February 2020 CMAs’ Industry Bulletin

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FEBRUARY 2020

CMAs’ INDUSTRY BULLETIN

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

(Statutory body under an Act of Parliament)

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CMAa CMA 1
 CMAs’ Industry Bulletin February 2020

MISSION STATEMENT

The CMA
Professionals would
ethically drive enterprises
globally by creating value to
stakeholders in the socio-economic VISION STATEMENT
context through competencies
drawn from the integration of
strategy, management and
accounting.
The Institute of Cost
Accountants of India would be
the preferred source of resources
and professionals for the financial
leadership of enterprises
globally.

Disclaimer

The Institute of Cost Accountants of India does not take responsibility for returning unsolicited publication material. Unsolicited articles and
transparencies are sent in at the owner’s risk and the publisher accepts no liability for loss or damage.
The views expressed by the authors are personal and do not necessarily represent the views of the Institute and therefore should not be attributed
to it.
The Institute of Cost Accountants of India is not in any way responsible for the result of any action taken on the basis of the articles and/or
advertisements published in the e-bulletin. The material in this publication may not be reproduced, whether in part or in whole, without the consent
of the Committee, The Institute of Cost Accountants of India. All disputes are subject to the exclusive jurisdiction of competent courts and forums
in Kolkata only.
The Committee has the right to modify / edit any content / title of the submitted article to suit the need of the e-bulletin, without affecting the spirit
of the article.

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 February 2020 CMAs’ Industry Bulletin

MEMBERS IN INDUSTRY COMMITTEE 2019 - 2020

CMA Balwinder Singh President
CMA Biswarup Basu Vice President & Chairman

MEMBERS

CMA H. Padmanabhan
CMA Chittaranjan Chattopadhyay
CMA Debasish Mitra
CMA Rakesh Bhalla
CMA V. Murali
CMA Amal Kumar Das (Co-Opted)
CMA Hetal Shah (Co-Opted)
CMA Davinder Singh (Co-Opted)

SECRETARY

Dr. Pradipta Gangopadhyay

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 CMAs’ Industry Bulletin February 2020

MESSAGE

CMA Balwinder Singh

President
The Institute of Cost Accountants of India

Greetings!!

I would like to acknowledge the dedicated efforts of Members in Industry Committee and valuable inputs
from our resource persons in bringing out this February 2020 edition of ‘CMAs’ Industry Bulletin’.

With the objective to enrich the readers about the different segments of our economy providing the
current updates and through value added articles from industry experts, this edition includes article from
Industry experts on ‘GST Annual Return and Audit Report-Issues, Approaches and Challenges’, IND AS 116
“Leases”- a New Era of Lease Accounting’ and ‘Shareholders Value Creation through Market Capitalization
– a Case Study of FMCG Industry In India’. Further, the readers will get latest developments taking place in
Indian Railways and an overview of Synthetic and Rayon Textiles Exports from India.

My best wishes to Members in Industry Committee for its all future initiatives for development of the
CMA profession.

With warm regards,

CMA Balwinder Singh

President
The Institute of Cost Accountants of India

4 The Institute of Cost Accountants of India www.icmai.in

 February 2020 CMAs’ Industry Bulletin

MESSAGE

CMA Biswarup Basu

Vice President &
Chairman, Members in Industry Committee
The Institute of Cost Accountants of India

Greetings!!!

I am happy to place before you this issue of CMAs’ Industry Bulletin, though it has been a little late
given the present situation of the nation. In this issue, we have tried to gather the latest information
from the Indian railways, which is one of the largest employers in the country. Its contribution to the growth
of the nation is immense. The railway network is also ideal for long-distance travel and movement of bulk
commodities, apart from being an energy efficient and economic mode of conveyance and transport. The
Government of India would make more investor friendly policies so as to enable Foreign Direct Investment
(FDI) in railways to improve infrastructure for freight and high-speed trains, several domestic and foreign
companies are also looking to invest in Indian rail projects.

I am thankful to all the authors who have contributed their articles for this edition of e-bulletin. The
committee is also arranging a number of webinars for our members that may be accessed from the Institute’s
website. The webinars would help the participants in their continuing education program as the industry
experts, on this platform, share their views and knowledge with the participants.

Through this message I wish you and all your loved ones health and safety at this difficult time. We wish
you enjoy reading this issue of CMAs’ Industry Bulletin.

With Warm Regards

CMA Biswarup Basu

Vice President &
Chairman, Members in Industry Committee
The Institute of Cost Accountants of India

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 CMAs’ Industry Bulletin February 2020

CONTENTS

Members in Industry Committee Page - 3

Message from President Page - 4
Message from Vice President & Chairman Page - 5

Guest Column: Article from Industry Expert

GST ANNUAL RETURN AND AUDIT REPORT-ISSUES, APPROACHES
AND CHALLENGES Page - 7

IND AS 116 “LEASES”, A NEW ERA OF LEASE ACCOUNTING Page - 12

SHAREHOLDERS’ VALUE CREATION THROUGH MARKET

CAPITALIZATION – A CASE STUDY OF FMCG INDUSTRY IN INDIA Page - 15

Industry Focus
Indian Railways Page - 26

Export Overview
Synthetic and Rayon Textiles Exports from India Page - 28

6 The Institute of Cost Accountants of India www.icmai.in

 February 2020 CMAs’ Industry Bulletin

GST ANNUAL RETURN

AND AUDIT REPORT-
ISSUES, APPROACHES AND
CHALLENGES

CA. Chunauti H. Dholakia

Practicing Cost Accountant
Bhuj-Kachchh

In the recent years, government has moved from traditional system of assessment to technology driven
system. However, this system was implemented in phased manner and still there were human interface in it.
In the budget 2020, the government has taken one more step towards optimum utilization of technology, time
and resources. Moreover, some measures have been taken to prevent unnecessary harassment to the assessee
during the course of assessment. Some of such measures are discussed herein.
In the VAT and service tax regime, filing of annual return was merely consolidation of all returns filed
during the financial year. But in GST regime, filing of annual return requires more precautions and efforts
as it requires more detailed information than mere consolidation of all returns. Moreover, the annual return
GSTR-9 once filed cannot be revised and any incorrect or incomplete information given in the annual return
attracts tax demand with interest and penalty. It may lead to long term litigation also. GSTR-9 for financial
year 20117-18 is first ever annual return to be filed by the taxpayers in GST regime. Moreover, the financial
year 2017-18 was first year for filing of periodical returns of GST (i.e. GSTR-1 and GSTR-3B).Intention
behind implementation of GSTR-9 was to synchronize data reported by buyer and seller during the financial
year, so that unreported transactions can be traced. But due to some issues and challenges faced by the
taxpayers related to filing of GSTR-9, there is some confusion related to filing of GSTR-9 and GSTR-9C.

G
Introduction of Annual return
overnment has notified form GSTR-9 and 9A
in its notification 39/2018 dated 4th September,
2018 and further amended vide notification
74/2018 dated 31.12.2018..Annual return
GSTR-9 can be defined in one word as aggregation return.
GSTR-9 is annual summary of sales, tax paid on sales,
purchases, input tax credit (ITC) claimed, ineligible credits,
details of imports and exports, demands and refunds. Every
registered persons except input service distributors, casual
taxable persons, non-resident taxable persons and persons

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 CMAs’ Industry Bulletin
paying tax u/s. 51 (TDS deductor) or section 52 (E-Commerce
Operator) has to file annual return irrespective of turnover.
Regular tax payer has to file GSTR-9 and composition tax
payer has to file GSTR-9A before due date of filing of such
return notified. For the financial year 2017-18, due date of
filing annual return has been extended till 30 June, 2019.
Late fee for filing annual return after due date is total Rs.200
per daysubject to 0.50% (0.25% CGST+0.25% SGST) of
taxpayer’s turnover. It has to be filed per GSTIN, not per
entity. Hence in case of multiple registration obtained by the
taxpayer in one state or multiple states, it shall be treated as
distinct person in respect of each registration Hence multiple
GSTIN has to be filed by such taxpayer having same PAN.
The Annual return should be filed after filing of all periodical
returns of respective financial year.
GSTR-9 is dividend in 6 parts and 19 tables. Details
required in each part are as under:
Parts Information required
of the
GSTR-9
Part-I Basic details of the taxpayer from Table 1 to
3 (Auto-populated).
Part-II Details of Outward and Inward supplies
declared during the financial year from Table
4 and 5.(Consolidated summary from all GST
returns filed in that FY).
Part-III Details of ITC declared in returns filed
during the Financial Year from Table 6 to 8.
(Summarized values from all the GST returns
filed in that FY).
Part-IV Details of tax paid and payable in Table-9..
Part-V Particulars of the transactions of the FY
2017-18 declared in returns of April-2018 to
September-2018 in Table 10 to 14(Summary
of amendment or omission entries belonging
to FY 2017-18 but reported in April-2018 to
Sep-2018)
Part-VI Other Information from Table 15 to 19
comprising details of:
- GST Demands and refunds,
- HSN wise summary information of
the quantity of goods supplied and received
with its corresponding Tax details against
each HSN code,
- Late fees payable and paid details and
- Segregation of inward supplies received
from different categories of taxpayers like
Composition dealers, deemed supply and
goods supplied on approval basis.
Issues related to GSTR-9
Registration related issues
In some cases, taxpayers have at the time of registration
opted for composition scheme, but later they switched on to
regular scheme, or may be vice versa. In such cases GSTR-9
8 The Institute of Cost Accountants of India www.icmai.in
February 2020
should be filed for the period of registration under regular
scheme and GSTR-9A should be filed for the period of
registration under composition scheme. If the registration
of taxpayer is cancelled during the financial year 2017-18
or after end of that financial year, GSTR-9 should be filed
for the period of registration. Even if the application for
registration is pending as on 31.03.2018, GSTR-9 should
be filed. Moreover, even if registration is obtained only for
making payment of taxes on reverse charge, annual return
has to be filed. Similarly, even if there is no outward or
inward supply, NIL annual return has to be filed.
Mismatch of values in GSTR-1 and GSTR-3Bor in
books of accounts
Due to errors or omissions at the time of filing of GSTR-1
or GSTR-3B related to FY 2017-18, there may be mismatch
in values of GSTR-1 and GSTR-3B.it is advisable that values
of outward supplies and tax payable should be derived from
GSTR-1, while values of inward supplies, Input Tax Credit
(ITC) and net tax paid in cash should be derived from GSTR-
3B. It is also advisable that reconciliation for mismatch
between GSTR-1 and GSTR-3B should be prepared and
differences in tax liability, if any should be paid through
Form GSTR-3B of subsequent month/DRC-03.If there is
under reporting or over reporting in GSTR-1, such correction
in GSTR-1 is allowed only before filing GSTR-1 for the
month of September-2018. If there is under reporting or
over reporting in GSTR-3B, it should be reported in GSTR-
3B before September-2018. There may be cases where
values cannot match with values mentioned in books of
accounts. Hence in such cases separate reconciliation should
be prepared for such difference. If such mismatch results
in excess tax paid, such adjustment should be reported in
GSTR-3B of subsequent month before date of filing annual
return.
Missing outward and inward supplies
There may be cases where sale bills related to FY 2017-
18 were missed to be reported in periodical returns till
September-2018, which may result in additional liability.
Such additional liability cannot be reported in GSTR-9. The
annual return GSTR-9 is only an aggregation return. Hence
details filed in periodical returns should be mentioned on
“as is” basis..There is no scope of amendment in GSTR-9
for correction of mistakes committed while filing periodical
returns. In such cases, such missing outward supplies can be
reported in GSTR-3Bbefore September-2018. If it is reported
on or after October, 2018 till the due date of filing of annual
return, it should be intimation to the department through a
letter. Same is also applicable to duplication of invoices and
to inward supplies. In case of taxpayers liable to GST Audit,
it can be reported in GSTR-9C as unreconciled liability with
details of its payment. Moreover, respective correction for
outward supplies should also be made in GSTR-1 before
filing GSTR-1 of September, 2018.
Inclusion of details filed in belated returns
If any periodical return for the FY 2017-18 is filed after
 February 2020
March-2018, which includes details related to FY 2017-18,
such details should be considered for filing of GSTR-9 and
should be reported in Table-4. Similarly amendments related
to invoices of FY 2017-18 reported in periodical returns
filed up to September-2018 should also be considered and
should be reported in Table 10 and 11 of GSTR-9. Here one
notable point is that after amendment in GSTR-9 the word
“as declared in returns filed during the year” is replaced with
“made during the year”. Hence, it is required to disclose
details pertaining to FY 2017-18, which are not reported
in periodical returns up to March-2018, but reported in
periodical returns from April—2018 to September-2018.
Missing/ excess Input Tax Credit claimed
If input tax credit (ITC) related to FY 2017-18 is missed to
be claimed in GSTR-3B up to September-2018, it cannot be
claimed through GSTR-9. Hence It is advisable to claim ITC
up to due date of filing GSTR-3B of September-2018 i.e.
before 20th October, 2018. In case of excess ITC claimed, it
should be reversed as soon as possible. There is no due date
for such reversal. Moreover, in Table-6, only ITC claimed up
to March-2018 should be reported and any reversal of ITC
through periodical returns filed up to March-2018 should
be reported in Table-7 and credit reversal pertaining to FY
2017-18, which are reversed after March-2018 should be
reported in Table-12. It is advisable that timely and accurate
declaration of ITC should be made in GSTR-1 and GSTR-
3B to avoid such mismatch.
Bifurcation of ITC
GSTR-9 requires bifurcation of ITC into input, input
services and capital goods, which was not demanded in
periodical returns. Hence it may be difficult to prepare such
break-up of ITC in case it is not prepared at the time of filing
periodical returns. Moreover, at the time of preparation of
such bifurcation, it should be reconciled with total amount of
ITC reported in periodical returns. GSTR-1 forms the base
to prepare such bifurcation.
Providing details of HSN wise summary
GSTR-9 requires providing details of HSN wise summary
of inward supplies, which was not required in periodical
returns. Such summary was required only in cases where
value under one HSN is more than 10% of value of all HSNs.
Hence it requires additional exercise to prepare HSN wise
details from books of accounts. To identify and summarize
HSN, sorting and filtering tool can be helpful.
Approaches for filing of GSTR-9
GSTR-9 can be filed only after filing of all periodical
returns for the financial year 20117-18. Hence before
filing of annual return, it is necessary to ensure that all
periodical returns pertaining to such period has been duly
filed. Also, it is necessary that figures mentioned in annual
returned must be matched with data in periodical returns
filed for the financial year 2017-18 as well as with books
of account. There may be cases of mismatch where books
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CMAs’ Industry Bulletin
of accounts has been prepared branch wise at entity level,
while periodical returns are required to be filed GSTIN
wise. Another reason for mismatch is transactions missed to
be reported in periodical returns or in books or it may be
under reported or over reported. There may be cases, where
excess/less ITC has been claimed in books of accounts or in
periodical returns. If figures of annual return not matched
with periodical returns to avoid further ligation in future
and to arrive at accurate figure of tax liability, reconciliation
should be prepared for the same. In case of under reported/
over reported figures are identified in such reconciliation, it
should be first rectified in respective periodical return before
due date of its filing. Hence reconciliation of GSTR-1 with
GSTR-3B, reconciliation of GSTR-2A with GSTR-3B,
reconciliation of periodical returns with books of accounts
and reconciliation of ITC claimed in periodical returns with
ITC as per books of accounts should be prepared. In case
of under reported transactions for inward supplies, regular
follow up should be made with the vendor to report such
transactions to reflect in GSTR-2A. Also, ITC reversal if any
should be done at the end of the year. Similarly details for
ITC reclaimed should be maintained separately as GSTR-9
requires providing such details separately.
Moreover, it should be ensured that advances paid or
received must be adjusted at the end of the year against
invoices issued and only balance should be reflected.
Table 16A of GSTR-9 requires providing details of
supplies received from composition dealers. In case invoice
wise separate data is not maintained in vendor master, it
will be long exercise to get the details by vouching each
and every invoice. Similarly Table 16B requires to provide
details of deemed supply under section 143. Hence inputs
and capital goods sent for job work and not returned within
stipulated time has to be disclosed here. Hence the taxpayer
who has not maintained such data has to start working to get
the details. Hence it is advisable to maintain such details in
system to extract the same in easy way.
List of reconciliations to be prepared for annual return:
Following reconciliations should be prepared for annual
return.
Reconciliations Reconciliation in between
related to
ITC 1 As per GSTR-2A
2 As per GSTR-3B
3 As per GSTR-9 (column-8)
4 As per books of accounts
5 As per invoices
6 Blocked credits
7 Credit not eligible
Output 1 As per GSTR-1A
2 As per GSTR-1
3 As per E-way bill register
4 As per books of accounts
 CMAs’ Industry Bulletin
5 As per GSTR-9
6 As per GSTR-3B
7 B2B Vs. B2C
8 Inter-state Vs. Intra-state
9 Exempted Vs. Taxable
Other 1 Multiple branches/states
2 Multiple tax categories (5%,
12%, 18%, 28%
3 RCM or direct
4 Type of tax (CGST/SGST/IGST)
5 Nil rated vs. exempted
6 HSN Code wise
7 Purchases/Assets/expenses wise
8 Month wise/year wise
Challenges related to annual return
Major challenge faced by the taxpayers is non modification
of any details already submitted through periodical returns
as GSTR-9 allows only reproduction of data, not any
modification. GSTR-9 does not allow any new information.
Hence any errors or omissions discovered by the taxpayer
later on and not rectified in any periodical returns for the
financial year 2017-18, it cannot be modified in GSTR-9.
Another challenge is non-reporting of additional liability
missed to be reported in periodical returns. GSTR-9 not
allows reporting such additional liability. Hence some
clarification is expected from the Government regarding
manner of payment of such additional liability through
GSTR-3B or DRC-03. At present it can only be paid in cash
using DRC-03.
Moreover, mechanism to report IGST on import paid
during FY 2017-18 but claimed in April to September-2018
is not provided.
Introduction of GSTR-9C
GSTR-9C is reconciliation statement to be filed by
the taxpayer whose turnover during the financial year
exceeds Rs.2 crore. Such taxpayer has to get certified the
reconciliation statement by a Chartered Accountant or a Cost
Accountant. Purpose of introduction of the reconciliation
statement GSTR-9C is to ensure true and correct disclosure of
all liability by the taxpayer and to match figures of periodical
returns with books of accounts. GSTR-9C is divided in two
parts. Part-A covers reconciliation statement and Part-B
covers the certification by a Chartered Accountant or a Cost
Accountant. Part-B is further divided in two sub-parts. First
sub-part covers certification in cases where reconciliation
statement is drawn by the same auditor, who has audited
books of accounts under any law. Second sub-part covers
certification in cases where reconciliation statement is drawn
by the person other than the person who has audited books of
account. It is mandatory to file all Form GSTR-3B, GSTR-1
and GSTR-9 before filing GSTR-9C. In case of non-filing of
GSTR-9C, penalty up to Rs.25000/- u/s. 125 may be levied.
10 The Institute of Cost Accountants of India www.icmai.in
February 2020
Issues related to GSTR-9C
Calculation of state wise turnover
Reconciliation statement GSTR-9C requires reporting
state wise turnover separately. The turnover is calculated
on PAN basis. But GST audit is required on registration
basis as well as state wise. Hence state wise registration has
been obtained on single PAN, multiple GST Audit should
be conducted if PAN based turnover exceeds Rs.2 Crore.
In case of companies having branches in more than one
state, which prepares consolidated financial statements, it is
cumbersome exercise to bifurcate turnover state wise in case
there is more than one branch located in one state.
Calculation of aggregate turnover
GSTR-9C requires reporting aggregate turnover. The
aggregate turnover includes taxable, exempt as well as nil
rated supply. This turnover is considered on PAN basis. If
the aggregate turnover exceeds Rs.2 crore, reconciliation
statement has to be filed even if branch wise/state wise
turnover is less than Rs.2 crore. Moreover, turnover as per
GST Act should be considered, not as per books of accounts.
Even if registration has been obtained under reverse charges
and main business of the taxpayer is in exempt supply of
goods or services, GST audit is necessary, if aggregate
turnover of the taxpayer exceeds Rs.2 crore.
Approaches related to GST Audit
GST Audit covers verification of turnover, verification of
payment of GST, verification of ITC availed and utilized,
accuracy of all GST returns filed, verification of maintenance
of proper documents and records, reconciliation of
purchases and supplies etc. To complete this audit in timely
and effective manner, a checklist should be prepared and
necessary documents for audit should be kept ready. List of
documents required for GST Audit are as under:
Documents Sr. Type of document
related to No.
General 1 Copy of state wise GST
registration certificate
2 Copy of books of accounts with
ledger accounts of all receipts,
expenses, fixed assets etc.
3 GSTIN wise bifurcation of
receipt and expenses
4 Copy of Income Tax return, Tax
audit report
5 Copy of GSTR-3B, GSTR-1,
GSTR-4 and GSTR-6
6 Copy of delivery challan issued
for goods sent and received back
from job work.
 February 2020 CMAs’ Industry Bulletin

7 Copy of import and export

license
8 List of debtors/creditors
outstanding for more than 180
days as on 31st March, 2018
9 Details of advances received at
the end of financial year.
10 Details of discounts obtained
and given.
11 Copy of registration obtained,
if any as Casual Taxable Person
along with invoices issued, if
any.
12 Copy of inspection notices,
if any issued by inspection
department.
Invoices 1 Copy of tax invoices and
invoices of purchase
2 Copy of self invoices in case of
reverse charge
3 Bill of entry and other relevant
documents for import of goods/
machinery.
4 All invoices, shipping bill, FIRC
and other relevant documents for
export of goods and services.
Input Tax 1 Bifurcation of ITC relating to
Credit (ITC) inputs, input services, capital
goods
2 Copy of ITC-04 in case of
manufacturing concern.
3 ITC ledger rate wise for CGST/
SGST/IGST etc.
4 Copy of TRAN-1 filed for carry
forward of ITC from previous
regime.

Conclusion
Filing of GST annual return and audit report requires
detailed planning with due care. As this is the first year, there
are many challenges that can be faced while filing of the
same. But with proper documentation, timely filing of GST
annual return and audit report can be possible.

The author may be reached at

cachdholakia@gmail.com

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 CMAs’ Industry Bulletin
IND AS 116 “LEASES”,
A NEW ERA OF LEASE
ACCOUNTING
Avinash Soni
DGM - Finance
PVR Limited, Jaipur
I
INTRODUCTION
ndian Accounting Standard (Ind AS) 116, Leases  is
now applicable for Ind AS companies from the
accounting period beginning on or after 1 April 2019.
For lessees the standard is expected to bring operating
leases on-balance sheet as if the entity has borrowed funds
to purchase an interest in the leased asset. This change will
affect key financial ratios which are commonly used for
covenant testing and while making Investment decisions.
The Financial Accounting Standard Board, International
Accounting Standard Board and Accounting Standard Board
of ICAI have given green signalto the new era of lease
Accounting. New lease Accounting Standard will lead to
significant shift in the accounting of lease by lessees.
OVERVIEW
• The Ministry of Corporate affairs (MCA) notified
new accounting standard IND AS 116 on March 30,
2019 which replaces the existing standard (IND AS
17) from financial periods beginning April 01, 2019
and thereafter;
• Accounting to shift from operating lease model (Off
Balance sheet) to finance lease model (On Balance
sheet);
• Lessees are initially required to recognise a “lease
liability” for the obligation to make lease payments
and a “Right-of-use asset” for the right to use
12 The Institute of Cost Accountants of India www.icmai.in
February 2020
underlying asset for the lease term.
• The lease liability is recognised and measured at an
amount equal to the present value of minimum lease
payments during the lease term that are not yet paid.
Right of use asset is recognised and measured at cost,
consisting of lease liability less any lease incentives
received, initial estimate of the restoration costs and
any initial direct costs incurred by the lessee.
• The right-of-use asset is amortised in accordance
with IND AS 16, property, plant and equipment and
lease liability is measured in subsequent periods using
effective Interest rate method where lease payments
are apportioned between Interest cost and reduction
of lease liability;
• Exemption available for immaterial lease and short
term lease (less than 12 months);
• The Standard will affect commonly used financial
ratios and performance metrics such as gearing ratio,
current ratio, asset turnover ratio, Interest coverage
ratio, Earning before Interest, tax and depreciation
(EBITDA), Operating profit, net Income, Earning per
share (EPS), Return on capital Employed (ROCE),
Return on Equity (ROE) and operating cash flows.
• The Standard does not contain substantial changes
to lessor accounting compared to IND AS 17. The
Lessor still has to classify leases as either finance or
operating, depending on whether substantially all of
the risk and rewards incidental to ownership of the
 February 2020 CMAs’ Industry Bulletin

underlying asset have been transferred. Impact on the Income Statement

• Standard requires enhanced quantitative and
qualitative disclosures for both lessors and lessees.
Under IND Under IND AS 116 Annual
• Transition Provision: The standard permits lessees Years AS 17 Impact in
to use either Full retrospective approach or Modified P&L
Lease Rent ROU Interest
retrospective approach on transition for leases
existing at the date of transition, with options to use 1 10,00,000 5,70,068 11,40,136 -7,10,204
certain transition reliefs. 2 10,00,000 5,70,068 11,54,150 -7,24,218
• Full retrospective approach: Requires restatement of 3 10,00,000 5,70,068 11,69,565 -7,39,633
comparative information;
4 11,50,000 5,70,068 11,86,521 -6,06,589
• Modified retrospective approach: The cumulative
5 11,50,000 5,70,068 11,90,173 -6,10,241
effect of applying the standard is recognised as
an adjustment to the opening balance of retained 6 11,50,000 5,70,068 11,94,190 -6,14,258
earnings at the date of initial application; 7 13,22,500 5,70,068 11,98,609 -4,46,177
8 13,22,500 5,70,068 11,86,220 -4,33,788
EXAMPLE OF HOW ACCOUNTING WOULD 9 13,22,500 5,70,068 11,72,592 -4,20,160
CHANGE FINANCIALS CONSIDERABLY
10 15,20,875 5,70,068 11,57,602 -2,06,795
Assuming below lease terms agreed between Lessee and
Lessor, the table below explain the impact of new accounting 11 15,20,875 5,70,068 11,21,274 -1,70,467
standard vis-à-vis old accounting standard. 12 15,20,875 5,70,068 10,81,314 -1,30,507
13 17,49,006 5,70,068 10,37,358 1,41,580
Assumption for lease terms 14 17,49,006 5,70,068 9,66,193 2,12,745
• Annual Rental – Rs. 10 lacs; 15 17,49,006 5,70,068 8,87,912 2,91,026
• Lease escalation – 15% after every 3 years; 16 20,11,357 5,70,068 8,01,803 6,39,486
• Lease term – 20 years; 17 20,11,357 5,70,068 6,80,847 7,60,442
• Assuming Company doesn’t follow lease equalisation 18 20,11,357 5,70,068 5,47,796 8,93,493
policy;
19 23,13,061 5,70,068 4,01,440 13,41,552
• Depreciation at Straight line method
20 23,13,061 5,70,068 2,10,278 15,32,715
• Discount rate – 10%
3,08,87,337 1,14,01,360 1,94,85,977 0

Impact on the Balance Sheet

Initially Lease liability and right of use asset are measured and recognised at present value of minimum lease payments
i.e. Rs. 1,14,01,360.
Lease liability Right of use Asset
Years Lease liability – Lease liability – Right of use Asset – Annual Right of use
Lease Payments Interest
Opening Closing Opening Depreciation Asset – Closing
1 1,14,01,360 -10,00,000 11,40,136 1,15,41,496 1,14,01,360 5,70,068 1,08,31,292
2 1,15,41,496 -10,00,000 11,54,150 1,16,95,646 1,08,31,292 5,70,068 1,02,61,224
3 1,16,95,646 -10,00,000 11,69,565 1,18,65,210 1,02,61,224 5,70,068 96,91,156
4 1,18,65,210 -11,50,000 11,86,521 1,19,01,731 96,91,156 5,70,068 91,21,088
5 1,19,01,731 -11,50,000 11,90,173 1,19,41,904 91,21,088 5,70,068 85,51,020
6 1,19,41,904 -11,50,000 11,94,190 1,19,86,095 85,51,020 5,70,068 79,80,952
7 1,19,86,095 -13,22,500 11,98,609 1,18,62,204 79,80,952 5,70,068 74,10,884
8 1,18,62,204 -13,22,500 11,86,220 1,17,25,925 74,10,884 5,70,068 68,40,816
9 1,17,25,925 -13,22,500 11,72,592 1,15,76,017 68,40,816 5,70,068 62,70,748
10 1,15,76,017 -15,20,875 11,57,602 1,12,12,744 62,70,748 5,70,068 57,00,680
11 1,12,12,744 -15,20,875 11,21,274 1,08,13,143 57,00,680 5,70,068 51,30,612
12 1,08,13,143 -15,20,875 10,81,314 1,03,73,583 51,30,612 5,70,068 45,60,544

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 CMAs’ Industry Bulletin February 2020

13 1,03,73,583 -17,49,006 10,37,358 96,61,935 45,60,544 5,70,068 39,90,476

14 96,61,935 -17,49,006 9,66,193 88,79,122 39,90,476 5,70,068 34,20,408
15 88,79,122 -17,49,006 8,87,912 80,18,028 34,20,408 5,70,068 28,50,340
16 80,18,028 -20,11,357 8,01,803 68,08,474 28,50,340 5,70,068 22,80,272
17 68,08,474 -20,11,357 6,80,847 54,77,964 22,80,272 5,70,068 17,10,204
18 54,77,964 -20,11,357 5,47,796 40,14,403 17,10,204 5,70,068 11,40,136
19 40,14,403 -23,13,061 4,01,440 21,02,783 11,40,136 5,70,068 5,70,068
20 21,02,783 -23,13,061 2,10,278 -0 5,70,068 5,70,068 -0

KEY IMPACT

KPI’s IMPACT Comments

Lease Expense Lease expense will be reduced and will be accounted as depreciation and Interest expense.

As lease expense will now be accounted as depreciation and Interest expense, EBITDA will
EBITDA
increase.

With increase in absolute EBITDA and no change in revenue, EBITDA Margin are
EBITDA Margin
naturally going to increase under the new Accounting Standard.
Depreciation and
amortisation Lease expense will now be split under depreciation and Interest expense. Hence
Depreciation and Interest expense will see an increase under the new Accounting Standard.
Interest Expense

Basis the standard, lease expenses will be front loaded, hence, net profit for the earlier years
Earlier year’s PAT
will be lower. However, over the term of the lease, there will be no impact on the net profit.

Assets The standard requires to create “lease liability” and corresponding “Right to use asset”
to account for future lease liability. Basis which Balance sheet will be asset rich with
Liabilities corresponding heavy indebtedness.

The accounting standard shift will not lead to overall cash flow impact, though Operating
Cash flows No Impact
cash flow will improve at the expense of financing activity cash flows.

The author may be reached at

avinashsoni786@gmail.com

14 The Institute of Cost Accountants of India www.icmai.in

 February 2020 CMAs’ Industry Bulletin

SHAREHOLDERS’ VALUE
CREATION THROUGH
MARKET CAPITALIZATION
A CASE STUDY OF FMCG
INDUSTRY IN INDIA

Dr. Pradeep Kumar Singh

Assistant Professor
Bharathidasan Govt. College for Women (autonomous)
Puducherry

Market capitalization is an important parameter for measurement of shareholders value creation. In the
last two decades Indian corporates, apart from other financial informations such as EPS, ROI, ROCE and
earning statements; are equally giving importance for determination of market capitalization and value
creation for the shareholders as part of fundamental objective wealth maximization. It indicates market
trend about demand and supply of shares, which is based on many internal and external factors. Market
capitalization is gaining more importance in current scenario, because old traditional measures are criticised
for having low correlation with shareholder value creation.
Presently, shareholders are not only interested in dividend, are equally interested in total value creation
by the firm. They believe that value creation is more important then receiving dividend. In a long run
value creation depends upon intangibles such as Employees skills, IT systems, Brand image of company and
product and organizational cultures are worth far more to many companies than tangible assets. Therefore,
new valuation method is needed to measure the shareholder value creation. Keeping all these factors in view
an attempt is made by the researcher to analyze the market capitalization practices among the Indian FMCG
corporate’s, how they are disclosing it in annual statement and how it effects shareholder value creation in
contemporary environment.
Finally researcher found that FMCG Brands are attracting and retaining many customers, resulted
higher market share, higher turnover, higher profitability and maximization of shareholders value. Market
Capitalization and EVA are popular model related to value creation for the shareholders. Most of the value
created by specific intangible assets such as; Consumer Brands, Trademarks, Business and Commercial
Rights, Strong channel partners & Efficient distribution system. Overall creation of intangible assets by the
FMCG is 91.21% during the study period which is promoting value creation for the sample corporate’s.

www.icmai.in Behind every successful business decision, there is always a CMA 15

 CMAs’ Industry Bulletin February 2020

Part-I Exhibit I: Market Value and Tangible & Non-Tangible

Components

S
1.1 INTRODUCTION:
hareholders value creation is an important aspect
of current globalized environment. Currently,
shareholders are focusing on overall value creation
by the company rather then one aspect such as
dividend payout trends or earnings for a particular period.
Shareholders value creation means creation of appropriate
profits/ value to the shareholders through better management
such as; improvement of brand image, innovations,
sustainable developments, creative in accounting transaction
and position of their product in market. Shareholders value
creation is not a one-time phenomenon, but the corporates
should make every effort to create, sustain and enhance value
to their shareholders on a constant and continuous basis as
a conscious governing objective1. To measure shareholders
value creation has been the issue of discussion all around the Source: Study on Market Value of S&P 500 Companies in
world in the last two decades. It has become crucial since 2015 by Ocean Tomo
the companies were increasingly committing to creating
shareholder value. Old traditional measures are criticised 1.2 MARKET CAPITALIZATION:
for having low correlation with shareholder value creation.
Therefore, new valuation methods are needed to measure the Market capitalization is no thing, but it is market value
shareholder value creation2. of equity capital for a particular time based on demand and
supply factors in stock market. Fundamentally, it is calculated
Indian corporates, apart from other financial information’s by outstanding shares multiply by market value of shares
such as EPS, ROI, ROCE and earning statements, are equally on a particular date (normally end of the financial year). It
giving importance for determination of market capitalization represents tangible and intangible value of a corporate in
and value creation for the shareholders as part of fundamental terms of money, which is affected by various financial, non-
objective wealth maximization. It indicates market trends financial, internal and external factors (refer exhibit II). It is
about demand and supply of shares of a particular company, one of the important method to measure shareholders value
which is based on many internal and external factors. There creation. As market capitalization increases day by day or
are various methods to determine the shareholders value year by year value of share and shareholders are gaining
creation, but market capitalization is one of the important more importance (for their shares) in the stock market.
method to determine the value because it includes all the Reputations and image of brand, product segment, earning
factor such as; financial efficiency, contribution of tangible capacity, dividend pay out trends and economic situation
capital, contribution of intangible assets, brand image and etc, are the important factor which affects size of market
reputation of the company etc. capitalization of the firm.
Exhibit I indicates contribution of tangible and intangible
components in market value of leading companies. It shows
in the year 1975 contribution of intangibles are only 17%
of market value which was increases up to 80% in the year
2005 and further increases up to 87% in the year 2015. It
indicates in the last three decades contribution of intangibles
are significant for the value creation. However, in the long-
run value of shares are only increases due to all such factors.
So, we can say market capitalization covered all financial
and non-financial factors in terms of money and determine Source: Authors own compilation from various sources.
the value of a corporate.

Market capitalization is a measurement of the size of

1
P.K. Chakraborty (2006): Shareholders Value Creation-The Pressing
Corporate Agenda, The Chartered Accountant, Vol 54 No 11, May
pp1647-50.
2
Beatrice Nyiramahoro & Natalia Shooshina: International Accounting
and Finance Master Thesis – No 2001:8 Creating and Measuring
Shareholder Value: Applicability and Relevance in Selected Swedish
Companies.
a business enterprise equal to the share price times the
number of shares outstanding of a public company. Market
capitalization is popular in the area of financial management
especially in the last two decade. It is one of the measures
of the strength of company related with demand of the share
at national as well as global market. Market capitalization is
a market estimate of a company’s value, based on perceived
future prospects, economic and monetary conditions. Stock
prices can also be moved by speculation about changes in

16 The Institute of Cost Accountants of India www.icmai.in

 February 2020 CMAs’ Industry Bulletin

expectations about profits or about merger and acquisition.
Net worth: Net worth is the total assets minus external
liabilities of an individual or a company. For a company,
this is called shareholders’ equity and may be referred to as
book value. At the time of calculation of intangible assets
under market capitalization method net worth is a significant
indicator. Net worth is stated for a particular point in time.
Net worth is generally based on the value of all assets and
liabilities at the carrying value, that is, the value as expressed
on the financial statements. To the extent that items on the
balance sheet do not express their true (“market”) value,
the net worth will also be inaccurate. Normally net worth
is equal to paid up capital, plus reserves and funds minus
fictitious assets.
1.3 MARKET CAPITALIZATION–Global Scenario:
At global level, India is the third largest country is having
higher intangible assets in the market capitalization, among
the European Union, G8, Organisation of Economic Co-
operation & Development countries and even the BRIC
grouping. India Inc takes a most ‘intangible’ amongst Asian
economies, with an estimated intangible assets component of
74% (as proportion of TEV), India is just behind US (75%)
and Switzerland (74%), according to Global Intangible
Tracker 2007 (GIT), the most extensive global study ever
on intangibles assets by the London-based Brand Finance
Institute6. Global intangibles to TEV average is around 65%.
Exhibit III: Breakdown of Corporate Assets Including
Intangibles

Intangible assets: Under the market capitalization

method, intangible assets are taken as deference between
market capitalization for particular time (normally at the end
of the financial year) and net worth. To find out the value
of intangible assets market capitalization method (MCM)
is one of the popular valuation method. Under this method
initially market capitalization is calculated by multiplying
the market value per share with number of outstanding
shares, then deducted from the stockholders equity value, Source: Global Intangible Finance Tracker (GIFT™) —
difference will be treated as the value of intangible assets. an annual review of the world’s intangible value November
This intangible assets is commonly represented the value for 2019,p 6
Human capital3, Relationship capital4 and Organizational
(Structural) Capital5 , which exist in a particular firm to
provide leverage for value creation. Exhibit IV indicates shareholders value creation by Indian
corporates and impact on market capitalization. How market
capitalization affected by tangible assets and intangible
Now the question arises why we need market assets and what accounting concepts are responsible for it.
capitalization and why Indian companies are focusing on On an average contribution of tangible assets are nearly 26
determination and reporting of the various segment of market percent in market capitalization where as intangibles are
capitalization? Simple answer is market capitalization is one contributed approx. 74 percent in the market capitalization
of the important basis for measurement of shareholders value in knowledge economy.
creation as well as most important method for determination
of value for intangible assets, which are invisible but they
are contributing major role in the process of value creation. Exhibit: IV Shareholders Value Creation and Various
In the current knowledge and service oriented economy, Components
contribution of intangible assets are more in the value
creation process rather then tangible assets in terms of value
and growth.
3
Human capital refers to Capability of a company to benefit from
knowledge, skills and experience of employees, which immanently
pertain to the latter Such as capability for innovations, creativity, know-
how and experience, ability to work in a team, motivation, learning
capability, educational and professional level and loyalty etc.
4
Relationship Capital refers to capability of a company to benefit Source: Authors own compilation from various sources.
from resources connected with the company’s external relations
(with customer, suppliers, and other counteragents) such as brands,
suppliers, loyalty of the customers, distribution channels, business Keeping all these factors in view an attempt is made by
cooperation, alliances and partnerships, licensing agreements, the researcher to analyze the market capitalization practices
franchising agreements etc.
5
Organizational (Structural) Capital means capability of a company
among the Indian FMCG sector, how they are disclosing
to benefit from attainments remaining inside the company such as it in annual statement and how it affects shareholder value
Intellectual Property patents, trademarks, service marks, name
of origin of goods, copyright etc. Infrastructural Assets corporate 6
GIT 2007, exclusive global break with ET, covered over 5,000
culture, internal administration of the work­flow, information companies in 32 countries. For India, GIT considered the top 50
systems, management philosophy, decision-making system etc. companies (by market cap) on the Bombay Stock Exchange.

www.icmai.in Behind every successful business decision, there is always a CMA 17

 CMAs’ Industry Bulletin
creation. For smooth and logical analysis, present research
paper is divided in four sections. First Section deals with
introduction of topic, statement of the problem, rationale of
study, and review of literature related for shareholders value
creations. Second section deals with research methodology
including research questions, objectives, hypothesis and
limitations of the study. Third section deals with data analysis
related to market capitalization, creation of intangible assets,
reporting and discloser practices for market capitalization
and shareholders value creation. And fourth section is for
key observations, findings, suggestions and conclusion.
1.4 REVIEW OF LITERATURE:
A lot of national and international literature is available
in the area of shareholder value creations and related issues.
Some of the researches are very useful and significant in
this regards. Booth Laurence7 explained various drivers
of shareholder value creations with the focus that stock
market values are driven by real corporate performance, as
compared to market benchmarks. As ordinary managers are
transformed themselves as value managers with the help of
CSV model they more close to value creation process. This
model emphasis enhancement of turnover ratios, increases
profit margins and as a result increases profitability. He also
pointed that firm are facing critical decision is to adopt a value
based managerial system or a particular set of decision tools.
Baruch Lev8 examined the relationship of knowledge assets
and shareholders value creation. He focused that investors
recognize the primacy of knowledge assets as value-creators,
but don’t count on capital markets to value properly in real
time those assets. He concluded that, these companies which
most urgently need to adopt new technologies, change
organizational designs and invest in research and human
resources. These companies encounter great difficulties
doing so because of the high uncertainty associated with
most knowledge assets, and investors’ preference for quick
gratification in the form of high corporate earnings. Beatrice
Nyiramahoro & Natalia Shooshina9 examined why old
traditional measures are criticized for having low correlation
with shareholder value creation. They presented view
how shareholder value is created as a background to the
valuation methods being used for shareholder value creation
measurement. The empirical part of the study showed that
although the companies in this study have implemented
many ways to create shareholder value, little effort is being
made to measure it since the majority of them are still using
the traditional accounting measures. They recommended the
companies to use ‘value based methods’ when measuring
shareholder value creation since they are more reliable.
7
Booth Laurence (1998): What Drives Shareholder Value? Presented
at the Federated Press “Creating Shareholder Value” conference,
October 28,
8
Baruch Lev (2001): “Intangibles: Management, Measurement, and
Reporting”, Washington, D C: The Bookings Institution.
9
Beatrice Nyiramahoro & Natalia Shooshina (2001): “Creating
and Measuring Shareholder Value: Applicability and Relevance
in Selected Swedish Companies”, International Accounting and
Finance Master Thesis–No 2001:8
18 The Institute of Cost Accountants of India www.icmai.in
February 2020
Pablo Fernandez10 explained various aspect of shareholder
value creation with help of case study of General Electric
between 1991-1999. To explain shareholders value creation
he defines increases in equity market value, the shareholders
added value, the shareholders returns and the required return
to equity. He had also calculated creating shareholders value
of 142 American companies during the eight year period
1992-99 and popularize the concept of shareholder value
creation.
N Viswanadham and Poornima Luthra11 focused on
the strategic profit model (SPM) and the economic value-
added (EVA) to measure shareholder value. SPM measures
the return on net worth (RONW) which is defined as the
return on assets (ROA) multiplied by the financial leverage.
EVA is defined as the firm’s net operating profit after taxes
(NOPAT) minus the capital charge. Their study is significant
in extending the measurement of shareholder value using
SPM and EVA to listed third party software providers. They
concluded that reducing fixed assets, accounts receivables
and operating expenditure have been identified as areas
that require attention by the companies in this industry to
enhance shareholders value. Chakraborty P.K.12 stated
shareholders value creation is the top most priority for
the corporate world today. This move has gained added
momentum with the rising expectation of the shareholders
for their value of money. He explained different facets and
principles of shareholders value creation from professional
perspective. He stressed brand management, cost control
and cost reduction, employee’s interest and retention etc
are an important area of value creation. Mohanty B.K13
focused on market capitalization by Indian corporate’s in
the last one decade. His analysis is based in on different
classification such as large cap, mid-cap and small-cap. He
made a systematic analysis of top ten gains and looser and
most wealth creators based on market capitalization and
how management should focus on different aspect of wealth
creation practices. Gill, Suveera, (2004) stated that now a
days, for creation of wealth and growth, we cannot depend
upon the tangible assets, importance of intangibles increases
in the global environment, but identifying, measuring
and reporting of intangibles have raised questions. He
explains the market capitalization and book value of sensex
companies and role of intangibles for growth and value
creation. He explained the international practice set forth
by IAS-38 and at national level AS-26 for intangibles. He
concluded that the difficulties in valuation for intangibles
should not discourage the companies from the disclosure
of correct, factual, and important information’s about the
intangibles. Sarker, Siddhartha (2006) made an attempt to
10
Pablo Fernandez (2002): Valuation Methods and Shareholder Value
Creation, 2002 Academic Press, San Diego, CA.
11
Viswanadham N and Luthra Poornima (2005): “Models for measuring
and predicting shareholder value: A study of third party software service
providers”, Sadhana Vol. 30, Parts 2 & 3, April/June pp. 475–498.
12
Chakraborty P.K. (2006): “Shareholders Value Creation-The Pressing
Corporate Agenda”, The Chartered Accountant, Vol 54 No 11, May
pp1647-50.
13
Mohanty B.K(2008): “Market Capitalization: A Suitable Growth
Approach for Share Holders’ Value Creation”, The Management
Accountant, , Volume 43 No. 8, August pp 594-598.
 February 2020
precise concept and define intellectual capital and using it to
understanding value creation as well as, how it relates to the
long term sustainability of knowledge intensive enterprise.
He also highlighted classification of intellectual capital,
motive behind the measuring of intellectual capital and
models of intellectual capital.
All theses researches are related to the various aspect of
shareholders value creation and analysis of different models,
but no one correlated creation of intangible assets by
market capitalization method and how intangible assets are
important for enhancement of market capitalization as well
as shareholders value creation in general and for FMCG in
particuler.
Part-II
2.1 RESEARCH METHODOLOGY AND DESIGN:
This research study is a macro nature case study; based
on the secondary source of data related to 08 leading Indian
FMCG corporate’s which are listed in BSE. Most of the
data’s related to market capitalization had been collected
from their published annual reports and official websites of
the sample companies related to last 6 financial years (From
2012-13 to 2018-19). Because, these years are important for
the growth and development of Indian corporates as well as
market capitalization practices. For the analysis of collected
data, the basic parameters are market capitalization, creation
of intangible assets, percentage of intangible assets with
market capitalization, relationship of market capitalization
and shareholders value creation and net worth are considered
for the sample companies. Statistical tool such as; average,
coefficient of correlation and student t test are also used by
the researcher in appropriate place.
2.2 Research Questions: After the analysis of nature and
significance of shareholder value creation in the contemporary
knowledge environment, it’s important to examine the
role of market capitalization and creation of intangibles
for shareholders value creation. It’s equally important to
examine the reporting and disclosure methodology related to
market capitalization by Indian corporate’s. Based on such
information’s researcher is trying to find out answer of the
following questions.
• How Indian corporate’s are defining and examining
shareholder value creation?
• Is market capitalization is appropriate indicator for
shareholders value creation?
• How market capitalization affects creation of
intangible assets which leads value creation process
in knowledge environment?
2.3 Objectives of the Study: Keeping the above
research questions in mind, the purpose of this study is to
examine shareholder value creation with the help of market
capitalization. Further to evaluate contribution of market
www.icmai.in Behind every successful business decision, there is always a CMA 19
CMAs’ Industry Bulletin
capitalization in the creation of intangible assets. Therefore;
this study intends to deal with the following objectives:
• To understand the concept of shareholders value
creation in the light of market capitalization.
• To understand market capitalization method and
creation of intangible assets.
• To find out contribution of market capitalization in
the creation of intangible assets.
• To find out reporting & disclosure practices related
with shareholders value creation.
2.4 Hypothesis of the study: In the light of above
objectives the following hypotheses are framed for the
present study.
NH0: Market capitalization not significantly contributed in
the creation of intangible assets.
AH0: Market capitalization significantly contributed in the
creation of intangible assets.
NH1: Reporting and disclosure practices adopted by
FMCG companies are not adequate for market capitalization.
AH1: Adequate reporting and discloser practices adopted
by Indian companies with the market capitalization
2.5 Limitations of the study: The following are the main
limitations of the present study:
• This study is a macro nature case study; limited to
last 6 financial years (From 2012-13 to 2018-19).
performance of the BSE listed FMCG companies.
• To evaluate shareholder value creation, among the
other methods market capitalization method has been
used in this study.
• The data used in this study have been taken from
published annual reports only (secondary source).
Part-III
3.1 MARKET CAPITALIZATION & INDIAN
CORPORATES
Market capitalization is popular among the Indian
companies since two decades to support and enhances
value creation for the shareholders. To know the market
capitalization and creation of intangible assets in FMCG
industry, an analysis is made by the researcher to understand
different factors, which are responsible for the creation of
the shareholder value.
As far as Indian companies are concern Exhibit V indicates
the market capitalization by top 20 Indian companies in
the year 2019. Reliance industries ltd is top among the
20 companies with a market capitalisation of Rs 990,279
crore in the year 2019 then followed by TCS (Rs. 812,635
crore), HDFC Bank (Rs. 696,632 crore) and so on. When
we analyze the nature of industry and market capitalization
to know which industry contributed more among the top 20
companies, researcher found that banking companies are
the leader in the market capitalization process in the year
 CMAs’ Industry Bulletin February 2020

2019. Five companies are of banking sector such as HDFC
Bank, ICICI bank, Kotak Mahindra, SBI , Axis Bank
they contributed significantly in market capitalization.
Four companies belong to Info tech sector (TCS, Infosys,
WIPRO and HCL Tech), three companies from finance
sector (HDFC, Bajaj Finance and Bajaj Finserv), while two
companies belong to Oil & Gas industry (RIL, and ONGC),
two companies belongs to FMCG (ITC and HUL) and so on
other sectors In summary we can say in the year 2019 higher
market capitalization secured by the Banking and finance
and info tech companies .

Exhibit V: Top 20 Indian Companies based on the Market Capitalization-2019

Market Gain in Market
Top 20 Market Capitalization
Company Industry type Capitalization Capitalization
Rank 2019(Rs in Crore).
2009(Rs in Crore). (times)
Reliance Industries ltd Oil & Gas 990,279 337998 2.93
1
2 TCS InfoTech 812,635 120000 6.78
3 HDFC Bank Banking 696,632 71238 9.78
4 HUL FMCG 425,267 61342 6.93
Housing
HDFC 420,097 77860 5.40
5 finance
6 ICICI bank Banking 349,915 100003 3.5
7 Kotak Mahindra Banking 327,267 Not in Top 20 ----
8 Infosys InfoTech 310,569 128085 2.43
SBI Banking 297,056 143211 2.08
9
10 ITC FMCG 296,295 95204 3.12
11 Bajaj Finance finance 248,810 Not in Top 20 ---
12 Bharti Airtel Telecom 225,785 128968 1.78
Maruti Suzuki Automobile 217,403 Not in Top 20 ---
13
14 Axis Bank Banking 210,207 Not in Top 20 ---
15 Larsen Infra 184,950 96073 1.93
16 Consumer
Asian Paints 167,380 Not in Top 20 ----
durable
17 ONGC Oil & Gas 157,820 255415 -0.38
18 HCL Tech InfoTech 151,287 Not in Top 20 ---
19 Bajaj Finserv finance 149,350 Not in Top 20 ----
20 Wipro InfoTech 139,824 86264 1.63
Source: Compiled from data of money control.com for the year 2019 and 2009.

When we are comparing market capitalization data as compare to market capitalization in the year 2009 to find out the
accumulated growth of the companies, researcher found that highest growth made by HDFC Bank 9.78 times followed by
HUL (6.93 times), TCS (6.78 times) HDFC (5.4 times)and so on. One of the important observation noted by the researcher
that between 2009 to 2019 among the top 20 Corporate’s by market capitalization, there are 7 Corporate’s which are not in
top 20 in the year 2009 but in 2019 because of significant growth in the market capitalization they are in the list of top 20
market capitalization list.
Finally, we concluded that out of top 20 market capitalization list in the year 2009 ITC and HUL secured 11th and 18th rank
respectively (refer Exhibit VI) but in the year 2019 after one decade situation is entirely different, HUL and ITC secured 4th
and 10th position respectively as per market capitalization parameters it indicates these two companies consistently improving
their market capitalization in absolute figure as well as their ranking in the top 20 corporate’s as per the market capitalization

Exhibit VI: Top 20 Indian Companies based on the

2 ONGC Oil & Gas 255415
Market Capitalization-2009
Market 3 NTPC Power 175452
Top20 Capitalization
Company Industry type
Rank 2009 (Rs in 4 SBI Banking 143211
Crore).
Reliance
1 Oil & Gas 337998 5 Bharti Airtel Telecom 128968
Industries ltd

20 The Institute of Cost Accountants of India www.icmai.in

 February 2020 CMAs’ Industry Bulletin

Infosys Fast-moving consumer goods (FMCG) sector is the 4th

6 InfoTech 128085
Technologies largest sector in the Indian economy with Household and
7 TCS Computer 120000
Personal Care accounting for 50 per cent of FMCG sales
in India. Growing awareness, easier access and changing
8 BHEL Capital Goods 117729 lifestyles have been the key growth drivers for the sector.
The urban segment (accounts for a revenue share of around
9 ICICI bank Banking 100003 55 per cent) is the largest contributor to the overall revenue
generated by the FMCG sector in India However, in the last
10 L&T Capital Goods 96073 few years, the FMCG market has grown at a faster pace in
rural India compared with urban India. Semi-urban and rural
11 ITC FMCG 95204
segments are growing at a rapid pace and FMCG products
12 WIPRO InfoTech 86264
account for 50 per cent of total rural spending.
The Retail market in India is estimated to reach US$ 1.1
13 Indian oil Oil & Gas 79043 trillion by 2020 from US$ 840 billion in 2017, with modern
Housing trade expected to grow at 20 per cent - 25 per cent per annum,
14 HDFC 77860 which is likely to boost revenues of FMCG companies.
Finance
Infrastructure/ Revenues of FMCG sector reached Rs 3.4 lakh crore (US$
15 SAIL 73009
Steel 52.75 billion) in FY18 and are estimated to reach US$ 103.7
16 HDFC bank Banking 71238 billion in 2020. The sector witnessed growth of 16.5 per cent
in value terms between July-September 2018; supported
Sterlite Copper by moderate inflation, increase in private consumption and
17 67275
industries Product
rural income.@
18 HUL FMCG 61342 The government has allowed 100 per cent Foreign Direct
Reliance Investment (FDI) in food processing and single-brand retail
19 Telecom 49019
communication and 51 per cent in multi-brand retail. This would bolster
20 GAIL
Petroleum
46589 employment and supply chains, and also provide high
Gas visibility for FMCG brands in organised retail markets,
Source: http://money.rediff.com/companies/market- bolstering consumer spending and encouraging more product
capitalisation launches. The sector witnessed healthy FDI inflows of US$
14.67 billion, during April 2000 to March 2019. Some of
3.2 MARKET CAPITALIZATION- A case study of the recent developments in the FMCG sector are as follows:
FMCG Industry. • Patanjali will spend US$743.72 million in various
FMCG industry is one of the popular and strong customer food parks in Maharashtra, Madhya Pradesh, Assam,
base industries in India from many years. India one of the Andhra Pradesh and Uttar Pradesh.
higher consumer based country where customers are highly • Dabur is planning to invest Rs 250-300 crore (US$
fermented according to the age, occupation cultural diversity, 38.79-46.55 million) in FY19 for capacity expansion
social trends, urban and rural population etc, that directly and is also planning to make acquisitions in the
affected their basic needs and it will provide an opportunity domestic market.
for the FMCG companies to grow in a systematic manner. • In May 2018, RP-Sanjiv Goenka Group created an Rs
A well-established distribution network, intense competition 1 billion (US$ 14.92 million) venture capital fund to
between the organized and unorganized segments are the invest in FMCG start-ups.
main characteristics the sector. Hair care, household care,
male grooming, female hygiene, and the chocolates and • In August 2018, Fonterra announced a joint venture
confectionery categories are estimated to be the fastest with Future Consumer Ltd which will produce a
growing segments in the coming years. range of consumer and foodservice dairy products
FMCG in india

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 CMAs’ Industry Bulletin February 2020

3.3 Government Initiatives purchasing power, along with strong macro-economic

Some of the major initiatives taken by the government to
promote the FMCG sector in India are as follows:
• The Government of India has approved 100 per cent
Foreign Direct Investment (FDI) in the cash and carry
segment and in single-brand retail along with 51 per
cent FDI in multi-brand retail.
• The Government of India has drafted a new Consumer
Protection Bill with special emphasis on setting up
an extensive mechanism to ensure simple, speedy,
accessible, affordable and timely delivery of justice
to consumers.
• The Goods and Services Tax (GST) is beneficial for
the FMCG industry as many of the FMCG products
such as Soap, Toothpaste and Hair oil now come
under 18 per cent tax bracket against the previous
23-24 per cent rate. Also rates on food products and
hygiene products have been reduced to 0-5 per cent
and 12-18 per cent respectively.
• The GST is expected to transform logistics in the
FMCG sector into a modern and efficient model as all
major corporations are re-modeling their operations
into larger logistics and warehousing.
The growth of Indian middle class, with increasing
fundamentals has attracted the major FMCG to Indian
market. The market linked exchange rate, well established
financial market, stable policy and availability of trained
manpower have also shifted new capacities and flow of
capital to the FMCG industry of India.
Under FMCG category firms such as Dabur, HUL,
Colgate Palmolive, Britannia, ITC, Nestle, Marico, and
Godraj consumer product ltd are the major companies they
are contributing a major part in India FMCG market. For
calculation of market capitalization average of the Higher
and lower market value for the month of March every
year at Bombay Stock Exchange (BSE) is taken for the
last six years (2013-14 to 2018-19). When we analyze the
market capitalization and role of intangible assets, FMCG
companies are leader among all industries (refer exhibit III).
In the process of market capitalization ITC having strong
market capitalization with an average of Rs. 309362 crore
during the last six years similarly they are also creating huge
intangible assets on an average Rs. 267138 crore in the
same period. Second largest market capitalization created by
HUL with Rs 227211 crore and they are also generating
intangible assets worth Rs 221460 crore and then after
followed by Godraj, Dabur, Colgate Palmolive Britannia
and Nestle, respectively.

Exhibit VII. Market Capitalization and Intangible Assets- FMCG industry. (In crore Rs.)

% of intangible Market
Rank (based
Total market Net Intangible assets with capitalization/ Net
Companies on creation
capitalization* worth* assets** total market worth
on IA)
capitalization (In times )
DABUR 50161 4395 45766 91.24% 11.41 VI
HUL 227211 5751 221460 97.47% 39.51 I
COLGATE 27235 1108 26127 95.93% 24.58 II
BRITANIA 40425 2327 38098 94.24% 17.37 III
ITC 309362 42224 267138 86.35% 7.33 VII
#NESTLE 6827 3067 3760 55.07% 2.23 VIII
GODREJ CPL 54041 4653 49388 91.39% 11.61 V
MIRCO 32530 2179 30351 93.30% 14.93 IV
Average 93474 8213 85261 91.21% 11.38
Source: Calculated and complied from the annual reports from 20013-14 to 2018-19. #data up to Dec 2018 *Average of
the last six years. ** Intangible assets = Market Capitalization – Net Worth
When we are comparing Intangible assets with market creation, again HUL is the leader, their market capitalization
capitalization to know the contribution of intangible assets is 39.51times of net worth, which indicates that intangible
in the overall market capitalization and creation of intangible assets having a greater role in the shareholder value creation.
assets, scenario is entirely different. HUL is the company in Then it is followed by Colgate (24.58 times), Britannia
which contribution of intangible assets are 97.47%of market (17.37 times), Marico (14.93times), Godraj (11.61times),
capitalization and leading among the FMCG companies, Dabur (11.41times), ITC (7.33times) and Nestle with 2.23
then second and third place secured by Colgate (95.93%) times of their market capitalization. In FMCG industry
, BRITANIA (94.24%) of their market capitalization intangible assets are in form of Goodwill, Trade marks
respectively, then followed by Marico (93.30%), Godraj & Patent, Computer Software, Copyrights and Design,
(91.39%), Dabur (91.24%), ITC (86.35%) and Nestle with Business and Commercial Rights, Technical Know-how and
55.07% Strong customer base, and distribution channels etc are the
When market capitalization compare with net worth to key factors for the creation of enormous intangible assets
know the impact of intangibles on the shareholder value during the study period.

22 The Institute of Cost Accountants of India www.icmai.in

 February 2020 CMAs’ Industry Bulletin

A part from all these intangible assets there are many particular company.
important but hidden or not disclosed or non reported
intangible assets are also related with FMCG companies.
3.5 REPORTING FOR MARKETCAPITALIZATION:
One of the important intangible assets is Brand of the FMCG
companies which attract and retain many customers, resulted A comprehensive analysis and survey made by the
higher market share, higher turnover and profitability. researcher to know the voluntary reporting of market
capitalization model, various components and their
According to top 100 brand in India for the year 2019
association to shareholders value creation among FMCG
reported by Brand Finance14, ITC is having 25th position,
companies. Models such as Market Value Added or
Godrej secured 28th position, Britannia with 31st position and
Market Capitalization, EVA are popular model related to
Dabur Indian ltd is having 65th position, but these value are
value creation for the shareholders. When we analyzed
not a part of financial statement (self generated intangible
the contents of annual reports of the selected FMCG
assets) due to lack of reorganization. Another important
companies researcher found that HUL, Dabur, BRITANIA,
intangible asset is strong customer base and distribution
MIRCO & NESTLE are voluntarily reporting about market
network. But due to the lack of their reorganization under
capitalization. HUL and MIRCO is reporting about EVA &
AS-26 companies they cannot disclose and incorporate
its various components and market capitalization in annual
the value of these intangible assets in financial statements
reports. It indicates that FMCG companies are also partly
resulted present & potential investors are away form the real
adopting voluntary reporting methods related to shareholders
earning capacity and market potential of the company.
value creation (market capitalization and EVA).
Over all creation of intangibles assets is 91.21% for the
FMCG industry in the last Six years. And, finally on the
basis of contribution of intangible assets in the market 3.6 TESTING OF HYPOTHESIS:
capitalization of the company a formal ranking is give by Without testing of hypothesis research study can not be
the researcher. Based on the above criterion Ist place secured completed. In this research paper also, researcher is trying to
by HUL and second & third place secured by Colgate and test some hypothesis. For the testing of hypothesis statistical
Britannia respectively and other places secured by Marico, tool such as; coefficient of correlation and student t test
Dabur, Godrej, ITC and NESTLE respectively. are used by the researcher. A coefficient of correlation is
calculated between two variables market capitalization (X)
and value of IA(Y) for the FMCG companies to find out
3.4 TRENDS OF MARKET CAPITALIZATION,
whether value of intangibles are closely associated with
NET WORTH, AND CREATION OF INTANGIBLE
market capitalization or some other factors are responsible
ASSETS:
for it. Karl person’s coefficient of correlations (r) is used
For the depth analysis of market capitalization, researcher by the researcher in this regard. Coefficient of correlation
analyzed consistency in market capitalization, Net worth, between market capitalization and intangible assets are
and creation of intangible assets during the study period. The 0.997, it indicates both the variables are highly associated
main purpose of this analysis is to find out the companies with each other. It signifies as market capitalization
who’s contribution is higher in terms of market capitalization increases, value of intangible are also increases in the same
and creation of intangible assets, further to identify that direction. To find out whether this association is significant
higher market capitalization companies are having higher or not, student t test is also used by the researcher and same
intangible assets or some other trend is exist among the results are supported by student’s t- test.
sample companies. Researcher found that companies such
Our one hypothesis that market capitalization significantly
as HUL, ITC, Godrej and DABUR are following same
contributed in the creation of intangible assets is accepted
trends during the study period (higher market capitalization,
by the researcher. Because our finding indicates that in
higher net worth and higher intangible assets), it indicates
FMCG companies contribution of intangible assets is approx
that higher market capitalization creates higher intangibles.
91.20% in the market capitalization on average basis.
Another trend observed by the researcher that many leading
Another hypothesis that adequate reporting and disclosure
companies they are having higher market capitalization, but
by the Indian companies related with market capitalization
they are not creating higher intangible assets such as ITC
partially proved. Because out of the 08 sample companies
and Nestle etc. because of negative impact of higher Net
only 05 leading companies are directly reporting information
Worth, resulted their ranking for creation of intangible assets
about market capitalization and related areas in annual
is below as the ranking of their market capitalization. One of
reports as voluntary basis. similarly two companies reporting
the important intangible assets in FMCG is the Consumer
about EVA directly for the benefit of shareholders. There are
Brands which attract and retain many customers for long
many reasons for partial reporting and disclosure by Indian
time, resulted higher market share, higher turnover, higher
corporate’s such as; reporting is not mandatory, lack of top
profitability and maximization of shareholders wealth.
level managerial support, lack of supporting provisions
It is clear from the above analysis that for FMCG under AS-26 etc.
Corporate’s, Brand value is most important intangible assets
because customers will attract with brands related to the
14
Brand Finance (2019): India 100, The annual report on the most
valuable and strongest Indian brands, July 2019,p 14-15.

www.icmai.in Behind every successful business decision, there is always a CMA 23

 CMAs’ Industry Bulletin
Part-IV
4. FINDINGS AND AGENDA FOR ACTION:
4.1 Findings: The following are the main findings of the
present study:
• FMCG Brands are attracting and retaining many
customers, resulted higher market share, higher
turnover, higher profitability and maximization of
shareholders value.
• Models such as Market Capitalization, EVA are
popular model related to value creation for the
shareholders.
• Five out of eight sample companies directly reporting
about market capitalization HUL and MIRCO
are reporting about EVA to support and justify
shareholders value creation
• HUL, ITC, GODREJ CPL and Dabur are having
higher market capitalization, higher net worth and
higher intangible assets; it indicates that higher
market capitalization creates higher intangibles
which ultimately enhance shareholders value in long
run.
• In FMCG industry, most of the value created
by specific intangible assets such as , brands,
Trademarks, Business and Commercial Rights,
strong channel partners efficient distribution system.
Their monitoring and reporting is important in
contemporary environment.
• Overall creation of intangible assets by the FMCG
is 91.21% during the study period (based on MCM).
• As far as intangible assets creation is concern, highest
intangible assets created by ITC worth Rs. 267138
crore then second and third places are secured by
HUL and GODREJ CPL worth Rs. 221460 Crore and
Rs.49388 Crore respectively.
• According to Contribution of Intangible assets in
market capitalization, in HUL contribution of IA in
the market capitalization is 97.47% and securing Ist
position second and third positions are secured by
COLGATE and BRITANIA with 95.93%and 94.24%
respectively.
• As per our examination of FMCG corporate’s , they
are claiming higher value of intangibles based on
market capitalization method, but in the parameter
of reporting and disclosure, few intangibles were
disclosed in annual reports.
• It’s suggested to FMCG corporate’s to provide
information about brand value and valuation
methodology as additional/supplements reporting
statement, similarly information about distribution
network, and strong customer’s base etc. to the various
stakeholders, to justify the value of intangibles based
on market capitalization method.
• Brand name, Trademarks and Application Software’s
are highly preferred intangible assets by the FMCG
companies to disclose as additional information in
24 The Institute of Cost Accountants of India www.icmai.in
February 2020
financial statements.
4.2 Agenda for action:
• It’s suggested to motivate corporates on more
investment in R&D activities, because in knowledge
economy R&D activities are the key factors for
success and enhancement of value creations in the
global competitive.
• Many intangible assets are of unstable nature it’s
suggested that corporates should establish an effective
internal monitoring system which will evaluate and
safeguard intangibles in a positive manner.
• It’s suggested to Indian companies to adopt affordable
and sustainable innovations to lead in the market,
which will enhance earning capacity and shareholder
value creation in the succeeding years.
• In FMCG companies their consumer brand’s
(intangible assets) are important to create value /
enhancement market share of the product, but
Indian companies are not valuing and monitoring it
systematically.
• It is suggested to adopt cost control and cost
management by adoption of kaizen costing for
enhancing manufacturing innovation, use target
costing for research & development innovation,
and over all cost management during the production
process. This will maximize value creation and
earnings.
4.3 Criticism of Market Capitalization Approach:
MCM approach is also criticized by the various thinker
and financial experts. As we know market capitalization
model depends upon the two factors such as number of
outstanding shares and market value of each share on
specific date. Normally, number of shares are not frequently
change (increases or decreases during the financial year) by
the company (except bonus/fresh issued or reorganization of
share capital). However, market value of share fluctuated
every day, every week and every month. This will affect
size of market capitalization and correspondingly creation
of intangible assets. The simple reason is there are various
external factors which will affects market value of shares
such as economic situation of the state, political situation,
and government policy towards industry etc. Each and every
increases in the value of share cannot be correlated with
creation of intangible assets, but in long term perspective
as value of shares increases there are some internal factors
which are responsible for increases in the value of shares
(such as dividend policy, earning capacity, organizational
structure, competence of employees, and work orders etc)
which are motivating investor’s to buy shares at higher rate
which will further create intangible assets for the company.
With this significance many Indian companies are using
market capitalization method to measures shareholders
value creation.
 February 2020
4.4 Conclusion:
Shareholders value creation is gaining more and more
importance in the current environment because of optimum
utilization of resources and better financial management
practices. Market capitalization method is gradually
accepted by all the stakeholders to know value creation or
destruction by the corporates. Currently, innovations, brand
value, image of the corporate, skills and experience of
employees–all are intangibles, directly or indirectly affecting
market capitalization and shareholders value creation in the
competitive era in. As intangible components are created and
enhance by the FMCG companies in their business operations
they can maximise value for shareholders positively. Along
with that voluntary reporting by the corporates are equally
important to understand value creation process and how it
can be maximize in knowledge environment.
References:
1. Annual reports of Dabur, HUL, Colgate Palmolive,
Britannia, ITC, Nestle, Marico, and Godraj from
2013-14 to 2018-19.
2. Banerjee Bhabatosh (2001): “Corporate Financial
reporting practices in India”, India Journal of
Accounting Vol XXXII Dec.
3. Beatrice Nyiramahoro & Natalia Shooshina (2001):
“Creating and Measuring Shareholder Value:
Applicability and Relevance in Selected Swedish
Companies”, International Accounting and Finance
Master Thesis–No 2001:8
4. Bhasin Madan (2007): “Intangible capital reporting:
Challenges of standardization and Harmonization”
The Chartered Accountant, Vol 55, No 12, June,
pp1842-1858.
5. Booth Laurence (1998): What Drives Shareholder
Value? Presented at the Federated Press “Creating
Shareholder Value” conference, October 28,
6. Chakraborty P.K. (2006): “Shareholders Value
Creation-The Pressing Corporate Agenda”, The
Chartered Accountant, Vol 54 No 11, May pp1647-
50.
7. Chakraborty P.K.(2005): “Intangible accounting
practices–a case study of Dr. Reddy’s laboratories
ltd”, The Management Accountant, Vol 40, No 5,
May The ICWAI Calcutta pp362-65.
8. Chandna Tilak (2008): “A study of intellectual capital
reporting in India” The Chartered Accountant, Vol
56 No 12, June, pp1991-2000.
9. Das Bhagaban & Parmanik Alok (2006): “Measuring
knowledge assets – a look to the future”, The
Management Accountant, Vol 41 No 12, December,
The ICWAI Calcutta pp.936-940.
10. Ghosh Subhajit (2008): “Knowledge assets: An
underestimated attribute to be identified and
quantified” The Management Accountant, Vol 43 No
09, Sept. The ICWAI Calcutta pp 688-704.
11. Gill Suveera (2004). Accounting for intangibles:
www.icmai.in Behind every successful business decision, there is always a CMA 25
CMAs’ Industry Bulletin
A tangible new responsibility. The Management
Accountant, 39(05).
12. Jhunjhunwala Shital (2005): “Does the market
understand Intangibles” The Chartered Accountant,
Vol 54 No, 01 July, pp123-127
13. Joishy N. Gurudutt( 2008): “Valuation for intangible
assets” The Chartered Accountant, Vol 56, No 08
February pp 1291-1298.
14. Lev, B. (2001) “Intangibles: Management,
Measurement, and Reporting”, Washington, D C:
The Bookings Institution.
15. Mohanty B.K(2008): “Market Capitalization: A
Suitable Growth Approach for Share Holders’ Value
Creation”, The Management Accountant, , Volume 43
No. 8, August pp 594-598.
16. Pablo Fernandez (2002): Valuation Methods and
Shareholder Value Creation, Academic Press, San
Diego, CA.
17. Robert S. Kaplan and David P. Norton (2004):
“Measuring the Strategic Readiness of Intangible
Assets” Harvard Business Review, Feb.pp2-10
(online edition).
18. S.B. Akash & Shiralshetti A. S. (2006): “Accounting
for Intangible assets–a study” The Management
Accountant, Vol 41 No 3 , March The ICWAI
Calcutta pp197-199.
19. Sarker Sidhratha (2006): “Invisible value: the care
of measuring organizational Intellectual Capital” ,
The Management Accountant, Vol 41 No 3 , March
The ICWAI Calcutta pp200-204.
20. Sarker, Sidhratha (2006). Invisible value: The care
of measuring organizational intellectual capital. The
Management Accountant, 41(03), 200-204.
21. Singh Pradeep Kumar (2009): “Accounting for
Intangible Assets and Depreciation in India” in The
Chartered Accountant. Vol 58 No 03, September,
published by The Institute of Chartered Accountant
of India (ICAI), New Delhi (ISSN: 009-188X) pp.424-
430.
22. Singh Pradeep Kumar (2009): “Intangible Assets
Accounting and Reporting Practices in India”, The
Indian Journal of Commerce, Vol 62 No 02 April-
June Quarterly publication of Indian Commerce
Association (ICA) New Delhi, (ISSN: 0019-512X)
pp125-136.
23. Viswanadham N and Luthra Poornima (2005):
“Models for measuring and predicting shareholder
value: A study of third party software service
providers”, Sadhana Vol. 30, Parts 2 & 3, April/June
pp. 475–498.
The author may be reached at
drpks3@rediffmail.com
pkspondy.edu@gmail.com
 CMAs’ Industry Bulletin
Industry Focus - Indian Railways
Introduction
The Indian Railways is among the world’s largest rail
networks. The Indian Railways route length network is
spread over 1,23,236 km, with 13,452 passenger trains and
9,141 freight trains from 7,349 stations plying 23 million
travellers and 3 million tonnes (MT) of freight daily. India’s
railway network is recognised as one of the largest railway
systems in the world under single management.
The railway network is also ideal for long-distance travel
and movement of bulk commodities, apart from being an
energy efficient and economic mode of conveyance and
transport. Indian Railways was the preferred carrier of
automobiles in the country with loading from automobiles
traffic growing 16 per cent in 2017-18.
The Government of India has focused on investing on
railway infrastructure by making investor-friendly policies.
It has moved quickly to enable Foreign Direct Investment
(FDI) in railways to improve infrastructure for freight and
high-speed trains. At present, several domestic and foreign
companies are also looking to invest in Indian rail projects.
Market Size
Indian Railways’ revenues increased at a CAGR of 6.20
per cent during FY08-FY19 to US$ 27.13 billion in FY19.
Earnings from the passenger business grew at a CAGR of
6.43 per cent during FY07-FY19 to reach US$ 7.55 billion
in 2018-19P. Freight revenue rose at a CAGR of 4.30 per
cent during FY08-FY19 to reach US$ 18.20 billion in 2018-
19.
The gross revenue stood at Rs 85,835.05 crore (US$
12.28 billion) in FY20P (up to September 2019). Passenger
earnings of Indian Railways is estimated at Rs 26,642.73
crore (US$ 3.81 billion) in FY20 (up to September 2019).
Freight earnings in FY20 (up to September 2019) stood at
Rs 54,232.05 crore (US$ 7.76 billion).
India was among the top 20 exporters of railways globally,
as of 2017. India’s exports of railways have grown at a CAGR
of 31.51 per cent during 2010-2018 to US$ 507.90 million.
Exports of railways in 2019E stood at US$ 635 million.
Investments / Developments
Foreign Direct Investment (FDI) inflows into Railways
Related Components from April 2000 to June 2019 stood at
US$ 977.24 million.
Following are some of the major investments and
developments in India’s railways sector:
• In November 2019, pilot project was launched to
study the feasibility of using Railways’ parcel service
for e-tail players.
• In November 2019, Indian Railways entered into
Procurement cum Maintenance Agreement with
Madhepura Electric Locomotive Pvt. Ltd. (MELPL),
26 The Institute of Cost Accountants of India www.icmai.in
February 2020
a joint venture of Indian Railways and France-based
Alstom to manufacture 800 electric locomotives for
freight service and its associated maintenance.
• In October 2019, Indian Railway launched One Touch
ATVM for fast ticketing at 42 Suburban Stations of
Central Railway.
• Khurja –Bhadan section of eastern corridor in Uttar
Pradesh to be formally opened for traffic on October
2, 2019.
• In July 2019, longest electrified tunnel built between
Cherlopalli and Rapuru stations.
• From April-August 2019, a total of 24,493 bio-toilets
were installed in trains.
• In May 2018, IRCTC introduced Alternate Train
Accommodation Scheme (ATAS) which aims to
provide confirmed berths in alternate trains to
waitlisted passengers.
• In December 2018, France-based Alstom announced
plans to augment its coach production capacity at its
facility in Sri City from 20 cars per month to 24 cars
per month. Also, it will set up a new production line
to increase capacity to 44 cars per month by the end
of 2019.
• In December 2018, the Prime Minister of India laid
the foundation stone for the third phase of the Pune
metro.
Government Initiatives
Few recent initiatives taken up by the Government are:
• In February 2019, Indian Railways decided to launch
food packets with QR codes and give live kitchen
feed.
• The speed is been raised to 160 kmph on Delhi-
Mumbai and Delhi Howrah routes by 2022-23. The
passenger trains have got approval to raise 60 per
cent increase in average speed.
• Under the Union Budget 2019-20, the Government
of India allocated Ministry of Railways Rs 1,60,176
crore (US$ 22.91 billion).
• Dedicated Freight Corridor Corp. of India Ltd
(DFCCIL), is already building the first two freight
corridors—Eastern Freight Corridor from Ludhiana
to Dankuni (1,856km) and Western Freight Corridor
from Dadri to Jawaharlal Nehru Port (1,504km)—at
a total cost of Rs 81,000 crore (US$ 11.59 billion).
• As of December 2018, the Government of India is
considering a High Speed Rail Corridor project
between Mumbai and Nagpur
• As of November 2018, Indian Railways is planning
to come out with a new export policy for railways.
• The Government of India is going to come up with
 February 2020 CMAs’ Industry Bulletin

a ‘National Rail Plan’ which will enable the country
to integrate its rail network with other modes of
transport and develop a multi-modal transportation
network.
• A ‘New Online Vendor Registration System’ has
been launched by the Research Designs & Standards
Organisation (RDSO), which is the research arm
of Indian Railways, in order to have digital and
transparent systems and procedures.
• The Government of India has signed an agreement
with the Government of Japan under which Japan
will help India in the implementation of the Mumbai-
Ahmedabad high speed rail corridor along with a
financial assistance that would cover 81 per cent of
the total project cost.

Road Ahead
The Indian Railway network is growing at a healthy rate.
In the next five years, the Indian railway market will be
the third largest, accounting for 10 per cent of the global
market. Indian Railways, which is one of the country’s
biggest employers, can generate one million jobs, according
to Union Minister for Railways and Coal.
Indian Railways is targeting to increase its freight traffic
to 3.3 billion tonnes by 2030 from 1.1 billion tonnes in 2017.
It is projected that freight traffic via the Dedicated Freight
Corridors will increase at a CAGR of 5.4 per cent to 182 MT
in 2021–22 from 140 MT in 2016–17.

References:
Department of Industrial Policy and Promotion (DIPP),
IBEF, Press Releases, Press Information Bureau, Railway
Budget 2017-18, Union Budget 2018-19, Media Reports

Disclaimer: This information has been collected through

secondary research and the Institute is not responsible for any
errors in the same.

www.icmai.in Behind every successful business decision, there is always a CMA 27

 CMAs’ Industry Bulletin February 2020

Export Overview

Synthetic and Rayon Textiles Exports from India

Introduction
India has a diverse and rich textile tradition. Contemporary
Indian textiles not only reflect the country’s rich and splendid
past but also cater to the demands of the modern day.
Today, India is one of the world’s leading manufacturers
of man-made textiles. Indian fabrics are known for their
excellent workmanship, colours and durability. Due to
heavy investments in world-class manufacturing plants,
continuous innovation, new product mix and strategic
market expansion, Indian man-made fibres (MMF) are set
to take centre stage in the global arena. Textile industries
contributes two per cent to India’s GDP, seven per cent to
India’s industrial production and 16 per cent to the country’s
exports and employ more than 18 million people directly and
more than 20 million people indirectly.

Exports highlights and Key markets The Synthetic and Rayon Textiles Export Promotion
• In 2018-19, export of manmade staple fibre stood Council
at US$ 572 million; manmade yarn, fabrics and The Synthetic and Rayon Textiles Export Promotion
made-ups exports to US$ 4.9 billion and exports of Council (SRTEPC) was set up in 1954 to extend all possible
readymade garments of manmade fibres reached US$ assistance to Indian exporters of synthetic and rayon textiles
3.85 billion in the same period. and to overseas buyers with business in India.
• During April-September 2019, export of manmade
staple fibre stood at US$ 275.85 million; manmade Source: Export Promotion Council, IBEF, SRTEPC
yarn, fabrics and made-ups exports to US$ 2.39
billion and exports of readymade garments of
manmade fibres reached US$ 1.88 billion in the same Disclaimer: This information has been collected through
period. secondary research and the Institute is not responsible for any
errors in the same.
• The textile and apparel exports stood at US$ 36.62
billion in 2018-19.
• India is second largest world producer of polyester
and viscose, but India is ranked sixth in the exports of
Man-Made Fibre (MMF) textiles.

28 The Institute of Cost Accountants of India www.icmai.in

 February 2020 CMAs’ Industry Bulletin

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