Financial Management Project

Company Background

Brief History

Hindustan Unilever Limited, erstwhile Hindustan Lever Limited (also called HLL), headquartered
in Mumbai, is India's largest consumer products company, formed in 1933 as Lever Brothers
India Limited. Its 41,000 employees are headed by Mr.Harish Manwani, the non-executive
chairman of the board. HLL is the market leader in Indian products such as tea, soaps,
detergents, as its products have become daily household name in India. The Anglo-Dutch
company Unilever owns a majority stake in Hindustan Lever Limited.

Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company with
a heritage of over 80 years in India and touches the lives of two out of three Indians. It is owned
by Anglo-Dutch company Unilever which owns a 52% controlling share in HUL. HUL's products
include foods, beverages, cleaning agents and personal care products.

HUL was established in 1933 as Lever Brothers India Limited and, in 1956, became known as
Hindustan Lever Limited, as a result of a merger between Lever Brothers, Hindustan Vanaspati
Mfg. Co. Ltd. and United Traders Ltd. It is headquartered in Mumbai, India and employs over
16,500 workers, whilst also indirectly helping to facilitate the employment of over 65,000 people.
The company was renamed in June 2007

as "Hindustan Unilever Limited".

Lever Brothers first commenced operations in India in the summer of 1888, when crates full of
Sunlight soap bars, embossed with the words "Made in England by Lever Brothers" were shipped
to the Kolkata harbor and it began an era of marketing branded Fast Moving Consumer Goods
(FMCG)

HUL works to create a better future every day and helps people feel good, look good and get
more out of life with brands and services that are good for them and good for others.

With over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin
care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water
purifiers, the Company is a part of the everyday life of millions of consumers across India. Its
portfolio includes leading household brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair &
Lovely, Ponds, Vaseline, Lakm, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke
Bond, Bru, Knorr, Kissan, Kwality Walls and Pureit.

The Company has over 16,000 employees and has an annual turnover of 27408crores (financial
year 2013 - 2014). HUL is a subsidiary of Unilever, one of the worlds leading suppliers of fast
moving consumer goods with strong local roots in more than 100 countries across the globe with
annual sales of 49.8 billion in 2013. Unilever has 67.25% shareholding in HUL.

Vision of the company

We work to create a better future every day.
We help people feel good, look good and get more out of life with brands and services that are
good for them and good for others.
We will inspire people to take small everyday actions that can add up to a big difference for the
world.
We will develop new ways of doing business that will allow us to double the size of our company
while reducing our environmental impact.



Prominent Brands:
Kwality Walls ice cream, Lifebuoy, Lux, Breeze, Liril, Rexona, Hamam, Moti soaps, Lipton tea,
Brooke Bond tea, Bru Coffee, Pepsodent and Close Up toothpaste and brushes, and Surf, Rin
and Wheel laundry detergents, Kissan squashes and jams, Pond's talc and creams, Vaseline
lotions, Fair & Lovely creams, Lakm beauty products are some of the prominent brands of the
company.
Power Brands:
In mid-2000 after M.S. Banga took over the reins at HLL, the company decided that it would
focus on 30 odd 'Power Brands' and carefully plan its entry into new businesses. Intuitively this
made sense, instead of spreading your resources all over the place concentrate on a few brands.

But what it meant was that power brands had to grow at higher rates to compensate for the loss
of sales from other brands. Unfortunately, the other brands have shrunk faster vis--vis the rate
at which the power brands have grown. This has hit the top line of the company. The company's
Vanasapti brand, Dalda, is a case in point





































Financial Analysis Of HUL

Balance Sheet as at March 31,
2013

As at 31-3-
2013
As at 31-3-
2012
Rs crore Rs crore
Sources Of Funds
Total Share Capital 216.25 216.15
Equity Share Capital 216.25 216.15
Share Application Money 0 0
Preference Share Capital 0 0
Init. Contribution Settler 0 0
Preference Share Application
Money 0 0
Employee Stock Opiton 0 0
Reserves 2648.52 3464.93
Revaluation Reserves 0 0
Networth 2864.77 3681.08
Secured Loans 24.74 0
Unsecured Loans 0 0
Total Debt 24.74 0
Minority Interest 20.86 18.3
Policy Holders Funds 0 0
Group Share in Joint Venture 0 0
Total Liabilities 2910.37 3699.38

Application Of Funds
Gross Block 4157.96 3819.31
Less: Accum. Depreciation 1726.53 1556.45
Net Block 2431.43 2262.86
Capital Work in Progress 222.42 227.64
Investments 2252.34 2322.16
Inventories 2705.97 2667.37
Sundry Debtors 996.53 856.74
Cash and Bank Balance 1900.71 1996.43
Total Current Assets 5603.21 5520.54
Loans and Advances 1582.44 1074.05
Fixed Deposits 0 0
Total CA, Loans & Advances 7185.65 6594.59
Deffered Credit 0 0
Current Liabilities 6482.97 5739.9
Provisions 2698.5 1967.97
Total CL & Provisions 9181.47 7707.87
Net Current Assets -1995.82 -1113.28
Minority Interest 0 0
Group Share in Joint Venture 0 0
Miscellaneous Expenses 0 0
Total Assets 2910.37 3699.38

Contingent Liabilities 959.37 1057.68
Book Value (Rs) 13.25 17.03

Statement of Profit and Loss for the year ended
March 31, 2013
Mar-13 Mar-12
Rs crore Rs crore
Income
Sales Turnover 26881.24 23311.35
Excise Duty 0 0
Net Sales 26881.24 23311.35
Other Income 1260.5 498.29
Stock Adjustments 26 -95.15
Total Income 28167.74 23714.49
Expenditure
Raw Materials 14237.36 12507.44
Power & Fuel Cost 335.94 299.63
Employee Cost 1412.68 1200.94
Other Manufacturing Expenses 0 0
Selling and Admin Expenses 0 0
Miscellaneous Expenses 6838.69 5849.61
Preoperative Exp Capitalised 0 0
Total Expenses 22824.67 19857.62

Operating Profit 4082.57 3358.58
PBDIT 5343.07 3856.87
Depreciation 251.32 233.54
PBDT 5317.35 3855.22
Interest 25.72 1.65
Other Written Off 0 0
Profit Before Tax 5066.03 3621.68
Extra-ordinary items 0 0
PBT (Post Extra-ord Items) 5066.03 3621.68
Tax 1226.66 821.54
Reported Net Profit 3839.37 2800.14
Minority Interest 10.39 9.48
Share Of P/L Of Associates 0 0
Net P/L After Minority Interest & Share Of 3223.26 2676.97
Associates
Total Value Addition 8587.31 7350.18
Preference Dividend 0 0
Equity Dividend 3999.99 1620.94
Corporate Dividend Tax 665.4 262.96
Per share data (annualised)
Shares in issue (lakhs) 21624.72 21615.12
Earning Per Share (Rs) 17.75 12.95
Equity Dividend (%) 0 0
Book Value (Rs) 13.25 17.03

























Ratio Analysis: Time Series Analysis
LIQUIDITY RATIO
Liquidity Ratios indicate the companys ability to meet its short-term liability.
These ratios indicate the availability of liquid asset to meet short term obligations.
Creditors usually check this ratio to assess the ability of firm to meet its short term obligations
Current Ratio
Current ratio is defined as ratio of current assets to current liabilities. The concept behind this
ratio is to ascertain whether a company's short-term assets (cash, cash equivalents, marketable
securities, receivables and inventory) are readily available to pay off its short-term liabilities
(notes payable, current portion of term debt, payables, accrued expenses and taxes). In theory,
the higher the current ratio, the better.

i.e. INVENTORY + CASH AND BANK + DEBTORS + BILLS RECIEVABLE / CREDITORS + BILLS PAYABLE + O/S
EXPENSES + BANK OVERDRAFTS

Year End 2013 2012
HUL 0.78 0.86

Interpretation
Current Ratio of HUL has decreased from 0.86 to 0.78 indicating that the company is now in a
relatively poorer situation to meet its short term debt obligations.
On an overall basis it has current ratio of less than 1 meaning difficulty in meeting its short term
obligations.
Quick / ACID Test Ratio:
A liquidity indicator that further refines the current ratio by measuring the amount of the most
liquid current assets there are to cover current liabilities.

The quick ratio is more conservative than the current ratio because it excludes inventory and
other current assets, which are more difficult to turn into cash.

Therefore, a higher ratio means a more liquid current position.



Year 2013 2012
Quick Ratio 0.47 0.47

Interpretation
Quick ratio for HUL is less than 1 for both years against the conventionally recommended value
of 1. Being a major player in FMCG sector HUL do not have to worry in finding creditors. A small
value of quick ratio also signifies efficient utilization of cash.

Current ratio of HUL has been less than 1 for both the 2 years taken for analysis. This implies
that working capital of HUL is always negative. This is generally considered an aggressive
strategy i.e. to financing its long term asset by short term sources that increases profitability
because current liabilities are non interest bearing items.

There is significant difference between CR and LR which indicates that the current asset of HUL
consists of good amount of inventory.

Cash Ratio
Cash Ratio = Cash / Current Liabilities

Year 2013 2012
Cash Ratio 0.293185 0.347816






Profitability Ratio
Gross Profit Margin
Used to assess a firms financial health by revealing the proportion of money left over from
revenues after accounting for the cost of goods sold.



Year 2013 2012
Gross Profit Margin (%) 14.25 13.4

Interpretation
Gross profit margin of HUL is closed to 15 for both the years.

Gross profit margin represent the companys ability to efficiently utilize its raw materials, labour
and manufacturing-related fixed assets to generate profits, here HUL appears to be more efficient
in 2013 as compared to the previous year.

Net Profit Margin
Calculated as net income divided by revenues or net profits by sales.

It measure how much out of every dollars of sales a company actually keeps in earnings.

Net Profit Margin = Net Income/Revenues

Year March 2013 March 2012
Net Profit Margin (%) 13.9 11.83

Interpretation
Net Profit Margin of HUL is showing an increasing trend from 2012 to 2013.

As Net Profit margin represents a comprehensive view of the profitability of the company HUL
seems relatively high profitable in 2013 as compared to 2012.




Operating Profit Ratio
Operating profit means profit earned by the concern from its business operation and not from
other sources.

Operating Profit Ratio = Operating Profit/Net Sales

Whereas Operating Profit = Gross Profit Operating Expenses

And Net Sales = Total Sales Sales Return

Year 2013 2012
Operating Profit Margin (%) 15.18 14.4


Interpretation
Operating Profit Ratio for HUL is higher in 2103 as compared to 2012.As Operating Profit ratio is
deemed to be more reliable than Net Profit ratio for comparison between companies, HUL seems
to be less profitable in its operational activities in 2012.

Return on Capital Employed
Indicates the efficiency and profitability of a companys capital investments.

This ratio indicates the profit making ability of the firm on total capital employed which consists of
owners fund and debt. This is a profit generating ability ratio which is seen by owners and debt
providers.

ROCE = Net Income/Capital Employed

Capital Employed:- Average Debt Liability + Average Shareholder Equity
Year 2013 2012
Return On Capital Employed (%) 155.25 95.34

Interpretation
ROCE for HUL is showing an increasing trend from 2012 to 2013.

This ratio indicates that HUL is able to generate more returns by using less capital in 2013 as
compared to 2012.
13
Return on Equity:
Calculated as the amount of net income returned as a percentage of shareholders equity.

Return on Equity = Net Income/ Shareholder's Equity

Year 2013 2012
Return On Equity (%) 24.70 17.84

Interpretation
ROE is showing an increasing trend from 2012 to 2013. However since ROE is the ratio of Net
Income to Equity, Increased ROE ratio indicates that HUL is able to more effectively use its
investor money in 2013.

For HUL share of equity in total capital is much more than that of debt hence the ROE is an
important ratio in determining their profitabilities.
Return on Assets
Return on Assets(ROA) = Net Income / Total Assets

Year 2013 2012
ROA 9.678405 6.410396


Earnings Per Share
EPS is an indicator of profit distributing ability of a firm. This ratio tells how much profit the firm is
making on owners investment on a single share of the company.

Calculated as the portion of companys profit allocated to each outstanding share of common
stock.

EPS = Net income- Dividend on Preferred Stock/Average Outstanding shares

Year 2013 2012
Reported EPS (Rs) 17.88 17.56

Interpretation
Earnings per share for HUL have increased from 2012 to 2013 indicating higher earnings on the
shares.
14
Turnover Ratio
Turnover ratio measures the degree to which assets are efficiently employed in the firm.

These are also known as activity ratio or asset management ratio and they are important for a
business concern to find out how well the facilities at the disposal of the concern are being used.
Debtors Turnover Ratio
It is a measure as to how well the debtors are being used as current assets or how well assets
have been employed in the firm.

It is an activity ratio which reflects upon the efficiency of the asset in generating sales flow.

DEBTORS TURNOVER RATIO = SALES / DEBTORS
Year 2013 2012
Debtors Turnover Ratio 29.01 25.62

Interpretations
HUL was managing its debtors in an increasing more efficient fashion in 2013.

Days sales in Receivables
Days sales in Receivables = 365 / Debtors Turnover

Year 2013 2012
Days sales in Receivables 12.58187 14.24668


Stock Turnover Ratio
It is an indicator as to with what efficiency and rapidity a firm is able to move its merchandise. It is
basically a measure of liquidity of firms inventory.

STOCK TURNOVER RATIO = COSTS OF GOODS SOLD
AVERAGE STOCK

Year 2013 2012
Inventory Turnover Ratio 9.93 8.74
15

Interpretation
As can be seen above, HUL has a higher Stock Turnover Ratio for 2013 as compared to 2012
This means that money is tied up for less time on stocks.

A quicker stock turnover also indicates that HUL makes profits on its stocks quicker than the
others, pointing towards a more competitive organisation.

Days Sales in Inventory

Days sales in Inventory = 365 / Stock Turnover Ratio

Year 2013 2012
Days Sales in Inventory 36.7573 41.76201


Total Assets Turnover Ratio
It is an indicator that defines whether a firm is utilising its assets efficiently or not.

It is an activity ratio which suggests that whether the assets of the firm are operating as desired
and is contributing to the sales of the firm.

TOTAL ASSETS TURNOVER RATIO = SALES / TOTAL ASSETS

Year 2013 2012
Total Assets Turnover Ratio 9.35 6.35

Interpretation
In the period under consideration, HUL achieved its higher turnover ratio in the year 2013.

This ratio indicates how quickly the assets are being converted into sales.

The ratio is higher in 2013 indicating quick assets conversion into sales for the company.



16

Capability Intensity
Capital Intensity = Total Assets / Sales

Year 2013 2012
Capital Intensity 0.108268 0.158694

Leverage Ratio
Leverage Ratio used to calculate the financial leverage of the company to get an idea of the
companys methods of financing or measure its ability to meet financial obligations.
DEBT EQUITY RATIO
The debt-equity ratio is a leverage ratio that compares a company's total liabilities to its total
shareholders' equity.

This is a measurement of how much suppliers, lenders, creditors and obligors have committed to
the company versus what the shareholders have committed.

DEBT EQUITY RATIO = Long term Debt/EQUITY SHAREHOLDERS CAPITAL

Year 2013 2012
Debt Equity Ratio 0.01 --
Interpretation
Debt/Equity ratio for HUL is not following a trend over the period under consideration. Analysis of
balance sheet of HUL reveals that capital of HUL is funded majorly through equity rather than
debt.
INTEREST COVERAGE RATIO
It is the measure that determines whether the firm would be able to service its debt. The ratio is
the test of solvency for the firm.

INTEREST COVERAGE RATIO = EBIT / Interest to be paid

Year 2013 2012
Interest Cover 174.42 2127.05

Interpretation
Interest Coverage ratio for HUL has decreased from 2012 to 2013 indicating that relatively
compared to previous year this year company is finding some difficulty in meeting its interest
obligation.
17

Total Debt Ratio
Total Debt Ratio = (Total Assets Total Equity) / Total Assets

Year 2013 2012
Total Debt Ratio 0.925697 0.941571

Equity Multiplier
Equity Multiplier= Total Assets/Total Equity
Year 2013 2012
Equity Multiplier 13.4583584 17.1148739

Interpretation
From the above table we can see that ratio of assets to equity has decreased in 2013 as
compared to the previous year.

Cash Coverage Ratio
Cash Coverage Ratio=EBIT+Depriciation/Interest
Year 2013 2012
Cash Coverage
ratio 207.739891 2337.49697

Interpretation
The above table shows that the cash coverage for the company has declined significantly from
the previous year.

18

Dupont Analysis
A method of performance measurement that was started by the DuPont Corporation in the 1920s. With
this method, assets are measured at their gross book value rather than at net book value in order to
produce a higher return on equity (ROE). It is also known as "DuPont identity".

DuPont analysis tells us that ROE is affected by three things:
Operating efficiency, which is measured by profit margin
Asset use efficiency, which is measured by total asset turnover
Financial leverage, which is measured by the equity multiplier

ROE = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier
(Assets/Equity)

It is believed that measuring assets at gross book value removes the incentive to avoid investing
in new assets.

New asset avoidance can occur as financial accounting depreciation methods artificially produce
lower ROEs in the initial years that an asset is placed into service.

If ROE is unsatisfactory, the DuPont analysis helps locate the part of the business that is
underperforming
DUPONT Analysis
Particulars 2013-12 2012-2011

Operating Efficiency
Revenue 26881.24 53737.78
Net Income 5343.07 4456.5
Profit Margin(%) - A 0.2 8.29

Asset Use Efficiency
Revenue 26881.24 53737.78
Assets 2910.37 67632.4
Total Asset Turnover - B 9.24 0.79

Financial Leverage
Assets 2910.37 67632.4
Equity 216.25 25223.02
Asset/Equity - C 13.46 2.68

ROE (%) A*B*C 24.87 17.55

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The DuPont Analysis is important as it determines what is driving a company's ROE; Profit
margin shows the operating efficiency, asset turnover shows the asset use efficiency, and
leverage factor shows how much leverage is being used.

The method goes beyond profit margin to understand how efficiently a company's assets
generate sales or cash and how well a company uses debt to produce incremental returns.

Using these three factors, a DuPont analysis allows analysts to dissect a company, efficiently
determine where the company is weak and strong and quickly know what areas of the business
to look at (i.e., inventory management, debt structure, margins) for more answers.

The measure is still broad, however, and is not a substitute for detailed analysis

Our ROE thus calculated via dupont analysis matches with the one calculated using financial
statements.