Corporate Finance

By Group:5
Ankit Saklani- 13P125
Ashima Tayal- 13P130
Jain Himanshu Hemant- 13P143
Kaushik Trilok Nihalani- 13P148
Rattan Preet Singh- 13P161
Shahshank Shukla- 13P166

Risk and Return Analysis

Debt Equity Ratio
ITC

Marico

0.33

Emami

0.06

Cost of Equity was calculated using the

weekly beta and Risk free rate: 8.86%
and Market premium of 10.55%

Unsystematic Risk

For the cost of debt we use the spread

from table on FIMMDA website based on
their ratings

ITC: 80% of the PAT for the company comes from Cigarettes
segment
High taxes on cigarettes have increased the cases of
smuggling
Marico: Overly reliant on oil (hair and cooking) segment
Exposure to international markets is up to 22% of

Systematic Risk for

FMCG
Restriction on pack sizes
Economic recession
Exchange fluctuations

Investment Returns
ITC:
The growth in RoE and RoCE is almost
constant
Difference in RoE and RoCE is due to
the taxes paid by ITC as cigarette are
taxed heavily
Large chunk of money received as
Marico:
income
from dividend and interest on
Engaged
in aggressive Greenfield
current investments
expansion fueled mostly by debt
Hence RoE and RoCE values been very
erratic
Since 2005, 12 brand acquisitions
Most investments been made in
Purchase of Fixed assets or Purchase of
Emami:
investments
Acquired Zandu Pharmaceutical Ltd in
2009
RoE and RoCE went down in 2010 as
acquisition was funded by a mix of
debt and equity
Most investments made in FA or

Capital Structure
ITC: Being a market leader can dictate
terms to both suppliers and retailers
Thus, debt requirement is very low
Follows NOI based approach for Capital
Structure
Marico: driven by debt to support
acquisitions
reflected in the high debt-equity ratio
In 2012-13 decided to put a hold on
acquisitions
Normalized Cash Flow
250.00

Emami
D/E reached a high value of 1.49 in 2009 due to
acquisition of Zandu
Currently 0.06%, which is in line with the industry

Cash Flow from Operation

ITC: cash flows (from operations) consistently
increasing
Marico: cash flows experienced a jump in 2011-12 after
it acquired Personal care arm of Paras pharmaceuticals

from Operations

237.78
203.00

200.00
150.00

122.80

100.00
50.00
0.00
2008-09

2009-10

2010-11

2011-12

2012-13

Dividend Strategy

ITC: Payout ratio consistently high as

does not have much investment
opportunities
Reached the maturation stage in
lifecycle
Giving return to the investors in the
form of high dividends
In 2010 to mark 100th year of
operations
paid dividend
payout
ratio
Marico: Extensive
expansion
mode
of
109.63%
since
2005 probably funded by
Reserves
and Surpluses
In 2008 declared
that will be lot more
conservative with the dividend and
try to retire the debt on books
In 2013 brought down Debt Equity
ratio to 0.33 and increased the
dividend Dividend
Emami:
to Re. 1 increasing since
2009
In 2012 total dividend was increased
to 800% as become totally debt free
in that year which include Special
dividend of 400%

Working Capital
ITC: a sudden reduction in creditor days in 2011-12
Since then, the cash conversion cycle for ITC has become positive before that, it was negative
And net change in Current Investments has also been negative impacting the treasury
operations for the company

Marico: sudden increase in Inventories for the year 2011-12 on account of the acquisition
Paras Pharmaceuticals
That was the reason that the Cash Conversion Cycle of Marico became positive since 2010-11

Emami: working capital has been negative for all the five years
Trade Payables have been falling consistently and that has impacted the Cash
Conversion Cycle

Thank You