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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


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



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



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.



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



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



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



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



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.



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.

REFERENCES

1. R. K. Bhatt, "Recent Global Recession and Indian Economy: An," International Journal of Trade, Economics and Finance,

Vol. 2, No. 3, 2011.

2. Research report::Indian FMCG Industry, July 30, 2013

3. Vedprakash, Dr. R. R. Bhardwaj, “The Impact of Economic downturn on brand preference and “Buy Down” Behavior in

FMCG sector”, International Journal of scientific research and management Volume 4, Issue 10, Pages 4708-4717, 2016.

4. Mihaela Herciu, Claudia Ogrean, Lucian Belascu, “A DuPont Analysis of the 20 Most Profitable Companies in the World”,



2010 International Conference on Business and Economics Research vol.1 IACSIT Press, Kuala Lumpur, Malaysia.

5. M. Botika, "The use of DuPont Analysis in Abnormal Returns Evaluation: Empirical Study of Romanian Market", World

Conference on Business, Economics and Management (BEM-2012), Antalya, Turkey, 2012.

6. D. K. K. S. Christina Sheela, "Financial Performance of Pharmaceutical Industry in India using DuPont Analysis," European

Journal of Business and Management, Vol 4, No.14, 2012.

7. D. A. A. Almazari, "Financial Performance Analysis of the Jordanian Arab Bank by Using the DuPont System of Financial

Analysis," International Journal of Economics and Finance, Vol. 4, No. 4, 2012.

8. Shivam Singhal, Srijan Narang, “5-point DuPont Analysis of the Indian Oil & Gas Sector: Pre and Post Recession”, Imperial

Journal of Interdisciplinary Research (IJIR) Vol-2, Issue-9, 2016.

9. Dr. Pramod H. Patil, “Paripex-Indian Journal of Research”, Volume 5, Issue 2, February 2016.

10. Aparajita Roy, “Pacific Business Review International” Volume 8, Issue 7, January 2016.

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