A

PROJECT REPORT
ON
A Equity research
On
Fast Moving Consumer Goods

In partial fulfillment of the requirement of

Masters In Management Studies
Through

Rizvi Institute of Management

Under the guidance of

Prof. FURQAN SHAIKH

SUBMITTED BY:
IMTIYAZ SIDDIQUE
MMS-FINANCE
2008-10

1
 DECLARATION

I Mr. Imtiyaz A. Siddique of Rizvi Institute of Management

hereby declare that I have completed the summer project on ‘A
EQUITY RESEARCH ON FAST MOVING CONSUMER
GOODS” in the academic year 2008-10. The information
submitted in the same is true & original of the best of my
knowledge.

Signature

2
 CERTIFICATE

I Mr. Kalim Khan hereby declare that Mr. Imtiyaz A.

Sidddique of Rizvi Institute of Management has completed his
summer project in the academic year 2008-10. The information
submitted in the same is true & original of the best of my
knowledge.

Signature

3
 ACKNOWLEDGEMENT

“There is joy in work. There is no happiness except in the

realization that we have accomplished something” - Henry Ford
The making of any project requires contribution from many
people, right from inception till its completion. In my case also,
there had been a few people who have made this happen. It
was not only learning but also an enriching experience.

I am deeply indebted to Prof. Kalim Khan, Director, Rizvi

Institute of Management Studies for having allowed me to
carry out the project successfully. I specially thank my guide
Prof. Furqan Shaikh for his constant guidance, professional
help and support during the course of the project.
I thank my colleagues and friends for providing constant
encouragement and help. I am indebted to them for their
timely help & the enthusiasm they expressed in helping me
bring this project to the fruitful end. Finally, I am grateful to
my family for their moral support and understanding.

“Teachers open the door, but you must enter by yourself”

Signature

4
Executive summary
The Indian FMCG sector is the fourth largest sector in the economy
with a total market size in excess of US$ 13.1 billion. FMCG market is
expected to rise to 33.4 billion US$ till 2015.

This report starts with a brief introduction of FMCG market along with
Industry Overview. It further state that why FMCG sector is Analyzed
and why India. In this report two FMCG company “HUL & Dabur
India” is analyzed there history their shareholding pattern along with
their product is being discussed.

The company Fundamental & Technical is shown in the report. An

analysts evaluates the stocks based on different parameter like
fundamentals of the company i.e earnings of the company, P/E
dividend yield etc. And technical based on Chart of the company
share price the chart i.e Moving Average Crossover Chart, MACD
chart through which we come to know the future price whether it is
going to come down or go up.

The report also include the distinguish feature of FMCG as compared

to other sector and a well defined conclusion.

As consumer behavior and lifestyles changed, people no longer buy the way
they used to. Simply increasing ‘width' and ‘depth' of coverage no longer
seems to produce the magical results it once used to."

-' Business Line, April 2003.

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 TABLE OF CONTENT
Sr No TOPICS PAGE
NO.
1.1 Introduction
1.2 Indian FMCG market size
2.1 Industry Overview
2.2 Structural Analysis of FMCG Industry
2.3 FMCG Market Review
2.4 Why FMCG Sector is Analyzed
2.5 FMCG Sector Product and Category
2.6 India- a large consumer goods spender
2.7 Consumer expenditure on food at international level
3.1 FMCG sector product and category
4.1 SWOT Analysis
5.1 Hindustan Unilever LTD
5.2 Product of HUL
5.3 Distribution Network
5.4 Fundamental Analysis
5.5 Technical Analysis
6.1 Dabur India
6.2 Product of Dabur
6.3 Distribution Network
6.4 Fundamental Analysis
6.5 Technical Analysis
7.1 Sectoral opportunities
8.1 Policy Issues
9.1 Distinguishing Features of Indian FMCG Business
10.1 Other Suggestions
11.1 Salient Feature
12.1 Conclusion

1.1 Introduction
6
The Indian FMCG sector is the fourth largest sector in the economy
with a total market size in excess of US$ 13.1 billion. It has a strong
MNC presence and is characterized by a well established distribution
network, intense competition between the organized and unorganized
segments and low operational cost. Availability of key raw materials,
cheaper labour costs and presence across the entire value chain
gives India a competitive advantage.

The FMCG market is set to treble from US$ 11.6 billion in 2003 to
US$ 33.4 billion in 2015. Penetration level as well as per capita
consumption in most product categories like jams, toothpaste, skin
care, hair wash etc in India is low indicating the untapped market
potential. Burgeoning Indian population, particularly the middle class
and the rural segments, presents an opportunity to makers of
branded products to convert consumers to branded products.

Growth is also likely to come from consumer 'upgrading' in the

matured product categories. With 200 million people expected to shift
to processed and packaged food by 2010, India needs around US$
28 billion of investment in the food-processing industry.

Automatic investment approval (including foreign technology

agreements within specified norms), up to 100 per cent foreign equity
or 100 per cent for NRI and Overseas Corporate Bodies (OCBs)
investment, is allowed for most of the food processing sector.

At the macro level, Indian economy is poised to remained buoyant

and grow at more than 7%. The economic growth would impact large
proportions of the population thus leading to more money in the
hands of the consumer. Changes in demographic composition of the
population and thus the market would also continue to impact the
FMCG industry.

Recent survey conducted by a leading business weekly,

approximately 47 per cent of India's 1 + billion people were under the
age of 20, and teenagers among them numbered about 160 million.
Together, they wielded INR 14000 Cr worth of discretionary income,
7
and their families spent an additional INR 18500 Cr on them every
year. By 2015, Indians under 20 are estimated to make up 55% of the
population - and wield proportionately higher spending power. Means,
companies that are able to influence and excite such consumers
would be those that win in the market place.

The Indian FMCG market has been divided for a long time between
the organized sector and the unorganized sector. While the latter has
been crowded by a large number of local players, competing on
margins, the former has varied between a two-player-scenario to a
multi-player one.

Unlike the U.S. market for fast moving consumer goods (FMCG),
which is dominated by a handful of global players, India's Rs.460
billion FMCG market remains highly fragmented with roughly half the
market going to unbranded, unpackaged home made products. This
presents a tremendous opportunity for makers of branded products
who can convert consumers to branded products. However,
successfully launching and growing market share around a branded
product in India presents tremendous challenges. Take distribution as
an example. India is home to six million retail outlets and super
markets virtually do not exist. This makes logistics particularly for new
players extremely difficult. Other challenges of similar magnitude
exist across the FMCG supply chain. The fact is that FMCG is a
structurally unattractive industry in which to participate. Even so, the
opportunity keeps FMCG makers trying.

The FMCG sector in India is expected to grow at a compounded

annual growth rate (CAGR) of 9% to a size of Rs 1,43,000 crore by
2010.

1.2 Indian FMCG Market Size

(In US $ Billion)

8
(Source: IBEF FMCG Analysis)

According to estimates based on China's current per capita

consumption, the Indian FMCG market is set to treble from
US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. The
dominance of Indian markets by unbranded products,
change in eating habits and the increased affordability of the
growing Indian population presents an opportunity to makers
of branded products, who can convert consumers to branded
products.

2.1 Industry Overview

Products which have a quick turnover, and relatively low cost are
known as Fast Moving Consumer Goods (FMCG).The FMCG sector
seems to have finally joined India Inc's growth party by posting
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surprising double-digit growth in sales in the past couple of years.
With annual revenues of Rs 72,000 crore, it is the one of the largest
sectors in the Indian economy. The industry's future prospects look
bright, considering rising household incomes and the spread of
modern retail. However, the per capita income level in India is still
very low compared to the developed world. Besides, the penetration
level of many products is also relatively low and several categories
remain fairly unbranded.

All these factors provide a huge untapped potential for the industry.
In contrast to other manufacturing sectors, FMCG is relatively less
capital-intensive, but demands immense skills and expenditure on
branding and distribution. Most companies in the sector create value
through product differentiation, package innovation, differential pricing
and highlighting the functional aspect of foods. While inflation restricts
the industry's growth, many companies in the sector thrive under
inflationary pressures. Most companies pass on the cost inflation to
consumers, via a judicious blend of price hikes, packaged size
reduction and change in product mix. Few consumers react by down-
trading to lower priced products, but most hang on to their preferred
brands.

The top five FMCG companies constitute nearly 70% of the total
revenues generated by this sector. Multinational FMCG companies
like Hindustan Unilever, ITC, Nestle, Procter & Gamble, Dabur India
and GlaxoSmithKline Consumer Healthcare traditionally comprise the
first category of FMCG companies. They tend to spend nearly 10% of
their revenues on an average on advertising and promoting their
products, which is the highest ad spend figure in the industry.
Justifying their high product pricing, these companies largely tend to
capture value by addressing a felt need.

FMCG products are those that get replaced within a year. Example of
FMCG generally include a wide range of frequently purchased
consumer products such as toiletries, soap, cosmetics, tooth cleaning
products, shaving products and detergents, as well as other non-
durables such as glassware, bulbs, batteries, paper product, and
plastic good. FMCG may also include pharmaceuticals, consumer

10
electronics, packaged food products, soft drinks, tissue paper, and
chocolate bars.

Subsets of FMCGs are Fast Moving Consumer Electronics which

include innovative electronic products such as mobile phones, MP3
players, digital cameras, GPS Systems and Laptops. These are
replaced more frequently than other electronic products.

2.2 Structural Analysis of FMCG Industry

Typically, a consumer buys these goods at least once a month. The

sector covers a wide gamut of products such as detergents, toilet
soaps, toothpaste, shampoos, creams, powders, food products,

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confectioneries, beverages, and cigarettes. Typical characteristics of
FMCG products are: -

1. The products often cater to 3 very distinct but usually wanted

for aspects - necessity, comfort, luxury. They meet the demands
of the entire cross section of population. Price and income
elasticity of demand varies across products and consumers.
2. Individual items are of small value (small SKU's) although all
FMCG products put together account for a significant part of the
consumer's budget.
3. The consumer spends little time on the purchase decision. He
seldom ever looks at the technical specifications. Brand
loyalties or recommendations of reliable retailer/ dealer drive
purchase decisions.
4. Limited inventory of these products (many of which are
perishable) are kept by consumer and prefers to purchase them
frequently, as and when required.
5. Brand switching is often induced by heavy advertisement,
recommendation of the retailer or word of mouth.

2.3 FMCG Market Review

FY 09 Result Highlights

12
2.4 Why FMCG Sector is Analyzed
TATA Investment Corporation Limited, non non-banking financial
company registered with Reserve Bank of India under the '
Investment Company' category. The company's activities comprise
primarily of investing in long-term investments in equity shares and
other securities of companies in a wide range of industries.
13
TICL invested in almost all the sectors. TICL’s portfolio proved to be a
very successful portfolio. They had got a very good return from all the
sectors. Among these sectors, Fast Moving Consumer Goods
(FMCG) proved to be a very successful sector. It has a very good
potentiality in long term in India. The overall cost of investment in
FMCG sector was Rs. 13.69 crores on May 20, 2008, this investment
valued Rs. 306.72 crores i.e. the cost of value of investment in FMCG
sector was 5% of the overall investment that was increased in 2008
to 15% of the overall investment. Thus from this, we can conclude
that, there is a 2140.47% increase in value of investment. For this
significant increase and also recent development of retails shops,
malls, etc. in India, the FMCG sector is one of the booming sectors in
India. For this reason, I had chosen this sector for my equity analysis.
Below, I had given a which explains, the detail investment of TICL in
FMCG sector:

2.5 Why India

Large domestic market
India is one of the largest emerging markets, with a population of over
one billion. India is one of the largest economies in the world in terms
of purchasing power and has a strong middle class base of 300
million.

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Around 70 per cent of the total households in India (188 million)
resides in the rural areas. The total number of rural households are
expected to rise from 135 million in 2001-02 to 153 million in 2010-11.
This presents the largest potential market in the world.

The annual size of the rural FMCG market was estimated at around
US$ 33.4 billion in 2015. With growing incomes at both the rural and
the urban level, the market potential is expected to expand further.

2.6 India - a large consumer goods spender

An average Indian spends around 40 per cent of his income on
grocery and 8 per cent on personal care products. The large share of
fast moving consumer goods (FMCG) in total individual spending
along with the large population base is another factor that makes
India one of the largest FMCG markets.

15
(Source: KSA Technopak Consumer Outlook 2004.)

2.7 Consumer expenditure on food at International level

Even on an international scale, total consumer expenditure on food
in India at US$ 120 billion is amongst the largest in the emerging
Markets, next only to China.

16
3.1 FMCG sector Product & Category

17
Category Product
Fabric wash (laundry soaps and synthetic
detergents); household cleaners (dish/utensil
cleaners, floor cleaners, toilet cleaners, air
fresheners, insecticides and mosquito repellents,
Household Care metal polish and furniture polish).
Health beverages; soft drinks; staples/cereals;
bakery products (biscuits, bread, cakes); snack
food; chocolates; ice cream; tea; coffee; soft
drinks; processed fruits, vegetables; dairy
Food and products; bottled water; branded flour; branded
Beverages rice; branded sugar; juices etc.
Oral care, hair care, skin care, personal wash
(soaps); cosmetics and toiletries; deodorants;
Personal Care perfumes; feminine hygiene; paper products.

4.1 SWOT Analysis: Whole Industry!

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 Strengths
 Well established distribution networks extending to the rural areas
 Backed by strong brands
 Low cost operations
 Presence of established distribution networks in  both urban and
rural areas
 Presence of well-known brands in FMCG sector

Weakness
 Low export levels
 Small scale sector reservations limit ability to invest in technology
and achieve economies of scale
 Several “Me-Too” products

Opportunities
 Large domestic market
 Export potential
 Increasing income levels will result in faster revenue growth
 High consumer goods spending

Threats
 Tax & Regulatory Structures
 Slowdown in Rural Demands
 Removal of import restriction resulting in replacing of domestic
brands

5.1 Hindustan Unilever Ltd

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Hindustan Unilever Limited, erstwhile Hindustan Lever Limited (also
called HLL),Head quartered in Mumbai, is India's largest consumer
products company, formed in 1933 as Lever Brothers India Limited.
Its 41,000 employees are headed by Mr. Harish Manwani, the non-
executive chairman of the board. HUL is the market leader in Indian
products such as tea, soaps, detergents, as its products have
become daily household name in India. The Anglo-Dutch company
Unilever owns a majority stake (52%) in Hindustan Lever Limited.

Recently in February 2007, the company has been renamed to

"Hindustan Unilever Limited" to provide the optimum balance
between maintaining the heritage of the Company and the future
benefits and synergies of global alignment with the corporate name of
"Unilever".

Hindustan Unilever distribution cover over 1 million retail outlets

across India directly and its products are available in over 6.3 million
outlets in India, i.e. nearly 80% of the retail outlet in India. It has 39
factories in the country. Two out of three use the company’s products
and HUL product have the largest consumer reach being available in
over 80 percent of consumer homes across India.

Unilever mission is to add Vitality to life. We meet everyday needs for

nutrition, hygiene, and personal care with brands that help people feel
good, look good and get more out of life.

Management Structure

20
Hindustan Unilever Limited is India's largest Fast Moving Consumer
Goods (FMCG) Company. It is present in Home & Personal Care and
Foods & Beverages categories.

Board
Chairman Harish Manwani
Managing Director &
Nitin Paranjpe
CEO
Vice Chairman D Sundaram
D S Parekh
C K Prahalad
Director A Narayan
S Ramadorai
R A Mashelkar
Executive Director Dhaval Buch
Executive Director Gopal Vittal
Executive Director & CS Ashok Gupta

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 Share holding pattern

16% 15%

15%

3%
Foreign
Institutions
51% Non Promoter
Promoters
Public & Others

Listing Details of Equity Shares

Name of the Stock Exchange Stock Code
Bombay Stock Exchange Limited 500696
National Stock Exchange of India HINDUNILVR
Limited

5.2 Products of HUL

22
Home & Personal Care
Personal wash Laundry
 Lux  Surf Excel
 Lifebuoy  Rin
 Liril  Wheel
 Breeze  Ala bleech
 Pears and Rexona
 Hamam
Beauty Products Hair-Care
 Fair & Lovely  Sunsilk naturals
 Lakme  Clinic
 Ponds  Dove
Deo spray Beauty Products
 Axe  Pepsodent
 Rexona  Close-up

Foods
Ice-cream Foods
 Kwality Wall's  Annapurna(Aata and
salt)
 Kissan(Jam,Ketchup,Squ
ashes)
 Knorr Soups
Tea Coffee
 Brooke bond  Brooke bond
 Lipton  Bru

5.3 Distribution Network

23
Hindustan Unilever's distribution network is recognised as one of its
key strengths. Its focus is not only to enable easy access to their
brands, but also to touch consumers with a three-way convergence of

• product availability,

• brand communication,

• higher levels of brand experience.

HUL's products, manufactured across the country, are distributed

through a network of about 7,000 redistribution stockists covering
about one million retail outlets. The distribution network directly
covers the entire urban population.

The general trade comprises grocery stores, chemists, wholesale,

kiosks and general stores. Hindustan Unilever services each with a
tailor-made mix of services. The emphasis is equally on using stores
for direct contact with consumers, as much as is possible through in-
store facilitators.

24
The distribution network in general trade is as follows:-

FACTORY

JUST IN TIME DEPOT

REDISTRIBUTION STOCKIST

MARKET ( CHANNEL WISE )

CONSUMER

The products that are manufactured are first brought to the JIT (Just
In Time) Depot from the factory. Then these products are delivered to
the Redistribution Stockiest according to the order placed by them,
this is done through Permanent Dispatch Plan. Then this stock is
send to either retailers or wholesalers, according to the channel
followed by them. From there it reaches to the consumers.

At the supermarkets
25
Self-service stores and supermarkets are fast emerging in metros
and large towns. To service modern retailing outlets in the metros,
HUL has set up a full-scale sales organisation, exclusively for this
channel. The business system delivers excellent customer service,
while driving growth for the company and the store. At the same time,
innovative marketing initiatives are taken to provide consumers with
experience of our brands at the store itself, through product tests and
in-store sampling.
This is termed as Modern Trade. It has got different distribution
network and work differently. It is fast gaining pace as more and more
people are turning to malls for shopping. Today shoppers don’t just
want to buy their daily groceries but they also want a shopping
experience. They want to spend time in air conditioned store, no
more they are ready to sweat for spending money. These big box
retailers provide them a platform where they can roam around, pick,
compare and choose their products. These stores provide them a
whole new experience of shopping without shedding any drop of
sweat.

Distribution Network

26
 FACTORY

JUST IN TIME DEPOT

CUSTOMER SERVICE PROVIDER

BIG BOX RETAILER

CONSUMER

5.4 Fundamental Analysis

27
Liquidity & Leverage Ratios
March Dec 07 Dec 06 Dec 05
09
Current Ratio 0.92 0.68 0.73 0.70
Quick Ratio 0.51 0.25 0.34 0.33
Total Debt/Equity 0.20 0.06 0.03 0.02
Interest Coverage Ratio 118.70 83.09 171.62 83.27

Current Ratio of HUL has been less than 1 for all the 4 years taken
for analysis. As the standard of current ratio is 1:1 for FMCG industry.
This implies that working capital of HUL is always negative. This is
generally considered an aggressive strategy i.e. to financing its long
term asset by short term sources that increases profitability because
current liabilities are non interest bearing items. There is significant
difference between CR and LR which indicates that the current asset
of HUL consists of good amount of inventory. Value of sundry debtors
is quite low. The liquidity ratios have increase from previous year
which shows that HUL has increase its liquidity further.

The loans taken by HUL is high in 2009 which is indicated by high

debt to total source ratio and this is why its ICR ratio gone up as
compared to previous year (as compared to ICR in 2007). It has
increased its loan as it currently operating the business through loan
money. Debt to equity ratio was between 0.02 to 0.06 for previous 3
year as taken to comparision but all of sudden in current year it has
increase to almost 3 times as compared to 0.06 in the year 2007 this
means that the company has taken huge amount of loan to finance it
business. Interest Coverage Ratio show that how Leverage the
company is the higher the ratio the less leverage.

Management Efficency Ratios

March Dec 07 Dec 06 Dec 05
28
 09
Inventory Turnover Ratio 9.26 7.20 8.02 8.57
Debtor Turnover Ratio 41.83 31.41 25.42 22.12
Asset Turnover Ratio 7.81 5.64 5.35 5.11

Management Efficency Ratio is also called as an Activity Ratio.

Inventory turnover ratio show that how many times in a year have the
company converted its Inventory into debtor. As the Inventory
turnover ratio is high this year as compared to the previous 3 year
this indicate the production and sales efficiency and show how fast
the goods are moving in the market. As greater the inventory turnover
ratio is in times more beneficial to the company. Debtor turnover ratio
show how that how many times company can convert debtors into
cash in a year.DTR has increased for all the four year taken in to
comparison this indicate that company is getting the cash from debtor
late in the year 2005 DTR was 22.12 it get increased to 41.83 in
current financial year. It can be happened because company has
increased its policy or Debtor are paying late to company this should
be low as possible. Asset turnover ratio is net sales/net asset has
ATR is increasing for the four year taken in to comparison indicating
that net sales of the company is increasing year on year.

Profitability Ratios

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 March Dec 07 Dec 06 Dec 05
09
Operating Margin (%) 14.46 14.95 14.74 14.14
Gross Profit Margin (%) 13.50 15.86 15.80 15.03
Net Profit Margin (%) 12.05 12.58 14.94 12.42
Return On Net Worth (%) 121.34 122.97 68.14 61.09
Return on Capital 121.06 138.72 65.89 67.66
Employed (%)
Earning Per Share 11.47 8.12 8.41 6.40
Dividend Per Share 7.50 9.00 6.00 5.00
CFO/PBIT(%) 13.35 13.78 13.50 12.87

PBIT as percentage of sales is moderately good and there has been

significant change in it during last three years. There has not been
any significant change in operating Margin in comparison with the last
three years. The profit distributing ability of the firm is excellent with
return on net worth (RONW) being around 121.34% and more for last
two year. The profit generating ability similar to the profit distributing
ability is pretty good with ROCE over 121.06% during the year 2009.
ROCE in year 2007 has increased from the figure of 2006, perhaps
because of the decrease in debt (change in capital structure) and
increase in current liability (non interest bearing item). The face value
of Equity Share of HUL is Rs. 1. Analyzing the EPS and DPS, which
are profit distributing ability ratios, for HUL we can see that it has
been generating more than 500% times profit for its shareholders
over the years. The EPS increased over the years from Rs.6.40 in
year 2005 to Rs. 11.47 in year 2009. It has been generous in
distributing the profit in form of dividend with DPS Rs. 5.00 in year
2005 and Rs. 7.50 in year 2009.

Market Based Return

March Dec 07 Dec 06 Dec 05

30
 09
Price to Earning Ratio 29.26 29.67 28.61 34.79
Market Capitalization 2.40 3.16 3.67 3.63
Price to book value 25.21 32.36 17.55 18.84

PE ratio for HUL is not so good with values over 30. In the year 2009,
2007 and 2006 and somewhat better with value around 30. It means
an investor will get return around 1/30 times on his actual investment.
If you multiply EPS & PER of 2009 you get Rs 336 and the current
market share of Hul is Rs 272 this means that the company is
undervalued. Market capitalization of HUL has increased after 2005,
but there is a small decrease in the year 2007, and now it is 2.40 in
current financial year it has decreased over here management should
play a vital role to increase market capitalization.

5.5 Technical Analysis

Moving Average Crossover Chart

31
This is the Moving Average Crossover Chart where,
- Price Line
- 50 days moving average
- 20 days moving average
From the above Moving Average Crossover Chart we can see that in
the month of January HUL stock was very volatile we cannot predict
what is going to happen because price line is not able to cut 20 days
moving average nor it is able to cut 50 days moving average from
down or from up as it can be see from the chart that at the end of
January price line has cut 20 days moving average from down so
price has raise little bit but in march 20 days moving average has cut
50 days moving average from up this is the clear indication that price
is going to fall and this is the time to sell the stock and we can see
that in march price has gone down to the low as compared from
January to june and for 3 month (march, april, may) price line and 20
days moving average was below 50 days moving average so price
was low for that period but in the start of june price line and 20 days
moving average has cut 50 days moving average from down so this
is clear indication that price is going to go up and this is the right time
to buy the stock.
MACD Chart

32
This is MACD Chart
- Price Line
- 9 days signal line
- MACD line

Moving Average Convergence Divergence chart means that when as

MACD falls below the signal line, it is a bearish signal.
When the MACD rises above the signal line, the indicator gives a bullish
signal.

From the above MACD chart we can make out that in the month of
January MACD was above the signal line that means the price will also go
up and till end of February the stock price that was indicated in the chart is
more or less up. At the start of march MACD line has touch signal line and
then it has gone down this is a signal to come out if you have a stock
because the price is going to go down and till the end of march MACD was
below the signal line in April it has try to cut signal line but it was not able
to cut it so it is advice not to enter in this market we need to wait. As seen
from the chart that at the start of June MACD line has cut signal line and
gone up so stock price has also gone up and till now it is showing upward
trend this is a good time to enter in the market.

Recommended to Hold
33
By going through Technical chart i.e. the Moving Average Crossover
Chart and MACD chart of HUL it clearly state that the stock price is
going to go up and this time you need to hold the stock or if you don’t
have the stock right time to invest in the stock. You can book your
profit if you are and investor or a trader i.e if you are a short term
player or a long term player you can book your profit.

6.1 Dabur India

34
Dabur was started as a small pharmacy by Dr. S.K Burman. After
more than 120 years, Dabur is a renowned brand in India and known
for its trustworthiness more than anything else.Dabur, the fourth
largest FMCG company of India, has recorded a 27.63 per cent surge
in its consolidated net profit at Rs 105.3 crore for the fourth quarter
ended March 31, 2009, as compared to Rs 82.5 crore in the same
period a year ago. DIL operates under three categories, Consumer
Care Division, Consumer Health Care division, and Dabur Food. In
July 2007 Dabur Food became the separate identity, 2008).

Dabur went through many structural and strategic changes to

maintain its market strength. During the early 1900’s Dabur emerge
as the first company to provide scientifically tested health care
product. After setting up of R&D and automation of manufacturing
Dabur achieved significant growth. Dabur Amla hair oil and Dabur
Chyawanprash launch gave the company an opportunity to expand
the business. To match with the changing time Dabur computerised
its operation (Capitaline, 2008).
Dabur consists of large array of products and it had to maintain the
operational efficiency. To make sure it adjusted to the business
environment it became public limited company in 1986 followed by
diversification in Spain in 1992 (Vakhariya, 2004-2009).

Dabur further divided its business into three separate groups:

• Health Care Products Division

• Family Products Division
• Dabur Ayurvedic Specialties Limited (Capitaline, 2008)

Successful implementation of procedure, and adapt with the changing

time and maintaining its essence Dabur achieved its highest ever
sales figure of Rs 1166.5 crores in 2000-01.

As FMCG sector was struggling with the slow growth in the Indian
economy, Dabur decided to take numerous strategic initiatives,
reorganize operations and improve on its brand architecture
beginning 2002. It decided to concentrate its marketing efforts on
35
Dabur, Vatika, Amla, Real and Hajmola to strengthen their brand
equity, create differentiation and emerge as a pure FMCG player
recognized as an herbal brand. This was chosen after a study with
Accenture, which revealed that Dabur was mainly perceived as an
Herbal brand and connected more with the age group above 35
(Naukrihub, 2007).

Large retailers were fighting for their market share in this lucrative
FMCG sector. Apart from HUL, P&G, Marico and Himalaya, ITC was
also posing a challenge. Because of the large number of products,
supply chain was became complex.

Management Structure
Dabur India's Fast Moving Consumer Goods (FMCG) Company. It is
present in Home & Personal Care & Food categories.
36
Board

Chairman Anand Burman

Vice Chairman Amit Burman
Executive Director Pradip Burman
Additional Director Mohit Burman
P D Narang
Sunil Duggal
R C Bhargava
Director P N Vijay
S Narayan
Albert Wiseman Paterson
Analjit Singh
Company Secretary Ashok Kumar Jain

37
 Share holding pattern

6% 9%

14%

1%

Foreign

Institutions

Non Promoter
Promoters

Public & other

70%

Listing Details of Equity Shares

Name of the Stock Exchange Stock Code
Bombay Stock Exchange Limited 500096
National Stock Exchange of India DABUR
Limited

38
6.2 Products of Dabur
Home & Personal Care
Hairoil Shampoo
 Vatika  Vatika heena
 Amla conditioning
 Sarso  Anmol-natural shine
 silky

Skin Care Oral Care

 Vatika fairness  Babool
 Gulabari  Meswak
 Olive oil  promise
 Dabur lal tel  Binaca

Home Care
 Odomos
 Odonil
 Sanifresh
 Odopic

Foods
Digestive Health Supplements
 Hajmola range  Chyawanprash
 Hingoli  Dabur Honey
 Pudin hara  Glucose

39
6.3 Distribution Network

In 2001, Dabur decided to tackle its extended supply chain of over 30

factories, six key warehouses, and 52 stocking points distributing
over 1,000 SKUs to 10,000 stockists countrywide. The company
needed a system to accurately control distribution and sales
forecasting to reduce inventory in the pipeline.

Dabur went ahead and built a system using Visual Basic and ASP
with SQL Server 2000 as the database. It decided not to use a
packaged SCM solution due to the high cost and relative lack of
complications in its supply chain.

The initiative
An in-house developed, easy-to-use, Intranet based data-warehouse
displays as-of-yesterday sales, stock, receivables, banking, and other
MIS. Over 5,000 ASP pages meet almost all reporting requirements
and make this a single source of MIS for all levels of decision makers.

This success paved the ground for the company's supply chain
initiative. Fifty-five Ku Band TDMA VSATs were used to link primary
distributors to the system. Factories were hooked up using PAMA
(Permanent Assigned Multiple Access) VSATs. At some locations
VPNs had to be used because it was not possible to set up a dish.
The zonal offices in Mumbai were hooked up in a similar manner.

The hardware is mostly owned by the primary CFA (Carry and

Forward Agent) except for the networking equipment, which is owned
by Dabur. In the case of the secondary systems, stockists wholly own
the hardware.

The primary rollout began in April 2001 and took 16 months. The first
six months were used to create a business model common to all
divisions (family products, healthcare, ayurvedic products, and
pharmaceuticals), and testing and piloting the same.

40
The Innovation
The integrated primary and secondary system has a number of
unique features. The features like tight integration of schemes,
stockists credit limit control, automated banking of cheques, and
online cheque reconciliation have obvious advantages in the primary
distribution. These are basically extensions to the MFG/PRO ERP
system and not core customizations.

Dabur's stockists supply to 1.5 million retailers. Seventy percent of

the sales are accounted for by the top 500 stockists. The
incorporation of these top stockists into its supply chain is a first for
any FMCG company in India. The average sale of each stockist and
the current stock are the two parameters.

A 'My Page' allows the stockist to see the 'as-of-yesterday' details

pertaining to the in-transit shipments, transporter details, back-orders,
account statement, cheque status, credit notes, and claim
settlements.

Details are collected from stockists on a weekly basis. In case of

primary distribution points, an incremental backup is sent to the
central location when the CFA closes operations for the day. These
are computed at night in a process called ‘cubing’. And when
managers come into office in the morning the information is ready for
them.

The integrated system allows each Area Manager to plan for the
month's sales forecasts, stockists performance, and sales officers'
performance. The integration allows better control on pipelines in
primaries and secondaries, brings down inventories, and offers better
control on production and sales against a confirmed forecast.

“The company has added an SMS interface that lets authorized

phones query the system for aspects like stock status, credit limits,
current outstanding and division-wide sales. An control list of mobile
phone numbers is used to restrict access to the system. Salespeople
can get responses to their queries in a minute with this system," said
Gopal Shukla, Chief Information Officer, Dabur India Limited.

41
 6.4 Fundamental Analysis

Liquidity & Leverage Ratios

March March March March
09 08 07 06
Current Ratio 1.19 0.91 0.97 0.82
Quick ratio 0.99 0.58 0.63 0.52
Total Debt/Equity 0.19 0.03 0.05 0.05
Interest Coverage 38.34 46.79 140.69 70.12

Current Ratio of dabur for last 3 year is near to 1 and for this financial
year it is more then 1 this indicate that the company is in good
position as Current Ratio standard for FMCG industry is 1:1.There is
less difference between CR and LR which indicates that the current
asset of Dabur consists of less amount of inventory. Value of sundry
debtors is quite high. The liquidity ratios have increase from previous
year which shows that dabur has increase its liquidity further.

Debt/Equity ratio means the ratio of finance coming from Debts

compared to shareholders. A ratio exceeding 1 may be cause for
concern. As it can be seen that the Debt/Equity ratio is near to 0.03 &
0.05 for the last three year this means that company operate the
business mainly through owner funds but this financial year
Debt/Equity ratio has increased from 0.03 to 0.19 this indicate that
company has taken loan from market to finance the business with
Debt/Equity ratio we can say that in this financial year 2009 company
is investing Rs 1 from there pocket and 19 paisa from out side. As
they have taken loan from market then there Interest coverage ratio
has decreased. Interest Coverage Ratio show that how Leverage the
company is the higher the ratio the less leverage

Management Efficiency Ratio

42
 March March March March
09 08 07 06
Inventory turnover 10.94 12.52 11.11 11.65
Debtor turnover 22.63 25.94 39.70 35.30
Asset turnover 4.84 4.67 4.50 4.24

Management Efficiency Ratio is also called as an Activity Ratio.

Inventory turnover ratio show that how many times in a year have
the company converted its Inventory into debtor. As the Inventory
turnover ratio has decreased as compared to the previous 3 year this
show how slow the goods are moving in the market of Dabur this also
indicate the production and sales efficiency of the company. As
greater the inventory turnover ratio is in times more beneficial to the
company. But in case of Dabur Inventory Turnover Ratio has
decreased this Is a cost of concern to the company they have the
inventory but it is not turning in to debtor. Debtor turnover ratio show
how that how many times company can convert debtors into cash in a
year.DTR has decreased as compared to the previous 3 year which is
good on behalf of the company because they are recovering money
faster from debtor. Asset turnover ratio is net sales/net asset has ATR
is increasing marginally for all the 4 year this show that company net
sales is increasing year on year which is good from company point of
view.

Profitability Ratios
43
 March March March March
09 08 07 06
Operating Margin (%) 18.33 18.60 17.45 17.90
Gross Profit Margin (%) 17.19 17.37 17.49 17.74
Net Profit Margin (%) 15.44 15.06 14.41 14.04
Return On Net Worth (%) 51.20 61.58 62.52 42.22
Return on Capital 47.98 67.51 66.07 46.69
Employed (%)
Earning Per Share 4.32 3.67 2.92 3.30
Dividend Per Share 1.75 1.50 1.75 2.50
CFO/PBIT(%) 17.11 17.29 16.16 16.47

PBIT as percentage of sales is good and there has been significant

change in it during last three years from 16.47 in 2006 it is 17.11 in
2009. There has been a significant change in operating Margin as
compared to the last three years, In year 2009 it is 18.33% as
compared to 2006 it was 17.90%. The profit distributing ability of the
firm is not so good with return on net worth (RONW) being
decreasing from 61.58%in year 2008 to 51.20% in year 2009. The
profit generating ability similar to the profit distributing ability is not so
good as fall in (RONM) there is a fall in (ROCE) it has reduce to
47.98% in year 2009 as compared to 67.51% in 2008. ROCE in year
2009 has decreased from the figure of 2008, perhaps because of the
increased in debt (change in capital structure) and decreased in
current liability (non interest bearing item). The face value of Equity
Share of Dabur is Rs. 1. Analyzing the EPS and DPS, which are profit
distributing ability ratios. The EPS increased over the years from
Rs.3.30 in year 2006 to Rs. 4.32 in year 2009. It has been not so
generous in distributing the profit in form of dividend with DPS Rs.
2.50 in year 2006 and Rs. 1.75 in year 2009.

Market Based Return

44
 March March March March
09 08 07 06
Price Earning Ratio 24.55 32.23 34.91 40.64
Market Capitalization 3.52 4.48 5.00 5.19
Price to book value 11.57 17.99 20.33 15.87

PER ratio for Dabur is not so good with values over 30 In the year
2006, 2007 and 2008. But for this financial year it is 24.55 that means
it is decreasing the PER should be as low as possible. This means
that the market is valuing the company 24.55 times then its EPS if
you multiply EPS & PER for 2009 you get Rs 106 and the current
market share of Dabur is Rs 124 this means that the company is
overvalued. Market capitalization of Dabur is decreasing from 2006
which was 5.19 and for 2009 it is 3.52 every year it is decreasing
Management need to look forward to increased their market
capitalization.

6.5 Technical Analysis

45
Moving Average Crossover Chart

This is the Moving Average Crossover Chart where,

- Price Line
- 50 days moving average
- 20 days moving average

From the above Moving Average Crossover Chart we can see that in the
month of January to June Dabur price line has shown upward trend as the
price was moving along with 20 days moving average and 50 days moving
average. In the mid of march 20 days moving average is suppose to cut 50
days moving average but it does not happen if suppose it has cut the 50
days moving average then the price should have fall. As from April the gap
between 20 days moving average and 50 days moving average goes on
increasing so from April to June price of Dabur stock has also gone up it
can be seen that the stock price of Dabur is going to raise further and it is
seems that it will go further up so if you have the stock you hold and if you
don’t you buy it.

MACD Chart

46
This is MACD Chart
- Price Line
- 50 days moving average
- 20 days moving average
Moving Average Convergence Divergence chart means that when as
MACD falls below the signal line, it is a bearish signal.
When the MACD rises above the signal line, the indicator gives a
bullish signal.
When the security price diverge from the MACD. It signals the end of
the current trend.

From the above MACD chart we can make out that from January to June
MACD was above the signal line that means the price will also go up and
the price line has gone up if you see the price line chart In the start of
March MACD was almost equal to signal line at this point we can’t predict
any think because it may go up or also it can come down but as in the mid
of march MACD goes on increasing and gone above the signal line the
price goes on increasing and the price is showing the upward trend.

Recommended to Hold
47
By going through the Technical chart i.e. Moving Average Crossover
Chart and MACD chart of Dabur India it clearly state that the stock
price is going to go up and this time you need to hold the stock or if
you don’t have the stock right time to invest in the stock with the point
of view of trader if you are an investor this stock would not be the
right decision to make as in the Moving Average Crossover Chart 20
days moving average line is bit closer to 50 days moving average line
and at any time 20 days moving average may cut 50 days moving
average from up so the stock price will fall and even stock price is
showing a little bit downward trend it would be not safe for a long
term investor to enter in this stock but trader can book profit.

7.1 Sectoral opportunities

48
According to the Ministry of Food Processing, with 200 million people
expected to shift to processed and packaged food by 2010, India
needs around US$ 28 billion of investment to raise food processing
levels by 8-10 per cent. In the personal care segment, the lower
penetration rates also presents an untapped potential. Key sectoral
opportunities are mentioned below:

• Staple: branded and unbranded: While the expenditure on mass-

based, high volume, low margin basic foods such as wheat, wheat
flour and homogenised milk is expected to increase substantially with
the rise in population, there is also a market for branded staples is
also expected to emerge. Investment in branded staples is likely to
rise with the popularity of branded rice and flour among urban
population.

• Dairy based products: India is the largest milk producer in the

world, yet only 15 per cent of the milk is processed. The US$ 2.4
billion organized dairy industry requires huge investment for
conversion and growth. Investment opportunities exist in value-
added products like desserts, puddings etc. The organized liquid milk
business is in its infancy and also has large long-term growth
potential.

• Packaged food: Only about 8-10 per cent of output is processed

and consumed in packaged form, thus highlighting the huge potential
for expansion of this industry. Currently, the semi processed and
ready to eat packaged food segment has a size of over US$ 70 billion
and is growing at 15 per cent per annum. Growth of dual income
households, where both spouses are earning, has given rise to
demand for instant foods, especially in urban areas. Increased health
consciousness and abundant production of quality soyabean also
indicates a growing demand for soya food segment.

• Personal care and hygiene: The oral care industry, especially

toothpastes, remains under penetrated in India with penetration rates
below 45 per cent. With rise in per capita incomes and awareness of
oral hygiene, the growth potential is huge. Lower price and smaller
49
packs are also likely to drive potential up trading. In the personal care
segment, according to forecasts made by the Centre for Industrial
and Economic Research (CIER), detergent demand is likely to rise to
4,180, 000 metric tonnes by 2011-12 with an annual growth rate of 7
per cent between 2006 and 2012. The demand for toilet soap is
expected to grow at an annual rate of 4 per cent between 2006-12 to
870,000 metric tones by 2011-12. Rapid
urbanization is expected to propel the demand for cosmetics to
100,000 metric tonnes by 2011-12, with an annual growth rate of 10
per cent.

• Beverages: The US$ 2 billion Indian tea market has been growing
at 1.5 to 2 per cent annually and is likely to see a further rise as
Indian consumers convert from loose tea to branded tea products. In
the aerated drinks segment, the per capita consumption of soft drinks
in India is 6 bottles compared to Pakistan's 17 bottles, Sri Lanka's 21,
Thailand's 73, the Philippines 173 and Mexico's 605. The demand for
soft drink in India is expected to grow at an annual rate of 10 per cent
per annum between 2006-12 with demand at 805 million cases by
2011-12. Per capita coffee consumption in India is being promoted by
the coffee chains and by the emergence of instant cold coffee.
According to CIER, demand for coffee is expected to rise to 535,000
metric tonnes by 2012, with an annual growth rate of 5 per cent
between 2006-12.

• Edible oil: The demand for edible oil in India, according to CIER, is
expected to rise to 21 million tonnes by 2011-12 with an annual
growth rate of 7 per cent
per annum.

• Confectionary: The explosion of the young age population in India

will trigger a spurt in confectionary products. In the long run the
industry is slated to grow at 8 to 10 per cent annually to 870,000
metric tonnes by 2011-12.

8.1 Policy issues

Tax reforms

50
The government has gradually removed the restrictions on imports of
consumer goods in the country and also significantly reduced custom
duties. The domestic tax structure of these products, however, has
not been rationalized to provide level playing field for competition.
This is adversely affecting the growth of the FMCG industry and could
have far reaching adverse impact. The following taxation issues need
urgent attention of the government:

1) Extremely high incidence of tax on certain product categories

Some FMCG products such as shampoos, processed food, soft

drinks and toiletries containing alcohol attract high rates of excise
duty and sales tax. The total tax incidence in some cases is more
than 60 per cent of the cost or more than 30 per cent of MRP. Such
high tax incidence hampers growth of these product categories
besides encouraging manufacture of spurious products and
smuggling.

It is recommended that the total excise incidence of FMCG products

should not exceed 16 per cent in the case of non food items and eight
per cent in the case of processed foods. Similarly, the marginal rates
of sales tax, which is currently in the range of 10 to 25 per cent,
should not exceed 12 per cent.

2) Irrational domestic tax structure encouraging imports

Significant reduction in custom duty rates of consumer goods has

made imported product cheaper as compared to indigenously
manufactured products, due to irrational domestic tax structure. For
instance, goods manufactured in India suffer from cascading effects
of taxes on inputs as additional cost compared to imports.

The cascading effect of sales tax and local levies on inputs used in
domestic manufacture should be eliminated by providing either
MODVAT credit or by introducing notional VAT covering both central
and state taxes on an urgent basis.

51
Moreover, MRP-based excise duty is levied on a large number of
FMCG products. Countervailing duty on the same product when
imported is charged on CIF value. The MRP based assessable value
for excise duty does not allow abatement for post manufacturing
costs such as advertising and selling expenses whereas CIF value
considered for the purpose of import duty does not include costs of
these elements incurred subsequently by importers.

This differential basis creates unfair competition as tax incidence on

domestic manufacture could be considerably higher in case of those
products which incur significant marketing and distribution cost. There
is a need to bring parity in tax incidence between domestic
manufacture and imports by including all such elements of post
manufacturing costs while deciding the abatement percentage of
MRP based duty.

3) Inverted Duty structure for selected inputs

Duty on certain raw materials is higher or the same as compared to

finished products in which these materials are used. Such raw
materials include oils and chemicals like Soda ash, caustic soda and
LAB. In addition to customs duty, raw materials are also subject to
SAD/sales tax and octroi and therefore total tax incidence and cost of
indigenous manufacture goes up. The import duty on raw materials
needs to be rationalized so that it does not exceed 60 to 70 per cent
of the duty on finished goods.

4) Need for rationalization of taxes on processed foods

Processed food industry, with its vertical integration with the

agricultural sector has significant potential for employment generation
and economic growth. The existing tax structure and its high overall
incidence, however, has been hampering the growth of the processed
industry.

The increase in excise duty in last year’s budget from eight per cent
to 16 per cent has adversely affected the growth of processed foods
industry. It is recommended that marginal rate of excise duty on
processed foods should not be more than eight per cent and the
sales tax should be levied at four per cent.

52
5) Cascading effect of Special Excise Duty

The special excise duty introduced last year is not "cenvatable’’

except in the case of selected products. Most FMCG products
covered by tariff such as shampoos, ice creams and cosmetics are
subject to SED. This tariff also contains very wide definition of the
term "manufacture’’ which includes labeling, relabeling or conversion
of large packs into small packs. The levy of SED on such products
therefore leads to double taxation when goods are labeled or
converted into small packs after manufacture. It is recommended that
SED should be made "cenvatable’’; alternatively the term
"manufacture’’ needs modification , atleast for the purpose of SED by
excluding labeling, relabeling or conversion into small packs.

FDI Policy

Automatic investment approval (including foreign technology

agreements within specified norms), up to 100 per cent foreign equity
or 100 per cent for NRI and Overseas Corporate Bodies (OCBs)
investment, is allowed for most of the food processing sector except
malted food, alcoholic beverages and those reserved for small scale
industries (SSI). 24 per cent foreign equity is permitted in the small-
scale sector. Temporary approvals for imports for test marketing can
also be obtained from the Director General of Foreign Trade. The
evolution of a more liberal FDI policy environment in India is clearly
supported by the successful operation of some of the global majors
like PepsiCo in India.

9.1 Distinguishing features of Indian FMCG

Business
FMCG companies sell their products directly to consumers. Major
features that distinguish this sector from the others include the
following: -

53
1. Design and Manufacturing

1. Low Capital Intensity - Most product categories in FMCG

require relatively minor investment in plan and machinery and
other fixed assets. Also, the business has low working capital
intensity as bulk of sales from manufacturing take place on a
cash basis.
2. Technology - Basic technology for manufacturing is easily
available. Also, technology for most products has been fairly
stable. Modifications and improvements rarely change the basic
process.
3. Third-party Manufacturing - Manufacturing of products by
third party vendors is quite common. Benefits associated with
third party manufacturing include (1) flexibility in production and
inventory planning; (2) flexibility in controlling labor costs; and
(3) logistics - sometimes its essential to get certain products
manufactured near the market.

2. Marketing and Distribution

Marketing function is sacrosanct in case of FMCG companies. Major

features of the marketing function include the following: -

1. High Initial Launch Cost - New products require a large front-

ended investment in product development, market research,
test marketing and launch. Creating awareness and develop
franchise for a new brand requires enormous initial expenditure
on launch advertisements, free samples and product
promotions. Launch costs are as high as 50-100% of revenue
in the first year. For established brands, advertisement
expenditure varies from 5 - 12% depending on the categories.
2. Limited Mass Media Options - The challenge associated with
the launch and/or brand-building initiatives is that few no mass
media options. TV reaches 67% of urban consumers and 35%
of rural consumers. Alternatives like wall paintings, theatres,
video vehicles, special packaging and consumer promotions
become an expensive but required activity associated with a
successful FMCG.
3. Huge Distribution Network - India is home to six million retail
outlets, including 2 million in 5,160 towns and four million in
54
 627,000 villages. Super markets virtually do not exist in India.
This makes logistics particularly for new players extremely
difficult. It also makes new product launches difficult since
retailers are reluctant to allocate resources and time to slow
moving products. Critical factors for success are the ability to
build, develop, and maintain a robust distribution network

3. Competition

1. Significant Presence of Unorganized Sector - Factors that

enable small, unorganized players with local presence to
flourish include the following:
2. Basic technology for most products is fairly simple and easily
available.
3. The small-scale sector in India enjoys exemption/ lower rates of
excise duty, sales tax etc. This makes them more price
competitive vis-à-vis the organized sector.
4. A highly scattered market and poor transport infrastructure
limits the ability of MNCs and national players to reach out to
remote rural areas and small towns.
5. Low brand awareness enables local players to market their
spurious look-alike brands.
6. Lower overheads due to limited geography, family
management, focused product lines and minimal expenditure
on marketing.

10.1 Other suggestions

1. A joint industry –government initiative for building a "Made in
India’’ brand for FMCG products is required. With many
multinationals moving into the Indian FMCG market, a
concerted marketing strategy which creates strong brands will
be needed for Indian FMCGs to gain recognition in the market.

2. Better packaging materials are necessary as a large number of

FMCG products are perishable . The government must facilitate
55
 more R&D in packaging materials as this will help in cutting
wastes and costs in the sector. The possibility of a longer shelf
life will encourage production of goods of higher value addition
by companies in the sector.

3. While import of most items has been allowed, the government

is not geared to prevent import of spurious products. In other
countries, FMCG goods have to be cleared by regulatory
authorities before they are allowed to enter domestic stores.
This is not happening in India and the government needs to
undertake a comprehensive crackdown on these products.

4. The small-scale reservation policy should be reviewed as it

hampers the growth of this sector. Many reserved products,
including several FMCG products can be freely imported. Under
the current policy, not only are Indian producers of many FMCG
products restricted from attaining economies of scale, they also
have to compete against import that do not face constraints on
small scale reservations.

11.1 Salient feature

The FMCG sector is a key component of India’s GDP and is a
significant direct and indirect employer. It is the fourth largest sector
in the economy and is responsible for five per cent of total factory
employment in the country. The sector also creates employment for
three million people in downstream activities, much of which is
disbursed in small towns and rural India.

Unlike the perception that the FMCG sector is a producer of luxury

items targeted at the elite, in reality the sector meets the every day

56
needs of the masses, across the country. Low-priced products
contribute the majority of the sales volume and lower income and
lower middle income groups account for over 60 per cent of the
sector’s sales. Moreover, rural markets account for 56 per cent of
total domestic FMCG demand and FMCG outlets reach more villages
than any other basic facility such as primary schools or bus facilities.

The FMCG sector has several other salient features. It has strong
links with agriculture and 71 per cent of sales come from agro-based
products; it is a significant value creator with a market capitalisation
second only to the IT sector and it is a key contributor to the
exchequer. In 1998-99, it accounted for eight per cent of total
corporate tax; six per cent of central excise revenue and seven per
cent of state tax revenues.

12.1 Conclusion
The FMCG sector has traditionally grown at a very fast rate and has
generally out performed the rest of the industry. Over the last one
year, however the rate of growth has slowed down and the sector has
recorded sales growth of just five per cent in the last four quarters.

The outlook in the short term does not appear to be very positive for
the sector. Rural demand is on the decline and the Centre for
Monitoring Indian Economy (CMIE) has already downscaled its
projection for agriculture growth in the current fiscal. Poor monsoon in
some states, too, is unlikely to help matters. Moreover, the general
57
slowdown in the economy is also likely to have an adverse impact on
disposable income and purchasing power as a whole. The growth of
imports constitutes another problem area and while so far imports in
this sector have been confined to the premium segment, FMCG
companies estimate they have already cornered a four to six per cent
market share. The high burden of local taxes is another reason
attributed for the slowdown in the industry

At the same time, the long term outlook for revenue growth is
positive. Give the large market and the requirement for continuous
repurchase of these products, FMCG companies should continue to
do well in the long run. Moreover, most of the companies are
concentrating on cost reduction and supply chain management. This
should yield positive results for them.

58