caseforest
ORDER NEW SOLUTIONS
 
     
Financial Statement Analysis Of Hindustan Unilever Ltd 
 
Category: MBA catalogue 1 | Word(s): 3011 | Page(s): 13 | View(s): 299 | Rank: 0
 
Hindustan Unilever Limited

About the Company:

Hindustan Unilever Limited (HUL), previously known as Hindustan Lever Limited (HLL), is India’s largest consumer products company. It was formed in the year 1933 as Lever Brothers India Limited. Headquartered in Mumbai, India, it has about 45,000 employees and is the market leader in the FMCG industry in India.

Financial Statement Analysis of Hindustan Unilever Ltd.

|Items                                                 |Year 2007                 |Year 2006                    |
|                                                      |                          |                             |
|Total Sales                                           |14757.42                  |13035.06                     |
|Net Sales                                             |13717.75                  |12103.39                     |
|Gross Profit (EBITDA)                                 |2348.38                   |2002.57                      |
|Net Profit (PAT)                                      |1925.47                   |1855.37                      |
|Debt                                                  |88.53                     |72.6                         |
|Equity                                                |1439.23                   |2723.48                      |
|Total Assets                                          |1527.76                   |2796.09                      |
|Fixed Assets                                          |1522.50                   |1400.75                      |
|Current Assets                                        |3277.41                   |3169.66                      |
|Current Liabilities                                   |5110.98                   |4523.06                      |
|Inventories                                           |1953.60                   |1547.71                      |
|Retained Earnings                                     |1221.49                   |2502.81                      |
|Current Liabilities (without provision)               |3837.06                   |3201.64                      |
|EBIT                                                  |2210.02                   |1872.41                      |
|Interest                                              |25.50                     |10.73                        |
|Share Price(Rs)                                       |213.90                    |216.55                       |
|EPS(Rs)                                               |8.73                      |8.41                         |
|Raw Materials/Goods                                   |7455.24                   |6618.74                      |
|Sundry Debtors                                        |443.38                    |440.37                       |
|Sundry Creditors                                      |2878.46                   |2463.73                      |
|                                                      |                          |                             |

                                                                                                    Rs.in Crores

Financial Ratios of Hindustan Unilever Ltd.

|Items                                                       |Year 2007         |Year 2006            |
|                                                            |                  |                     |
|Gross Profit Margin (%)                                     |17.12             |16.55                |
|Net Profit Margin (%)                                       |14.0              |15.30                |
|Debt to Equity                                              |0.06              |0.03                 |
|Return on Asset (%)                                         |126.03            |66.36                |
|Return on equity (%)                                        |133.78            |68.12                |
|Return on Investment (%)                                    |126.47            |132.46               |
|Current Ratio                                               |0.64              |0.70                 |
|Quick Ratio                                                 |0.26              |0.36                 |
|Inventory Turnover Ratio (times)                            |7.02              |7.82                 |
|P/E ratio                                                   |24.50             |25.75                |
|Total Asset Turnover Ratio                                  |9.66              |4.66                 |
|Fixed Asset Turnover Ratio                                  |9.01              |8.64                 |
|Return on Networth (%)                                      |133.78            |68.12                |
|Suppliers' Credit (days)                                    |140.93            |135.87               |
|Average Debt Collection Period (days)                       |11.80             |13.28                |
|                                                            |                  |                     |

Liquidity Ratio:

1. Current Ratio

The current ratio has decreased from 0.70 to 0.64 because the current assets have increased from Rs 3169.55 crores to Rs 3277.40 crores. This is due to the significant increase in the value of the firm’s inventories, which has increased by 26 percent compared to the previous year.

Also, the current liabilities of the firm have marked an increase of 13 per cent from the previous year. This is due to an increase in sundry creditors, from Rs 2463.73 crores to Rs 2878.46 crores (17 percent increment) and pending payments of declared dividends, which has increased by 78 percent compared to the year 2006.

|Items                                                       |Year 2007         |Year 2006            |
|                                                            |                  |                     |
|Current Assets                                              |3277.41           |3169.66              |
|Inventories                                                 |1953.60           |1547.71              |
|Current Liabilities                                         |5110.98           |4523.06              |
|Sundry Creditors                                            |2878.46           |2463.73              |
|Dividends Declared Pending Payment                          |69.01             |38.57                |

                                                                                           Rs. in Crores

Sundry creditors have increased because the suppliers’ credit is 140 days. This could be because since HUL is an established firm, the firm has gained the trust from the suppliers to make payments for purchases at a later date due to the heavy-bulk purchases made. However, it poses as a risk to the company if there is a steep rise in the price of a raw material.

2. Quick Ratio

The quick ratio has decreased from 0.36 to 0.26 because the value of current assets less inventories is very less compared to current liabilities of the firm for that year.

|Items                                                      |Year 2007          |Year 2006        |
|Current Assets - Inventories                               |1323.81            |1621.95          |
|Current Liabilities                                        |5110.98            |4523.06          |

                                                                                        Rs. in Crores

Profitability Ratio

1. Gross Profit Margin

The gross margin for the year 2007 has increased by 3.5 percent; from 16.55 percent to 17.22 percent. This is because the gross profit (EBITDA) for the year 2007 has increased by 17.3 percent and the net sales has increased by 13.3 percent.

|Items                                                      |Year 2007          |Year 2006        |
|net sales                                                  |13717.75           |12103.39         |
|gross profit (EBITDA)                                      |2348.38            |2002.57          |

                                                                                        Rs. in Crores

2. Net Profit Margin

The net profit margin for the year 2007 is 14.04 percent compared to the previous year which was 15.33 percent.

|Items                                                      |Year 2007          |Year 2006        |
|net sales                                                  |13717.75           |12103.39         |
|net profit (PAT)                                           |1925.47            |1855.37          |

                                                                                        Rs. in Crores

3. Return on Networth/ Equity

The ROE for the year 2007 is 133.8 percent, which is a tremendous increase compared to he previous year which was 68.12 percent. This increase is because during the year, 3,02,35,772 shares have been bought back by the firm, which also amounted to a deduction of Rs. 311.40 crores from the share premium account.

|Items                                                      |Year 2007          |Year 2006        |
|Net profit (PAT)                                           |1925.47            |1855.37          |
|Equity                                                     |1439.23            |2723.48          |
|       i. Capital                                          |217.74             |220.67           |
|     ii. Reserves and surplus                              |1221.49            |2502.81          |

                                                                                       Rs. in Crores

Other ratios:

1. Debt to Equity Ratio

The Debt/Equity ratio for the year 2007 is 0.062, which has increased compared to the previous year which was 0.027. Although the amount of secured loans has reduced by 31 percent, there is a significant increase in the short-term loans from banks (overdrawn book balance on current account) which is Rs 61.84 crores compared to the year 2006 which was Rs 34.30 crores.

|Items                                                      |Year 2007          |Year 2006        |
|Debt                                                       |88.53              |72.6             |
|Equity                                                     |1439.23            |2723.48          |

                                                                                        Rs. in Crores

2. Return on Assets (percent)

The return on asset for the year 2007 is 126.03 percent and 66.36 percent for the year 2006. This means that the firm has a high intensity of assets being utilised/ employed efficiently. Also, the current liabilities (without provision) for the year 2007 increased by 19 percent from Rs 3201.64 crores to Rs 3837.06 crores.

|Items                                                      |Year 2007          |Year 2006        |
|                                                           |                   |                 |
|Net Sales                                                  |13717.75           |12103.39         |
|Total Assets                                               |1527.76            |2796.09          |

                                                                                        Rs. in Crores

3. Return on Investment

Return on investment for the year 2007 is 126.47 percent, which has decreased by 4.5 percent compared to the previous year. This is because the firm has made a significant investment in software (Rs 6.87 crores), and additions made to land (lease-hold), buildings, plant and machinery, furniture, fittings, office equipments and motor vehicles. Due to these additions made, the net block of fixed assets have increased which resulted in the decrease of the firm’s ROI.

|Items                                                      |Year 2007          |Year 2006        |
|                                                           |                   |                 |
|Net Sales                                                  |13717.75           |12103.39         |
|Fixed Assets                                               |1522.50            |1400.75          |

                                                                                        Rs. in Crores

4. Inventory Turnover Ratio

The inventory turnover ratio for the year 2007 is 7.022 times, which is slightly lower than the previous year (7.82 times).

|Items                                                      |Year 2007          |Year 2006        |
|                                                           |                   |                 |
|Net Sales                                                  |13717.75           |12103.39         |
|Inventories                                                |1953.60            |1547.71          |

                                                                                        Rs. in Crores

5. Price Earnings Ratio

The P/E ratio for the year 2007 is 24.50 and 25.75 for the year 2006. Although the EPS has increased by 3.8 percent for the year 2007, the share price (market price) has decreased by 1.22 percent.

|Items                                                      |Year 2007          |Year 2006        |             |
|                                                           |                   |                 |             |
|Share Price(Rs)                                            |213.90             |216.55           |             |
|EPS(Rs)                                                    |8.73               |8.41             |             |

                                                                                       Rs. in Crores

6. Suppliers’ Credit (days)

The suppliers’ credit for the year 2007 is 140 days, an increase of 5 days compared to the previous year. This shows the liberal credit terms granted by the suppliers to the firm, mainly due to the high value of purchases made by this company and a guarantee of payment made by HUL to the suppliers.

|Items                                                      |Year 2007          |Year 2006        |
|                                                           |                   |                 |
|Raw Materials/ Goods                                       |7455.24            |6618.74          |
|Sundry Creditors                                           |2878.46            |2463.73          |

                                                                                        Rs. in Crores

 7. Average Debt Collection Period (days)

Although there is an increase of 0.68 percent in the sundry debtors, the collection period has decreased by approximately 2 days. This shows an improvement in credit policies and collection procedures of the firm.

|Items                                                      |Year 2007          |Year 2006        |
|                                                           |                   |                 |
|Net Sales                                                  |13717.75           |12103.39         |
|Sundry Debtors                                             |443.38             |440.37           |

                                                                                       Rs. in Crores

|Common Size Statement- P&L Account                                   |            |                    |            |
|                                                |                    |            |                    |            |
|                                                |Year 2007           |            |Year 2006           |            |
|Item                                            |Rs. in crores       |%           |Rs. in crores       |%           |
|                                                |                    |            |                    |            |
|Net Sales                                       |13717.75            |100         |12103.38            |100         |
|                                                |                    |            |                    |            |
|Operating Expenses                              |                    |            |                    |            |
|1. Materials/Goods Purchases                    |                    |            |                    |            |
|a. Raw materials consumed                       |4134.70             |30.14       |3813.71             |31.51       |
|b.Packing materials consumed                    |1155.67             |8.42        |1053.52             |8.70        |
|c.Purchase of goods                             |2164.87             |15.78       |1751.51             |14.47       |
|                                                |                    |            |                    |            |
|2. General expenditure                          |                    |            |                    |            |
|a. Salaries,wages,bonus,etc                     |664.52              |4.84        |555.53              |4.59        |
|b.Repairs and maintenance                       |52.26               |0.38        |46.98               |0.39        |
|c.Power, light, fuel and water                  |198.88              |1.45        |180.79              |1.49        |
|d.Rent                                          |120.53              |0.88        |117.30              |0.97        |
|e.Carriage and freight                          |731.41              |5.33        |651.47              |5.38        |
|e. Others                                       |2609.21             |19.02       |2284.51             |18.87       |
|                                                |                    |            |                    |            |
|Depreciation                                    |138.36              |1.01        |130.16              |1.08        |
|Financial Expenses                              |25.50               |0.19        |10.73               |0.09        |
|Gross Profit (EBITDA)                           |2348.38             |17.12       |2002.58             |16.55       |
|PAT                                             |1925.47             |14.04       |1855.37             |15.33       |
|                                                |                    |            |                    |            |

HUL spent almost 54.35 percent of its total net sales for the year 2007 on materials/ goods purchases. The percentage of the same expenditure is almost similar for the year 2006 that is 54.69 percent.

General expenditure makes up to 32 percent of HUL’s 2007 net sales and 31.70 percent of HUL’s 2006 net sales. However, on itemised basis, there is a 0.25 percent increase in salaries, wages and bonus.

Financial expenses/ interest makes up to 0.19 percent of 2007 net sales, while for the year 2006, it made up to just 0.09 percent. The reason to this is because there is an increase in to the debt for the year 2007.

|Common Size Statement- Balance Sheet                                  |                   |                    |                    |
|                                             |                        |                   |                    |                    |
|                                             |Year 2007               |                   |Year 2006           |                    |
|Item                                         |Rs. in crores           |%                  |Rs. in crores       |%                   |
|                                             |                        |                   |                    |                    |
|1. Sources of Funds                          |1527.76                 |100                |2796.09             |100                 |
|                                             |                        |                   |                    |                    |
|Shareholders' funds                          |                        |                   |                    |                    |
|a. Capital                                   |217.74                  |14.25              |220.68              |7.89                |
|preserves and surplus                        |1221.49                 |79.95              |2502.81             |89.51               |
|                                             |                        |                   |                    |                    |
|Loan funds                                   |                        |                   |                    |                    |
|a. Secured loans                             |25.52                   |1.67               |37.13               |1.33                |
|b.Unsecured loans                            |63.01                   |4.12               |35.47               |1.27                |
|                                             |                        |                   |                    |                    |
|2. Total Assets                              |1527.76                 |100.00             |2796.09             |100.00              |
|                                             |                        |                   |                    |                    |
|a. Fixed Assets                              |1522.50                 |99.66              |1400.75             |50.10               |
|                                             |                        |                   |                    |                    |
|                                             |                        |                   |                    |                    |

Sources of funds for the year 2007 have decreased compared to the year 2006 because there was buyback of shares by the firm, which resulted in reduction in the capital and reserves and surplus. While the firm’s unsecured loan made up 1.27 percent of the sources of funds for the year 2006, it was 4.12 percent for the year 2007 due to an increase in the amount of secured loan.
Fixed assets for the year 2007 make up to 99.66 percent of the total assets because of a huge addition of Rs. 6.87 crores made to the firm’s fixed assets in terms of software.
Growth of Hindustan Unilever Limited:
The company started with sales of Rs.27 crores in the year 1956 and now has sales of Rs. 13,717 crores, which shows a tremendous growth of the company in terms of annual sales.
HUL reported a growth of 13.3 percent in revenue, which is the highest in the past few years. The home and personal care business is expected to grow further by 18 percent in the year to come.
The 13.3 percent revenue growth is contributed mainly by the soaps and detergents and personal products, each contributing about 46 percent and 26 percent respectively.
The personal products segment which performed poorly for the past two years have projected a robust growth in the December quarter.
The food sector is expected to grow by 16 percent. To further increase its sale, the firm has introduced its own-brand water purifier, which now retails in 10 states across the country.
Based on an analysis made by Morgan Stanley, the gross profit margins of HUL are expected to grow over the next few years despite the rise of cost pressures. This is mainly because the earnings will be driven by the strong growth in teenagers-usage in the personal products business and successful entry into the food sector.
Risks/ Challenges
The firm would have to face the challenges in inflation to its future growth. HUL had to increases the prices of some of its products due to the increase in the costs of raw materials, such as vegetable oils and food grains last year. For the year 2007, the average price hike was about 7 per cent. In March 2008, HUL increased the price in the soap segment. On the other hand, the company reduced the prices of the mid-segment soaps (particularly Lux) to protect the growth of the sales volume.
However, the costs of raw materials is expected to further  increase over the next few years, and this might effect the total sales of the firm.
Also, the firm is facing increasing competition from domestic rival Procter and Gamble, Nirma and ITC. Because of this, the firm would have to increase the spending on advertising to combat the threat.
At the same time, the company should invest more in the key areas, such as R&D, generating productive employment, stimulating industrialisation and sustaining export performance to grow in line with the competitors.
Capacity Utilisation
The firm’s capacity utilisation is presently at 85 percent and if the capacity is utilised more than that, it can result in a lower cost structures and the ability of HUL in delivering new and more benefits to meet the growing demands of consumers in India.

Scope for Mergers and Acquisitions
Being the largest company in the FMCG industry in India, HUL has a tremendous scope to acquire “sick” companies and improve its overall sales volume. In fact, the firm acquired five companies, namely Tata Tea Mills and Lipton, India and established its industrial expertise further. Further acquisition would help start a virtuous cycle for a continuous growth and development.
Investors’ Analysis
The earnings per share of the year 2007 is Rs 8.73, which is higher than the previous year (Rs.8.41) and the dividend per share is Rs. 9.00 compared to the previous year (Rs. 6.00).
|Items                             |Year 2007          |Year 2006            |Year 2005           |Year 2004         |
|                                  |                   |                     |                    |                  |
|Dividend per share (Rs)           |9.00               |6.00                 |5.00                |5.00              |
|Earnings per share (Rs)           |8.73               |8.41                 |6.40                |5.44              |
|Market value/share (Rs)           |213.9              |216.55               |197.25              |143.50            |
|Dividend yield %                  |4.21               |2.77                 |2.53                |3.48              |
|Dividend payment %                |103.09             |71.34                |78.13               |91.91             |

HUL declared a final dividend of Rs3 per share over and above Rs6 (interim dividend of Rs3 and the platinum jubilee dividend of Rs3) paid earlier, taking the total dividend for the year 2007 Rs9 per share.
The dividend payment of the year 2007 has increased almost by 50% compared to the year 2006 which shows a positive return for the investors of the firm.
HUL expect to witness a profit CAGR of 15 percent for this year. The EPS is expected to rise to Rs 10.80 and the market share of the second quarter of the FY08 was reported at Rs 238.00
|                                      |                                      |
|[pic]                                                                                                    |
|                                                                             |
|                                                                             |

Financial Statement Comparison with Nirma Limited

|Financial Statement Analysis                           |                 |                |
|                                                       |                 |                |
|                                                       |HUL              |Nirma           |
|Items                                                  |Year 2007        |Year 2007       |
|                                                       |                 |                |
|Total Sales                                            |14757.42         |2539.29         |
|Net Sales                                              |13717.75         |2244.28         |
|Gross Profit (EBITDA)                                  |2348.38          |392.42          |
|Net Profit (PAT)                                       |1925.47          |109.12          |
|Debt                                                   |88.53            |324.85          |
|Equity                                                 |1439.23          |2429.78         |
|Total Assets                                           |1527.76          |2754.63         |
|Fixed Assets                                           |1522.50          |2044.81         |
|Current Assets                                         |3277.41          |1332.67         |
|Current Liabilities                                    |5110.98          |339.83          |
|Inventories                                            |1953.60          |486.01          |
|Retained Earnings                                      |1221.49          |2347.42         |
|Current Liabilities (without provision)                |3837.06          |214.6           |
|EBIT                                                   |2210.02          |184.91          |
|Interest                                               |25.50            |6.52            |
|Share Price (Rs)                                       |213.90           |364             |
|EPS(Rs)                                                |8.73             |13.83           |
|                                                       |                 |                |
|Rs. in crores                                          |                 |                |

|                                                      |                   |                       |
|                                                      |                   |                       |
|                                                      |                   |                       |
|Financial Ratios                                      |                   |                       |
|                                                      |                   |                       |
|                                                      |HUL                |Nirma                  |
|Items                                                 |2007               |2007                   |
|                                                      |                   |                       |
|Gross Profit Margin                                   |0.170              |0.175                  |
|Net Profit Margin                                     |0.140              |0.049                  |
|Debt to Equity                                        |0.06               |0.13                   |
|Return on Asset (%)                                   |126.03             |3.96                   |
|Return on equity (%)                                  |133.78             |4.49                   |
|Return on Investment (%)                              |126.47             |5.34                   |
|Current Ratio                                         |0.64               |3.92                   |
|Quick Ratio                                           |0.26               |2.49                   |
|Inventory Turnover Ratio                              |7.02               |4.62                   |
|Total Asset Turnover                                  |9.66               |0.92                   |
|Fixed Asset Turnover                                  |9.01               |1.10                   |
|Return on Networth (%)                                |133.78             |4.49                   |
|                                                      |                   |                       |
|                                                                      |                 |                     |             |
|Common Size Statement- P&L Account                                    |                 |                     |             |
|                                                  |                   |                 |                     |             |
|                                                  |HUL                |                 |Nirma                |             |
|                                                  |Year 2007          |                 |Year 2007            |             |
|Item                                              |Rs. in crores      |%                |Rs. in crores        |%            |
|                                                  |                   |                 |                     |             |
|Net Sales                                         |13717.75           |100              |2244.28              |100          |
|                                                  |                   |                 |                     |             |
|Operating Expenses                                |                   |                 |                     |             |
|1. Materials/Goods Purchases                      |                   |                 |                     |             |
|a. Raw materials consumed                         |4134.70            |30.14            |1091.62              |48.64        |
|b.Packing materials consumed                      |1155.67            |8.42             |                     |             |
|c.Purchase of goods                               |2164.87            |15.78            |                     |             |
|                                                  |                   |                 |                     |             |
|2. General expenditure                            |                   |                 |                     |             |
|a. Salaries,wages,bonus,etc                       |664.52             |4.84             |57.76                |2.57         |
|b.Repairs and maintenance                         |52.26              |0.38             |19.11                |0.85         |
|c.Power, light, fuel and water                    |198.88             |1.45             |256.27               |11.42        |
|d.Rent                                            |120.53             |0.88             |5.15                 |0.23         |
|e.Carriage and freight                            |731.41             |5.33             |146.29               |6.52         |
|e. Others                                         |2609.21            |19.02            |319.04               |14.22        |
|                                                  |                   |                 |                     |             |
|Depreciation                                      |138.36             |1.01             |130.16               |5.80         |
|Financial Expenses                                |25.50              |0.19             |6.52                 |0.29         |
|Gross Profit (EBITDA)                             |2348.38            |17.12            |392.42               |17.49        |
|PAT                                               |1925.47            |14.04            |109.12               |4.86         |
|                                                  |                   |                 |                     |             |

HUL spent 54.35 percent of its total net sales on materials/ goods purchases, while Nirma spent about 49 percent of its net sales on the same.
HUL spent 32 percent of its net sales on general expenditures, while Nirma spent 35.81 percent of its net sales on the same.
HUL and Nirma’s gross profits are almost equivalent percentage, 17.12 percent and 17.49 percent respectively. However, there is a significant difference in the percentage of profit after tax between the two companies.
|Common Size Statement- Balance Sheet                                 |                      |           |
|                                  |                     |           |                      |           |
|                                  |HUL                  |           |Nirma                 |           |
|                                  |Year 2007            |           |Year 2007             |           |
|Item                              |Rs. in crores        |%          |Rs. in crores         |%          |
|                                  |                     |           |                      |           |
|1. Sources of Funds               |1527.76              |100        |2754.63               |100        |
|                                  |                     |           |                      |           |
|Shareholders' funds               |                     |           |                      |           |
|a. Capital                        |217.74               |14.25      |82.36                 |2.99       |
|b. Reserves and surplus           |1221.49              |79.95      |2347.42               |85.22      |
|                                  |                     |           |                      |           |
|Loan funds                        |                     |           |                      |           |
|a. Secured loans                  |25.52                |1.67       |239.15                |8.68       |
|b. Unsecured loans                |63.01                |4.12       |85.7                  |3.11       |
|                                  |                     |           |                      |           |
|2. Total Assets                   |1527.76              |100.00     |2754.63               |100.00     |
|                                  |                     |           |                      |           |
|a. Fixed Assets                   |1522.50              |99.66      |2044.81               |74.23      |
|                                  |                     |           |                      |           |

Nirma’s reserves and surplus make up 85.22 percent of the total sources of funds of the company. For this reason, its debt is just making up a total of 11.79 percent of the total sources of funds. Comparatively, HUL’s reserves and surplus too is on the highest side of the percentage, standing at 79.95 percent of HUL’s sources of funds.
Out of the total assets of HUL, its fixed assets contribute tremendously to the total percentage, while Nirma’s fixed asset contributes 74.23 percent of the company’s total assets.
 
Add Comments
 
Heading:
Comments:
 
 
 
Ease You MBA Workload By
» Becoming Our Member» Ordering a Solution To Case     Study That You Cannot Find     Anywhere
 
 
» Forgot Password?
» Create an account. click here
 
 
Your search for case study solution ends here. If you don’t find the solution here, then probably you will not find it anywhere in the internet.
 
 
Order New Solution

Want a brand new solution for the case study? We have got it all right here.
Recent Topics
New Entries
Most Recent Request
Join Now
Ease your MBA workload and get more time for yourself