Posted: June 23rd, 2021
Britannia is one of the most well known brands in India and it is the market leader in the biscuit industry with 38% market share. Britannia Industries is jointly owned by Group Danone and Wadia Group. Mr. Nusli Wadia is the chairman of the organization which is based in Kolkata, West Bengal. The revenue for the fiscal year 2010-11 stood at Rs. 4670 crores and the Profit after Tax at Rs. 134.34 crores. The increase in revenue of Britannia from the previous year was 21.90% and the increase in profit after tax was 30.19%.
COLGATE PALMOLIVE Company Profile: Colgate Palmolive India is the market leader in oral care and hygiene in the country. Mr. D. Samuel is the chairman of the organization. The headquarters of Colgate Palmolive India is in Mumbai, Maharashtra. The revenues for the fiscal year 2010-11stood at Rs. 2327.36 crores and the Profit after Tax at Rs. 402.59 crores. The increase in revenue for Colgate Palmolive from the previous year was 13.08% however the profit after tax declined by 7% due to rising commodity costs.
COMPARATIVE FINANCIAL ANALYSIS 1. Earnings per share (EPS) EPS measures the profit available to the equity shareholders per share i.e. the amount that they can get on every share that has been held. The earnings per share of Britannia Industries declined in 2009 and 2010 with reducing profits. The profits have reduced due to rise in costs of materials and commodities. However the company showed signs of growth again in 2011 and is expected to recover more in 2012. Meanwhile the EPS of Colgate Palmolive has consistently improved over the past few years. It only dropped slightly in 2011 due to inflationary commodity costs. According to the trend Colgate Palmolive has fewer fluctuations and will be preferred for safe and conservative investments.
1. Net Profit Margin Net profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Looking at the earnings of a company often does not tell the entire story. Increased earnings are good but an increase does not mean that the profit margin of a company is improving. In the chart given above Colgate is clearly outperforming Britannia in terms of the Net Profit Margin. Despite a slight fall in profit margin in 2011 it is expected that Colgate will consistently have a high ratio in between 15% to 20%.
1. Debt-Equity Ratio A high debt equity ratio suggests that a company has financed its growth mostly via debt. We can clearly see that the debt equity ratio of Britannia is much higher compared to that of Colgate Palmolive. It displays that Britannia Industries used a lot of debt to finance its operations especially in the fiscal year 2009-10. The debt equity ratio reduced slightly in 2010-11 but the company needs to make a massive effort to improve its capital structure. Sometimes the cost of debt financing may outweigh the return that the company generates on the debt through investment and business activities and can lead to bankruptcy. Meanwhile Colgate Palmolive has managed to consistently manage a small percentage of 2% to 3% of debt in its capital structure.
1. Current Ratio The current ratio is a reliable tool for measuring a company’s liquidity. The ratio indicates whether the firm is able to generate funds to make all needed payments in the future. The chart indicates that Britannia is better than Colgate in terms of liquidity strength and is able to pay off its liabilities more successfully. Still it will be desirable that both the companies have a current ratio of close to 2:1.
1. Dividend Cover Dividend Cover refers to the extent to which a company’s dividend is matched or exceeding by the earnings available for distribution to shareholders. The size of the dividend cover gives an indication of a company’s ability to maintain its dividend should profits fall. Britannia has a high dividend cover compared to Colgate. It shows that Britannia has a better ability to maintain its dividends if the profits drop. The dividend cover of Colgate Palmolive is low and the company has relatively stable profits. Therefore the level of cover indicates that dividends are not that much at risk.
1. Inventory Days It is a financial measure of a company’s performance that gives investors an idea of how long it takes a company to turn its inventory into sales. Generally, the lower the inventory days the better it is. In the last 3 years the inventory days for Colgate has been consistently around 15 days. However the picture is bleak for Britannia with constantly increasing inventory days over the years. An inventory days of 36 for 2011 is a very worrying sign for Britannia.
Technical Analysis Technical Analysis involves tracking price movements and trading volumes in various securities to identify patterns in the price behaviour of particular stocks, mutual funds, commodities or options in specific market sectors or in the overall financial markets. The goal is to predict probable, often short term price changes in the investments studied to choose an appropriate trading strategy.
1. Comparison of percentage change in stock prices of companies with changes in BSE FMCG The above chart displays the percentage change in price of Britannia stocks over the past two years in comparison to the changes in BSE FMCG index. In September 2010 the Britannia stock had a 30% rise taking 18th June 2010 as base. The stock had a major fall of 9.15% in February 2011 but it peaked at 60.13% in March 2012.
The movement in Britannia stocks stayed below the FMCG Index for majority of the past 2 years. However it increased considerably in the 4th quarter of 2011-12 and outperformed the FMCG index. In the new fiscal year the share prices fell slightly again and the 2 year increase was 41.2% in comparison to 54.65% of FMCG index. It can be expected that the share movement will stay below but relatively close to the standard movement of prices of the FMCG sector.
As seen clearly in the above chart the percentage change in the prices of Colgate shares (taking 18th June 2010 as base) is clearly lower than changes in the BSE FMCG index. The stock has underperformed and even had a steep fall in early 2011 but it recovered in late 2011 and the initial months of 2012 and even matched the FMCG index standard. The Stock had a major fall in April 2012 and the 2 year rise was 34.69%. It is much lower than the 54.65% increase of BSE FMCG index. However one positive aspect of the price movements of Colgate is that the volatility is less than Britannia.
1. Bollinger Bands Bollinger Bands was developed by famous technical trader John Bollinger is one of the most popular technical analysis techniques. A Bollinger band plots two standard deviations away from a simple moving average. As standard deviation is a measure of volatility Bollinger Bands adjust themselves to the market conditions. When the market becomes more volatile the bands widen i.e. move further away from the average. The tightening of the bands is often used as an early indication that the volatility is about to increase sharply.
The chart given above shows the price movement of Britannia shares for a period of 2 years (from 27th May 2010 to 29th May 2012). The red line in the chart denotes the 20 day moving average of the stock price. The two black lines denote the Bollinger bands i.e. the standard deviation of value 2. The closer the prices move to the upper band the more overbought is the market. The closer the prices move to the lower band the more oversold is the market.
At the end of April 2012 the price is trading near the lower band line which means that there is overselling in the market. It will be advisable for investors to buy Britannia stocks at this level as the probability of a trend reversal is very high here. Once the prices reach the upper band line the investors can sell off the shares. One of the instances of investors taking an advantage can be seen in March 2011. A person who bought shares at this level and held these shares till June 2011 when the prices touched the upper band line can earn a return of around 25%.
The chart given above shows the price movement of Colgate shares for a period of 2 years (from 26th May 2012 to 28th May 2012). The red line indicates the 20 day moving average of the stock price. The two black lines denote Bollinger bands i.e. the standard deviation of value 2. The closer the prices move to the upper band the more overbought is the market. The closer the prices move to the lower band the more oversold is the market. Compared to Britannia the volatility of Colgate prices is less and the risk involved is low. However it also means that the investors will not be able to earn big returns like in Britannia.
1. Candlestick charts In order to create a candlestick chart a data set is required which contains open, high, low, close values for each time period that has to be displayed. The candlestick chart formation is as follows: Long white candlesticks show strong buying pressure. The longer the white candlestick, the further the close is above the open. This indicates that prices advanced significantly from open to close and buyers were aggressive. Meanwhile long filled candlesticks show strong selling pressure. The longer the filled candlestick, the further the close is below the open. This indicates that prices declined significantly from the open and sellers were aggressive.
The given candlestick chart shows the price movements of Britannia in the past 6 months. In late December 2011, January and February 2012 there has been strong selling pressure. In the beginning of March there is a very long lower shadow and a short upper shadow. It means that sellers dominated the session and drove the prices even lower. However buyers resurfaced to bid prices higher by the end of session and the strong close created a long lower shadow. A similar instance occurred in the 2nd week of April. Overall there have been several minor bullish phases in the past six months but a large amount of buying by investors has increased the prices by around 80 points.
In the case of Colgate Palmolive it is easier to establish trends. There have been phases in which the stock was bearish for several days in a row and similar there have been phases (like in the second week of May 2012) when the stock was bullish for several days in a row. There was a major fall in prices in the last week of February and investors who bought the shares at this level and held it and sold in the second week of May would have high returns.
Place an order in 3 easy steps. Takes less than 5 mins.