CHAPTER 5: TREND ANALYSIS – DABUR

Balance sheet

Base year 2009-10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Total current assets 1,32,774 2,21,844 1,63,062 2,60,304 2,45,600 2,73,057 3,29,081 3,11,647 3,43,975 3,58,623
167% 123% 196% 185% 206% 248% 235% 259% 270%
Cash and cash equivalents 19,232 27,242 44,843 51,281 51,938 27,604 22,040 16,322 15,380 10,769
142% 233% 267% 270% 144% 115% 85% 80% 56%
Accounts receivables 11,986 35,547 46,168 48,413 67,530 71,084 80,970 65,042 70,608 83,356
297% 385% 404% 563% 593% 676% 543% 589% 695%
Total assets 2,26,900 4,01,248 2,84,071 4,72,435 5,29,637 6,08,812 7,09,880 7,73,104 8,70,163 8,43,664
177% 125% 208% 233% 268% 313% 341% 384% 372%
Fixed assets 61,964 72,024 59,691 1,67,445 1,78,861 1,92,743 1,99,468 1,47,902 1,55,210 1,54,797
116% 96% 270% 289% 311% 322% 239% 250% 250%
Intangible assets 1,881 2,094 714 1,287 6,339 6,428 6,395 1,386 1,031 3,292
111% 38% 68% 337% 342% 340% 74% 55% 175%
Inventories 42,622 70,853 82,392 84,386 97,229 97,327 10,965 1,10,671 1,25,618 1,30,053
166% 193% 198% 228% 228% 26% 260% 295% 305%
Current liabilities 63,768 1,10,182 1,07,742 1,97,452 2,29,400 2,41,849 2,46,986 2,22,252 2,43,444 2,66,031
173% 169% 310% 360% 379% 387% 349% 382% 417%
Non current Liabilities 38,883 1,28,298 4,60,002 62,545 34,600 31,549 46,887 63,636 53,414 11,327
230% 1083% 61% -11% -19% 21% 64% 37% -71%
Accounts payables 12,996 33,906 58,511 74,430 1,09,653 1,09,584 1,33,018 1,30,267 23,820 1,45,543
261% 450% 573% 844% 843% 1024% 1002% 183% 1120%
Total liabilities 1,02,651 2,38,480 1,53,744 2,59,997 2,63,941 2,73,398 2,93,873 2,85,888 2,96,858 2,77,358
232% 150% 253% 257% 266% 286% 279% 289% 270%
Total equity 1,24,249 1,62,768 1,30,327 2,12,438 2,65,696 3,35,414 4,16,007 4,87,216 5,73,305 5,66,306
131% 105% 171% 214% 270% 335% 392% 461% 456%

P and L

Base year 2009-10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Sales 338859 405004 530542 617612 713265 788554 852506 770144 774834 853305
Trend % 120% 157% 182% 210% 233% 252% 227% 229% 252%
COGS 155074 190527 227880 242211 181798 192109 294788 311261 322005 347535
Trend % 123% 147% 156% 117% 124% 190% 201% 208% 224%
Gross Profit 183785 214477 302662 375401 531467 596445 557718 458883 452829 505770
Trend % 117% 165% 204% 289% 325% 303% 250% 246% 275%
Purchases 60936 82145 59572 59922 75697 93725 98814 75363 66580 80298
Trend % 135% 98% 98% 124% 154% 162% 124% 109% 132%
EBITDA 109220 78932 94757 112430 16299.53 113163 173901 180729 190832 203669
Trend % 72% 87% 103% 15% 104% 159% 165% 175% 186%
Depri 48950 6338 10324 11240 9749 11498 13375 14286 16218 17690
Trend % 13% 21% 23% 20% 23% 27% 29% 33% 36%
EBIT 60270 72594 84433 101190 6550.53 101665 160526 166443 174614 185979
Trend % 120% 140% 168% 11% 169% 266% 276% 290% 309%
Interest 1059 2738 5384 5890 5415 4012 4802 5403 5305 5958
Trend % 259% 508% 556% 511% 379% 453% 510% 501% 563%
PAT 48950 56139 64411 76579 67210 106847 125545 128006 135774 144625
Trend % 115% 132% 156% 137% 218% 256% 262% 277% 295%
EPS 5.65 3.22 3.7 4.38 5.24 6.08 7.13 7.25 7.69 8.17
Trend % 57% 65% 78% 93% 108% 126% 128% 136% 145%
Dividend 15148 19581 20859 24343 27878 39479 35061 39634 39634 132471
Trend % 129% 138% 161% 184% 261% 231% 262% 262% 875%

22
Analysis of the above tables:

Short term performance:

In the year 2011-12 (3 yrs. down the line), Dabur's profit increased by 32% whereas the
company's gross profit is on rise as well as the sales. The company's overhead is not factored
in gross profit but they are into operating profit. The EBITDA of the company has declined
by 13% as compared to the base year 2009. The depreciation cost is compressed by 79%.
This decline can be a reason behind the profits for the company even though EBITDA
declined. The rise in operating expenses is giving the company a tough time by decreasing
the EBITDA. Leveraged buyout bankers promoted EBITDA as a tool to determine whether
a company could service its debt in the near term, say over a year or two. The finance cost
of the company (i.e. Interest) has increased by 408% which is due to 1083% increase in non-
current liabilities. The company is also investing in assets but not the same way as they are
taking liabilities.

5 years down the line:

The company profits have increased by 37%. Sales increased by 110% correspondingly cost
of goods sold also increased for the company but it did not exceed to that of sales. Thus, we
could notice 189% increase of gross profits. Though the gross profits have increased but
operating profits have declined due to increase in operating expenses Operating profit refers
to the money you make on your core business. This decline shows that they aren’t showing
upward trend in their core business. Profits of the company as said earlier have increased
even though decline in operating profits can be due to royalties, investments to show an
overall business profit. This can be verified by the increase in intangible assets. The finance
costs are surging due to rise in total liabilities by 157%

10 years down the line:

when we speak about a longer term, in 10 years' time company has just increased its profits
by 195% whereas, double(approx.) of this percentage rise is seen in interests to pay off its
debt. The liabilities are increasing which explains the increase in finance cost. Assets are on
rise, which brings us to question the liquidity of the company. The assets of the company
have outpaced the liabilities in terms of percentage increase which brings us to relief. yes,
big companies require debt to diversify its business. when increase in debt makes it difficult

23
for the company to service its own debts that's when the company struggles This is not the
case for dabur. there is no issue in terms of liquidity of the company. 10 years and sales have
increased by 152% which is good. The company has acquired more of fixed assets and thus
depreciation cost has also increased.

24
 CHAPTER 6: COMPARATIVE ANALYSIS

Ratio analysis is for a timeline (FY 2009-10 to FY 2018-19) for the two companies
considered namely Dabur India ltd and Nestle S.A.
I first would be discussing about profitability ratios (refer to next page for the tables)
Gross Profit Margin:
Gross profit margin is gross profit/sales. Dabur's gross profit margin is showing an
increasing trend for the timeline. It could be because of increase in price or control of direct
costs. Nestle’s margin is also decreasing from 58% to 49% in 2019. Dabur is performing
better in terms of gross profit margin.

Gross profit Chart no-1

80
60
40
20
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
PROFITABILITY RATIOS

GP DABUR GP NESTLE

Net Profit Margin:

Like gross margin, net margins vary from industry to industry. Retails is a very low margin
business. Both the companies are showing a surge in net margins but on comparing recent
year's performance nestle has a net margin of 13.9% on the other hand dabur has margin of
16.9% this tells us that dabur is making more profit

Net profit margin -chart no-2

20
15
10
5
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

PROFITABILITY RATIOS

NP MARGIN NESTLE NP MARGIN DABUR

25
Return on assets (ROA):
ROA of dabur is showing a decline for the timeline from 21% to 17% in 2019. The decline
can be due to decrease in sales or significant rise in assets. Nestle is showing improvement
in return of assets over the period of time. From 8% to 10% in 2019. Nestle is showing a
positive movement. When we compare the two Dabur is giving more return on assets.

ROA Chart no-3

25

20

15

10

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
PROFITABILITY RATIOS

ROA NESTLE ROA DABUR

Return on equity (ROE):

ROE show how much profit company is earning per dollar of equity. Higher return on equity
implies higher return to the stakeholders. Dabur is showing a deteriorating trend in ROE
with 39% to 25% in 2019. Nestle is showing an improvement in ROE for the timeline from
14% to 24% in 2019. Comparing the two firms in 2019 dabur is giving a return of 25.5% in
2019 whereas nestle is giving a return of 24.4%. Both of them are quite close but dabur is
performing better by 1.1%.

ROE - Chart No-4

60
50
40
30
20
10
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
PROFITABILITY RATIOS

ROE Nestle ROE Dabur

26
 PROFITABILITY RATIOS
DABUR 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
ROE 39.3967 34.49019 49.42261 36.04769 25.29583 31.85526 30.17858 26.27295 23.68268 25.53831
Net profit margin 14.44554 13.86134 12.1406 12.39921 9.422865 13.54974 14.72658 16.62105 17.52298 16.9488
Gross profit margin 54.23642 52.95676 57.0477 60.78266 74.51186 75.63781 65.42101 59.58405 58.44207 59.27189
ROA 21.57338 13.9911 22.67426 16.20943 12.68982 17.55008 17.68538 16.55741 15.60328 17.14249

performing better than nestle.

PROFITABILITY RATIOS
Nestle 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
ROE 14.4541 16.824 17.6666 16.2849 20.7334 14.7954 13.463 12.0076 17.9237 24.4107
Net profit margin 8.2463 11.7214 11.9975 11.3338 16.2686 10.6628 9.92858 8.39505 11.4481 13.94
Gross profit margin 58.2135 47.243 47.4996 47.7951 48.093 49.6199 50.5985 49.9694 49.6167 49.6079
ROA 8.10455 8.59314 8.76185 8.67943 11.1691 7.63517 6.7346 5.78156 7.64004 10.086

Of all the profitability ratios which we considered, on comparing the 2 companies dabur is

27
Liquidity ratios

Current ratio:

The current ratio provides us with an estimate whether the company is going to survive for
a short span of time particularly a year or two. If current assets are greater than current
liabilities. Then we interpret that the company can liquidate its current assets to pay off short
term obligations and survive for at least one operating cycle. We can see that throughout the
timeline the company has maintained a healthy current ratio above 1, on the other hand,
nestle has a current ratio always less than one throughout the time line. thought there were
exception years as well. When compared to dabur, nestle had lesser current ratio. In 2019
dabur's current ratio is 1.35 but of nestle is quite less i.e. 0.83. however, we still need to
investigate on the quality and liquidity of Current Assets. We note that around 36% of current
assets in 2019 consists of Inventories and Other Current Assets. This may affect the liquidity
position of the companies respectively.

CURRENT RATIO CHART NO-5

Nestle Dabur

2.5

1.5

0.5

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Quick ratio:
Sometimes current assets may contain huge amounts of inventory, prepaid expenses, etc.
This may skew the current ratio interpretations as these are not very liquid. This ratio will
help us to know only most liquid current assets for better picture. We can see that except for
few years, every year quick ratio for dabur was below 1. Same is true for Nestle. The rule of
thumb for a healthy acid test index is 1.0. In 2019 when we compare both the companies, we
can see that they both have acid test ratio below 1 but dabur has 0.83x whereas Nestle has

28
0.63x. This tell us that dabur is more liquid than Nestle. We can see that dabur has a volatile
trend of quick ratio on the other hand, nestle trend is quite stable but quick ratio is decreasing.
This acid test shows us the company’s ability to pay off short term liabilities using
Receivables and Cash & Cash Equivalents.

Quick ratio Chart no-6

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Nestle Dabur

Cash ratio:
Cash Ratio is the ultimate liquidity test. If this number is large, we can obviously assume
that the company has enough cash in its bank to pay off its short-term obligations. Dabur's
cash ratio has been declining for the whole timeline. Same is true for Nestle but we cannot
notice a steep fall in Nestle’s cash ratio like that of dabur's. In 2019, looking at cash ratio of
the two companies we can say nestle is more liquid than dabur.

Cash ratio Chart no-7

0.5

0.4

0.3

0.2

0.1

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Nestle Dabur

29
 Liquidity ratios
Nestle 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
current ratio 1.2936 0.94584 0.90845 0.91339 1.03241 0.88335 0.85407 0.89283 0.95289 0.85697
Quick ratio 1.03072 0.68316 0.67298 0.66039 0.75358 0.63867 0.63014 0.64151 0.74083 0.63246
Cash ratio 0.26727 0.14016 0.1507 0.19488 0.22642 0.14657 0.21297 0.22017 0.10458 0.17948

performing better.
Liquidity ratios
Dabur 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Current ratio 2.08214 2.01343 1.51345 1.31832 1.07062 1.12904 1.33239 1.40222 1.41295 1.34805
Quick ratio 1.41375 1.37038 0.74873 0.89094 0.64678 0.72661 1.28799 0.90427 0.89695 0.85919
Cash ratio 0.30159 0.24725 0.41621 0.25971 0.22641 0.11414 0.08924 0.07344 0.06318 0.04048

# On the basis of the ratios above we came to a conclusion that out of 3 in 2 ratios dabur is

30
Turnover ratios

Receivables Turnover ratio:

please note that we are taking an assumption that 100% of both the company’s sales were
credit sales. The higher the better it is. For the past 10 years we can see a fall in receivables
of dabur. Nestle also had a declining trend earlier, but the fall is not steep. They are trying
to improving their receivables. In 2019 dabur has performed better in terms of receivables
than nestle. Higher Receivables Turnover implies a higher frequency of converting
receivables into cash.

Receivables turnover chart no-8

25

20

15

10

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

dabur Nestle

Days receivables:

Days receivable are directly linked to the accounts receivable ratio. The lesser it is the better
the company is performing in converting receivable into cash. The no. of days taken here is
365 days for calculations. Looking at dabur's data we can see that the days are gradually
increasing year on year that means company is losing its grip on their credit policy. In year
2011 Nestle’s days receivables increased from 40 to 52 days after that they tried to maintain
days receivables and in 2019, we can see a decline in the same. Comparing the two
companies, in 2019 dabur is taking less days to convert receivables than nestle. To comment
more accurately we need to compare these figures with the credit period offered by these
companies. Since we don’t have that data. We would just consider recent years performance
for the comparison.

31
Inventory turnover ratio:
Inventory ratio means how many times company is restoring its inventory. Like receivables
we are taking average inventory to calculate inventory turnover. Dabur's inventory turnover
is volatile however in 2016 we noticed a sudden increase from 2x to 5x. Nestle's inventory
turnover is quite interesting. We see that the values are same i.e. 5x however, there is
volatility in terms of decimals of that ratio and in that we can see a declining trend. when we
compare the two companies in 2019 Nestle is performing good than dabur.

Inventory turnover chart no-9

0 dabur
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

dabur Nestle

Days Inventory:
Days inventory is basically the same information as that of inventory turnover but more
intuitive. In the year 2014 and 2015 there was a surge in days inventory we lead us to the
fact that dabur is processing it inventory slowly when compared to the base year. nestle on
the other hand has a increasing trend. In 2019 nestle is performing far better than dabur.
Nestle days inventory is 73 days whereas dabur takes more days i.e. 135 days.

Accounts Payable turnover ratio:

Accounts payable ratio tells us how many times the payables are rotated over the period.
Dabur has a decreasing accounts payable ratio which tells us that a company is in financial
distress or the company has negotiated different payment arrangement with suppliers. same
is true for Nestle however dabur has a steeper fall. when we compare these companies’
performance for the year 2019 both the companies are taking longer to pay off their suppliers
based upon their trend. Nestle is paying at faster rate.

32
 Payable turnover chart no-10
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

dabur Nestle

Days payable:
Higher the days payable better it is for a company from a liquidity perspective. Dabur is
taking more days and thus is performing better for this ratio.

Cash conversion cycle:

Cash conversion cycle signifies the no. of days company's cash is stuck in operations. It is
basically the time taken by the company to purchase raw material, then convert inventories
to finished goods and sell the product to receive cash, pay off the suppliers. Dabur's cash
conversion is highly volatile from normal cycle to a point where it had negative cash
conversion cycle and ultimately it increased in recent times. An increasing trend shows
company is taking a lot of time to generate cash returns. However, negative cycle means
company takes less time to sell its inventory compared to the time taken to pay off its
suppliers. Nestle has a declining trend in cash conversion cycle and continuous negative cash
conversion cycle. Nestle is performing better.

33
 Cash conversion cycle chart no -11
200

150

100

50

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
-50

-100

dabur Nestle

Turnover ratios
Dabur 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Receivables 22.7621 17.041 12.9852 13.06 12.3037 11.3777 11.2132 10.5491 11.424 11.0845
days receivables 16.0354 21.419 28.109 27.948 29.6658 32.0803 32.5509 34.6003 31.9502 32.9289

Inventory turnover 3.86873 3.35804 2.97406 2.90459 2.00202 1.97485 5.44432 5.11791 2.72552 2.71861
days inventory 94.3463 108.694 122.728 125.663 182.316 184.825 67.0424 71.3182 133.919 134.26

Payables turnover 4.58097 3.50284 1.2892 0.90148 0.82242 0.85501 0.81462 0.57248 0.86419 0.94824
days payable 79.6775 104.201 283.121 404.889 443.811 426.895 448.063 637.574 422.362 384.925

CCC 76.6681 75.7751 60.772 42.1122 -3.2793 9.52189 -62.99 -50.613 140.18 17.058

Turnover ratios
Nestle 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Receivables 8.996556 6.580026 6.893958 7.197032 7.139061 6.906382 7.255322 7.231587 7.752681 8.072908
days receivables 40.57108 55.47091 52.94492 50.71535 51.12717 52.84966 50.3079 50.47302 47.08049 45.21295

Inventory turnover 5.855929 5.13702 5.266376 5.513207 5.434629 5.163636 5.339978 5.14523 5.066535 5.051657
days inventory 62.32999 71.05287 69.30762 66.20466 67.1619 70.68662 68.35234 70.9395 72.04135 72.25352

Payables turnover 3.563551 3.269942 3.461464 3.204245 2.787848 2.654039 2.464519 2.36063 2.509053 2.536896
days payable 102.4259 111.6228 105.4467 113.9114 130.9254 137.5262 148.1019 154.6197 145.4732 143.8766

CCC 2.281317 16.90531 13.36491 -7.38458 -13.0551 -17.976 -34.8557 -31.9004 -24.4075 -28.4809

# In terms of turnover ratios Nestle is performing better than dabur.

34
Operating efficiency ratios
Asset turnover ratio:
Asset turnover ratio tells us how efficiently company is using its assets to generate sales.
Dabur's asset turnover ratio has decreased over the period of time. For nestle there is a
sequential decrease in asset turnover. When we compare the two firms, we see that dabur is
generating $1.01 for every $1 of assets. Nestle is generating $0.75 for every $1 of assets.

Total asset turnover Chart no-12

2018
Operating efficiency

2016
ratios

2014

2012

2010
0.00 0.50 1.00 1.50 2.00

dabur Nestle

Net fixed asset turnover ratio:

Fixed assets turnover ratio basically tells us how efficiently firms are using their fixed assets
(plants, machinery etc). Dabur's fixed asset turnover is showing a declining trend from 5.99x
to 5.51x in 2019. Nestle, like asset turnover ratio is also showing a decline in fixed asset
turnover. From 5.10x in 2010 to 3.15x in 2019. Dabur is performing better.

Fixed asset turnover Chart no-

13
Operating efficiency

2018
2016
ratios

2014
2012
2010
0.00 2.00 4.00 6.00 8.00 10.00

dabur nestle

35
 Operating efficiency ratios
Dabur 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Asset turnover 1.49 1.01 1.87 1.31 1.35 1.30 1.20 1.00 0.89 1.01
F.A 5.99 6.05 8.06 5.44 4.12 4.24 4.35 4.43 5.11 5.51

Operating efficiency ratios

Nestle 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Asset turnover 0.98 0.73 0.73 0.77 0.69 0.72 0.68 0.69 0.67 0.72
F.A 5.10 3.68 3.62 3.43 3.31 3.23 3.31 3.25 3.17 3.15

ratio and fixed asset turnover ratio. Dabur is performing better than Nestle.
Under the heading operating efficiency ratios, there are two ratios namely asset turnover

36
Financial Risk assessing ratios
Debt to Equity ratio:
debt to equity ratio helps us to understand the ability of a company to pay off debt utilising
its own capital. Generally, the lower the ratio the better it is. Dabur over the period is showing
a deteriorating trend which is good. Nestle is showing an increasing trend, as the ratio is
increasing the performance of the firm is deteriorating. This ratio is better when it is below
1. In 2019 nestle has 1.49x whereas, dabur has 0.49x. Dabur would be well off in paying off
the debt on its own capital.

Debt- Equity ratio Chart no-14

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Dabur Nestle

Interest coverage ratio:

Higher interest coverage ratio implies that firm is capable of paying off its interest. If interest
coverage ratio is less than 1 than EBIT is not sufficient to payoff interest, this would mean
to find some other ways to arrange funds. Dabur's interest coverage is quite healthy for the
timeline nestle too has healthy interest coverage quite high but not as high as dabur's. Nestle
is showing a decreasing trend so is dabur. when we compare the two firms; dabur is
performing better.

37
 Interest coverage ratio chart no-15
60
50
40
30
20
10
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

dabur Nestle

Financial risk
Dabur 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Interest coverage 56.91 26.51 15.68 17.18 1.21 25.34 33.43 30.81 32.91 31.22
Debt to equity 0.83 1.47 1.18 1.22 0.99 0.82 0.71 0.59 0.52 0.49

Financial risk
Nestle 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Interest coverage 16.83 23.27 23.57 15.37 14.13 17.11 17.37 13.12 13.64 13.22
Debt to equity 0.78 0.96 1.02 0.88 0.86 0.94 1.00 1.08 1.35 1.42

# Dabur is performing much better than Nestle. Thus, we can say that dabur can easily handle
financial risk.

38
Growth Ratio
The growth rate is one of the most important parameters when we look at analysing a
company.
Sustainable Growth ratio:
Sustainable growth is a function of 2 variables i.e. ROE and retention rate. If the company
is not growing there are high chances that it may default on debt. Example for the same is
dabur we can see a decline in sustainable growth. There is nothing sustainable in sustainable
growth for this company a steep fall is all we can witness from 27% to 2% in 2019. Nestle
on the other hand is showing an increasing trend. it had negative growth in 1st year and
gradually it rose to 10% in 2019. No doubt Nestle is performing better.

Sustainable growth Chart no-16

dabur Nestle

40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
-5.00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
-10.00 Growth

Growth
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
dabur 27.21 22.46 33.42 24.59 14.80 20.09 21.75 18.14 16.77 2.15
Nestle -4.93 6.63 7.74 6.07 11.19 3.93 2.95 0.66 5.73 10.73

In terms of Sustainable Growth, nestle is performing better.

39
Some other ratios:
Basic Defense Ratio:
Base defense ratio measures a company’s short-term liquidity with respect to daily
expenditure. Dabur's basic defense ratio range from 900 days to 5000 days(approx.) showing
an increasing trend. Nestle on the other hand nestle is showing a decline in historical data
ranging 5000days(approx.) to 3000 days(approx.). This ratio tells us that companies can
remain liquid for 5k days and 3k days respectively in the year 2019 on comparison without
tapping long term assets.

Basic defense ratio chart no-17

6000.00

5000.00

4000.00

3000.00

2000.00

1000.00

0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Dabur Nestle

Altman Z score:
Altman Z-score is a score which is given after assessing the credit strength of a publicly
traded manufacturing company’s likelihood of bankruptcy. If the score is below 1.8 that
company might be headed towards bankruptcy, if the score is near 3 the company is
financially solid. This score talks into account profitability, leverage, liquidity, solvency and
activity ratios. Looking at the historical data we came to an understanding that dabur has a
declining trend in this score whereas nestle has an increasing trend. On comparison it was
found that even though dabur has a declining trend but it still has good score compared to
nestle. this could also mean that nestle is showing consistency which dabur is not.

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 Altman Z score Chart no-18
12.00 10.98

10.00

8.00

6.00
3.61
4.00 3.02 2.97 3.22 2.60 2.75
1.93
2.59
2.36 2.25 2.24 2.34 2.14 2.69
2.41 2.38 2.10 2.10 2.24
2.00

0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

dabur Nestle

Operating cash flow ratio:

This ratio helps us to gauge company's liquidity for short term. It tells us how well current
liabilities are covered by cash from operations. We are using it against net income because
earnings are easily manipulated. A high number particularly greater than 1 is preferable.
Dabur doesn’t have sufficient operating cash flow to cover short term liabilities, throughout
the timeline it has ratio below 1. Nestle performing same as dabur. On comparison of recent
year's (2019) performance dabur is performing better.

Operating cash flow chart no-19

1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

dabur Nestle

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Working Capital Turnover ratio:
A higher turnover ratio tells us that the company is efficient in using its short-term assets
and liabilities towards sales. Dabur is showing a rise in WC turnover ratio and is higher than
that of Nestle's. Nestle’s WC turnover is decreasing over the time period to an extend that
for majority of the years it has negative turnover. This happens because company is having
more current liabilities than current assets. this explains that the company funds its growth
in sales by effectively borrowing from customers and suppliers. Generally negative working
capital is not appreciated.

Working capital turnover Chart no-20

100.00

80.00

60.00

40.00

20.00

0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
-20.00

-40.00

-60.00

dabur Nestle

Cash flow to total debt:

For a company to devote all of its cash from operations to pay off its total debt is unrealistic.
A higher ratio is appreciated showing that firm is able to pay its debt and thus be able to take
more is necessary. Dabur is showing a rise in the ratio whereas nestle is show a decline for
the timeline. While comparing the data from 2019 it was found that dabur has a ratio of 67%
which means it would be able to pay debt in less than 2 years. On the other hand, nestle has
a 21% showcasing it would take 4 years to pay off its debt. Dabur is performing better.
(assumption: firms are having stable and constant cash flow.)

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 Cash flow to total debt chart no-21

2019
2018
2017
2016
2015
2014
2013
2012
2011
2010

0% 10% 20% 30% 40% 50% 60% 70% 80%

Nestle Dabur

dabur 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Cash Flow to Total Debt 54% 21% 40% 33% 27% 38% 37% 43% 48% 67%
Basic Defence Ratio 900.32 5487.09 3774.82 4033.24 3948.73 5115.00 5592.19 5427.32 5666.93 5479.86
operating cash flow 0.86 0.45 0.58 0.44 0.31 0.43 0.44 0.56 0.58 0.70
wc 4.91 3.63 9.59 9.83 44.03 25.27 10.38 8.62 7.71 9.22
Z Score 3.61 2.59 10.98 3.02 2.38 2.97 3.22 2.69 2.60 2.75

Nestle 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Cash Flow to Total Debt 28% 17% 27% 32% 24% 29% 29% 25% 24% 21%
Basic Defence Ratio 5246.56 4766.17 5305.46 3831.74 4455.70 3755.12 3734.14 3640.95 3813.99 3505.79
operating cash flow 0.45 0.28 0.45 0.55 0.45 0.52 0.50 0.47 0.44 0.38
wc 12.40 -43.84 -25.98 -32.32 85.94 -22.84 -16.34 -23.24 -45.11 -15.55
Z Score 1.93 2.36 2.25 2.41 2.24 2.34 2.14 2.10 2.10 2.24

On the basis of above ratios I.e., Altman z score, operating cash flow, base defense ratio,
cash flow to total debt ratio and working capital turnover ratios we found that it was dabur
which was performing very well in all ratios.

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Investor’s point of view
Dividend pay-out ratio:
Dividend pay-out ratio helps us to assess the sustainability if dividends. The interpretation
can be different depending on company's maturity. Nestle is a matured company so if it pays
low dividends then I won’t be acceptable by the investors. On the other hand, a growing
company like dabur pays zero% dividend that is also fine. In our scenario we are witnessing
the opposite, nestle is on a declining trend and dabur on surge. However, a sudden shoot in
dividend is heading into unsustainable territory. we also witness that nestle was paying 134%
dividend in the 1st year of our timeline that means it was giving more than it was earning
and had to ultimately reduce the percentage. a steady increase like that of dabur means that
the company is healthy, maturing business. dabur is performing better.

Dividend payout ratio chart no-22

160%
140%
120%
100%
80%
60%
40%
20%
0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

NESTLE dabur

Price to Earnings ratio:

A price to earnings ratio tells us about the current price share relative to its earning per share.
In other words, how much people are willing to pay for $1 of company’s earning. A high
price would mean that the company is overvalued or investors are expecting high growth
rates in future. Dabur is showing an increase in PE ratio over time ranging from 14-52this
shows investors a quite bullish about the company. Nestle PE was volatile in specific range.
Over the time it started from 22 and ended at 25. Being stable and not highly overvalued
nestle would be performing good.

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 PE ratio chart no-23
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

dabur nestle

Innovation:
R&D % of Sales:
We took r&d % of sales into consideration to understand how company is performing in
terms of innovation. Dabur over the time period has not even spent 1% of sales amount
towards research and development. Though we witnessed a rise in percentage. Nestle on the
other hand is spending close to 2% towards research and development every year throughout
the timeline.

R&D % OF SALES Chart no -24

2.50

2.00

1.50

1.00

0.50

0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

NESTLE dabur

In terms of Innovation Nestle is performing better.

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dabur 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
pe ratio 14.25 29.84 28.62 30.64 34.25 43.76 34.61 37.89 41.03 52.03
R&D as a % of annual sales 0.21 0.17 0.10 0.07 0.30 0.28 0.31 0.44 0.41 0.44
Dividend payout ratio 31% 35% 32% 32% 41% 37% 28% 31% 29% 92%

Nestle 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
pe ratio 22.62 19.43 19.88 23.37 16.00 25.66 25.99 36.95 24.88 25.00
R&D as a % of annual sales 1.71 1.70 1.67 1.63 1.84 1.89 1.94 1.92 1.84 1.81
Dividend payout ratio 134% 61% 56% 63% 46% 73% 78% 95% 68% 56%

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 CONCLUSION

In our report, financial analysis of comparative measures we considered trend analysis in

which we commented on the short term and long-term performance of the company. By
short term performance we mean 3-5 years down the line to base year and by long term we
mean 10 years down the line.

When we talk about nestle from a long term perspective we come to know that company
wants to diversify and for past years it is looking for diversification into different countries,
we saw that the sales have declined when compared to base year and still profits have
increased (by 43%) that means that they are surely controlling their operating profits as even
the gross profits are on decline. The company’s liabilities and its financings cost are on rise,
assets are declining which brings us to question the liquidity of the company. Yes, the
companies do look to expand their business and for that very reason they take debt but
sometimes when companies can’t control the interest that comes with that debt, that very
expansion idea can bring the whole company down.

When we look in a same manner at dabur we saw that their sales have increased far better
than Nestle and profits (increased by 195%) of the company is also good 10 years down the
line. The company is really performing well with decrease in non-current liabilities when
compared to the base year shows that company is not looking to take more of a debt and is
investing the profits of the company to its subsidiaries and associated companies.

Now let us look at the financial ratios of the companies to get a fair and more accurate idea
about these two companies. We have categorised the ratios into profitability, liquidity,
turnover, growth, bankruptcy, financial risk and operating efficiency ratios.

When we talk about the profitability ratios namely gross profit margin, net profit margin,
return on assets, return on equity. We saw that it was dabur which was performing far better
than nestle in financial year 2018-19.

The liquidity ratios i.e. current ratio, quick ratio, cash ratio, basic defense ratio, operating
cash flow ratio, cash conversion cycle and cash flow to total debt ratio. In majority of the

47
ratios dabur had performed well but to say which company has a good liquidity is difficult
as we know that by current ratio and quick ratio data it was dabur that performed better. But
these ratios also contain inventories and receivables, to actually comment on the liquidity of
these firms we would be considering inventory turnover ratio as well. In terms of short-term
liquidity, it is Nestle who won’t face any trouble based on inventory turnover ratio and cash
conversion cycle. Cash conversion cycle signifies the no. of days company's cash is stuck in
operations. Cash ratio also suggest the same. when we talk about long term liquidity it would
be dabur is fantastic.

When we look at the inventory turnover ratios, we come to know that company is selling its
products quickly. There is a demand for their products. Nestle is that company. By looking
at the receivables payment and days receivables we saw that the credit policy of dabur is
much better than that of nestle whereas individually dabur as a company was earlier losing
its grip from their credit policy. Accounts payable shows nestle is paying up at faster rate
but when we connect it with days receivables the more the difference between the two, the
firms are having money with them for more no. of days and hence is more liquid. Dabur has
an upper edge over nestle.

Asset turnover ratio and fixed asset turnover ratio shows that dabur is more efficient in tis
operations and is using its assets wisely. Which coming is able to handle financial risk better
could be judged using debt to equity ratio and interest coverage ratio. Nestle even though
has taken more debt when compared to dabur is very well able to cover those debt’s financing
cost. Dabur can pay its debt using their own capital thus we can say that dabur is able to
handle financial risk much better than nestle.

Companies usually take debt to expand their business and as we know nestle is very much
doing that than dabur and is showing signs of sustainable growth. Dividend pay-out ratio
shows us that dabur is not retaining much of its profits and giving away it as dividends to
the shareholders. Whereas, nestle is retaining the profits, giving a lesser percentage of
dividends. Speaks a lot about their plans of future.

Company should be analysed from the perspective of a company as well as of investors.

48
When people invest in a company, they are concerned about capital gains and dividends for
that matter it becomes our responsibility to judge a company from that perspective. Since
dabur is not very fond of retaining profits and giving maximum of its dividend to its
shareholders we can say that investors must be happy about it. Investors invest in a company
through various means and one of the ways is stock market. The share price of the stocks
can be overvalued or under-priced and using price to earnings ratio we can find that. Dabur
is overvalued and shows that investors are expecting growth from this company but Nestle
is much better, stable and not overvalued. Altman Z score also indicates that nestle is more
prone to bankruptcy than nestle. Investors would like to invest in Dabur.

Growth factor of a firm can also be deduced by looking at the innovations they are carrying
out. The innovative products they produce takes them long way and are appreciated by the
consumers. Dabur cannot be spending even a 1% into this segment maybe due to the fact, it
cost more time and patience. On the other hand, nestle doesn’t seem shy in spending money
toward new products and research and development.

To this we come to a conclusion that dabur is much better company than nestle be it
profitability, turnover, bankruptcy, financial risk, liquidity, operating efficiency, investors
perspective. Whereas, it is nestle that would be showing sustainable growth and expansion.

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 References & Bibliography

 Annual reports of Dabur India Ltd

 Annual reports of Nestle S.A.
 Official website of the companies

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