Dupont Analysis:

Traditional Dupont Analysis:

FYE

Mar 12

Mar 13

Mar 14

Mar 15

Mar 16

Profitability Margin (%)

11.74%

11.94%

11.71%

11.80%

12.58%

Asset Turnover Ratio (x)

2.05

2.24

2.14

2.21

2.18

Financial Leverage (x)

3.10

4.22

3.89

3.58

3.82

74.4%

112.6%

97.4%

93.5%

104.9%

Return On Equity (ROE)

Profitability margins remains stable at an average 11.96% in the last five years. Asset turnover ratios
are also stable since the FY2012 indicating a stable company. Financial leverage fluctuations are low.
Modified Dupont Analysis:
FYE

Mar 12

Mar 13

Mar 14

Mar 15

Mar 16

RNOA

-221.7%

-135.8%

-116.2%

-127.8%

-170.1%

1.31

1.64

1.72

1.57

1.57

RNFA

5.61%

16.64%

8.65%

13.24%

5.46%

Return On Equity (ROE)

75.5%

113.7%

98.1%

94.3%

106.0%

NFA/CSE

Net operating assets of the company are negative i.e. operating liabilities of the company are greater
than operating assets of the company. Sundry creditors are a huge portion of operating liabilities. The
company has a negative cash conversion cycle.
FYE
DSO
DIO
DPO
Cash Conversion Cycle

Mar 13
13
67
103
-24

Mar 14
12
66
108
-30

Mar 15
12
63
109
-35

Mar 16
13
63
117
-42

Net Financial Assets are greater than obligations which makes FLEV of the company negative. High
return on equity of the company is mainly due to the sustained negative cash conversion cycle of the
company.
Return on net operating assets (ROOA):
FYE
ROOA
OLLEV
ST Borrowing Rate (post tax)
RNOA

Mar 12
46.8%
-6.62
6.20%
-221.7%

Mar 13
43.1%
-4.83
6.02%
-135.8%

Mar 14
48.2%
-3.93
6.36%
-116.2%

Mar 15
44.4%
-4.44
5.56%
-127.8%

Mar 16
52.2%
-4.75
5.43%
-170.1%

Return on operating assets excluding operating liabilities is positive and increased in FY 2016. The
spread of ROOA ST Borrowing rate after tax is positive. The spread would be beneficial to RNOA
if OLEV was positive but the operating leverage of the company was negative as NOA is negative.

ROCE = ROOA + (RNOA ROOA) + (ROCE RNOA)

FYE
ROOA
RNOA - ROOA
ROCE - RNOA
ROCE

Mar 12
46.8%
-268.4%
297.2%
75.5%

Mar 13
43.1%
-178.9%
249.5%
113.7%

Mar 14
48.2%
-164.5%
214.3%
98.1%

Mar 15
44.4%
-172.2%
222.2%
94.3%

Mar 16
52.2%
-222.3%
276.1%
106.0%

Return with no leverage of the company (ROOA) is positive for the company. Effective of operating
liabilities is negative to ROCE and effect of financing liabilities is a huge positive.

Earnings Management:
Cash Realization Ratio (CRR):
FYE

Mar 12

Mar 13

Mar 14

Mar 15

Mar 16

Net Income

2,740.48

3,227.01

3,443.85

3,767.28

4,165.65

CFFO

2,931.51

3,604.76

3,818.18

3,291.91

4,125.34

1.07

1.12

1.11

0.87

0.99

CRR

Cash realization ratio has been near one in the last five years indicating that accruals are not very high
compared to Net income.
Balance Sheet Accrual Ratio (BSAR):
FYE
Change In NOL
Average NOL
BSAR

Mar 13
686.93
1,457.94
0.47

Mar 14
710.25
2,156.53
0.33

Mar 15
-221.46
2,400.92
-0.09

Mar 16
-41.67
2,269.36
-0.02

Balance sheet accrual ratio has decreased since FY2013 which indicated that accruals management is
not done in the company.
Analysis of Red Flags:
1. Exceptional items are present in profit and loss statement every year which includes profit from
sale of assets, restructuring charges etc. but there is no indication of use of exceptional items for
income smoothing.
2. As noted in reformulated balance sheet, Costs such as advertising, material cost etc always
increased with increase in sales.
3. Days Sales Payables is stable at 12 13 days for last four years as seen in the table above which
indicates that receivables are not out of line.
4. There is no unusual increase in intangible balances.
5. Gross profit margins increased steadily for the last five years.
6. Financial income of the company on an average is above 10% of operating earnings
7. The company borrowed short term loan from bank of Rs. 180 crore
8. Inventory turnover rate has almost remained stable

9. The company only reports operating leases on lease of (residential, office, stores, godown etc.)
with agreements ranging from 11 months to 10 years. No breakup is given regarding which assets
are leased for what period.

FYE
ATO
PM

Mar 13
-15.00
14%

Mar 14
-11.71
15%

Mar 15
-13.94
16%

Mar 16
-14.72
17%

Since Mar 14, a decrease in ATO led to a corresponding increase in PM which indicates that there
might have been some earnings management happening.
But there was no evidence of any other kind in the company. Thus, we can conclude that earnings
management is not done by the company.

Economic Value Added:

FYE
CSE
ST Borrowings
LT Borrowings
Other LT liabilities
Capital Employed (CE)
WACC %
Cost of CE
NOPAT
EVA

Mar 12
3,681.08
0.00
0.00
331.67
4,012.75
10.10%
405.29
2,470.52
2,065.23

Mar 13
2,864.77
16.30
8.44
482.12
3,371.63
10.07%
339.52
2,446.98
2,107.45

Mar 14
3,537.29
37.14
8.44
285.55
3,868.42
11.62%
449.51
2,918.88
2,469.37

Mar 15
4,027.48
36.04
7.00
172.40
4,242.92
10.91%
462.90
2,927.58
2,464.67

Mar 16
3,971.71
212.78
42.00
221.71
4,448.20
11.99%
533.34
3,824.62
3,291.28

Economic value added by the company increased since FY 2012. The WACC is calculated by HUL
itself in its annual reports using CAPM.