1. JAIPURIA INSTITUTE OF MANAGEMENT, LUCKNOW
Analysis of Risk and Return
(Assignment)
Sector: FMCG Industry
Submitted To:
Dr. Saima Rizwi
Submitted By:
Feroz Ahmad (JIML-11-057)
Bhola Bhakta (JIML-11-FS-021)
Kushal Bhardwaj (JIML-11-075)
Gaurav Saraswat (JIML-11-060)
Bhagwati Prasad Gupta (JIML-11-044)
DATE: January 10, 2012
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2. ACKNOWLEDGEMENT
We are grateful to our respected instructor Dr. Saima Rizvi for giving us an opportunity to
understand the financial analysis of FMCG Industry. Through this project we came to learn that
how to look at the problem from a Manager’s perspective.
We would like to present our gratitude to Saima Mam for the successful completion of the
project which would not have been possible without his continuous help and guidance.
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3. CONTENTS
INTRODUCTION ................................................................................................................................ 4
COLGATE PALOMOLIVE ...................................................................Error! Bookmark not defined.
DABUR INDIA LTD. ...........................................................................Error! Bookmark not defined.
GODREJ CONSUMER PRODUCTS LTD ................................................Error! Bookmark not defined.
HINDUSTAN UNILEVER LTD .............................................................Error! Bookmark not defined.
ITC LTD ...........................................................................................Error! Bookmark not defined.
COMPARISON AMONG BETA 5 COMPANIES ……………………………………………………………………………………….14
Risk & Return Of The Companies …………………………………………….………..16-17
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4. INTRODUCTION
Risk and Return
The project assigned to us is the analysis of Risk and Return of FMCG companies. Both risk and
return go side by side, it becomes very important for an investor to consider both risk and return.
The decision of an investor whether to invest or not is greatly influenced by the return given by
that particular company and the risk associated.
We took five different FMCG companies’ return as a component of FMCG sector. Market return
has also been considered as benchmark. Excel has been used for the calculations. We have used
functions like descriptive statistics, regression and charts.
Risk and return has been calculated, analyzed and interpreted on the basis of last 12 months
return (From April 2010 to March 2011). Firstly mean return of the companies has been
calculated then with the help of descriptive statistics standard deviation “risk” has been
calculated. It shows the amount of deviation of actual return from thee mean return. The
sensitivity (BETA) has been calculated with the help of regression.
The following companies have been taken:
Colgate Palmolive
Dabur India Ltd.
Hindustan Unilever Ltd.
Godrej Consumer Products Ltd.
ITC Ltd.
Measurement Risk
Financial Management develops the concept of total risk as,
Total risk = Systematic risk + Unsystematic risk
Unsystematic risk is the company or industry specific risk that is inherent in each investment. It
can be removed.
4

5. But systematic can’t be removed though it can be minimized. Interest rates, recession and wars
all represent sources of systematic risk because they affect the entire market and can’t be
avoided through diversification.
Beta (β) is used to define the systematic risk of a stock.
Beta measures a stock's volatility, the degree to which its price or return fluctuates in relation
to the overall market. In other words, it gives a sense of the stock's market risk compared to the
greater market. Beta is used also to compare a stock's market risk to that of other stocks.
This measure is calculated using regression analysis.
A beta of 1 indicates that the security's price tends to move with the market.
A beta greater than 1 indicates that the security's price tends to be more volatile than the
market.
A beta less than 1 but greater than 0 means it tends to be less volatile than the market.
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6. Colgate Palmolive
Company Market
Apr-10 10.48 0.18
May-10 2.28 -3.5 Colgate Palmolive Vs BSE
Jun-10 10.7 4.46 Sensex Returns
Jul-10 0.29 0.95 y = 0.457x + 1.375
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Aug-10 -0.79 0.58 R² = 0.263
Colgate Palmolive ltd Return
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Sep-10 5.77 11.67 Colgate Palmolive
Oct-10 -0.66 0.38 5 Vs BSE Sensex
Return
Nov-10 0.74 -2.55 0
Linear (Colgate
Dec-10 -0.97 3.32 -20 -10 0 10 20 Palmolive Vs BSE
-5
Jan-11 -5.08 -10.64 Sensex Return)
Feb-11 -2.78 -3.11 -10
Mar-11 -0.2 5.41 BSE Sensex Return
Standard Company's Reqd.
Company's
Company Name Beta Beta Avg. Return Return
Alpha Status
Colgate-Palmolive -
(India) Ltd. 1 0.457251762 1.64833333 4.8695234 3.22119009 Overpriced
The above graph has been derived by plotting monthly returns of Colgate Palmolive with respect
to the monthly returns of BSE SENSEX, for a span of one year starting from April 2010 to
March 2011. Here, the total no. of observations is 12.The characteristics line has also been
drawn. The Beta of Colgate Palmolive is the slope of this characteristics line.
BETA (β)
Beta (β) is used to measure the systematic risk of a security. Colgate Palmolive has a β of
0.457251762 based on the monthly returns during April 2010 to March 2011. A Beta of less than
1 but greater than 0 means that returns of Colgate Palmolive are less volatile than that of the
market (BSE SENSEX). Here the β of Colgate Palmolive is less than 1 that implies that the stock
of the company is a defensive stock which would not be market oriented. If there is increase or
6

7. decrease in the market index then the stock may not apparently move along with market. It is
good for risk-averse investors, who do want to take high risk.
INTERCEPT (ALPHA)
Alpha is one of five technical risk ratios; the others are beta, standard deviation, R-squared, and
the Sharpe ratio. The intercept Colgate Palmolive is 1.3758. It means Colgate Palmolive has
positive 1.37% return when the market return is zero for the extra risk. Here the alpha is positive
that shows the stock is being traded at underpriced, which is a good option for investors to invest
in the stock to get better return in future.
COEFFICIENT OF CORRELATION
The coefficient of correlation is 0.512. The positive correlation indicates that when the market
return goes up, Colgate Palmolive’s return also goes up.
COEFFICIENT OF DETERMINATION
The squared coefficient of correlation or the coefficient of determination is 0.263 or 26.3%. It
indicates the percentage of the variance of Colgate Palmolive’s returns, explained by the changes
in the market returns. The 73.7% unexplained variance is the firm-specific variance.
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8. Dabur India Ltd.
Company Market
Dabur India Ltd. Vs BSE
Apr-10 13.75 0.18
May-10 2.47 -3.5 Sensex Returns + 2.027
y = 0.326x
Jun-10 13.47 4.46 15 R² = 0.055
Dabur India Ltd. Returns
Jul-10 -5.79 0.95 10 Dabur India
Aug-10 6.65 0.58 Ltd. Vs BSE
5 Sensex Returns
Sep-10 2.63 11.67
Oct-10 -5.32 0.38 0
Nov-10 -5.6 -2.55 -20 -10 -5 0 10 20 Linear (Dabur
India Ltd. Vs
Dec-10 5.19 3.32 -10 BSE Sensex
Jan-11 -6.28 -10.64 Returns)
Feb-11 9.82 -3.11 BSE Sensex Returns
Mar-11 -4.33 5.41
Standard Company's Avg. Reqd. Company's
Company Name Beta Beta Return Return Alpha Status
Dabur India Ltd. 1 0.326448734 2.22166667 5.8994883 -3.6778216 Overpriced
The above graph has been derived by plotting monthly returns of Dabur India Ltd. with respect
to the monthly returns of BSE SENSEX, for a span of one year starting from April 2010 to
March 2011. Here, the total no. of observations is 12.The characteristics line has also been
drawn. The Beta of Dabur India Ltd. is the slope of this characteristics line.
BETA (β)
Beta (β) is used to measure the systematic risk of a security. Dabur India Ltd. has a β of 0.326
based on the monthly returns during April 2010 to March 2011. A Beta of less than 1 but greater
than 0 means that returns of Dabur India Ltd. are less volatile than that of the market (BSE
SENSEX). Here the β of Dabur India Ltd. is less than 1 that implies that the stock of the
company is a defensive stock which would not be market oriented. If there is increase or
decrease in the market index then the stock may not apparently move along with market. It is
good for risk-averse investors, who do want to take high risk.
8

9. INTERCEPT (ALPHA)
Alpha is one of five technical risk ratios; the others are beta, standard deviation, R-squared, and
the Sharpe ratio. The intercept Dabur India Ltd. is 2.027. It means Dabur India Ltd. has positive
2.027% return when the market return is zero for the extra risk. Here the alpha is positive that
shows the stock is being traded at underpriced, which is a good option for investors to invest in
the stock to get better return in future.
COEFFICIENT OF CORRELATION
The coefficient of correlation is 0.2356. The positive correlation indicates that when the market
return goes up, Dabur India Ltd.’s return also goes up.
COEFFICIENT OF DETERMINATION
The squared coefficient of correlation or the coefficient of determination is 0.0555 or 5.55%. It
indicates the percentage of the variance of Dabur India Ltd.’s returns, explained by the changes
in the market returns. The 94.45% unexplained variance is the firm-specific variance.
The above graph has been derived by plotting monthly returns of Dabur India Ltd. with respect
to the monthly returns of BSE SENSEX, for a span of one year starting from April 2010 to
March 2011. Here, the total no. of observations is 12.The characteristics line has also been
drawn. The Beta of Dabur India Ltd. is the slope of this characteristics line.
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10. Godrej Consumer Products Ltd.
Company Market
Apr-10 11.47 0.18
Godrej Consumer Products
May-10 11.29 -3.5 Ltd. Vs BSE Sensex Returns
Godrej Consumer Products Ltd. Returns
Jun-10 6.66 4.46 15 y = 0.351x + 2.275
R² = 0.086
Jul-10 0.2 0.95
10
Aug-10 8.12 0.58 Godrej
Consumer
Sep-10 8.55 11.67 5
Products Ltd.
Oct-10 2.73 0.38 Vs BSE Sensex
0
Nov-10 -2.34 -2.55 Returns
-20 -10 0 10 20 Linear (Godrej
Dec-10 -7.18 3.32 -5 Consumer
Jan-11 -3.74 -10.64 Products Ltd.
-10 Vs BSE Sensex
Feb-11 -5.6 -3.11 Returns)
BSE Sensex returns
Mar-11 -0.34 5.41
Standard Avg. Company's
Company Name Beta Company's Beta Return Reqd. Return Alpha Status
Godrej
Consumer
Products Ltd. 1 0.351176474 2.485 5.7047779 -3.21977791 Overpriced
The above graph has been derived by plotting monthly returns of Godrej Consumer Product Ltd.
with respect to the monthly returns of BSE SENSEX, for a span of one year starting from April
2010 to March 2011. Here, the total no. of observations is 12.The characteristics line has also
been drawn. The Beta of Godrej Consumer Product Ltd. is the slope of this characteristics line.
BETA (β)
Beta (β) is used to measure the systematic risk of a security. Godrej Consumer Product Ltd. has
a β of 0.3511 based on the monthly returns during April 2010 to March 2011. A Beta of less than
1 but greater than 0 means that returns of Godrej Consumer Product Ltd. are less volatile than
10

11. that of the market (BSE SENSEX). Here the β of Godrej Consumer Product Ltd. is less than 1
that implies that the stock of the company is a defensive stock which would not be market
oriented. If there is increase or decrease in the market index then the stock may not apparently
move along with market. It is good for risk-averse investors, who do want to take high risk.
INTERCEPT (ALPHA)
Alpha is one of five technical risk ratios; the others are beta, standard deviation, R-squared, and
the Sharpe ratio. The intercept Godrej Consumer Product Ltd. is 2.2757. It means the company
has positive 2.27% return when the market return is zero for the extra risk. Here the alpha is
positive that shows the stock is being traded at underpriced, which is a good option for investors
to invest in the stock to get better return in future.
COEFFICIENT OF CORRELATION
The coefficient of correlation is 0.2339. The positive correlation indicates that when the market
return goes up, Godrej Consumer Product Ltd.’s return also goes up.
COEFFICIENT OF DETERMINATION
The squared coefficient of correlation or the coefficient of determination is 0.0864 or 8.64%. It
indicates the percentage of the variance of Godrej Consumer Product Ltd.’s returns, explained by
the changes in the market returns. The 91.36% unexplained variance is the firm-specific
variance.
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12. Hindustan Unilever Ltd.
Company Market
Apr-10 0.13 0.18
Hindustan Unilever Ltd. Vs
May-10 -0.94 -3.5 BSE Sensex Returns
Jun-10 12.73 4.46 20 y = 1.108x + 1.222
R² = 0.608
Hindustan Unilever Ltd. returns
Jul-10 -4.68 0.95 15
Aug-10 5.3 0.58 Hindustan
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Sep-10 16.49 11.67 Unilever Ltd. Vs
5 BSE Sensex
Oct-10 -3.79 0.38 Returns
0
Nov-10 2.67 -2.55 Linear
-20 -10 -5 0 10 20
Dec-10 5.08 3.32 (Hindustan
Jan-11 -13.18 -10.64 -10 Unilever Ltd. Vs
-15 BSE Sensex
Feb-11 3.54 -3.11 Returns )
Mar-11 -0.75 5.41 BSE Sensex Returns
Avg. Reqd. Company's
Company Name Standard Beta Company's Beta Return Return Alpha Status
Hindustan Unilever -
Ltd. 1 1.10834855 1.88333333 0.2573212 2.140654545 Underpriced
The above graph has been derived by plotting monthly returns of Hindustan Unilever Ltd. with
respect to the monthly returns of BSE SENSEX, for a span of one year starting from April 2010
to March 2011. Here, the total no. of observations is 12.The characteristics line has also been
drawn. The Beta of Hindustan Unilever Ltd. is the slope of this characteristics line.
BETA (β)
Beta (β) is used to measure the systematic risk of a security. Hindustan Unilever Ltd. has a β of
1.108 based on the monthly returns during April 2010 to March 2011. A Beta of greater than 1
means that returns of Hindustan Unilever Ltd. is more volatile than that of the market (BSE
SENSEX). Here the β of Hindustan Unilever Ltd. is greater than 1 that implies that the stock of
the company is a aggressive stock which would be market oriented. If there is increase or
decrease in the market index then the stock would apparently move along with the market. It is
not good for risk-averse investors, who do want to take high risk but for risk takers who want to
invest in these securities with the hope of getting risk premium for the additional amount of risk.
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13. INTERCEPT (ALPHA)
Alpha is one of five technical risk ratios; the others are beta, standard deviation, R-squared, and
the Sharpe ratio. The intercept Hindustan Unilever Ltd. is 1.223. It means the company has
positive 1.22% return when the market return is zero for the extra risk. Here the alpha is positive
that shows the stock is being traded at underpriced, which is a good option for investors to invest
in the stock to get better return in future.
COEFFICIENT OF CORRELATION
The coefficient of correlation is 0.7802. The positive correlation indicates that when the market
return goes up, Hindustan Unilever Ltd.’s return also goes up.
COEFFICIENT OF DETERMINATION
The squared coefficient of correlation or the coefficient of determination is 0.6087 or 60.87%. It
indicates the percentage of the variance of Hindustan Unilever Ltd.’s returns, explained by the
changes in the market returns. The 39.13% unexplained variance is the firm-specific variance.
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14. ITC Ltd.
Company Market
Apr-10 0.72 0.18
ITC Ltd. Vs. BSE Sensex
May-10 6.83 -3.5 Returns
Jun-10 11.51 4.46 15
y = 0.661x + 2.424
Jul-10 1.31 0.95
R² = 0.534
ITC Ltd. Returns
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Aug-10 5.36 0.58
Sep-10 9.47 11.67 5 ITC Ltd. Vs.
Oct-10 -1.44 0.38 BSE Sensex
0 Returns
Nov-10 -0.09 -2.55
-20 -10 0 10 20
Dec-10 1.78 3.32 -5 Linear (ITC
Jan-11 -6.62 -10.64 Ltd. Vs. BSE
Feb-11 0.42 -3.11 -10 Sensex
BSE Sensex Returns Returns)
Mar-11 4.58 5.41
Standard Company's Avg. Reqd. Company's
Company Name Beta Beta Return Return Alpha Status
I T C Ltd. 1 0.6616846 2.81916667 0.3942537 2.424912946 Underpriced
The above graph has been derived by plotting monthly returns of ITC Ltd. with respect to the
monthly returns of BSE SENSEX, for a span of one year starting from April 2010 to March
2011. Here, the total no. of observations is 12.The characteristics line has also been drawn. The
Beta of ITC Ltd. is the slope of this characteristics line.
BETA (β)
Beta (β) is used to measure the systematic risk of a security. ITC Ltd. has a β of 0.6617 based on
the monthly returns during April 2010 to March 2011. A Beta of less than 1 but greater than 0
means that returns of ITC Ltd. are less volatile than that of the market (BSE SENSEX). Here the
β of ITC Ltd. is less than 1 that implies that the stock of the company is a defensive stock which
would not be market oriented. If there is increase or decrease in the market index then the stock
may not apparently move along with market. It is good for risk-averse investors, who do want to
take high risk.
14

15. INTERCEPT (ALPHA)
Alpha is one of five technical risk ratios; the others are beta, standard deviation, R-squared, and
the Sharpe ratio. The intercept ITC Ltd. is 2.4249. It means the company has positive 2.42%
return when the market return is zero for the extra risk. Here the alpha is positive that shows the
stock is being traded at underpriced, which is a good option for investors to invest in the stock to
get better return in future.
COEFFICIENT OF CORRELATION
The coefficient of correlation is 0.7309. The positive correlation indicates that when the market
return goes up, ITC Ltd.’s return also goes up.
COEFFICIENT OF DETERMINATION
The squared coefficient of correlation or the coefficient of determination is 0.5343 or 53.43%. It
indicates the percentage of the variance of ITC Ltd.’s returns, explained by the changes in the
market returns. The 46.57% unexplained variance is the firm-specific variance.
COMPARISON AMONG BETA 5 COMPANIES
Companies Beta
Colgate Palmolive Ltd. 0.47
Dabur India Ltd. 0.32
Godrej Consumer Products Ltd. 0.35
Hindustan Unilever Ltd. 1.1
ITC Ltd. 0.66
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16. Here we can compare the Beta of all the five companies. All of them are having
Beta values less than or more than 1. It means all the companies have returns
those are less or more volatile than the market returns.
Since the index is same for all the companies, the company having lowest β is
most risk free among them. Here, Asian Paints has the minimum risk among all
the companies.
RISK & RETURN OF THE COMPANIES
AVG. YEARLY RETURN OF COMPANIES
Returns Beta
Colgate Palmolive Ltd. 1.64 0.47
Dabur India Ltd. 2.22 0.32
Godrej Consumer Ltd. 2.48 0.35
Hindustan Unilever Ltd. 1.88 1.1
ITC Ltd. 2.81 0.66
3
2.5
2
1.5
1
0.5 Risk
0 Return
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17. Among all the companies, Hindustan Unilever Ltd. has High Beta and highest Avg.
Returns is of Godrej Consumer Ltd. So the profile of Dabur India Ltd. is most
attractive for risk-averse but Hindustan Unilever Ltd. has the most attractive
profile for risk takers investors. Again ITC Ltd. is the second best profile for risk
takers because of high beta but Dabur India Ltd. is second best for risk-averse
investors because of a low beta.
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