You are on page 1of 43

HINDUSTAN LEVER LIMIETED

FINANCIAL ANALYSIS ON HLL


Submitted to

Prof. D.V.Ramana

SUBMITTED BY:

Avnish Tyagi (11) Naman Ajitsaria (31) Rashima Mittal (40) Samir Kapur (43) Siddharth Gandhi (47)

Hindustan Lever Ltd

TABLE OF CONTENTS
ACKNOWLEDGEMENTS EXECUTIVE SUMMARY ENVIROMENTAL ANALYSIS INDIAN FMCG INDUSTRY HLL COMPANY OVERVIEW . 1 ... 2 .3 ......4 9 15

FINANCIAL STATEMENT ANALYSIS o Interpretation (Ratio Analysis overview) DUPONT ANALYSIS......... ANALYSIS OF CASH FLOWS ACCOUNTING POLICIES ACCOUNTING TRANSACTIONS .. APPENDIX o Financial statements

..28 ....31 .......33 35

..39

ACKNOWLEDGEMENTS
We wish to put to record the heartfelt gratitude and immense respect to Prof D.V.Ramana (Faculty, Financial Accounting). We wish to thank him for the valuable time he gave us and the immense patience he had, in answering even the seemingly trivial queries we had to ask. He had explained the concepts so minutely to us that even while analyzing the annual reports of companies we encountered very few problems.

Hindustan Lever Ltd

EXECUTIVE SUMMARY
The project assigned to us is to study the financial health of Hindustan Lever Limited. The main purpose of the project is to analyze the Environment in which HLL is operating. EIC - Environment Industry and Company analysis is done thoroughly to understand the external factors influencing the company. All various ratios are calculated and analyzed in length to appreciate their impact on company s performance. Dupont analysis is done to check the credibility of company as per shareholders, financial analysts and other mutual funds. The three financial statements of last three years are identified, studied and interpreted in light of company s 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. Accounting policy of the company is also studied with respect to valuation of Fixed Assets, Inventory, Investments and Employee related liabilities.

ENVIRONMENTAL ANALYSIS
At the macro level, the evolution of the FMCG industry would continue to be driven by a number of factors. These include economic growth, (Indian economy is poised to remained buoyant and grow at more than 7 %.) which would impact large proportions of the population thus leading to more money in the hands of the consumer. Changes in demographic composition of the population and thus the market would also continue to impact the FMCG industry. For example: In a recent survey conducted by a leading business weekly, approximately 47 per cent of India's one billion people were under the age of 20, and teenagers among them numbered about 160 million. Together, they wielded INR 14000 Cr worth of discretionary income, and their families spent an additional INR 18500 Cr on them every year. By 2015, Indians under 20 are estimated to make up 55% of the population - and wield proportionately higher spending power. Obviously, companies that are able to influence and excite such consumers would be those that win in the market place. At the firm level, companies that are able to spot trends early and those that are committed to continuous innovation and those that endeavor to delight the consumer by meeting her changing needs will lead and prosper in the future. Product superiority married with a favourable price-value equation will form the basis of winning initiatives in the coming years. As the retail environment changes and organized retail takes shape, the second potential opportunity for value creation is in the area of distribution & availability. Exemplar companies that have used distribution and availability differentially will achieve sustainable business growths. With an eye on the future, firms would need to take a leadership stance and invest in upgraded in-store infrastructure; in-shop and market level presence and thereby improve presence and availability. Over the long term, the efforts on the infrastructure front (roads, rails, power, and river linking) are likely to enhance the living standards across India. Till date, India's per capita consumption of most FMCG products is much below world averages. This is the latent potential that most FMCG companies are looking at. Even in the much-penetrated categories like soaps/detergents companies are focusing on getting the consumer up the value chain. Going forward, much of the battle will be fought on sophisticated distribution strengths.

3 Hindustan Lever Ltd

INDIAN FMCG INDUSTRY


Background The FMCG sector has been the cornerstone of the Indian economy. Though, the sector has been in existence for quite a long time, it began to take shape only during the last fifty-odd years. The sector touches every aspect of human life, from looks to hygiene to palate. Perhaps, defining an industry whose scope is so vast is not easy. The FMCG sector consists mainly of sub segments viz. personal care, oral care and household products. This can be further sub-divided into oral care, soaps and detergents, Health and Hygiene products, beauty cosmetics, hair care products, food and dairy-based products, cigarettes, and tea and beverages.

Major Indian consumer product companies (like Britannia, P&G, HLL, etc.) have a very strong presence through their strong brands. Diversified portfolios, wide distribution networks and scale economies of these companies deter new players from entering. Brand equity, therefore, is an extremely important factor in FMCG industry. One of the other most critical factors is the ability to build, develop, and maintain a robust distribution network. Post-reforms, the industry's growth has been hinging around a burgeoning rural population which has witnessed significant rise in disposable incomes. Consequently, the rural markets have been witnessing intense competition in almost all the consumer product classes. Another reason which has led to rise in this trend is the saturation in urban markets in most of the consumer non-durable goods categories. This has led to the industry players scrambling for greater rural penetration as a future growth vehicle, the area which accounts for 70% of the total Indian household s .So far, it has been a chequered graph for the MNCs operating in the Indian FMCG industry. Domestic companies are only beginning to make their presence felt in the industry. It has taken tremendous consumer insight and market savviness for the FMCG players to reach where they are today. But, the journey seems to have just now begun for the players as the majority of the rural populace are yet to get access to the items of daily usage like toothpastes, soaps and shampoos.

4 Hindustan Lever Ltd

Industry Characteristics Typically, a consumer buys these goods at least once a month. The sector covers a wide gamut of products such as detergents, toilet soaps, toothpaste, shampoos, creams, powders, food products, confectioneries, beverages, and cigarettes. Typical characteristics of FMCG products are: 1. The products often cater to 3 very distinct but usually wanted for aspects necessity, comfort, luxury. They meet the demands of the entire cross section of population. Price and income elasticity of demand varies across products and consumers. 2. Individual items are of small value (small SKU's) although all FMCG products put together account for a significant part of the consumer's budget. 3. The consumer spends little time on the purchase decision. He seldom ever looks at the technical specifications. Brand loyalties or recommendations of reliable retailer/ dealer drive purchase decisions. 4. Limited inventory of these products (many of which are perishable) are kept by consumer and prefers to purchase them frequently, as and when required. 5. Brand switching is often induced by heavy advertisement, recommendation of the retailer or word of mouth. Competition 1. Significant Presence of Unorganized Sector - Factors that enable small, unorganized players with local presence to flourish include the following: 2. Basic technology for most products is fairly simple and easily available. 3. The small-scale sector in India enjoys exemption/ lower rates of excise duty, sales tax etc. This makes them more price competitive vis--vis the organized sector. 4. A highly scattered market and poor transport infrastructure limits the ability of MNCs and national players to reach out to remote rural areas and small towns. 5. Low brand awareness enables local players to market their spurious look-alike brands. 6. Lower overheads due to limited geography, family management, focused product lines and minimal expenditure on marketing.

5 Hindustan Lever Ltd

A general assessment of this would lead to the conclusion that FMCG is not a Structurally Attractive Industry to Enter. Entry barriers are high due the nightmare logistics associated with distributing a FMCG and the limited mass media options available to build a brand. Likewise, the intensity of competition from branded and unbranded goods and the power of retailers make the FMCG a structurally unattractive industry in which to enter and difficult industry in which to remain a competitive player. Value for money Ever since the global recession of 1991-94, which hit consumer spending hard, value-formoney has become the buzzword for FMCG companies globally. These FMCG companies embarked upon major restructuring and cost rationalization exercises as business continued to become fiercely competitive. Several packaging innovations were also resorted to. India was no different. There was a paradigm shift towards value-for-money products and, to some extent, towards the rural market. What Nirma did all these years suddenly become the buzzword for many FMCG players. Price cuts became inevitable to keep the market share from shrinking. Sometimes, the cuts touched ridiculous levels. P&G and Smith Kline Beecham, nonetheless, are interesting cases. With small product portfolios like theirs, they have been able to achieve what others could not and proved that what you need is a good product, marketed effectively and sold at the right price Who says rural is not rich! Economic recession hit the urban pockets badly and forced companies to train their guns on rural India, which was witnessing a major change in its aspiration and lifestyles and even had an income that translated into increasing volumes. India s agrarian economy is fundamentally strong. Rural India accounts for as much as 70 per cent of the nation s population. That means rural India can bring in the much needed volumes and help FMCG companies to log in volume-driven growth. Companies such as HLL, Colgate and Britannia

6 Hindustan Lever Ltd

who already had a strong rural focus, stepped up the gas further. HLL unleashed its "Operation Bharat". Britannia pushed its Tiger biscuits to every nook and corner of the country, while Colgate went about wooing the rural masses by offering low-priced products in convenient packaging. Those who could not do it on their own went piggyback on somebody else. P&G, whose distribution is largely urban, chose to leverage Marico's retail reach. Rural marketing has become the latest marketing mantra of most FMCG majors. True, rural India is vast with unlimited opportunities all waiting to be tapped by FMCGs. Not surprising that the Indian FMCG sector is busy putting in place a parallel rural marketing strategy. Among the FMCG majors, Hindustan Lever, Marico Industries, ColgatePalmolive and Britannia Industries are only a few of the FMCG majors who have been gung-ho about rural marketing. Certainly, rural marketing holds the key to success of FMCG companies, which are desperate to find ways out to gain deeper penetration. Not just the rural population is numerically large; it is growing richer by the day. Of late, there has been a phenomenal improvement in rural incomes and rural spending power. FM CG se ct or pe r for m a nce in la st de ca de The FMCG sector in India showed a constant decline in the last decade. What started as 20-25% growth rate in year 1994-96, had reached a negative growth rate of -2.8% in Q1 04. The FMCG sector is now mockingly called SMCG or slow moving consumer goods. Year 2004 brought signs of relief for the FMCG industry. In this year the industry experienced average growth of over 1.52%, with over 6% growth in Q4 04. This growth was majorly due to the price cuts initiated by P&G, which led to increase in volumes.

7 Hindustan Lever Ltd

Key Positives

Key Negatives

Rural penetration levels are still low. Also, according to estimates, only about 7-8% of the total food production is consumed in processed form (US$ 75 bn). This speaks for itself, highlighting the scope for growth. The planned development of roads, ports, railways and airports, will increase FMCG penetration in the long term. As growth has shown signs of

Weakness in the economy has led to a slowdown in demand for FMCG

products. The top line growth of many FMCG majors has thus, declined. Resurgent economic numbers in FY04 did nothing to change the scenario. New entrants in the sector have heightened competition in key segments like soaps and detergents, putting pressure on profitability. The infrastructure for free transport of goods is not adequate in the country. Also, the fall in agricultural output continues to cast on FMCG sector's prospects in the short term. A large part of the branded market continues to be threatened by spurious goods and illegal foreign imports. In times of weakened consumer demand such menaces continue to nightmares to large companies.

slackening companies are increasingly focusing on key products and brands, cost efficiencies and rural markets. This is a sign of market sophistication, both from the manufacturer's point of view as well as the consumer's point of view. Owing to India's cost advantage, many MNC companies have started using their Indian operations base. as their

manufacturing

Alternatively,

some Indian companies have tested foreign shores like Bangladesh, Sri Lanka and the Middle East among others. The proposed introduction of VAT at the start of FY06 is a long term positive for the FMCG sector. This had been a long pending demand of the FMCG sector. Post this; the tax ambiguity will get reduced, benefiting the sector.

8 Hindustan Lever Ltd

1888
Sunlight soap introduced in India.

HLL

INTRODUCTION
1895

Hindustan Lever Limited (HLL) is India's largest fast moving consumer goods company, with leadership in Home & Personal Care Products and Foods & Beverages. HLL's brands, spread across 20 distinct consumer categories, touch the lives of two out of three Indians. They endow the company with a scale of combined volumes of about 4 million tonnes and sales of Rs.10,000 crores.

Lifebuoy soap launched

1902 Pears soap introduced in India

Various leading business publications, like Forbes Global, Far Eastern Economic Review, Asia money, The Economic Times has rated Hindustan Lever as the best consumer household products company, best managed Indian company & most respected company.
1903 Brooke Bond Red Label tea launched.

HLL is India's largest marketer of Soaps, Detergents and Home Care products. It has the country s largest Personal Products business, leading in Shampoos, Skin Care Products, Colour Cosmetics and Deodorants. HLL is also the market leader in Tea, Processed Coffee, branded Wheat Flour, Tomato Products, and Ice cream, Soups, Jams and Squashes.

1905 Lux flakes introduced

HLL is also one of the country's biggest exporters and has been recognized as a Golden Super Star Trading House by the Government of India; it is a net foreign exchange earner. HLL is India's largest exporter of branded fast moving consumer goods. The company's Exports portfolio includes HLL's brands of Soaps and Detergents, Personal Products, Home Care Products, Tea and Coffee. HLL is also driving
1913 Vim scouring powder introduced.

Hindustan Lever Ltd

1930 Unilever is formed on January 1

exports in chosen areas where India has a competitive advantage Marine Products, Basmati Rice, Castor Oil and

its Derivatives. It is India's largest exporter of Marine products, and one of the largest global players in castor. Market leading brands HLL s brands have become household names. The
1931 Hindustan Vanaspati Manufacturing Company registered on November 27 Mumbai, Chennai,

company s strategy is to concentrate its resources on 35 national power brands, and 10 other brands which are strong in certain regions. The top five brands together account for sales of over Rs.3000 crores. Each of these mega brands has a potential scale of Rs.1000 crores in the foreseeable future.

1932 Vanaspati manufacture starts at Sewri

Some of the big brands in Soaps and Detergents are Lifebuoy, Lux, Liril, Hamam, Pears, Rexona & Dove, (all soaps), Surf Excel, Surf, Rin, & Wheel (all detergents). HLL also markets the Vim and Domex range of Home Care Products.
1939 Garden Reach Factory purchased outright

In the Personal Products business, HLL's Hair Care franchises are Clinic, Sunsilk and Lux shampoos. In Oral Care, the portfolio comprises Close-up and Pepsodent toothpastes and toothbrushes. In Skin Care, HLL markets Fair & Lovely Skin Cream and Lotion, the largest selling Skin Care Product in India; a brand developed in India, it is now exported to over 30 countries. It has been extended as an Ayurvedic cream, an under-eye cream, soap and talc, in line with the strategy to take brands across relevant categories. The other major Skin Care franchises are Pond s, Vaseline, Lakme and Pears. In Colour Cosmetics, HLL markets the Lakme and Elle-18 ranges. In Deodorants, the key brands are Rexona, Axe, Denim and Pond's, while the Talc brands are Pond's, Liril,

1943 Personal Products manufacture begins in India at Garden Reach Factory

1947 Pond's Cold Cream launched.

10

Hindustan Lever Ltd

1959 Surf launched.

Fair & Lovely, Vaseline and Lifebuoy. Axe and Denim are HLL s franchises for Men s toiletries.

HLL has recently launched Lever Ayush Ayurvedic Health & Personal Care Products. Health Care is among the new businesses HLL has chosen to enter. The product range comprises Cough Naashak Syrup, Headache Naashak Rollon, Dandruff Naashak Shampoo, Hair Rakshak Oil and Body Rakshak Soap.
1964 Etah dairy set up, Anik ghee launched; Animal feeds plant at Ghaziabad; Sunsilk shampoo launched.

HLL has started franchised Lakme Beauty Salons, offering standardized services, in line with the strategy to add a service dimension to relevant brands.
1969 Rin bar launched

The company has also begun an e-tailing service, called Sangam, which can home-deliver on order by phone or through the Net, a diverse range of about 5000 branded and unbranded products. The service is now available in select areas of Mumbai and Navi Mumbai, besides Thane.
1995 HLL enters branded staples business with salt

HLL is one of the world s largest packet Tea marketers. Its Tea brands Taj Mahal, Red Label, Taaza, - are among the

top brands in the country; it also markets Lipton Ice Tea. HLL and Pepsi have formed an alliance to distribute a full range of tea and coffee and soft beverages through vending machines. The coffee business comprises Bru Instant Coffee and Deluxe Green Label Roast & Ground Coffee.
1996 HLL introduces branded atta; Surf Excel launched

11

Hindustan Lever Ltd

2002 HLL enters Ayurvedic health & beauty centre.

Hindustan lever took the decision to simplify the company it merged all the different business units into two large divisions: home and personal care (HPC) and foods and beverages (F&B). This gave each division the advantage of enormous scale. The company decided to whittle its brands down from 110 to 35, over the next three years. This is known as HLL s Power Brand strategy. To identify these power brands, managers were asked to consider their growth potential, profit delivery and the size of the opportunity. And to ensure that Lever would not lose sales, it was decided to migrate these brand users to the designated power brands. For one, the drastic slimming down of the brand portfolio which threw up huge problems in execution is now over. HLL is already combining its scale advantage to offer retailers a bigger basket of products and better service. Instead of different sales teams servicing the same retailer, the company has integrated both HPC and Foods portfolios for modern trade chains like Margin Free. Once again, its large portfolio range helps Lever to use the power of customer relationships to corner greater shelf space and a disproportionately higher share of the branded segment. Modern trade, it reckons, is already growing at 15-20 per cent and will continue that way for a long time. By bulking up the businesses, it is possible for Lever to service these modern trade outlets on a daily business. As a result, these retailers do not have to maintain high inventory levels. Hindustan Lever Limited (HLL) has undergone a complete transformation in the last five years, which has returned the company to growth and reversed the trend of down trading in the FMCG industry Focussed FMCG Company: HLL is now a focussed FMCG company with branded businesses accounting for over 90% of sales, consisting of 35 brands across 20 categories. The company had disengaged from all non-FMCG or commodity businesses, with sales of Rs.1750 crores as in 1999, while deriving excellent value for these divestments. Foods building blocks in place: The Foods business which was fragmented and lacked scale, has been consolidated and gross margins have been improved by over 13% through product mix and cost reduction. The supply chain has been cleared of all old stock and geared up for fresh availability on shelf. The Foods business will now invest for growth through relevant innovation. 35 brands with better value & bigger role in consumers lives: HLL, as a company, is now focussed on 35 powerful brands, covering all consumer appeal and price segments. They have been strengthened by ensuring that they offer better value, and play a bigger role in consumers lives, backed by appropriate technology. Wherever necessary, it has reduced prices to make the brands more affordable, and launched several low unit size and price packs to make them more accessible. Vitality through nutrition, hygiene & personal care: The most significant challenge has been to move the brands beyond merely making functional claims to playing a bigger and deeper role in the lives of consumers. The company had to move from selling a soap or a detergent to something far more important and central to the consumer s life. Consumers

12

Hindustan Lever Ltd

today are looking for ways to look good and feel good so that they can get much more out of life. In short, consumers are seeking Vitality in their lives. The portfolio of 35 brands is uniquely positioned to offer nutrition, hygiene and personal care benefits and thereby deliver Vitality. Investment in the future: To ensure HLL s competitiveness in the long-term, it has made significant investments in product quality, pricing and marketing. The investment in product quality alone has been over Rs.400 crores, or 5% of sales, in the last three years. This is in addition to the cost of defending market position, in the face of recent competition action. .Distribution & customer management reinvented: The Company has also reinvented the management of distribution channels and customers, who are now being serviced on continuous replenishment. It is leveraging scale and building expertise to service Modern Trade and Rural Markets. The sales force has been delayered to improve response times and service levels. IT tools have been deployed for connectivity across the extended supply chain of about 2,000 suppliers, 80 factories and 7,000 stockists. Backend processes have been combined into a common Shared Service infrastructure. Acorns for the future: HLL has also begun to nurture some acorns new businesses and new ways of engaging with consumers -- for the future. The entry into water purifiers, with Pureit, shows great promise. In urban India, Hindustan Lever Network, which has already reached 1,400 towns with over 3 lakhs consultants, is HLL s direct selling initiative. In rural India, Project Shakti, already touching 75 million people in 60,000 villages of 12 states, complements HLL s rural reach. Simultaneously, it is providing a sustainable source of income to underprivileged rural women, HLL s partners in this initiative. Simpler, leaner, empowered organization: The Company, as a whole, has been restructured. Its eight Profit Centers have been integrated into two Divisions of Home & Personal Care and Foods. The result is a simpler and leaner organization, less hierarchical with fewer levels and greater empowerment. This has eliminated complexity and speeded up decision making. Today the company is far more youthful in attitude and spirit. There is greater openness and transparency. Over the next 10 years, India s per capita income is likely to double, with opportunities to catalyse penetration, increase usage, and upgrade consumers. As a result, the FMCG market is expected to grow to over Rs.100,000 crores from its current base of Rs.40,000 crores.

13

Hindustan Lever Ltd

HINDUSTAN LEVER LIMITED --Mr. Harish Manwani Mr. M. K. Sharma Mr. Arun Adhikari Mr. S. Ravindranathan Mr. D. Sundaram Mr. A. Narayan Mr. V. Narayan Mr. D. S. Parekh Mr. C. K. Prahlad

BOARD OF DIRECTORS Non Executive chairman Vice Chairman

Managing Director (Home & Personal Care) Managing Director (Foods) Finance & IT Director Director Director Director Director

14

Hindustan Lever Ltd

Financial Statements
All figures in Rs lakhs Income and Expense statement of HLL
INCOME Sales Less: Excise Duty 1,088,837.69 (96,143.05) 992,694.64 Other Income 31,883.38 1,109,601.80 (95,766.48) 1,013,835.32 45,982.83 1,095,161.03 (99,675.73) 995,485.30 38,454.22 2004 2003 2002

1,024,578.02 EXPENDITURE

1,059,818.15

1,033,939.52

Operating Expenses Interest & Finance Charges Depreciation

848,957.90 12,998.43 12,089.94 874,046.27

816,168.31 6,676.45 12,478.43 822,844.76 227,916.85 224,494.96 (42,736.00) (6,094.00) 4,769.00 180,433.96 (3,254.56)

799,899.50 918.40 13,410.06 814,227.96 224,471.86 219,711.56 45,894.00 2,091.00 1,405.17 171,726.56 3,841.90

PBIT PROFIT BEFORE TAX AND EXTRAORDINARY ITEMS TAXATION FOR THE YEAR - CURRENT YEAR DEFERRED TAX Taxation adjustment of previous year PROFIT AFTER TAX AND BEFORE EXCEPTIONAL ITEMS Exceptional items

163,336.90 150,531.75 (26,600.00) (5,473.62) 1,469.52 119,927.65 (193.28)

NET PROFIT Balance brought forward from Previous

119,734.37 81,860.74

177,179.40 119,815.96

175,568.46 75,997.56

BALANCE AVAILABLE FOR APPROPRIATIONS Interest on non trade inv

201,595.11 2421.17

296,995.36 2600.63

252,971.19 1754.55

15

Hindustan Lever Ltd

Balance Sheet of Hindustan Lever Ltd

ALL figures in rs lakhs 2004 2003

2002

SOURCES OF FUNDS
SHAREHOLDERS FUNDS Share Capital Reserves & Surplus 22012.44 187,258.51 209,270.95 22012.44 191,860.16 213,872.60 22012.44 343,875.14 365,887.58

LOAN FUNDS Secured Loans Unsecured Loans

145,305.78 1,805.67 147,111.45 13,984.61 370,367.01

160,369.65 10,060.79 170,430.44 10,965.19 395,268.23

1,961.50 3868.26 5,829.76 11,738.49 383,455.83

DEFERRED TAX LIABILITY TOTAL

APPLICATION OF FUNDS
FIXED ASSETS Gross Block Less : Depreciation Net Block Capital Work-in-Progress 231,421.91 89,108.07 142,313.84 9,442.22 151,756.06 36,584.66 222,956.27 214,171.54 84,608.96 129,562.58 7,384.26 136,946.84 37,709.13 257,493.08 199,436.41 -77,889.64 121,546.77 10,686.88 132,233.65 38,730.63 236,474.10

DEFERRED TAX ASSET INVESTMENTS CURRENT ASSETS, LOANS & ADVANCES Inventories Sundry Debtors Cash & Bank Balances Other Current Assets Loans, Advances & Deposits Less : CURRENT LIABILITIES AND PROVISIONS Liabilities Provisions NET CURRENT ASSETS

147,044.26 48,926.97 69,804.80 5,277.71 59,441.79 330,495.53

139,263.34 47,085.01 80,648.11 6,249.81 76,932.62 350,178.89

127,873.60 36,785.00 94,262.60 4,630.22 79,555.40 343,106.82

259,079.14 112,346.37 371,425.51 -40,929.98 370,367.01

255,948.32 131,111.39 387,059.71 -36,880.82 395,268.23

246,534.09 120,555.34 367,089.43 -23,982.61 383,455.77

16

Hindustan Lever Ltd

Ratio Analysis of HLL Profitability Ratios:


Profitability Ratios show how successful a company is in terms of generating returns or profits on the Investment that it has made in the business i.e. the Profitability ratios speak about the profitability of the company. The higher these ratios the better it is for the company. There are two types of profitability ratios:

Profit Margin ratios


o Operating Profit Margin ratio o Net Profit Margin ratio

Rate of Return ratios


o Return on Total Assets (ROTA) o Return on Capital Employed (ROCE) o Return on Net Worth (RONW) A) Profit Margin ratios measure how much a company earns relative to its sales. A company with a higher profit margin than its competitor is more efficient. The Profit Margin of a company determines its ability to withstand competition and adverse conditions like rising costs, falling prices or declining sales in the future. The ratio measures the percentage of profits earned per rupee of sales and is thus a measure of efficiency of the company. i) Operating Profit Margin ratio measures the earnings before Interest and Tax, and is calculated as Profit before Interest and Tax (PBIT) / Net Sales x 100 %

Particulars Operating Profit Margin

Dec 2004
16.45%

Dec 2003
22.48%

Dec 2002
22.55%

17

Hindustan Lever Ltd

ii) Net Profit Margin ratio measures the earnings after Interest and Tax, and is calculated as Profit after Tax (PAT) / Net Sales x 100 %

Particulars Sales PAT Net Profit Margin Ratio (%)

Dec 2004
992,694.64 119,734.37 12.06%

Dec 2003
1,013,835.32 177,179.40 17.48%

Dec 2002
995,485.30 175,568.46 17.64%

Profit margin Operating profit margin(%) ratios profit margin(%) Net


25 22.55 20 17.64 % age 15 10 5 0 2002 2003 years 2004 17.48 16.45 12.06 22.5

Operating Expenses 860000 840000 Value 820000 800000 780000 760000 2002 YEARS 2003 2004 799899.5 816168.31 848957.9

Operating Expenses

18

Hindustan Lever Ltd

Interpretation: For the year ended 2004 HLL earns 16.45 paisa on every Re. 1 of Sale before Interest and Taxes It ultimately makes 12.06 paisa on every Re. 1 of Sale after Interest and Taxes. It is visible that Hindustan Lever Ltd has not been able to increase its Operating Profit margin constantly over the years. We can see that the operating margin has decreased considerable in the last year. This is mainly due to the fact that the Sales have dropped by almost 1.8% in 2004 over the last year. Moreover the company s operating expenses have increased by almost 4% in the year 2004.The efficiency has certainly decreased over the last few years mainly owing to high operating expenses , increased interest burden and high indirect taxes. The Net Profit Margin has also decreased from 17.48 % in 2003 to 12.06% in 2004.This is mainly due to increase in the interest burden because of a debenture issue by the Company to the tune of Rs 132074 lacs in the middle of 2003.The interests costs have increased by approximately 95% which has reduced the company s Net profit. B) Rate of Return ratios i) Return on Total Assets (ROTA) ratio tells us how well management is performing on all the firm's resources. However, it does not tell how well they are performing for the stockholders. The ROTA of a company determines its ability to utilize the Assets employed in the company efficiently and effectively to earn a good return. The ratio measures the percentage of profits earned per Rupee of Asset and thus is a measure of efficiency of the company in generating profits on its Assets. It is calculated as -Profit before Interest and Tax (PBIT) / Total Assets x 100 %

Particulars. PBIT Total assets ROTA (%)

Dec 2004
163,336.90 370,367.01 49.87%

Dec 2003
227,916.85 395,268.23 63.25%

Dec 2002
224,471.86 383,455.83 63.62%

19

Hindustan Lever Ltd

Interpretation: HLL generates 49.87% return on the Total Assets (ROTA) that it employs in its operations in the year ended 2004. ROTA has decreased in the last year mainly due to the fact that its profit margin has decreased. We have already discussed the underlying reasons for decrease in profitability i.e. increase in Operating Expenses , Decrease in sales , increase in expenses like Carriage and freight by almost 8 % etc. Looking at ROTA from another angle in order to do, Dupont Analysis, we have, ROTA = PBIT / Sales (Profit Margin) x Sales / Total Assets (Asset Turnover)

For HLL, Profit Margin ratio is 16.45 % & Asset Turnover ratio is 3.03 for the year ended 2004. Interpretation: Clearly, HLL is a company which survives more on volume of sales than the profit margins on its products. ii) Return on Capital Employed (ROCE) ratio explains the overall utilization of funds by a business enterprise. It says how much profits we earn from the amount invested by the Shareholders. Capital Employed means the long-term funds employed in the business and includes the shareholder s fund, debentures and long-term loans. Profit before Interest and Tax is considered for computation of this ratio to make numerator and denominator consistent. It is calculated as -Profit before Interest and Tax (PBIT) / Capital Employed x 100 %

Where, Capital Employed = Owner s Fund (Share Capital plus Reserves & Surplus) + Long-term Debt

20

Hindustan Lever Ltd

Particulars PBIT Net worth Capital Employed ROCE

Dec 2004
163,336.90 180,428.63 153,154.63 105.07%

Dec 2003
227,916.85 189,919.04 190,088.54 118.53%

Dec 2002
224,471.86 347,002.04 273,130.62 81.54%

As we can see that the ROCE for HLL has decreased considerably in the last year mainly due to lower profit margins. The company is earning a return of 105.07% on the funds employed by it. Though the ROCE has seen a considerable change even now the company is getting good enough returns and can pay good enough dividends to the shareholders as we saw the case in the year 2004 where the rate of dividend was 250%. Moreover the underlying reason for such a huge ROCE is that the company has high amount of Non- Trade investments which are not a part of Capital employed. We have excluded interest income received from such non trade investments which was minimal and therefore had little impact on the PBIT.

iii) Return on Networth =

PAT________ Net worth Dec 2004


119,734.37 180,428.63 66.36%

Particulars. PAT Net worth Return on Net worth (%)

Dec 2003
177,179.40 189,919.04 93.29%

Dec 2002
175,568.46 347,002.04 48.38%

The Return on Net worth ratio states how much profit a company earned in
comparison to total amount of shareholders equity on the balance sheet of the company. Here, we see that the RONW of HLL has increased in comparison to the year 2002 but this cant be concluded as a favourable situation for the company as looking at the figures in detail we can notice that there has been a near to 30% decrease in RONW in comparison to the year 2003 , also we do see that the PAT of the company has fallen by about 32%as compared to the previous year i.e. 2003 and the Net worth has also decreased by 48% in comparison to the year 2002.Even now an RONW of about 66.23% is considered to be very good. The primary reason for Net worth going down from 2002 is the Bonus Debenture issued by the Company which has been capitalized from the General reserve.

21

Hindustan Lever Ltd

Rate of Return Ratios

Dec-04 Dec-03 Dec-02 93.3

Return on NetWorth(%)

66.36 50.6

Return on Capital Employed(%) Return On Total Assets(%)

105.07 118.53 81.54 49.87 63.25 63.6

Liquidity Ratios
Ability of the firm to meet short term obligation comes from holding of liquid assets which are readily convertible into cash. It s the responsibility of the treasury manager to maintain the right balance between investments and liabilities to get the maximum liquidity. It involves constant monitoring of cash flow position. We will analyze the two popular measures of the liquidity of the company.

Current Ratio:
Current Ratio = Current Assets / Current Liabilities

Quick ratio:
Quick ratio = (Current assets term loans + provisions Inventories- doubtful debtors) / Current Liabilities+ short

Also known as the acid test ratio, it is a stringent test that indicates if a firm has enough short-term assets (without selling inventory) to cover its immediate liabilities. It is similar but a more strenuous version of the "working capital" ratio, indicating whether liabilities could be paid without selling inventory. It s more reliable then current ratio because it considers only the most liquid assets and does not include the hidden factors like window dressing that may skew the actual scenario.

22

Hindustan Lever Ltd

Particulars Current liabilities & provisions +Short term loans Current assets Current assets InventoriesDoubtful Drs Current Ratio Quick Ratio Absolute Cash Ratio

Dec 2004
373,231.18 330,495.53

Dec 2003
397,120.51 350,178.89

Dec 2002
370,957.69 343,106.82

176365.78
0.89 0.47 0.25

204498.92
0.88 0.51 0.20

211557.8
0.92 0.57 0.25

It can be seen from the above table that the current ratio for all the years is less than 1. This signifies that HLL has short term liabilities greater than the short term assets. It implies that the company would have problems in managing its short term liabilities and liquidity requirements. The company might resort to financing its short term liquidity requirements by long term sources of finance. We can observe that the current assets have decreased by 14 % and at the same time the current liabilities have decreased by just 6 % in the last year. The reason is that since the company is using long term sources of finance to fund its short term obligations therefore the interest burden has increased and as a result the cash balance has gone down by 13.5 % in the last year. Liquid Ratio is much lesser than the current ratio which signifies that inventory forms a major part of the Current Assets. Similarly we can see that the Absolute Cash ratio is much lesser than the Quick ratio Amount of Debtors constitutes a sizeable portion of the current assets. .
1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 0.92 Liquidity Ratios 0.88 0.89

0.57

ratio

0.51

0.47

2002

Current Ratio Quick Ratio 2003 years

2004

23

Hindustan Lever Ltd

Solvency Ratios
It s the company s ability to meet long term liability. Also called the capital structure it is one of the major financing decisions for the company. A proper mix of equity and debt is said to be always beneficial for the company rather than pure equity. Existence of debts disciplines management to some extent. We will have a look at few of the solvency ratios for HLL.

DER: Debt to Equity Ratio


DER = Long-term debt / Shareholders Equity Particulars. Shareholders Equity Long term Debt Debt Equity Ratio Dec 2004
180,428.63 145,305.78

Dec 2003
189,919.04 160,369.65

Dec 2002
347,002.04 1,961.50

0.81

0.84

0.0056

The company was highly unleveraged in the years 2001 and 2002. It was risky as the company had invested a huge amount of its own funds as compared to debt. However in the last 2 years the company has changed its policy and is leveraging the advantage of debt along with equity. Though the debt equity ratio of 0.81 is not good enough as compared to industry norms of 2:1 but the company is moving towards a favourable debt equity mix. It has realized the importance of trading on equity .The Company has increased its debt burden by 1470% in the last 4 years which is mainly on account of issuing Debentures of the amount of Rs1320 cr in the middle of 2003.However the Shareholders equity has gone down from 2002 mainly because the issue of Bonus Debentures has been adjusted with the General Reserve.

24

Hindustan Lever Ltd

Interest Coverage Ratio:


ICR = (PBIT) / Interest
Interest charges 12998.43

Particulars PBIT Interest Interest Coverage Ratio

Dec 2004
163,336.90

Dec 2003
227,916.85

Dec 2002
224471.86

14000 12000 10000 8000 value 6000 4000 918.4 Interest charges 2002 2003 years 2004 6676.45

12,998.43 12.57

6,676.45 34.14

918.40 244.42

2000 0

Interest Coverage ratio basically signifies the ability of a firm to service its interest burden through the profits generated .In the initial years when the firm had not employed debt its interest burden was very low. As a result the Interest Coverage ratio is very high gradually the company has employed more debt and as a result of which the interest s burden has increased significantly. Moreover due to high competition and operating inefficiency the earnings of the company have declined. PBIT has gone down 28% in 2004 as compared to 2003. As a result the ICR has reduced from 244.42 to 12.57 in the last 3 years. We can see from the chart above that the interest burden has gone up considerably from Rs 918.4 lacs to Rs 12998.43 lacs This is on account of the Bonus Debentures issued by the company to the tune of Rs 1320 cr by the company.

Efficiency ratios:
It measures the quality of a business' receivables and how efficiently it uses and controls its assets, how effectively the firm is paying suppliers, and whether the business is overtrading or under trading on its equity (using borrowed funds).

Debtor Days: (Total No. of Debtors/Total Sales)* 365


This ratio actually indicates the no. of days of sales that are on the balance sheet of the company as debtors. This ratio is expressed in no. of days. A higher debtor day s ratio signifies general problems in the collection of funds faced by the company or the financial position of the debtors.

25

Hindustan Lever Ltd

Particulars Avg Debtors Sales Debtor days

Dec 2004 48006


992,694.64 16.09

Dec 2003 41935


1,013,835.32 15.10

Dec 2002 39631.75


995,485.30 14.53

The Debtor days for the company have seen an increase from 14.53 days in 2002 to 16.09 days in the year 2004.The reason could be poor receivables management by the company .The Debtors have increased by about 14.5% where as the sales have seen a decline of 1.87%.

Creditor Days:
(Total No. of Creditors/Total Purchases)*365 This ratio indicates the no. of days of purchases that are on the balance sheet of the company as creditors. Expressed as no. of days, a lower creditor day s ratio signifies that the company is liberal in paying its creditors and follows a policy of paying them at a faster rate. Particulars. Avg Creditors COGS Creditor days Dec 2004 193494.15 706253.64
100.00

Dec 2003 195631.74 704127.65


101.41

Dec 2002 210787.57 691572.7


111.25

Here, we see that the creditor days which the company enjoys from its suppliers are pretty high throughout the time period under consideration. The Creditor Days for the company has seen a slight decrease from 111.25 days in the year 2002 to 100 days in the year 2004. Hence, we can say that the payment policy followed by the company is not very liberal and the payment made by the company to its creditors is pretty late. However the Company is improving its payables management and it could be mainly because of reduction in the cost of purchases by making cash payments to the suppliers. This helps the company to avail of cash discounts which significantly reduce the cost of production and hence improve profitability in a high competition intensified industry.

26

Hindustan Lever Ltd

Total Assets Turnover Ratio =


______ Net Sales___________ Total Assets- Misc Expenses Particulars Sales Total assets MISC EXP Total assets turnover ratio Dec 2004
992,694.64 370,367.01

Dec 2003
1,013,835.32 395,268.23

Dec 2002
995,485.30 383,455.83

42826.93 3.03

34918.75 2.56

30624.03 2.60

Total Assets turnover ratio signifies how efficiently the company is utilizing its assets to generate returns. We see an increase in the turnover ratio in the year 2004 because of a combined effect of a decrease in Total Assets and increase in miscellaneous expenses simultaneously. The company has maintained a constant turnover ratio in the years 2002 and 2003. It indicates efficient usage of assets by the company to generate constant sales.

27

Hindustan Lever Ltd

DU PONT RATIO ANALYSIS:


The Du-Pont ratio analysis is a combination of financial ratios in a series in order to assess the investment returns of the company. It combines the financial ratios of both the Income Statement as well as the Balance Sheet in order to assess either the Return on Equity or the Return on Investment. One of the Plus points of this method is that it provides a clear understanding of how the company generates its return. This analysis provides an insight into the importance of asset turnover as well as sales to overall return. This formula shows the relationship of profit margin and turnover how these two complement each other. The Du-Pont ratio divides the Return on equity into three parts: Net Profit Margin, total asset turnover, and the company s use of leverage referred to as Equity Multiplier also. We shall now see the decomposition of RoNW / RoE to do the Dupont Analysis.

RoNW = PAT / Net Worth

RoNW = PAT / Sales * Sales / Assets * Assets / Net Worth

DUPONT RONW Profit Margin Asset Turnover Equity Multiplier

2004
66.36% 12.06%

2003
93.29% 17.48%

2002
48.38% 17.64%

3.03 1.81

2.56 2.08

2.60 1.05

28

Hindustan Lever Ltd

DUPONT Analysis of RONW for the year 2004

PAT/NW = 66.36%

PAT / SALES = 12.06%

SALES/TA = 3.03

TA/NW = 1.81

SALES / FA = 6.54

SALES / CA = 3

SALES / DEBTORS = 20.28

SALES / STOCK = 6.75

SALES / CASH = 14.22

Implications:
There has been huge erosion in the profit margin in the recent years but the company has increased the leverage and maintained its Return on Net Worth. It also shows that the company has managed to use its assets efficiently to generate sales. ROCE as seen above can be decomposed further into Net profit margin, Asset turnover and Asset Leverage. We can see that the company is utilizing its fixed Assets very efficiently which is evident by a high sales / FA ratio of 6.54 as compared to using its Current Assets. We can see that the Sales / Debtors ratio of the company is very high at 20.28. This shows that the company is operating at high volumes and low margin. The Sales/ Cash ratio is very high which shows that the company has a deficit of cash. This could be attributed to the fact that the company is operating in negative working capital scenario and it has also a high interest burden. .

29

Hindustan Lever Ltd

DUPONT Analysis of ROCE


DUPONT ROCE Profit Margin Asset Turnover Asset Leverage 2004
105.07%

2003
118.53%

2002
81.54%

16.45%

22.48%

22.55%

3.03
2.1

2.56
2.05

2.60
1.39

ROCE PBIT/CE =105 % Profit Margin PBIT/SALES =16.45% Asset Turnover Sales/TA =3.03 Depreciation/Sales =1.22% General exp / Sales =31% Cost of raw mat/ Sales =54% Asset Leverage TA/CE =2.1

Implications:
The ROCE shows an increasing trend except for the last year. This was largely due to decline in Profit Margins. The company has however tamed the buck by increasing the asset turnover to arrive at a better overall ROCE. The company has also been efficiently utilizing its assets over the previous years thus increasing the ROCE. The ROCE is very high because the company has invested a huge amount in non trade Investments and as a result it has been excluded from Capital Employed. The Company has high percentage of Operating expenses to that of sales. This has reduced profitability for the company and it must look to reduce the operating expenses and administration charges.

30

Hindustan Lever Ltd

ANALYSIS OF CASH FLOWS OF HLL FOR 2002, 2003, and 2004


Cash flow from operating activities before working capital changes for all the three

years was higher than the use of cash for investment in fixed assets and working capital , for payment to investors and payment of income tax .Those used as a percentage of cash flow from operating activities before working capital changes below :
2004 5.57% 2003 7% 2002 2.15%

are presented

Investment in Working Capital (%) Investment ( net of sales) in Fixed Assets(%) including trade marks Dividend Including tax paid Interest paid Income tax paid

18% 85% 7.70% 10.30%

9% 150% 0.04% 19.27%

7.50% 53% 0.45% 21.40%

Dividend payment consumed most of the cash flow from operating activities before working capital changes and it showed a huge increase in 2003. This is mainly because the company has paid dividend on Bonus Debentures issued by it in the middle of 2003.

Investment in Fixed Investments has been increasing over the last 3 years. This is in synchronization with the fact that the company has identified investment opportunities that would increase the ROCE. This is depicted by the trends in ROCE which has increased significantly over the last 3 years.

In the year 2004 the sale of investments (net of purchases) was 26.4% of cash flow from operating activities . However in the previous 2 years the company had resorted to more purchase of investments than sales. It was 10.94% in 2003 and 44 % in 2002. This basically is again in consonance with the operating results of the company. The Company 31 Hindustan Lever Ltd

had resulted in lower operating and net profit margins in the last year. This had reduced the liquidity of the company. Therefore the decision of selling the investments could be a resort to finance the liquidity requirements of the company.

Another underlying reason for selling investments could be that the company had declared dividends and also paid interests on the debentures issued by it of the amount of Rs 1320 crores. This might have also resulted in poor liquidity position for the company. Owing to all this reasons the company would have sold investments to improve its liquidity position.

We can say that the company has utilized the cash generated from Operating activities and Investing activities and invested in long term Fixed assets. The major underlying reason for this is tracking of growth opportunities and expansion of business as well. As a result of these actions the cash flow from investing activities has increased substantially in 2004 over the last year and cash flow from financing activities has decreased.

We can safely conclude that the company has managed its cash position very efficiently and utilized cash to generate future returns and as well as reward the shareholders. It is evident from the investment in Fixed Assets and dividend paid to the shareholders.

32

Hindustan Lever Ltd

Accounting Policies Analysis


Basis for preparation of accounts The accounts have been prepared to comply in all material aspects with applicable accounting principles in India, the Accounting Standards issued by the Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 1956.

Fixed Assets
Fixed assets are stated at cost less depreciation except in the case of certain Land and Development in the Tea Estates Division shown at revalued amount. In Tea / Coffee estates, the cost of extension planting of cultivable land including cost of development is capitalized.

Depreciation is provided (except in the case of leasehold land which is being amortized over the period of the lease) on the straight line method and at the rates and in the manner specified in Schedule XIV of the Companies Act, 1956. However, - Certain employee perquisite-related assets are depreciated over four to six years, the period of the Perquisite scheme. -Computers and related assets are depreciated over four years. -Certain assets of the cold chain are depreciated over four / seven years and - Motor vehicles are depreciated over six years

Assets identified and evaluated technically as obsolete and held for disposal are stated at their estimated net realizable values.

Goodwill and other Intangible Assets Goodwill and other Intangible assets are amortized over the assets useful life not exceeding.

33

Hindustan Lever Ltd

Investments
Investments are classified into current and long-term investments. Current investments are stated at the lower of cost and fair value. Long-term investments are stated at cost. A provision for diminution is made to recognize a decline, other than temporary, in the value of long-term investments.

Inventories
Inventories are valued at the lower of cost, computed on a weighted average basis, and estimated net realisable value, after providing for cost of obsolescence and other anticipated losses, wherever considered necessary. Finished goods and work-in progress include costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Employee related Liabilities


Contributions to defined contribution schemes such as Provident Fund and Family Pension Fund are charged to the profit and loss account as incurred. The Company also provides retirement / post-retirement benefits in the form of gratuity, pensions, leave encashment and medical. Such benefits are provided for based on valuations, as at the balance sheet date, made by independent actuaries.

34

Hindustan Lever Ltd

Accounting Transactions
Balance Sheet of Hindustan Lever Ltd as on 31.12.2004 SOURCE
Share Capital Reserves and Surplus Secured Loans Unsecured Loans Current Liabilities and Provisions Deferred Tax Liability TOTAL Amount ( Rs lakhs) 22012.44 187,258.51 145,305.78 1,805.67 371,425.51 13,984.61 741,792.52

USES
Fixed Assets Investments Inventories Debtors Cash and Bank balance Other current assets Loans and Advances DEFERRED TAX ASSET TOTAL

Amount ( Rs lakhs) 151,756.06 222,956.27 147,044.26 48,926.97 69,804.80 5,277.71 59,441.79 36,584.66 741,792.52

Transaction 1 Issued Capital for Rs.10000 lakhs million at a premium of 10% Amount ( Rs lakhs) 32012.44 188,258.51 145,305.78 1,805.67 371,425.51 13,984.61 752,792.52

SOURCE
Share Capital Reserves and Surplus Secured Loans Unsecured Loans Current Liabilities and Provisions Deferred Tax Liability TOTAL

USES
Fixed Assets Investments Inventories Debtors Cash and Bank balance Other current assets Loans and Advances DEFERRED TAX ASSET TOTAL

Amount ( Rs lakhs) 151,756.06 222,956.27 147,044.26 48,926.97 80,804.80 5,277.71 59,441.79 36,584.66 752,792.52

Transaction 2 Sale of Finished goods on Credit - Rs.1000 Lakhs at 20% Profit Amount ( Rs lakhs) 32012.44 188,458.51 145,305.78 1,805.67 371,425.51 13,984.61 752,992.52

SOURCE
Share Capital Reserves and Surplus Secured Loans Unsecured Loans Current Liabilities and Provisions Deferred Tax Liability TOTAL

USES
Fixed Assets Investments Inventories Debtors Cash and Bank balance Other current assets Loans and Advances DEFERRED TAX ASSET TOTAL

Amount ( Rs lakhs) 151,756.06 222,956.27 146,044.26 48,926.97 82,004.80 5,277.71 59,441.79 36,584.66 752,992.52

35

Hindustan Lever Ltd

Transaction 3 Sale of Finished goods on Credit - Rs.1000 Lakhs at 20% Profit Amount ( Rs lakhs) 32012.44 188,458.51 145,305.78 1,805.67 371,425.51 13,984.61 752,992.52

SOURCE
Share Capital Reserves and Surplus Secured Loans Unsecured Loans Current Liabilities and Provisions Deferred Tax Liability TOTAL

USES
Fixed Assets Investments Inventories Debtors Cash and Bank balance Other current assets Loans and Advances DEFERRED TAX ASSET TOTAL

Amount ( Rs lakhs) 151,756.06 222,956.27 146,044.26 48,926.97 82,004.80 5,277.71 59,441.79 36,584.66 752,992.52

Transaction 4 Investment made in ABC co. ltd of Rs 1500 lakhs Amount ( Rs lakhs) 32012.44 188,458.51 145,305.78 1,805.67 371,425.51 13,984.61 752,992.52

SOURCE
Share Capital Reserves and Surplus Secured Loans Unsecured Loans Current Liabilities and Provisions Deferred Tax Liability TOTAL Transaction 5 Drs of 2000 lakhs turned bad

USES
Fixed Assets Investments Inventories Debtors Cash and Bank balance Other current assets Loans and Advances DEFERRED TAX ASSET TOTAL

Amount ( Rs lakhs) 151,756.06 224,456.27 146,044.26 48,926.97 80,504.80 5,277.71 59,441.79 36,584.66 752,992.52

SOURCE
Share Capital Reserves and Surplus Secured Loans Unsecured Loans Current Liabilities and Provisions Deferred Tax Liability TOTAL

Amount ( Rs lakhs) 32012.44 186,458.51 145,305.78 1,805.67 371,425.51 13,984.61 750,992.52

USES
Fixed Assets Investments Inventories Debtors Cash and Bank balance Other current assets Loans and Advances DEFERRED TAX ASSET TOTAL

Amount ( Rs lakhs) 151,756.06 224,456.27 146,044.26 46,926.97 80,504.80 5,277.71 59,441.79 36,584.66 750,992.52

36

Hindustan Lever Ltd

Transaction 6 Buyback of Shares having face value Rs.100 lakhs at a premium of Rs.100 lakhs Amount ( Rs lakhs) 31912.44 186,358.51 145,305.78 1,805.67 371,425.51 13,984.61 750,792.52

SOURCE
Share Capital Reserves and Surplus Secured Loans Unsecured Loans Current Liabilities and Provisions Deferred Tax Liability TOTAL

USES
Fixed Assets Investments Inventories Debtors Cash and Bank balance Other current assets Loans and Advances DEFERRED TAX ASSET TOTAL

Amount ( Rs lakhs) 151,756.06 224,456.27 146,044.26 46,926.97 80,304.80 5,277.71 59,441.79 36,584.66 750,792.52

Transaction 7 Redeemed Bonus Debentures of amount 10000 lakhs to equity share holders Amount ( Rs lakhs) 31912.44 186,358.51 135,305.78 1,805.67 371,425.51 13,984.61 740,792.52

SOURCE
Share Capital Reserves and Surplus Secured Loans Unsecured Loans Current Liabilities and Provisions Deferred Tax Liability TOTAL

USES
Fixed Assets Investments Inventories Debtors Cash and Bank balance Other current assets Loans and Advances DEFERRED TAX ASSET TOTAL

Amount ( Rs lakhs) 151,756.06 224,456.27 146,044.26 46,926.97 70,304.80 5,277.71 59,441.79 36,584.66 740,792.52

Transaction 8 Issued Bonus shares having a face value of 1500 lakhs Amount ( Rs lakhs) 33412.44 184,858.51 135,305.78 1,805.67 371,425.51 13,984.61 740,792.52

SOURCE
Share Capital Reserves and Surplus Secured Loans Unsecured Loans Current Liabilities and Provisions Deferred Tax Liability TOTAL

USES
Fixed Assets Investments Inventories Debtors Cash and Bank balance Other current assets Loans and Advances DEFERRED TAX ASSET TOTAL

Amount ( Rs lakhs) 151,756.06 224,456.27 146,044.26 46,926.97 70,304.80 5,277.71 59,441.79 36,584.66 740,792.52

37

Hindustan Lever Ltd

Transaction 9 Repaid short term loans to the tune of 1000 lakhs Amount ( Rs lakhs) 33412.44 184,858.51 135,305.78 805.67 371,425.51 13,984.61 739,792.52

SOURCE
Share Capital Reserves and Surplus Secured Loans Unsecured Loans Current Liabilities and Provisions Deferred Tax Liability TOTAL

USES
Fixed Assets Investments Inventories Debtors Cash and Bank balance Other current assets Loans and Advances DEFERRED TAX ASSET TOTAL

Amount ( Rs lakhs) 151,756.06 224,456.27 146,044.26 46,926.97 69,304.80 5,277.71 59,441.79 36,584.66 739,792.52

Transaction 10 Received 2000 lakhs from Creditors Amount ( Rs lakhs) 33412.44 184,858.51 135,305.78 805.67 369,425.51 13,984.61 737,792.52

SOURCE
Share Capital Reserves and Surplus Secured Loans Unsecured Loans Current Liabilities and Provisions Deferred Tax Liability TOTAL

USES
Fixed Assets Investments Inventories Debtors Cash and Bank balance Other current assets Loans and Advances DEFERRED TAX ASSET TOTAL

Amount ( Rs lakhs) 151,756.06 224,456.27 146,044.26 46,926.97 71,304.80 5,277.71 59,441.79 36,584.66 741,792.52

38

Hindustan Lever Ltd

APPENDIX
2004 Liquidity CR 0.89 0.88 0.92 CA /CL+short term loans + prov CA-Stock- Drs doubtful of recovery /CL+ short term loans + prov Cash and near cash items / Cl + short term loans + prov Avg Inventory / cogs per day AVG Debtors / sales per day AVG Creditors /COGS per day 2003 2002 Description

LR Absolute Cash Ratio Inventory Days Debtors Days Creditors Days Solvency Debt-Equity Ratio ICR Profitability General Operating Proft Margin Net Profit Margin Operating Expenses Overall ROTA

0.47 0.25 74.17 16.09 100.00

0.51 0.20 69.23 15.10 101.41

0.57 0.25 66.50 14.53 111.25

81% 12.57

84% 34.14

0.56% 244.42

Debt/Equity PBIT/Interest

16.45% 12.06% 97.13%

22.48% 17.48% 99.19%

22.55% 17.64% 98.24%

PBIT/Sales Net Profit/ Sales Expenses other than Interest, Dep and Tax/Sales

49.87%

63.25%

63.62%

ROCE RONW EPS

105.07% 66.36% 5.44

118.53% 93.29% 8.05

81.54% 50.60% 7.98

PBIT / TA- Misc expenses PBIT-Interest on non trade inv/Net Worth + Long term loans- non trade investments PAT/Networth PAT/No. of shares

39

Hindustan Lever Ltd

40

Hindustan Lever Ltd

This document was created with Win2PDF available at http://www.daneprairie.com. The unregistered version of Win2PDF is for evaluation or non-commercial use only.

You might also like