- The treasury department must ensure that the bank has enough liquidity--readily available cash to cover its net cash payments. The daily net liquidity is managed by either buying money to cover deficits or selling money to other banks for cash flow coverages.
- The treasury department is responsible for the evaluation, safety and profitability of the bank's investment portfolio derived from excess funds not used for the origination of customer loans.
- The treasury department prepares risk reports for the bank’s asset and liability committee. The treasury department manages investment assets and liquidity risk by matching them against the deposit side of the bank. The combined flow of funds and interest rates from loans and investments must exceed that of deposits for each time period analyzed.
OBJECTIVES OF INVESTMENT POLICY
The various objectives of the Investment Policy of the banks are:
- The investment portfolio shall act as a source of liquidity to manage mismatches arising out of assets/liabilities distribution.
- To evolve a strategic plan to direct and to control the flow, level, mix, cost tenure and yields of the funds deployable by the bank thereby ensuring quality investment.
- Examine the requirements of CRR and SLR based on the projections made by the bank and determine the best option for maintaining CRR and SLR and strict compliance of CRR and SLR of the bank as per the regulatory requirements and its monitoring thereof.
- To manage various risks related to investment in the changing market scenario and requirement of funds within the risk parameter.
- To ensure diversification such as sector, industry, type of security, maturity, coupon, credit rating etc in investment to contain risk and to optimize return.
Some of the considerations which are taken into account while taking investment decisions are:
- The requirements for SLR, current and future.
- Factors, which will affect the existing portfolio.
- Judicious mix of investments for various maturities for optimizing returns within acceptable risk.
- Opportunities available in different markets for increasing return.
- Potential risk that may arise due to variety of factors some of which would be outside the scope of totally containing it as it is difficult to exit large positions and the need for maintaining SLR.
Treasury Operations of banks
The treasury operations of banks can be classified as under:
- Domestic treasury operations
- Treasury operations forex
Domestic treasury operations
Banks would be investing in various instruments of different maturities for optimizing income & profit besides maintaining CRR/SLR prescribed by RBI from time to time.
- Asset allocation- Taking into account the need for optimizing returns with acceptable risks, it is proposed to invest in the following maturities pattern
Investments may be acquired through:
- Primary subscriptions and auctions
- IPO,FPO,QIP etc
- When issued market
- Private Placement
- Underwriting devolvement
- Secondary market
Investments would be made in 3 different categories as per RBI guidelines:
- Held for trading (HFT)
- Available for sale (AFS)
- Held to Maturity (HTM)
Held For Trading
- Securities acquired by the banks with the intention to trade by taking advantage of the short term price/interest rate movements will be classified under HFT category.
- If banks are not able to sell the security within 90 days due to exceptional circumstances such as tight liquidity conditions, or extreme volatility or market becoming unidirectional, the security should be shifted to the AFS category, subject to certain conditions.
Available for Sale
- Securities which do not fall within the HFT and HTM categories will be classified under AFS category.
- Banks have the freedom to decide on the extent of holdings under AFS category. This may be decided by them considering various aspects such as basis of intent, trading strategies, risk management capabilities, tax planning, manpower skills, capital position, etc.
Held to Maturity
- Securities acquired by the banks with the intention to hold them up to maturity will be classified under HTM category.
- The investments included under HTM category should not exceed 25 per cent of the bank's total investments. However, banks are permitted to exceed the limit of 25 per cent of their total investments under HTM category provided,
(a) The excess comprises only of SLR securities
(b) The total SLR securities held in the HTM category is not more than 25 per cent of their NDTL as on the last Friday of the second preceding fortnight.
- Profit on sale of investments in this category should be first taken to the Profit and Loss Account and thereafter be appropriated to the Investment Fluctuation Reserve (IFR). Loss on sale will be recognised in the Profit and Loss Account.
The above investments would be further categorized into SLR and Non SLR investments. While SLR instruments are considered credit risk free, Non SLR Instruments are subject to credit risk. While SLR instruments are debt instruments, Non SLR instruments can be both Debt and capital market instruments.
SLR Instruments- They are credit risk free/Debt instruments. Some of them are as follows:
- Central Govt securities
- State Development loans
- Treasury Bills
- Other approved trustee securities
Non SLR securities
- Equity Shares/Preference Shares
- Debentures/Bonds, Pass through Certificates
- Collateralized Borrowings & Lending Obligations (CBLO)
- Others(call, notice ,CP ,mutual funds units, venture funds, CD’s)
Liquidity management
CRR maintenance- The bank is required to maintain CRR as directed by RBI from time to time. Accounts department will inform the treasury the amount of CRR that needs to be maintained.
Call money- The money market is catering to the requirements of short term financial assets i.e. close substitutes of money. The most important feature of a money market instrument is that it is liquid and bridge short term mismatches of the market participants. The funds lent/borrowed in call are overnight and notice money is available for the period of 2 days and 14 days. The term money is accepted / lent for a period of 15 days and above
Collaterized Borrowings and Lending Obligation (CBLO) - Collaterized Borrowing and Lending Obligation is a money market instrument through the CCIL. Securities lodged in the gilt accounts of the bank maintained with the CCIL under the constituent’s Subsidiary General Ledger (CSGL) facility and remaining unencumbered at the end of any day is reckoned for SLR purposes. As this is a collaterized system of lending and borrowing, powers have been suitably delegated.
Commercial Papers
Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. CP, as a privately placed instrument was introduced in India in 1990 with a view to enable highly rated corporate borrowers to diversify their sources of short term borrowings and to provide an additional investment to investors. Subsequently primary dealers and all-India financial institutions were also permitted to issue CP to enable them to meet their short-term funding requirements. CP can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue. The maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid. CP can be issued in denominations of Rs. 5 lakh or multiples thereof. CP is issued after looking at the financial position of the company, commercial prospects of the concerned industry and after cost yield analysis and finding out the opportunity cost.
The yield in the given 91-day commercial paper is calculated by the YIELDDISC function on MS-Excel.
Equity Investments
As per RBI circular, banks capital market exposure (Both fund and non fund based) of banks in all forms would include the following:
- Direct Investments in equity shares, convertible bonds, convertible debentures and units of equity oriented mutual funds the corpus of which is not exclusively invested in corporate debt.
- Advances against shares/Bonds/Debentures or other securities or on clean basis to individuals for investment in shares(including IPO’S/ESOP’S), convertible bonds, Convertible debentures and equity oriented mutual funds etc
- Advances for any purposes where shares or convertible bonds or convertible debentures or units of equity oriented mutual funds are taken as primary or collateral security
- Loans sanctioned to corporate against the security of shares/bonds/debentures or other securities or on clean basis for meeting promoter’s contribution to the equity of new companies in anticipation of raising resources
- Bridge loans to companies against expected equity flows/issues
- Underwriting commitments taken up by the banks in respect of primary issues of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds.
- Financing to stock brokers for margin trading
Functioning of Forex treasury
Foreign exchange refers to money denominated in the currency of another nation. Any person who exchanges money denominated in his own nation’s currency for money denominated in another nation’s currency acquires foreign exchange. In India, any money denominated in any currency other than the Indian rupee is, “Foreign Exchange”. Officially foreign exchange is defined in Foreign Exchange Management Act, 1999 as;
- Deposits ,Credits and balances payable in any foreign currency,
- Drafts, Travellers cheques , letters of credit or bills of exchange expressed or drawn in Indian currency but payable in any foreign currency,
- Drafts, Travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India but payable in Indian currency;
- Debit Cards, ATM cards or any other instruments by whatever name called that can be used to create a financial liability as currency.
Causes of fluctuations in foreign currency
- Foreign exchange rates are influenced by domestic as well as international factors.
- Foreign exchange dealings cross national boundaries and rates move on the basis of governmental regulations, fiscal policies, political instabilities and a variety of other causes.
- Foreign exchange rate movements, like the stock market, are influenced by sentiments that may not always be logical.
- Foreign exchange is traded 24 hours a day at different markets and dealers cannot be in control at all times.
- The ratings of credit agencies can affect the exchange rate. For instance, when India’s foreign exchange rating was downgraded by Moody’s in the mid-1990s, the value of the rupee fell.
Structure of the Foreign Exchange Market in India
The foreign exchange market in India can be broadly divided into two categories- Retail and Wholesale.
The retail market deals with foreign exchange transactions of individual. In this segment currency notes, traveller’s cheques and personal cheques & drafts are exchanged. In this segment, in addition to the Authorised dealers, there are money changers who are allowed to buy and sell foreign exchange.
The wholesale foreign exchange market consists of two segments.
- Transactions between Authorised Dealers (AD’s) and their corporate customers. Customers transact with AD’s for making/receiving trade payments for imports/exports or for hedging reasons.
- Transactions amongst Authorised Dealers and transactions between RBI and Market
Personal cheques/ drafts
Payments for Exports & Imports
Hedging Transactions
Settlement & Hedging Transactions
Currency notes and coins
The Reserve Bank influences the exchange rates prevailing in the market by intervening in the interbank market directly or indirectly. Such intervention can take various forms:
- Verbal intervention through statements in the media.
- Tightening exchange control to curb speculative activity.
- Tightening/Loosening money supply to influence interest rates and thus influence spot and forward rates.
- Actual sale or purchase of foreign currency in the market.
At present, most of the intervention is done indirectly.
The Indian market is primarily for exchange of dollars against rupees. Other currencies are not very actively traded in the local market.
The most important centre of the Indian Foreign Exchange market is Mumbai. Other large centres are Delhi, Kolkata and Chennai. The trading takes place ‘Over –The –Counter’ and there is no physical location of the market.
Clearing Corporation of India Limited
Clearing Corporation of India Limited (CCIL) has been promoted by leading banks and financial institutions operating in India to address the need for an integrated clearing and settlement system for debt and forex transactions. The main promoters are State Bank of India (SBI), Industrial Development Bank of India (IDBI), Life Insurance Corporation (LIC), ICICI, Bank of Baroda and HDFC Bank. These promoters collectively contribute 51 per cent of the total share capital of CCIL.
CCIL addresses the long- felt need for an institutional structure to support and facilitate the clearing and settlement of trades across different markets- viz government securities, forex and money markets.
For participants in the Forex market, CCIL’s intermediation provides a structure to mitigate and manage the risks associated with the settlement of these high value transactions. Since the foreign currency leg has necessarily to be settled overseas while the rupee leg gets settled locally, time zone differences come into the picture adding to the settlement risk.
HEDGING AND SPECULATION
Hedging:
Hedging is a transaction undertaken specifically to offset some exposure arising out of the firm’s usual operations. In a trading or service sector firm, export or import of foreign goods and/or services may be a regular affair. There also might be treasury operations corresponding to this. A policy decision might be taken whether all the exposures arising out of these operations be hedged all the time. A decision not to hedge a particular exposure is also a kind of speculation.
Speculation:
It is the deliberate creation of a position for the express purpose of generating a profit from exchange rate fluctuations, accepting the added risk. With motive of speculative profits, lots of money floats in the universal market. This money is highly volatile and it changes hands from options to futures to forwards to commodities and also to banks. Speculators are of two kinds: Optimistic and Pessimistic. Former is called as Bulls and latter as Bears. Bulls expect price appreciation/ strengthening of currencies. Therefore bulls buy and hold (long position) with a hope to sell at a higher price. Bears expect fall of price/ weakening of currencies. Therefore bears sell (short sell) with a hope to recover (buy) at a lower price.
OVERVIEW OF FMCG SECTOR
The FMCG (Fast Moving Consumer Goods) sector in India is booming for the past few years and has given steady returns to its investors despite slowdown in the economy. FMCG sector is the safest bet for investors because even in times of recession the demand for household commodities does not fall drastically. The total market size of the FMCG sector is estimated to be in excess of US$ 13.1 billion in 2012. There is stiff competition among domestic companies, unorganized segment and MNC companies to increase their sales year-on-year, due to which they operate on low operational cost and margins. However fall of rupee against major currencies, new norms of standard-size packaging, increase in raw material costs due to upward spiralling interest rates and inflation together might dent the performance of the fast moving consumer goods (FMCG) sector in the near future. The top players in the sector are:
- Hindustan Unilever Limited
- ITC
- Nestle
- Dabur
- Proctor and Gamble
- Britannia
- Colgate Palmolive
- Godrej
- Gillete
- Marico
FMCG includes a wide range of products categorized broadly into segments below:
Comparison of SENSEX and BSE FMCG Index
Returns
FMCG sector is performing well due to strong characteristics and dependence on consumption in domestic market. The returns table given above portrays that it registered lower drop in 2008 (during slowdown in the economy). The performance of FMCG sector was laggard in 2009 when economy was recovering and major sectors started performing well contributing to growth in SENSEX. However, performance of BSE FMCG index in 2010 was outstanding on back of fiscal stimulus but got hit again in 2011 due to European debt crisis and domestic reasons. In 2011, SENSEX was volatile and gave negative returns of 25% at end of year however FMCG is the only sector which gave strong returns of 9% in 2011.
Reasons for impressive performance of FMCG sector
From January 2011 to March 2012, the FMCG Sector has attracted many investors and gave strong returns to them. The other sector indices gave negative returns in the range of 2% to 38% due to slowdown in the economy, high interest rates and rising inflation.
Sector indices performance (Jan 2011 to March 2012)
Key factors for growth in FMCG Sector
- Rapid increase in the rate of urbanization
- Rise in disposable incomes enabling the companies to focus on premium product brands
- Constant innovation in existing products from customer feedback
- Penetration to rural markets with strong distribution channels
- Rise in rural non-agricultural income and benefits from government welfare programmes contribute to top-line growth for FMCG companies.
Concerns for FMCG Sector
- Rise in inflation leading to increase in raw material costs
-
New packaging norms from 1st July 2012 which is expected to increase costs of regular products like biscuits, coffee, tea, toiletries and personal care items by about 10% and more
- Rising fuel cost leading to increase in distribution costs
- Decline in industrial growth
- Slowing economy will lead to lower demand of FMCG products affecting its volume growth
- Sharp depreciation in the value of rupee against other currencies because most companies such as Marico, Godrej, Colgate, Dabur etc import raw materials. The margins of these companies will be under pressure until the rupee stabilizes.
PEST ANALYSIS
SWOT ANALYSIS
Porter’s Five Forces Model
- Degree of Rivalry
In the FMCG sector competition is very fierce. There are scarce customers because the industry is highly saturated and the competitors try to snatch their share of the market. The market players use all sorts of tactics and activities from intensive advertisement campaigns to promotional activities, price wars etc. Hence the intensity of rivalry is very high.
- Barriers to entry
The FMCG sector does not have any measures which can control the entry of new firms. The resistance is very low and the structure of the industry is so complex that new firms can easily enter and also offer tough competition due to cost effectiveness. Therefore potential entry of new firms is highly viable.
- Threat of substitutes
There are complex and never ending consumer needs and no firm can satisfy all varieties of needs alone. There are plenty of substitute goods available in the market that can be replaced if the consumers are not satisfied with them. The wide range of choices and needs give sufficient room for new product development that can replace existing goods. This leads to higher consumer expectations.
- Bargaining power of consumers
In the FMCG Sector the bargaining power of consumers is very high. The major competitors have to work hard to meet the expectations of consumers. From the consumers’ point of view the cost of switching brands is low. Therefore there is a large proportion of brand switchers in the FMCG sector.
- Bargaining power of suppliers
The bargaining power of suppliers of raw materials and intermediate goods is very low. There is ample number of substitute suppliers available and the raw materials are also readily available and homogenous. There is no monopoly situation from the supplier’s side because there is intense competition among them too.
BRITANNIA
Company Profile:
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
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.
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%.
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.
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.
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.
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.
- 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.
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.
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.
Financial Summary of Britannia and Colgate
Britannia Industries:
Colgate Palmolive
Conclusions and recommendations
The Indian FMCG market is estimated to grow to USD 100 billion by 2025 from USD 13 billion in 2012. The key areas driving this growth would be increase in sales and acceptance of branded products, regular consumption of FMCG goods, etc. However, this growth will not be smooth there will be some untimely jerk led by economic slowdown, increase in inflation, etc. It is recommended to stay invested in this sector for long term to gain strong profits with uptrend in future and defensive characteristics. Invest in FMCG stocks when valuations get cheaper and market is bearish or opt for safer route to invest regularly in mutual fund schemes. These will invest your amount in various companies with presence in FMCG sector and diversify the risks.
Valuation of Britannia
Using DCF methodology we value the core business of Britannia Industries at Rs. 429.96 per share assuming terminal growth rate of 6% and WACC of 10%. The stock is currently trading at Rs.523.35 which indicates that the stock is overvalued and the recommendation will be to SELL the share.
Refer to annexure I
Valuation of the stock
Using DCF methodology we value the core business of Colgate Palmolive at Rs. 1131.18 per share assuming terminal growth rate of 6% and WACC of 9%. The stock is currently trading at Rs.1119.15 which indicates that the stock is undervalued and the recommendation will be to BUY the share.
Refer to annexure II
Glossary
References
- www.rbi.org.in
- www.investopedia.com
- www.moneycontrol.com
- www.nseindia.com
- www.bseindia.com
- www.britannia.com
- www.colgate.co.in
- obcindia.co.in
- www.icharts.in
- www.stockcharts.com
ANNEXURE I
Britannia Industries
ANNEXURE II
Colgate Palmolive
by
dhruvkaicker (student)
