www.tjprc.org [email protected]
5-POINT DUPONT ANALYSIS OF THE FMCG SECTOR IN INDIA: PRE AND POST
RECESSION
AMAN KHANNA, KUSHAGRA AGARWAL & MANISHA GUPTA
Delhi Technological University (formerly Delhi College of Engineering), India
ABSTRACT
The aim of this paper is to estimate the impact of the global recession of 2008 on the Fast-Moving Consumer Goods
(FMCG) sector in India. To do this, the time-period is divided into two halves, pre-recession (2003-07) and post-
recession (2009-13). The impact is then observed by calculating 5-point DuPont ratios for each year during that
period. The t-test is used to measure the significance of recession on the FMCG sector. The weighted performance,
based on the market capitalisation, is taken to get a complete view of the sector. The aggregate result obtained points to
the minimal impact of the global recession on the FMCG sector in India.
KEYWORDS: Recession, FMCG, 5-Point Dupont Ratios, T-Test
Received: May 26, 2020; Accepted: Jun 16, 2020; Published: Aug 03, 2020; Paper Id.: IJECRDEC20203
1. INTRODUCTION
Today, India is one of the fastest growing economies in the world. India has been hit by the global
meltdown due to India’s rapid and growing integration into the global economy. This resulted in a slowdown of
GDP growth rate from 9.3% in 2007-08 to 6.8% in 2008-09 [1].
FMCG sector accounts for the fourth largest sector in India with an estimated market size of about 2
trillion Rupees. It makes up for 2.5% of the country’s GDP and is therefore one of the crucial sectors to study the
impact of global recession [2]. Since the FMCG sector largely comprises of essentials, recession should not have a
large impact on it. A handful of products such as cosmetics and luxury lifestyle products experienced a little impact
of recession. But the total demand of the FMCG had no significant impact. Daily use products such as biscuits and
confectionaries, tea and coffee and toiletries are essential commodities. Thus, it was quite expected to notice no real
impact. The diverse portfolio possessed by the FMCG companies and a strong domestic market in India can be
attributed as good enough reasons for such little impact [3].
This paper measures the financial health of major FMCG companies in India using five ratios – tax burden,
interest burden, operating profit margin, asset turnover, and equity multiplier. A significant change between pre-
recession and post-recession periods indicate the impact of global recession in 2008 on the companies. The five
ratios are combined to compute the return on equity which provides us with another important ratio to assess the
health of an FMCG company. Return on Equity (ROE) is one of the fundamental ratios used by investors to assess a
company’s profitability. It shows the effectiveness with which company’s resources are being utilised by the
management [4]. The investment decisions by the market participants are also supported by the analysis of the
DuPont components [5].
Orig
inal A
rticle International Journal of Economics, Commerce and
Research (IJECR)
ISSN (P): 2250–0006; ISSN (E): 2319–4472
Vol. 10, Issue 2, Dec 2020, 29–40
© TJPRC Pvt. Ltd.
30 Aman Khanna, Kushagra Agarwal & Manisha Gupta
Impact Factor (JCC): 6.9424 NAAS Rating: 3.27
To support the DuPont analysis, T-test is used to compare the performance of the FMCG companies in pre-
recession and post-recession period. T-test is a statistical hypothesis test to compare the two sets of data and examine
whether they are significantly different or not by checking a null hypothesis. For the DuPont analysis, financial data for
major FMCG companies was collected from 2003 to 2013. The data set is divided into two periods: pre-recession (2003-
2007) and post-recession (2009-2013).
The entire paper is divided into four sections. Section 2 comprises of research methodology and explains the
sources of data. It also highlights the DuPont ratios in complete detail. A list of companies is also provided for a better
understanding. Finally, the section explains the t-test required for analysis of the two periods of data, i.e. pre-recession and
post-recession. Section 3 deals with results and discussions of our findings and explains the impact on individual ratio.
Section 4 is a conclusion for this research paper, clearly stating the result and inferences of our analysis.
2. MATERIALS AND METHODS
2.1 Data Collection
The data collected to evaluate the DuPont ratios has been gathered from balance sheets and profit & loss statements in the
annual reports of the companies. The websites of Bombay Stock Exchange (BSE), Yahoo Finance and Moneycontrol were
also referred.
2.2 DuPont Analysis
A lot of methods have been adopted to study the impact of recession on companies. DuPont Ratios along with T-testing
have already been used to measure the impact of recession on Indian pharmaceutical companies [6]. The original method
of such analysis was carried out by an engineer at DuPont in 1918 who was responsible to understand the financial health
of a company which DuPont was supposed to acquire [7].
DuPont analysis measures return on equity (ROE), which is obtained by the division of Earnings after Taxes
(EAT) by Shareholder’s Equity. ROE is effectively calculated as a product of 5 DuPont ratios, namely, Tax Burden,
Interest Burden, Operating Profit Margin, Asset Turnover and Equity Multiplier. These ratios are calculated using the
following formulae:
5-Point Dupont Analysis of the FMCG Sector in India: Pre and Post Recession 31
www.tjprc.org [email protected]
As ROE is the product of the above ratios, it can be alternatively expressed as:
We have taken 10 FMCG companies for the analysis:
• Marico India Limited
• Godrej Consumer Products Limited
• Britannia Industries
• Emami
• Indian Tobacco Company (ITC)
• Dabur
• Colgate-Palmolive
• GlaxoSmithKline Consumer Healthcare Limited (GSK)
• Hindustan Unilever (HUL)
• Nestle India Limited
Some companies were neglected from the analysis due to discrepancy in the financial data available. There was a
certain irregularity in the financial record of Emami. The data available for Nestle was published annually in December
while all other companies had their data published in March. GlaxoSmithKline had data available in December for 2003-
2006 and in March for 2007-2013. To avoid any kind of discrepancy in analysis of financial performance over the 11-year
period, these companies are not included in this research paper.
The final list of companies considered was:
• Marico India Limited
• Godrej Consumer Products Limited
• Britannia Industries
• Indian Tobacco Company (ITC)
• Dabur
• Colgate-Palmolive
• Hindustan Unilever (HUL)
The DuPont ratios are also calculated for the entire sector by taking weighted average based on market
32 Aman Khanna, Kushagra Agarwal & Manisha Gupta
Impact Factor (JCC): 6.9424 NAAS Rating: 3.27
capitalization of these companies.
The financial performance of the pre-recession and post-recession periods has been verified using dependent t-
test. The statistic t [8] is given by:
where, numerator is the difference of means of two data sets and denominator square is the unbiased estimator of
the variance of two samples.
The degree of freedom(df) is given as:
The null hypothesis for the test was assumed that the mean values of pre-recession and post-recession periods are
not significantly different. A positive t-value indicates that mean value of post-recession period is higher than pre-recession
period. The p value (significance value) is calculated from t-table using degrees of freedom. The financial performance of
major FMCG companies is done for ten years, five years before recession and five years after it. To avoid distortions in the
analysis, the year 2008 has been excluded.
3. RESULTS AND DISCUSSIONS
3.1 Financial Performance of FMCG Companies
To analyse the performance of FMCG companies, we have calculated the constituent ratios of DuPont for each company
for a period of 11 years (2003-2013).
3.1.1 Tax Burden Ratio
Table 1: Tax Burden Ratio for the seven FMCG companies
Name of company 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Marico 0.898 0.915 0.927 0.927 0.803 0.828 0.731 0.803 0.842 0.843 0.792
Godrej 0.589 1.042 1.009 0.825 0.961 0.968 1.114 1.012 0.981 1.003 0.996
Britannia 0.673 0.644 0.716 0.730 0.909 0.822 0.776 0.965 1.482 0.740 0.704
ITC 0.658 0.673 0.700 0.681 0.678 0.675 0.675 0.674 0.686 0.693 0.694
Dabur 0.891 0.892 0.897 0.879 0.887 0.869 0.875 0.820 0.791 0.789 0.788
Colgate-Palmolive 0.605 0.713 0.636 0.732 0.794 0.793 0.841 0.873 0.774 0.759 0.749
Hindustan Unilever 0.784 0.789 0.827 0.852 0.755 0.770 0.815 0.773 0.785 0.776 0.766
5-Point Dupont Analysis of the FMCG Sector in India: Pre and Post Recession 33
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Figure 1: Plot of Tax Burden Ratio for seven FMCG companies
Fig. 1 indicates that except Britannia in post-recession period and Godrej in pre-recession period, the tax burden
has been fairly constant about the point of recession. Thus, it can be safely concluded that recession did not caused
significant impact on taxes levied on the companies by the government.
3.1.2 Interest Burden Ratio
Table 2: Interest Burden Ratio for the seven FMCG companies
Name of
company 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Marico 0.971 0.965 1.017 0.974 0.922 0.898 0.948 0.919 0.922 0.934 0.925
Godrej 0.754 0.786 0.811 0.780 0.674 0.742 0.223 0.570 0.683 0.740 0.600
Britannia 0.903 0.952 0.949 0.996 0.947 1.040 1.047 0.987 0.416 0.869 0.898
ITC 0.999 1.004 1.018 1.008 1.012 1.020 1.007 0.993 0.991 0.991 0.992
Dabur 0.825 0.921 0.964 0.957 0.963 0.954 0.957 0.965 0.980 0.977 0.976
Colgate-
Palmolive 1.015 0.996 0.989 0.978 0.975 1.047 0.995 1.001 0.997 0.997 1.000
Hindustan
Unilever 0.992 0.954 1.015 0.995 0.990 0.972 1.008 1.013 1.000 1.000 0.995
Figure 2: Plot of Interest Burden Ratio for seven FMCG companies
The plot of interest burden ratio indicates that Godrej was highly affected post-recession and Britannia too saw a
dip in the year 2011, however, Britannia quickly recovered in the coming years. Other companies had a fairly flat profile.
Most of the companies had lower sales and a severe impact on their EBTs. They had to pay the instalments of their long-
term loans.
34 Aman Khanna, Kushagra Agarwal & Manisha Gupta
Impact Factor (JCC): 6.9424 NAAS Rating: 3.27
3.1.3 Operating Profit Margin Ratio
Table 3: Operating Profit Margin Ratio for the seven FMCG companies
Name of
company 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Marico 0.083 0.078 0.083 0.105 0.114 0.122 0.107 0.159 0.173 0.144 0.172
Godrej 0.118 0.111 0.121 0.149 0.182 0.205 0.093 0.172 0.179 0.189 0.111
Britannia 0.126 0.135 0.138 0.118 0.057 0.086 0.071 0.036 0.056 0.058 0.066
ITC 0.355 0.368 0.404 0.333 0.320 0.323 0.320 0.327 0.342 0.357 0.360
Dabur 0.099 0.113 0.139 0.167 0.169 0.182 0.185 0.191 0.185 0.160 0.177
Colgate-
Palmolive 0.142 0.162 0.187 0.167 0.155 0.184 0.198 0.240 0.228 0.219 0.210
Hindustan
Unilever 0.223 0.158 0.150 0.179 0.170 0.179 0.149 0.158 0.149 0.157 0.193
Figure 3: Plot of Operating Profit Margin Ratio for seven FMCG companies
The operating profit margin ratio shows that Godrej suffered a dip in the ratio, which could be due to decrease in
EBIT and increase in operating costs. For Hindustan Unilever, there was no significant impact due to recession while an
increase in the ratio is observed for Colgate-Palmolive.
3.1.4 Asset Turnover Ratio
Table 4: Asset Turnover Ratio for the seven FMCG companies
Name of
company 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Marico 3.695 4.477 3.499 2.087 3.915 2.690 2.842 2.110 1.711 1.768 1.287
Godrej 1.511 1.528 1.361 1.099 0.762 0.490 0.503 0.523 0.799 0.960 0.590
Britannia 2.375 2.039 2.062 1.954 2.333 2.100 2.418 2.548 2.849 2.974 3.337
ITC 1.083 0.991 0.941 1.074 1.164 1.149 1.081 1.315 1.342 1.338 1.341
Dabur 2.247 3.523 3.185 2.873 4.128 3.841 2.746 3.352 2.424 2.385 2.374
Colgate-
Palmolive 3.672 3.805 3.789 4.168 4.677 9.101 7.922 6.093 5.952 6.186 6.462
Hindustan
Unilever 2.662 2.823 4.739 4.380 9.089 5.640 8.259 6.880 7.423 6.297 9.655
5-Point Dupont Analysis of the FMCG Sector in India: Pre and Post Recession 35
www.tjprc.org [email protected]
Figure 4: Plot of Asset Turnover Ratio for seven FMCG companies
The asset turnover ratio of Hindustan Unilever saw a dip during recession, indicating the increase in total assets
was more than the increase in net sales. However, it recovered quickly after 2008 and has outperformed its pre-recession
period values. The impact was opposite for Colgate-Palmolive and it saw a dip in post-recession period. Even Colgate-
Palmolive has seen a positive increase in the asset turnover ratio after recession. Marico saw a declining plot in the ratio,
indicating that increase in net sales was more than the increase in total assets.
3.1.5 Equity Multiplier Ratio
Table 5: Equity Multiplier Ratio for the seven FMCG companies
Name of
company 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Marico 1.055 1.052 1.240 1.806 1.911 2.090 1.839 1.659 1.573 1.492 1.330
Godrej 2.063 1.814 1.840 1.939 2.192 1.418 1.593 1.542 1.291 1.226 1.537
Britannia 1.395 1.638 1.736 1.597 1.533 1.630 1.561 3.372 3.285 3.216 2.645
ITC 1.022 1.019 1.031 1.013 1.019 1.018 1.013 1.008 1.006 1.004 1.003
Dabur 1.259 1.148 1.143 1.046 1.048 1.032 1.188 1.142 1.229 1.210 1.152
Colgate-
Palmolive 1.008 1.009 1.016 1.016 1.015 1.029 1.022 1.014 1.000 1.000 1.000
Hindustan
Unilever 1.797 1.703 1.025 1.027 1.062 1.000 1.205 1.000 1.000 1.000 1.000
36 Aman Khanna, Kushagra Agarwal & Manisha Gupta
Impact Factor (JCC): 6.9424 NAAS Rating: 3.27
Figure 5: Plot of Equity Multiplier Ratio for seven FMCG companies
The above plot indicates that Britannia had a sharp increase in equity multiplier ratio in 2010. During this period
the share prices of the company dropped drastically which led to decrease in shareholder’s equity. Thus, the company
raised its finances mostly through debt, rather than equity. However, Britannia’s equity multiplier ratio is improving post
2012. The share prices of Britannia have increased after 2010 and are constantly improving which indicates that the
company is relying less on debt as compared to shareholder’s equity for its financial needs. Marico saw a decrease in the
ratio post 2008 indicating that company raised most of its finances through equities rather than debt. This is a healthy sign
for the company. Major players like ITC and Hindustan Unilever have shown equity multiplier ratio of 1 for most of their
years, indicating that their almost entire financial needs are met through equities and not by debts. Due to this the equity
multiplier ratio for the entire FMCG sector is nearly close to 1 as these companies contribute to more than 70% of the
entire market share.
3.1.6 Return on Equity
Table 6: Return on Equity Ratio for the seven FMCG companies
Name of
company 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Marico 0.281 0.322 0.338 0.357 0.633 0.512 0.386 0.411 0.361 0.299 0.215
Godrej 0.163 0.252 0.248 0.204 0.197 0.102 0.018 0.080 0.124 0.165 0.060
Britannia 0.254 0.276 0.335 0.267 0.175 0.253 0.219 0.294 0.322 0.359 0.367
ITC 0.259 0.251 0.280 0.248 0.260 0.260 0.239 0.290 0.314 0.329 0.334
Dabur 0.207 0.377 0.438 0.422 0.625 0.600 0.506 0.578 0.428 0.356 0.372
Colgate-
Palmolive 0.322 0.442 0.454 0.508 0.571 1.428 1.342 1.298 1.048 1.025 1.015
Hindustan
Unilever 0.829 0.572 0.611 0.681 1.230 0.753 1.213 0.853 0.867 0.766 1.420
5-Point Dupont Analysis of the FMCG Sector in India: Pre and Post Recession 37
www.tjprc.org [email protected]
Figure 6: Plot of Return on Equity for seven FMCG companies
The return on equity (ROE) is an important parameter indicating company’s performance and its financial ability
to generate returns. Colgate-Palmolive saw sharp peak during recession in return on equity ratio while all the other
companies suffered a setback, with Hindustan Unilever suffering the most. However, Hindustan Unilever saw an
improvement in their performance indicating that their earnings after taxes were much higher than their shareholders’
equity. Consequently, Hindustan Unilever has outperformed its pre-recession performance in the year 2013. Britannia and
ITC saw a nearly flat curve, suggesting negligible impact of recession on their return of equities. On the other hand, Godrej
suffered during the recession and is still not completely recovered from it.
3.2 Analysis of the Financial Performance of the complete FMCG sector
Table 7: Effective DuPont Ratios for the complete FMCG sector
RATIOS 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Tax Burden 0.740 0.732 0.766 0.739 0.722 0.719 0.742 0.690 0.750 0.742 0.741
Interest Burden 0.971 0.953 0.990 0.967 0.969 0.976 0.969 0.911 0.963 0.977 0.969
Operating Profit
Margin 0.245 0.239 0.245 0.251 0.235 0.250 0.232 0.230 0.251 0.265 0.278
Asset Turnover 2.232 2.034 3.003 2.335 4.470 3.005 3.970 3.099 3.473 3.031 3.926
Equity Multiplier 1.559 1.361 1.034 1.032 1.068 1.020 1.104 1.021 1.068 1.075 1.072
Return on Equity 0.647 0.414 0.450 0.402 0.659 0.469 0.630 0.470 0.506 0.471 0.652
38 Aman Khanna, Kushagra Agarwal & Manisha Gupta
Impact Factor (JCC): 6.9424 NAAS Rating: 3.27
Figure 7: Plot of DuPont ratios for the complete FMCG sector
Figure 8: Plot of DuPont Return on Equity for the complete FMCG sector
The market capitalization distribution reveals that ITC and Hindustan Unilever form more than 70% of FMCG
sector in India. Hence, it can be assumed that the impact of these two companies is the most significant in examining the
DuPont ratios and the return on equity. The weighted plot of all the financial ratios and the return on equity strongly
suggests that there has been no significant impact of global recession on the FMCG sector in India. The major market
driver companies have performed well due to a strong domestic market and having a diverse portfolio of essential
products.
3.3 Verification of DuPont Analysis of FMCG sector using t-test
The t-test has been used to verify the DuPont analysis of the FMCG sector in India. The confidence interval has been fixed
at 0.95. This means that if the significance value is less than 0.05, then the null hypothesis is rejected, and we can conclude
that recession had an impact on the FMCG sector in India. On the other hand, if the significance value is greater than 0.05
then the null hypothesis is accepted, and we can conclude that recession did not have any severe impact on the FMCG
sector in India.
5-Point Dupont Analysis of the FMCG Sector in India: Pre and Post Recession 39
www.tjprc.org [email protected]
Table 7: Pre-recession and post-recession paired sample t-test for FMCG sector
Paired
Sample
Mean
Ratio
Post-
Recession
Mean
Ratio Pre-
Recession
Mean
Differenc
e
T-Stat
Value
T critical two-
tail value
Degrees
of
freedom
Significanc
e p value
Tax Burden 0.733 0.740 -0.007 0.650 2.776 4.000 0.551
Interest
Burden 0.958 0.970 -0.012 1.223 2.776 4.000 0.288
Operating
Profit
Margin 0.251 0.243 0.008 -0.810 2.776 4.000 0.463
Asset
Turnover 3.500 2.815 0.685 -1.828 2.776 4.000 0.142
Equity
Multiplier 1.068 1.211 -0.143 1.348 2.776 4.000 0.249
Return on
Equity 0.546 0.515 0.031 -1.750 2.776 4.000 0.155
The paired sample t-test values for the FMCG sector are greater than 0.05 for all the constituent DuPont ratios as
well as for return on equity too. This means recession did not hav any significant impact on any of the DuPont ratios and
on return of equity. Thus, the performance of FMCG sector in India was not affected by recession in 2008.
4. CONCLUSIONS
The paper analysed the impact of recession of 2008 on the FMCG sector in India using DuPont ratios and then supporting
the results using paired sample t-test. It can, thus, be concluded that there was no significant impact of recession on the
FMCG sector in India.
The Indian FMCG sector witnessed an excellent growth of around 16% from 2006 to 2013, tripling the size of the
industry. Even in the recession period of 2007-2008 the growth rate of 14.5% was observed [9]. The recessionary phase
saw mild difficulties, but India saw an appreciable growth in the retail industry [10].
The analysis also revealed that two companies, namely, ITC and Hindustan Unilever had the largest effect on the
Return of Equity of the entire FMCG sector. These two firms have had a major role in driving the return on equity ratio
due to the fact that they comprise more than 70% of the total market share of FMCG goods in India.
A strong domestic market can be attributed as a good enough reason for a fairly good shielding from the recession on
FMCG sector in India. Most of the FMCG goods are basic necessities and comprise of daily usage products. The results of
this research paper are in coherence with the initial hypothesis of negligible impact of recession on the FMCG sector in
India.
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