Academic journal article IUP Journal of Management Research

Financial Performance of Select FMCG Companies in India during the Post-Liberalization Period: A Study

Academic journal article IUP Journal of Management Research

Financial Performance of Select FMCG Companies in India during the Post-Liberalization Period: A Study

Article excerpt

Introduction

Indian Fast-Moving Consumer Goods (FMCG) sector with a market share of $13.1 bn has presently proved itself as the fourth largest sector in the Indian economy. In fact, rural India with more than 70% share of the total Indian population has emerged as the most significant FMCG market. During the last two decades, deregulation, globalization and liberalization measures adopted by the central government have made a paradigm change in the FMCG sector. Both the foreign direct and portfolio investments in Indian FMCG sector in the post-reform period have notably influenced the financial performance of the companies belonging to this sector. Moreover, the increasing presence of MNCs in the Indian market has forced the existing domestic companies in the FMCG sector to reorient their financial strategies in order to survive. Against this backdrop, the present study seeks to measure the changing status of the overall financial performance of 16 selected companies in the Indian FMCG sector during the period 1993-94 to 2012-13. The paper is organized as follows: it reviews the existing literature relating to the financial performance of Indian FMCG sector, followed by a description of the objectives and the methodology adopted to pursue them. Subsequently, the findings of the study are discussed, and finally, the conclusion is offered.

Literature Review

Some significant studies have been carried out in India on this issue. Mallik and Sur (1999) examined the working capital management of Hindustan Lever Ltd., a well-known FMCG company, during the period 1987-1996 using relevant statistical techniques and tests. The results reveal a very high degree of positive relationship between liquidity and profitability.

Sur et al. (2007) studied the case of Colgate-Palmolive (India) Ltd., a leading FMCG company in the Indian healthcare industry, for the period 1980-2004 using simple statistical tools like arithmetic mean, techniques like ratio analysis, analysis of Kendall's coefficient of concordance, multiple regression analysis and multiple correlation analysis and statistical tests like t-test, F test and chi-square test at appropriate places to analyze the efficiency of the company's asset management. The results reveal that the company failed to adapt itself to the challenging and competitive environment by lowering the efficiency of its asset management during the post-liberalization era.

Bagchi et al. (2012) in their study attempted to explore the effects of components of working capital management of selected FMCG firms on their profitability. Using secondary data from Prowess database of CMIE for a period of 10 years from 2000-01 to 2009-10, the study concludes that there is negative association between working capital management variables and firm's profitability during the study period.

Bagchi and Khamrui (2012a) evaluated the financial performance of the two leading FMCG companies, Britannia Industries and Dabur India, over a period of 10 years (2000-01 to 2009-10) using various accounting ratios and statistical tools. The study concludes that Dabur India showed satisfactory performance in terms of maintaining both short- and long-term liquidity, while Britannia did not perform well in respect of its short-term liquidity.

Bagchi and Khamrui (2012b) also investigated the relationship between working capital management and profitability, selecting a sample of 10 FMCG companies in India from CMIE database covering a period of 10 years from 2000-01 to 2009-10. Using Pearson's correlation and pooled ordinary least squares regression analysis, the study confirms that there is a strong negative relationship between variables of the working capital management and profitability.

Paswan (2013) carried out a study to assess the liquidity position and financial performance of selected FMCG companies in India for a period of six years from 2005-06 to 2010-11. Using various accounting ratios and statistical measures, the study concludes that ITC, Emami, Dabur and Colgate were able to repay their short-term debt during the study period. …

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