FAST MOVING CONSUMER GOODS

INDUSTRY
ISSUE 1H 2010





























ISI Analytics the Business research arm of ISI Emerging Markets
A Euromoney Institutional Investor Company
www.securities.com









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1. Industry Profile 1
1.1 Industry Overview
1.2 General Economic Environment
1.3 Indias FMCG Industry Overview
1.3.1 Food Inflation
1.3.2 Food and Beverages Industry
1.3.3 Household Care
1.3.4 Personal Care

2. Market Trends and Outlook
2.1 Union Budget 2010-11
2.2 e-Choupal
2.3 Growth in Rural Market
2.4 Regulatory Issues
2.4.1 National Food Processing Policy
2.4.2 FDI Policy in Retail Trading (Single Brand)
2.4.3 Government Policies and Initiatives
11
3. Leading Players and Comparative Matrix
3.1 Leading Players
3.1.1 Hindustan Unilever Ltd (HUL)
3.1.2 Nirma Ltd
3.1.3 Dabur India Ltd (DIL)
3.1.4 Colgate-Palmolive India Ltd (CPIL)
3.1.5 Godrej Consumer Products Ltd (GCPL)
3.2 Comparative Matrix
3.3 SWOT Analysis
19
Notes: 1 RMB = INR 6.5539
1 NZD = INR 31.5560
1 USD = INR 44.7415
1 lakhs = 100,000 units
1 crores (cr) = 10,000,000 units





FMCG
ISI Analytics
FMCG india
1. Industry Profile
1.1 Industry Overview

Fast Moving Consumer Goods (FMCG) -
alternatively known as consumer packaged
goods (CPG) are products that are sold
quickly and generally consumed at a regular
basis, as opposed to durable goods such as
kitchen appliances that are replaced over a
period of years. The FMCG industry primarily
engages in the production, distribution and
marketing operations of CPG. FMCG product
categories comprise of food and dairy
products, pharmaceuticals, consumer
electronics, packaged food products,
household products, drinks and others.
Meanwhile, some common FMCG include
coffee, tea, detergents, tobacco and
cigarettes, soaps and others. The big names
in this sector include Sara Lee, Nestle,
Reckitt Benckiser, Unilever, Procter &
Gamble, Coca-Cola, Carlsberg, Kleenex,
General Mills, Pepsi, Mars and others.

FMCG in Vietnam urban area grew 19% in
2008 as a result of the rising number of
young and sophisticated consumers.
Approximately 50% of consumers in Vietnam
are under the age of 30 and this figure is
projected to increase to 70mn by 2018. In
addition, the number of high income earners
(from USD500 per month) has trebled over
the past six years while the number of low
income earners (under USD250 per month)
decreased from 62% in 1999 to 9% in 2008
in major cities such as Hanoi and Ho Chi
Minh City.

In China, statistics compiled by the China
Chain Store and Franchise Association
showed that 100 major FMCG firms reaped
sales income of RMB530bn in 2006 after
sound growth of 20% over figures obtained
in the previous year. Sixteen out of the 100
examined firms are foreign-funded firms that
garnered RMB168.8bn in sales volume.
Improved efficiency also contributed
significantly to average sales growth of 27%
yoy. Meanwhile, the remaining 84 domestic
firms reaped RMB360.8bn in sales after a
17% growth.
1
Chart 1: FMCG Value Growth in 2008 in Selected ASEAN Countries
Sources: Asean Affairs; TNS Media Vietnam
ISI Analytics
FMCG india
New Zealands FMCG plays a vital role in its
economy, in which it accounted for 5% of
GDP, 31% of manufacturing GDP and 26%
of manufacturing employment, while offering
63,000 full time jobs to its people. The
nations export for food and beverage (F&B)
trebled over the past 17 years, growing from
NZD6.96bn in 1990 to NZD21.43bn in 2008.
Dairy, meat, seafood, fruits and vegetables,
wine as well as specialty food industries are
among the main categories of the countrys
F&B industry. Dairy industry that produces
goods ranging from high quality basics (milk
powders, butter and etc.) to specialty foods
(ice-cream, artisan cheeses and etc.) is
responsible for 22% of total exports, while
dairy exports in 2008 amounted to
NZD9.29bn.

In Malaysia, total FMCG expanded 8.2% in
2007 with average prices increasing by 4.2%
as inflation kicks in. Malaysians continued to
purchase convenient and indulgent products
in spite of inflationary pressures, whereby
new launches for ice cream and snacks as
well as innovative products such as ice
cream minis were signs of successful
convenient indulgence. In addition, fabric
softener and air freshener experienced
notable growth. A survey that involved 1,000
Malaysians indicated that Malaysians
continue to be loyal to brands despite the
global financial slowdown, particularly in
FMCG goods such as dairy products (76%),
staple food (78%), soft drinks (61%), canned
products (68%), healthcare (78%) and
cosmetic products (74%).
1.2 General Economic Environment

India is one of the economies that shrugged
off the effects of the recent global financial
crisis with a growth of 7.87% during July-
September 2009, up from 6.1% during the
previous quarter. Analyst projected that the
nations economic growth is projected to
grow between 7-7.5% in 2010-11 and could
be the worlds fastest expanding economy
within the next four years relying on higher
pool of savings to help finance development
in the country to surpass China. Expanding
at an average GDP of 7.1% over the decade
through the third quarter of 2009, it is
possible for the Indian economy to
experience a double-digit growth within the
next four years.

The countrys finance ministry reported that
its fast-growing USD1.2tr economy currently
has saving rate of 32.5% of GDP compared
to 28% in Japan, 30% in South Korea and
38% in Malaysia. With the support of growing
population in its workforce (220mn people by
2030) as well as increasing savings by
young working Indians that will add
momentum to the nations growth. According
to estimates published by the Index of
Industrial Production (IIP), index for
electricity, manufacturing and mining each
registered growth rates of 7.5%, 9.2% and
9.5% during the second quarter of 2009-10.


GDP
(yoy)
Inflation
(yoy)
Inward
FDI
Export Import

Population
Population
Growth yoy
% % USD mn USD mn USD mn Person mn %
Mar-08 8.63 7.87 2,838 17,254 23,574 2002-03 1,056 1.54
Jun-08 7.8 7.69 -618 19,181 28,951 2003-04 1,072 1.52
Sep-08 7.75 9.77 1,159 15,789 31,136 2004-05 1,089 1.59
Dec-08 5.8 9.7 1,392 13,368 19,456 2005-06 1,106 1.56
Mar-09 5.76 8.03 1,067 12,916 16,597 2006-07 1,122 1.45
Jun-09 6.13 9.29 2,824 12,972 22,166 2007-08 1,138 1.43
Sep-09 7.87 11.64 6,607 13,608 21,377 2008-09 1,154 1.41
Table 1: Key Economic Indicators
Source: CEIC
2
ISI Analytics
FMCG india
Indian remains a resilient market for
overseas investors and local consumers.
Overseas investment inflows into Indias
stock market totaled to USD816.69mn during
the first trading week of 2010, while local
currency rating outlook was raised from
stable to positive by Moodys Investors
Service as the country demonstrates
resilience to the global financial meltdown as
well as positive outlook that its economy will
resume high levels of economic growth.

Among the BRIC countries, Chinas
unemployment rate of 4.3% is the lowest
among these markets while Indias IT-driven
growth path is projected to provide job
opportunities that will lower the countrys
current unemployment rate of 7.2%. Russia
and Brazils current jobless rate are at 9.9%
(mid-2009) and 8.1% respectively. On the
other hand, Brazils jobless rate is projected
to decline steadily as a result of its diversified
economy.

The World Bank estimated that 41.6% of
Indias population lives below USD1.25 on a
daily basis and 75.6% live with less than
USD2 per day. In the Union Budget 2009-10,
INR39,100cr was allocated for rural
employment programmes, up 144% over the
2008-09 budget. During the first half of 2010,
Indias Finance Minister expanded
microfinance programmes through the
budget 2010-11 by doubling the allocation of
INR400cr to the Micro-Finance Development
and Equity Fund.

According to Indias Economic Survey, a
reduction in unemployment rate is expected
to take place during the end of the 11
th
Five
Year Plan (2007-12). The Survey also
projected that the countrys labour force from
2007 to 2012 is expected to be around 45mn
(unemployment rate to fall below 5% by
2012) against 58mn employment
opportunities that would be created during its
11
th
Five Year Plan. During April-June 2009,
employment rate fell by 131,000, with
declines in employment rate of 38,000 in
April and 157,000 a month later before
increasing 64,000 in June.
Chart 2: Gross Domestic Saving Household
Source: CEIC
3
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3,000
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5,000
6,000
7,000
8,000
2004/05 2005/06 2006/07 2007/08 2008/09
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Financial Savings
Physical Savings
% of Personal Disposable Income
ISI Analytics
FMCG india
1.3 Indias FMCG Industry Overview

Indias FMCG sector was valued at
INR60,000cr in 2004 after a growth of 4%
during 2003-04. According to a report by the
Federation of Indian Chambers of
Commerce and Industry (FICCI), several
FMCG registered double-digit growth in
value terms, for example, shaving cream
(20%), deodorant (40%), branded coconut oil
(10%), anti-dandruff shampoos (15%), hair
dyes (25%) and cleaners and repellents
(20%). On the contrary, negative growth of
up to 8% was registered in products such as
personal healthcare, laundry soaps, dish
wash, toilet soap, toothpaste and
toothpowder.

In 2008, Indias FMCG sector had a value of
INR86,000cr and analysts projected a growth
of 15% in 2010 (2009: 12%) as the economy
shows signs of recovery. According to the
FICCI-Technopak report, the FMCG sector
will grow at a rate of 10-12% within the next
decade to reach INR206,000cr by 2013 and
INR355,000cr by 2018. The implementation
of the proposed Goods and Services Tax
(GST) and the less restrictive foreign direct
investment (FDI) policies are expected to
contribute to the growth of the FMCG sector
to INR225,000cr by 2013 and INR456,000cr
by 2018.
With a total market size in excess of
USD14.7bn, Indias FMCG industry is the
fourth largest sector in its economy and
plays a vital role in Indias socio-economic
front with nearly eight million stores selling
FMCG and employing some 25mn people as
wholesalers, distributors and others. Besides
that, the FMCG sector purchases nearly
INR9,600cr worth of agricultural products
and processes them into value-added
products while the sector accounted for
nearly 40% of the media industrys revenue.

Sales in the FMCG sector grew by a
staggering 14.8% during the six-month
period ended September 2009 but only
expanded 7% during the two-month period
ended November 2009. As a result of lower
growth in the sector, Indias top 10 FMCG
companies experienced deceleration in sales
growth from 9.9% during the first half of the
financial year (April-September 2009) to a
growth of 3.3% during the October-
November period. In addition, contributing
factors such as price increase of 50-100%
for most agri-commodities as well as higher
crude oil prices caused operating margin to
fall during the October-December quarter.

Table 2: FMCG Category and Products
Source: India Brand Equity Foundation (IBEF)
Category Products
Food and Beverages
Health beverages; soft drinks; staples/cereals/ bakery products (biscuits,
bread, cakes); snack food; chocolates; ice cream; tea; coffee; soft drinks;
processed fruits; vegetables; dairy products; bottled water; branded flour;
branded rice; branded sugar; juices etc.
Household Care
Fabric wash (laundry soaps and synthetic detergents); household
cleaners (dish/utensil cleaners, floor cleaners, toilet cleaners, air
fresheners, insecticides and mosquito repellents, metal polish and
furniture polish).
Personal Care
Oral care; hair care; skin care; personal wash (soaps); cosmetics and
toiletries; deodorants; perfumes; feminine hygiene; paper products.
4
ISI Analytics
FMCG india
1.3.1 Food Inflation

As a result of the 2007-08 food price crisis,
international food prices reached its peak in
2008 but fell drastically a year later.
Developing countries were largely affected
by the hike in food prices, where share of
expenditure on food accounts for a large
proportion of total consumer spending.
According to Chart 3, developing countries
such as Indonesia, India and China each
spent 41.9%, 34.9% and 33.0% of their
consumer spending on food in 2008.

In 2010, due to speculation that the Indian
central bank may hike interest rates after
instructing banks to raise more cash
reserves, the nations food prices inflated for
a second week. An index that measures
wholesales prices of lentils, rice, vegetables
and other food products jumped 17.56% in
the week to January 23 over the previous
year. In addition, food inflation hiked 19.95%
in the week to December 5, 2009, indicating
the most significant increase since
December 1998. Inevitably, high food
inflation could restrict consumers demand
and pricing flexibility for FMCG while
lowering consumers purchasing power that
diverts purchases away from certain FMCG.

Table 3 indicated that retail price for rice in
Bangalore had the most drastic hike in price,
where its price increased two-fold from
INR12 per kg in 2007 to INR36 per kg two
years later. The only price drop shown in the
table is the wheat price in Ahmedabad, in
which its price fell 6.5% from INR12.3 per kg
in 2007 to INR11.5 per kg the next year
before rising a staggering 30.43% to INR15
per kg in 2009. Another notable increase is
the price for rice in Ahmedabad, where a
hike of INR10.2 per kg to INR23 per kg in
2009 from INR12.8 per kg two years earlier.

34.9
33.0
11.8
5.9
41.9
24.0
18.6
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0
Indonesia
India
China
Brazil
South Af rica
EU
USA
% of total spending
Chart 3: Share of Expenditure on Food in Total Consumer Spending in 2008
Sources: Euromonitor; OECD; Eurostat

INR per kg

Rice Wheat Atta
2007 2008 2009 2007 2008 2009 2007 2008 2009
Delhi 16.0 22.0 23.0 12.0 13.0 15.5 13.0 14.0 17.5
Ahmedabad 12.8 16.5 23.0 12.3 11.5 15.0 13.0 13.5 16.0
Mumbai 15.3 17.5 19.0 15.5 16.0 20.0 16.0 17.0 22.0
Bangalore 12.0 17.0 36.0 16.0 16.0 21.0 16.0 17.0 21.0
Hyderabad 11.0 14.0 19.0 12.0 14.0 19.0 16.0 17.0 17.0
Chennai 15.0 18.0 22.0 17.0 18.0 21.0 18.0 20.0 22.0
Table 3: Agriculture Retail Price in Selected Cities
Source: CEIC
5
ISI Analytics
FMCG india
1.3.2 Food and Beverages Industry

Indias food industry accounted for nearly
65% of the nations retail market and has an
estimated value of USD182bn, while exports
of fresh and processed vegetables, fruits,
livestock and cereals hike 10% to reach
USD8.67bn in 2008-09. According to a report
by Associated Chambers of Commerce and
Industry of India (ASSOCHAM), Indias food
market (includes processed F&B) has a
current market size of INR7,198cr after a
17% growth in 1Q 2009-10 and is projected
to grow 19% during 2Q FY10.

Agricultural and Processed Food Products
Export Development Authority (APEDA)
projected that Indias farm product exports in
the global trade will expand from its current
2% to more than 5%, and Indias exports of
agricultural products might double to hit
USD20.6bn within the next five years. Each
year, India produces 105 tonnes of milk
(highest in the world), 150 tonnes of fruits
and vegetables (second largest), 485 mn
livestock (highest), 230 mn tonnes of food-
grain (third largest) and 7m tonnes of fish
(third largest).

Spices

In spite of a challenging economic
environment, spice exports for India rose 6%
in dollar terms to its all-time high of
USD11.68bn (or 470,520 tonnes) in 2008-09,
up from USD11.01bn (or 444,250 tonnes)
during the previous fiscal.

Food Processing

On the food processing front, the Indian
market has an estimated value of
USD13.05bn that includes biscuits,
chocolates, ice-cream, confectionery,
snacks, cheese and butter. With major global
companies such as Britannia, Nestle, Amul,
ITC Foods, Parle, Kelloggs,
GlaxoSmithKline and others, this sector
exhibited sound growth of 14-15% over the
past three years. A total of USD143.8mn of
FDI flowed into Indias food processing
industry in 2007-08, up USD138.1mn from
previous fiscal of USD5.7mn.

In order to allow the food processing sector
to prosper, the Indian government formulated
the Vision-2015 action plan. In which it plans
to treble the size of this industry from nearly
USD70bn to USD210bn, thus increasing the
level of processing of perishables from 6% to
20%, thus expanding value addition from
20% to 35% as well as strengthening the
nations share in global food market from
1.5% to 3%. Moreover, the government
introduced a blueprint for enhancing growth
in the countrys food processing sector
through the formulation of the National Food
Processing Policy, infrastructure
improvements in the rural areas as well as
the simplification of tax structures.

Snacks and Confectionery

This market is poised for steady growth of
15-20% with an estimated worth of USD3bn.
The branded snack market has an estimated
value of USD1.34bn, while the unorganized
market has an estimated value at
USD1.56bn with a potential growth rate of 7-
8%.

Health Food

FMCG companies forayed into Indias
growing branded health food sector.
Hindustan Unilever Ltds (HUL) health food
brand - Kissan Amaze is being marketed on
a trial basis in three southern states in India.
Meanwhile, joint venture partnership
between Godrej Food & Beverages Ltd and
Hershey Company - Godrej Hershey Foods
& Beverages Ltd (GHFBL) has plans to
introduce several brands from its
international portfolio into the Indian branded
health food sector.
6
ISI Analytics
FMCG india
Dairy

Dairy India 2007 projected that Indias
current dairy sector is USD62.67bn with a
5% yoy growth, of which its exports
increased from USD210.5bn in 2007-08 to
USD113.57bn a fiscal year later. Indias
position as the worlds largest milk producer
was maintained with production of 110mn
tonnes in 2008-09.

Beverages

Indias market size for carbonated drinks was
nearly USD1.5bn, while the juice and juice-
based drinks market size was nearly
USD0.25bn. The fruit-drink market is an
expanding market that has a growth rate of
25% while sports and energy drinks category
have potential to expand due to its low
penetration in the domestic market. As a
result of rising disposable income among the
Indian population, growth in foreign tourists
as well as favourable government policies,
Indias alcoholic beverages category saw
consistent growth over the years (9% CAGR
by 2013) with its wine industry expanding at
a rate of 25% yoy growth.

Outlay, Expenditure and Investments

Investments play an important role for growth
of Indias food sector, particularly in the food
processing industry. The food processing
industry currently employs some 48 mn
people (direct employment: 13mn; indirect
employment 35mn). And in 2004-05, this
sector contributed INR280,000cr (or nearly
14%) to manufacturing GDP. Outlay and
expenditure for this sector each increased
60.21% and 72.06% from 2004-05 to 2008-
09. On the contrary, inflow FDI contracted
26.9% from 2007-08 to the next fiscal when
global financial crisis adversely affected
inward investments (Chart 4).

Chart 4: Outlay, Expenditure and Inflow FDI for Food Processing Industry
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2004-05 2005-06 2006-07 2007-08 2008-09
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Source: Ministry of Food Processing Industries (MOFPI)
Table 4: Production of Selected Food Products

Biscuits
Chocolate and Sugar
Confectionary
Malted
Food
Milk
Powder
Wheat
Flour and
Maida
Sugar Salt
Tonnes Tonnes Tonnes Tonnes
Tonnes
th
Tonnes
th
Tonnes
th
2007 1,248,081 55,898 82,115 17,992 2,169 26,905 18,388
2008 1,378,157 61,787 61,821 17,889 2,146 26,025 17,425
Mar-09 355,344 17,079 13,421 51,253 547 7,875 5,433
Jun-09 377,363 13,635 12,847 27,467 572 701 11,428
Source: CEIC
7
ISI Analytics
FMCG india
1.3.3 Household Care

As a result of rapid urbanisation and
emergence of small packs and sachets, this
segment saw high level of penetration, in
which it is projected to grow at a CAGR of
2% from 2005 to 2010. Detergent production
in India expanded 66.92% from 639,472
tonnes in 1999 to 1,067,415 tonnes in 2007
before contracting 6.18% to 1,001,454
tonnes a year later.

In 2010, Procter & Gamble (P&G) and HUL
were engaged in a price war. With the lower
priced version of Tide introduced by P&G,
HUL retaliated by slashing prices by 10-30%
for its detergent products, namely Rin and
Surf where HUL cut the price for Rin from
INR70 to INR50 per pack. As for Surf Excel
Blue, prices were brought down from INR91
to INR82 for a 500gm pack. Contributing
close to one-fourth (in FY2009) of its total
sales, the detergent segment remains a key
market for HUL. With P&Gs new urgency in
this segment, the company promoted Tide
Natural with smart advertising as well as
through volume discounts.
Chart 5: Exports of Selected Food Products
Source: CEIC
Chart 6: Production for Selected Beverages Products
Source: CEIC
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Processed Fruits and Juices
Processed Vegetables
Spices
ISI Analytics
FMCG india
1.3.4 Personal Care

This segment of FMCG has been
experiencing growth for the past few years
and has an estimated worth of USD4bn. Key
segments of Indias personal care industry
include personal hygiene products, hair care,
skin care, colour cosmetics, and fragrances.
In addition, the largely dominated bar soap
segment saw annual growth of
approximately 5% for the past four years.
ASSOCHAM reported that Indias
INR3,360cr oral care market (includes
toothbrush and tooth powder) experienced a
10.8% growth during the first quarter of
2009-10.

Analysts estimated that this market will grow
11.5% during the second quarter of 2009-10
with a projected market size of INR3,450cr.
However, the INR18.5bn skin care and
cosmetics market that includes skin/fairness
creams, shaving creams and deodorants,
experienced a 11.52% growth during the first
quarter of 2009-10 and is projected to see a
12% growth during 2Q FY10. Meanwhile, the
hair care market size (includes hair oils,
shampoos, creams, conditioners, hair dyes
and etc.) was approximately INR8,000cr with
strong growth of 14.68% in the first quarter of
2009-10 and is expected to post sound
growth of 16% in 2Q FY10.

The key trend in the personal care segment
is moving away from health products towards
beauty products, hence consumers are
switching demand from basic products (such
as soaps, shampoos, hair oils and etc.) to
specialized products (such as skin whitening
cream, anti-ageing products, sun block
lotions and etc.). With rising disposable
income from USD2,720 in 2008 to an
estimated USD3,482 in 2012 as well as
growing female population (2008: 178mn;
2012: estimated 191mn) between the age
group 25-44 years will definitely boost this
market segment.

Sales of whitening cream outpaced those of
Coca-Cola and tea in India as most Indians
consider having fair-complexions an asset.
As a consequence, the countrys market for
whitening cream expanded at a whopping
18% yoy growth while analysts predicted that
it will grow to nearly 25% in 2010 with an
estimated market worth of USD432mn.

6%
1%
46%
31% 16%
Hair Care
Bath & Shower
Products
Colour Cosmetics
Fragrances
Skin Care
Chart 7: Market Share of Personal Care Products
Source: Tata Strategic Management Group
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Table 5 shows that industrial production of
hair oil and Ayurvedic hair oil in India jumped
192.06% from 7.52mn litres in 2004 to
21.97mn litres a year later and saw a growth
of 56.99% from figures in 2005 to 34.49mn
litres in 2008. Industrial production of soap
(IPP) shrank 30.9% from 584,414 tonnes in
2003 to a low of 403,833 in 2007 before
gradually rising 41,832 tonnes to 445,665
tonnes a year later.

On the contrary, production of soap (SSI)
grew 6.24% from 3,592,000 tonnes in 2003
to 3,816,000 tonnes in 2008. Production for
toothpaste expanded 249.57% from 19,061
tonnes in 2003 to 66,632 tonnes in 2008
while production for toothpowder contracted
22.58% from its peak of 8,382 tonnes in
2004 to a low of 6,489 tonnes in 2007.

In 2009, one of the FMCG companies
Marico Ltd (Marico) test marketed new
products (Nihar Naturals Cooling Oil and
Parachute Advanced Cooling Oil) in order to
gain greater market share. In addition to
launching new products, Marico increased its
presence in the Indian market through
increased penetration in the rural markets.
The company has a 21% market share in the
INR2,200cr hair oil segment and aims to
increase market share in this lucrative
segment through cooling hair oil products.

In 2010, Mumbai-based VVF Ltd acquired
three brands from Chennai-based Henkel
India (Henkel) a FMCG company, namely
Aramusk and Moloy soaps as well as
Mahobringol hair oil. Three months after the
acquisition, VVF - one of the worlds largest
contract manufacturers of bar soaps bought
Henkels plant in Tiljala, Calcutta, in which
the cost of acquisition is estimated INR23cr
while the plant accounted for INR18cr.

The acquired brands are estimated to yield
little turnover at a national level but brands
such as Aramusk is famous in its domestic
market as it is one of the oldest male
deodorant soaps in India with a loyal
consumer base. Meanwhile, Moloy
sandalwood soap and Mahabringol hair oil
are popular brands in eastern India.
Table 5: Industrial Production of Selected Personal Care Products

Hair Oil & Ayurvedic
Hair Oil
Soap
(IPP) *
Soap
(SSI) **
Toothpaste Toothpowder
Litre th Tonnes Tonnes th Tonnes Tonnes
2003 2,127 584,414 3,592 19,061 7,744
2004 7,521 502,045 3,647 17,673 8,382
2005 21,966 480,811 3,651 32,771 8,233
2006 26,308 484,775 3,697 48,189 7,237
2007 30,636 403,833 3,761 53,129 6,489
2008 34,485 445,665 3,816 66,632 7,802
Mar-09 9,248 135,270 960.2 17,097 2,018
Jun-09 10,055 156,102 961.4 18,731 2,052
* IPP = Independent Power Producer
** SSI = Small Scale Industries

Source: CEIC
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2.1 Union Budget 2010-11

The FMCG industry is expected to yield
higher growth on the back of higher
disposable income led by income tax cuts,
while FMCG prices are expected to hike.
Prices of daily use products such as soaps,
talcum powder, shampoos, hair dyes,
diapers and sanitary napkins are expected to
increase by 2-5%, while diapers and sanitary
napkins that were previously fully exempt
from excise are now slapped with a 10%
duty. However, prices of deodorants and
perfumes are expected drop by 5% while
duty charges on medicinal and toilet
preparations will be reduced from 16% to
10%.

Most FMCG companies including HUL,
Colgate-Palmolive, Nestle, Reckitt Benckiser
and Dabur India Ltd have large
manufacturing plants in excise-free zones
that are not affected by a hike or cut in
excise duty, while higher cost of production
will inevitably cause price hike. Also, the
establishment of five additional food parks
will no doubt boost the food processing
industry.
2. Market Trends and Outlook
11

Table 6: Union Budget 2010-11: Central Plan Outlay by Sectors
in INR cr
2009-10 Budget
Estimates
2009-10 Revised
Estimates
2010-11 Budget
Estimates
Agriculture and Allied Activities 10,629 10,123 12,308
Rural Development * 51,769 51,560 55,190
Irrigation and Flood Control 439 404 526
Energy 115,574 109,685 146,579
Industry and Minerals 35,740 30,694 39,019
Transport ** 94,306 88,948 101,997
Communications 16,731 16,099 18,529
Science Technology and Environment 11,207 9,908 13,677
General Economic Services 6,270 5,446 7,554
Social Services *** 103,856 101,370 127,570
General Services 1,400 1,353 1,535
Grand Total 447,921 425,590 524,484
* Includes provision for rural housing but excludes provision for rural roads
** Includes provision for rural roads
*** Excludes provision for rural housing

Source: Ministry of Finance
Fertilizer Subsidy: Effective from 1
st
April,
2010, a Nutrient Based Policy for this
sector will enhance agricultural
productivity as well as provide better
returns for Indian farmers, hence
reducing the volatility in demand for
fertilizer subsidy.

Foreign Direct Investment: Clear
definition in the calculation of indirect
foreign investments in Indian companies
simplifies the FDI regime. Also, complete
liberalisation of pricing and payment of
technology transfer fee and trademark,
brand name and royalty payments will
ease the process of FDI.
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Agricultural Growth:

(a) Agricultural Production:

1. The provision of INR400cr to strengthen
green revolution in Eastern India, namely
Bihar, Chattisgarh, Jharkhand, Uttar
Pradesh, Bengal and Orissa.
2. The provision of INR300cr for rain-fed
areas to organise 60,000 pulses and oil
seed villages and also the provision of
water harvesting watershed management
as well as soil health to increase
productivity of dry farming areas.
3. The provision of INR200cr for
conservation farming that sustained the
gains made in the green revolution areas.
It involves concurrent attention to soil
health, water conservation as well as
preservation of biodiversity.

(b) Reduction in Wastage of Produce:

1. Government will address the issue
regarding the opening up of retail trade
that will close the gap between farm gate,
wholesale and retail prices.
2. An ongoing scheme for private sector
participation will lower deficit in storage
capacity.

(c) Credit Support to Farmers:

1. Banks are to meet target of
INR375,000cr set for agriculture credit
flow.
2. In view of drought and floods in some
states, repayment period of the loan
amount owed by farmers are to be
extended by six months from 31
st

December, 2009 to 30
th
June, 2010
under the Debt Waiver and Debt Relief
Scheme for Farmers.
3. Farmers who promptly repay short-term
crop loans will receive additional
incentive of 2% (instead of 1%) for 2010-
11.



(d) Impetus to the Food Processing Sector:

1. The government will add another five
mega food parks, hence bringing Indias
food parks to a total of fifteen.
2. Cold storage and cold room facilities
(including farm level pre-cooling and
preservation or storage of agricultural
and allied produce, marine products and
meat) will be available through External
Commercial Borrowings.

Infrastructure: A whopping INR173,552cr
was allocated for infrastructure
development, while allocation for road
transport and railway transport each
amounted to INR19,894cr and
INR16,752cr.

Energy: Allocation for the power sector
(excluding Rajiv Gandhi Grameen
Vidyutikran Yojana) doubled to
INR5,130cr in 2010-11, up from
INR2,230cr in 2009-10. The Coal
Regulatory Authority was introduced to
allow fair competition in the coal sector,
in which the Ministry of New and
Renewable Energys plan outlay rose
61.29% to INR1,000cr in 2010-11, up
from INR620cr. In addition, projects that
involve solar, small hydro and micro
power are to be established in Jammu
and Kashmir at a cost of INR500cr.

Education: Allocation for school
education was increased from
INR26,800cr in 2009-10 to INR31,036cr
in 2010-11, thus showing a 15.81%
growth. Moreover, under the Thirteenth
Finance Commission grants for 2010-11,
states are entitled to some INR3,675cr
for elementary education purposes.

Rural Development: The Mahatma
Gandhi National Rural Employment
Guarantee Scheme and rural
development were allocated INR40,100cr
and INR66,100cr respectively. Besides
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that, allocated funds for Backward Region
Grant Fund expanded 25.86% from
INR5,800cr in 2009-10 to INR7,300cr in
2010-11, while additional central
assistance of INR1,200cr will be provided
for drought mitigation in Bundelkhand.

2.2 e-Choupal

e-Choupal was developed by Indias
conglomerate, Indian Tobacco Co. (ITC).
Prior to the introduction of this facility,
farmers were restricted to selling their
products in the local mandi through a
middleman, hence the low earnings. The
availability of e-Choupal allowed farmers to
be trained to manage the Internet kiosk that
allows them to yield the best price through
the access of daily prices of crops in India as
well as overseas. Apart from changing the
quality of farmers lives, e-Choupal provides
information regarding weather forecasts,
farming techniques, crop insurance and
others.

Covering ten states across 40,000 villages,
e-Choupal allows 4mn farmers (of which
constitutes a majority of 75% of the
population living below poverty line) across
India to obtain relevant information that helps
improve rural economy. The network of
6,500 e-Choupal centres expanded the
spectrum of commodities such as wheat,
rice, pulses, soya, maize, spices, coffee,
aqua-products leaving farms, also, this
facility carries FMCG, durables, automotives
and banking services back to the rural areas.

2.3 Growth in Rural Market

The population in Indias rural areas currently
accounts for approximately 70% of the
countrys 1.14bn population, and has been
experiencing an increase in income as well
as consumption and production. According to
a report by IBEF, FMCG companies
concentrate on rural markets for volume and
urban markets for value while the previous
market remained a major market for FMCG
companies (52.5% of total demand in 1998-
99). Most companies offer convenient
packaging and low-priced products to the
rural market, and offer urban consumers with
higher-valued products.

A study projected that Indias consumer will
treble to become the fifth largest consumer
market by 2025 and (2007: 12
th
largest
consumer market). A report indicated that
the nations per capita disposable income is
currently at USD556 (annual) and will more
than doubled to a projected USD1,150 by
2015. Chart 8 showed that the consuming
population in India was 26% of its total
population in 2003 and is projected to double
to reach 54% as the number of aspirants fall
350% between 2003 and 2015.
Chart 8: Household Income Distribution
Sources: HUL; National Council for Applied Economic Research (NCAER); IBEF
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2.4 Regulatory Issues

2.4.1 National Food Processing Policy

Indias food processing sector has enormous
importance in the nations development and
with India being the second largest food
producer in the world, this sector has solid
growth potential. Food production is
expected to double within the next decade to
accommodate the rising consumption of
value added food products. Benefits such as
economic growth, growing agricultural yields,
higher productivity and job creation will
definitely raise the living standards of the
Indian community, especially those living in
the rural areas.

This policy will facilitate the establishment of
cold chain, low cost pre-cooling facilities that
are located near farms, cold stores and
grading, sorting as well as packing facilities
so that wastage levels can be lowered whilst
improving quality and shelf life of those
products. New technologies in the food
processing and packaging will be developed
in order to provide mechanism to facilitate
the process of technology transfer through a
network of R&D institution. In addition, agro
food parks will be built to facilitate the food
production process.

The following will have greater priority and
special consideration in view of policy and
plans:

The North Eastern Region, the Hilly
Areas, and ITDP (Initiative for
Transportation and Development
Programmes) areas in India shall be
given priority in terms of attention and
consideration.
Fiscal incentives (such as excise duty or
sales tax concession and tax holidays)
are to be given to the above mentioned
areas as well as areas that are
established outside these areas near the
market centre.
Food processing units can enjoy tax
holiday (excluding liquor, cigarettes and
aerated drinks and similar luxury
products) for a period of 10 years.

Table 7: Challenges, Constraints and Concerns
Potential Growth
India is a major food producer with more than 600 mn tonnes of food products
under its production. It has growth potential to become the largest food producer
in the world.
Wastage
Processing level is currently very low while wastage level is high that shrinks
national wealth.
Value Addition
Value addition to raw products in India is only at a 7% and this figure is
considered low when compared to Chinas 23% and Philippines 45%.
Small Scale and
Unorganized
Sectors
These sectors account for 75% of the food processing industry and only has
local presence in which it lacks access to knowledge, technology and marketing
network.
Low Demand
The price gap between farmers realization and consumers final price is very
big caused by low productivity, high cost of production, spoilage due to poor
infrastructure and high cost of borrowing.
Marketing Efforts
The marketability of processed food is low despite vast domestic market size.
However, this market has growth potential should awareness and educational
campaigns are held.
Source: Confederation of Women Entrepreneurs (CoWe)
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2.4.2 FDI Policy in Retail Trading
(Single Brand)

In February 2010, ministers in India
advocated that its retail market lacks
competition for a check on prices as well as
liberalisation of the industry. The share of
FDI inflow to the retail trading (single brand)
sector has been increasing over the years, in
which it accounted for 0.18% of Indias
INR469,364.98cr FDI inflows from April 2000
to December 2009. However, from April
2000 to December 2008, FDI inflow to the
retail trading sector only accounted for
0.03% of total FDI inflow of
INR338,384.74cr.

The key driving forces for retail growth are
banks, capital goods, engineering, FMCG,
software services, oil marketing, power, two-
wheelers and telecommunication companies.
On July 2009, FDI inflows of retail trading
(single brand) hit an approximate
USD46.6mn, meanwhile Indias retail sector
is expected grow to a market size of
USD833bn by 2013 and USD1.3tn by 2018
with a CAGR of 10%. The nations retail
market saw exponential growth as
developments take place in major cities,
metros as well as tier-II and tier-III cities
across India.

The 51:49 joint venture partnership between
UK-based Marks & Spencer and India-based
Reliance Retail Ltd has 15 retail stores
spanned across India while plans are being
laid out to open as many as 35 stores over
the next five years. Besides that, Europes
largest retail Carrefour S.A. is expected to
commence its wholesale operations in India
by 2010. This retail giant also plans to
establish its first wholesale cash and carry
outlet in the National Capital Region and the
company currently exports USD170mn worth
of products from India.

Table 8: Sector-wise FDI Inflows
* Processing and warehousing coffee and rubber

Source: Department of Industrial Policy and Promotion
FDI Inflows (in INR cr)
Apr 2000 to
Dec 2009
Apr 2000 to
Dec 2008
Apr 2000 to
Dec 2007
Agriculture Services 7,123.17 785.44 741.22
Food Processing Industries 4,388.45 3,422.26 2,786.23
Retail Trading (Single Brand) 822.70 107.47 6.64
Soaps, Cosmetics & Toilet Preparations 680.50 498.49 434.18
Agricultural Machinery 668.95 664.91 639.98
Vegetable Oils and Vanaspati 605.63 376.92 175.88
Tea and Coffee * 381.38 377.43 142.21
Sugar 183.90 183.66 160.98
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2.4.3 Government Policies and Initiatives


Removal of Quantitative
Restrictions and Reservation
Policy

The abolishment of most of the food and agro-processing
industries (except for alcohol, cane sugar, hydrogenated animal
fats and oils etc. and items reserved for the exclusive
manufacture in the SSI sector) as well as the removal on
quantitative restrictions in 2001 led to market expansion in the
FMCG industry.
Central and State Initiatives
State government such as Himachal Pradesh, Uttaranchal and
Jammu and Kashmir provided companies with fiscal incentives
(such as allotment of land at concessional rates, 100% subsidy on
project reports and 30% capital investment subsidy on fixed
capital investment up to USD63,000) that encouraged them to
establish manufacturing plants in their respective regions.

The reduction of excise and import duty allows most of the
processed food products to be exempted from excise duty.
Location (District) in Andhra Pradesh Name of Park
Chittoor Food processing park (existing)
Ranga Reddy Agri-biotech park (existing)
Guntur, Khammam and Nellore Food processing park (upcoming)

Location (District) in Uttar Pradesh Name of Park
Barabanki and Varanasi Agro park
Food Processing Policy, 2004-2009
Targets to facilitate better returns for farmers and attract investment in this sector.
Will emphasize on employment opportunities as well as minimise wastage on agri-products.

Sugar Policy, 2004
Incentives and concessions such as exemption of entry tax on sugar, reimbursement of
administrative charge and trade tax on molasses to establish sugar mills in Uttar Pradesh.

Location (District) in Madhya Pradesh Name of Park
Mandideep, Pillukhedi, Borgaon and Maneri Food Park
Biotechnology Policy, 2003
Targets to conserve the states biodiversity and the sustainable use of its biotic resources.
Production of high-yielding, draught and pest resistant seeds for agriculture and horticulture
crops that is suitable for different agro-climatic areas.
Sources: HUL; NCAER; IBEF
Table 9: Sector-specific Infrastructure
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2.4.3.1 Milk and Milk Powder Control
Order, 1992 (MMPO)

With intentions to maintain and increase the
supply of liquid milk that are of desired
quality in view of public interest, the central
government of India introduced the MMPO in
order to regulate the production, supply and
distribution of milk and milk products,
whereby milk carries the meaning of milk of
cow, buffalo, sheep, goat or a mixture
thereof, raw or processed in any form and
includes pasteurised, sterilised, recombined,
flavoured, acidified, skimmed, toned, double
toned, standardised or full cream milk.

The functions of this board are as follows:

Provide assistance and advise the
central government on any matter that
concerns the production, manufacture,
sale, purchase and distribution of milk
and milk products.
Registering authorities or other officials
authorised by it may carry out periodic
inspection of any premises that
manufacture or process milk or milk
products, or business in which milk or
milk products are carried out. This is to
ensure compliance that are stated in the
Order as well as genuine and proper
supply of milk or milk products to
consumers.
Without prejudice to the provisions of the
previous provision, the board shall advise
the central government on matters
relating to:

(a) Facilitation of the supply of availability of
liquid milk, through balancing uneven
distribution supplies in different regions
and seasons.
(b) Maintenance or increase in supplies of
milk as well as balance the distribution of
milk and milk products.
(c) Establishment of appropriate standards
and norms for controlling and handling
milk and milk products.
(d) Maintenance of proper sanitary and
hygiene standards during the
manufacturing process of milk and milk
products.
(e) Establishment, promotion or registration
of any industry that is relatable to milk
products.

2.4.3.2 Meat Food Product Order, 1973

This Order came into effect from 15
th
July,
1975 with instructions stating that no person
shall conduct business his/her business as a
manufacturer except under and in
compliance with the terms and conditions of
a license granted to him/her under this
Order. As stated in the Order, sanitary and
other requirements are to be complied with
by a licensee are as follows:

All parts of the factory shall always be
kept clean, lighted, ventilated and should
be cleaned, disinfected and deodourised
at a regular basis.
All factories shall be equipped with
adequate cold storage facilities, efficient
drainage as well as plumbing systems.
The factory shall be constructed and
maintained as to allow hygienic
production. All operations relating to the
preparation or packing of meat food
products shall be carried out with strict
hygienic procedures and the factory
premises shall not be utilized for living or
sleeping purposes provided that it is
separated from the factory by a wall.
Meat used for the preparations of meat
food products (if it is not slaughtered in
the factory) should only be obtained from
slaughter houses in which ante-mortem
and post-mortem inspections have been
conducted in compliance with rules
prescribed and so certified by the local
authority.
All parts of the internal surface above the
floor or pavement of the slaughter house
shall be washed with hot lime wash
within the first ten days of March, June,
September and December. Meanwhile,
any blood or liquid refuse or filth in the
slaughter house shall be thoroughly
washed and cleaned with water and
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deodorant or disinfectant within three
hours after the completion of slaughter.
Requirements of the finished meat food
products:

- No meat food products shall contain
any of the following poisonous metals
in excess of the quantity specified.
- No meat food products shall contain any of
the following preservatives in excess of the
quantity specified.






18

Name of Poisonous
Metal
Parts per mn
(by weight)
1. Arsenic 1
2. Copper 20
3. Lead 2.5
4. Tin 250
5. Zinc 50

Name of Preservatives
Parts per mn
(by weight)
1. Commercial saltpetre 500
2. Sodium and potassium
nitrite
200
3. Sulphur dioxide 450
- No meat food products shall contain
any of the following insecticides in
excess of the quantity specified.
Name of Insecticide
Tolerance
Limit mg/kg
(ppm*)
Name of Insecticide
Tolerance
Limit mg/kg
(ppm*)
1. Aldrin dieldrin 0.20 11. Carbendazim 0.10
2. Dichlorodiphenyltrichloroethane 7.00 12. Benomyl 0.10
3. Fenitrothion 0.03 13. Carbofuran 0.10
4. Lindane 2.00 14. Cypermethrin 0.20
5. Chlorfenvinphos 0.20 15. Edifenphos 0.02
6. Chlorpyrifos 0.10 16. Fenthion 2.00
7. 2, 4-D 0.05 17. Fenvalerate 1.00
8. Ethion 0.20 18. Phenthoate 0.05
9. Monocrotophos 0.02 19. Phorate 0.05
10. Trichlorfon 0.10 20. Pirimiphos-methyl 0.05
* Parts per million
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3.1.1 Hindustan Unilever Ltd (HUL)

Sunlight and Lifebuoy soaps were introduced
in 1888 and 1895 respectively. And in 1895,
Lever Brothers appointed agents in cities
such as Mumbai, Chennai, Kolkata and
Karachi. Several products were introduced
by this FMCG giant Pears soap (1902),
Brooke Bond Red Label tea (1903), Lux
flakes (1905), Vim scouring powder (1913),
Vinolia soap (1914), Rinso soap powder
(1922) and others. In 1924, Gibbs dental
preparations were introduced and a year
later North West Soap Co. was fully under
the control of Lever Brothers. Unilever was
later established in 1930 through the merger
between Lever Brothers and Margarine Unie.

In 1931, Unilevers first subsidiary in India
was established under the name Hindustan
Vanaspati Manufacturing Co., followed by
Lever Brothers India Ltd (1933) and United
Traders Ltd (1935). The merger between
these three companies resulted in the
establishment of HUL in 1956. Indias trade
liberalisation in 1991 benefited HULs growth
as less trade restrictions allowed this FMCG
giant to explore different opportunities
without production capacity constraints. With
the Ayush range and Ayush Therapy
Centres, HUL made its foray into the
Ayurvedic health and beauty segment in
2002 and a year later, the company
launched Hindustan Lever Network through
the acquisition of the Amalgam Group. In
2007, the company was renamed to
Hindustan Unilever Ltd.

HULs soaps and detergents portfolio
registered sound sales growth of 54% with
annual segmental margin slightly shrinking
by 20 basic points. Despite cost pressures,
fabric wash remains its growth momentum
and brands such as Surf, Rin, Sunlight and
Wheel registered strong value and volume
growth. On the personal products front, HUL
comprises categories such as hair care, skin
care, toothpaste, toothbrush, deodorants and
colour cosmetics, while its well-positioned
shampoo segment has a powerful brand
portfolio that accommodates consumers
needs from different income groups - Clinic
is a mass market brand, Sunsilk falls into the
mid-price market while Dove is in the
premium segment.

3. Leading Players and
Comparative Matrix
19
3.1 Leading Players
Table 10: Indias Top 5 FMCG Companies (as at FY2009)
Industry
Total Revenue
(in INR th)
1. Hindustan Unilever Ltd (HUL)
Food manufacturing, beverage and tobacco
production, chemical manufacturing, and
others
210,952,300
2. Nirma Ltd Chemical manufacturing 30,700,300
3. Dabur India Ltd (DIL) Food manufacturing, chemical manufacturing 28,522,700
4. Colgate-Palmolive India Ltd (CPIL) Chemical manufacturing 17,886,700
5. Godrej Consumer Products Ltd (GCPL) Chemical manufacturing 14,365,800
Company
Source: EMIS
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FMCG india
Following the detergent price war between
P&G and HUL, the latters stock was
downgraded by a majority of brokerage firms
in March 2010. P&G indirectly decreased the
price of Tide Naturals by increasing
grammage (25% across stock-keeping units)
and adding an extra 50g to a 200g pack of
Tide Naturals for the same price of INR10,
while 100g would be added to a 400g pack
of Tide Naturals at the same price of INR20.
Share price at HUL fell 8.75% over 11
th
and
12
th
March and closed at INR219.60 at the
end of the week. Analysts estimated that
HULs detergent segment could be rendered
as the detergent price war intensifies, in
which the segment accounts for 10-12% of
the companys earnings before income tax.

Also in March 2010, analysts indicated that
HUL has been an underperformer over the
past one year; in fact, it has underperformed
most of its smaller rivals since the past
consecutive 12 months. HULs current
operating margin of 14% is lower than its
peak operating margin registered at 18% in
2002. FMCG giants such as Colgate and
HUL are projected to have substantial control
of nearly 85% of Indias toothpaste market.

With soaring demand in the whitening cream
segment in which HULs Fair & Lovely is the
segment leader. The companys cutting-edge
skin-lightening technology is known to be the
best in the world and has nearly 250mn
consumers spanned across 30 countries.
This product contains no bleach or harmful
ingredients and was rated as the 12
th
Most
Trusted Brand in India by ACNielsen ORG-
MARG in 2003.

Chart 9: Share Price of HUL
Source: Bombay Stock Exchange
3.1.2 Nirma Ltd

Nirma started its one-man operation in 1969
and at present, the company has grew into a
14,000 employee-base with annual turnover
of more than INR2,500cr. Its operations
started off with door-to-door selling of Dr.
Karsanbhai Patels detergent powder that
was priced at a shocking INR3 per kg while
the cheapest brand in the market was priced
at INR13 per kg. Through innovative and
low-profile marketing operations, a new
domestic marketplace for the detergent
segment was created.

During the 1980s, Nirmas brand was well
ahead of its closest rival HULs Surf, in
which Nirma offered a perfect match of
product, price, promotion and place, hence
capturing a greater slice of market share in
its domestic market. Currently, Nirma has the
largest share in Indias detergent market
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FMCG india
(38%) and the second largest share toilet
soap market (20%).

Nirma witnessed a challenging FY2009 when
the worlds financial system crumbled over,
triggering poor economic performance in
most developed countries. Nirmas
consolidated revenue was mainly contributed
by soaps and surfactants, processed
minerals as well as pharmaceutical with net
sales growing from INR2,684.46cr in
FY2007-08 to INR4,574.82cr during the next
fiscal. Soaps and surfactants accounted for
57.64% of net sales for FY2009, down
20.23% from previous years 77.87%.

Worldwide recession impacted the
companys processed minerals segment as
global demand for soda ash deteriorated
following contractions in the construction and
auto industries, whereby the glass industry
accounted for nearly 50% of worldwide
demand for soda ash. Processed minerals
are manufactured in the US and are mainly
marketed in markets such as the US, Latin
America, Europe, China, Japan and Gulf
countries. In order to counter the effects of
the recessionary pressure in the US market,
Nirma sought alternative markets,
reallocated its employees, as well as
introduced maintenance programmes.
















Chart 10: Production of Selected Goods
640.28
59.88
78.71
57.37
86.74
692.74
0 200 400 600 800
Detergents
Toilet Soap
Linear Alkyl
Benzene
Tonnes (in th)
2007-08
2008-09
Source: Companys Annual Report
3.1.3 Dabur India Ltd (DIL)

DIL was established in 1884 with its
manufacturing plant set up two years later
and further expanded to setting up its
research laboratories in 1919. DIL was
restructured into a public limited company in
1986 and entered into a joint venture
partnership with Spain-based Agrolimen to
manufacture and market confectionary
products in its domestic market. With its
oncology formulation centre, DIL entered the
specialised healthcare area of cancer
treatment in 1993. Two years later, DIL
entered into joint venture agreements with
Israel-based Osem for food and France-
based Bongrain for cheese and other dairy
products.

In 2003, Dabur demerged its pharmaceutical
operations from the FMCG operations so
that each entity can focus on their respective
operations. With this, DILs FMCG business
comprises of personal care products,
healthcare products as well as Ayurvedic
specialities. In addition, its pharmaceutical
business includes allopathic, oncology
formulations and bulk drugs. And in
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FMCG india
2005, DIL adopted an inorganic growth
strategic through the acquisition of Mumbai-
based Balsaras oral care and household
care product in a INR143cr all-cash deal and
added brands such as Promise, Babool,
Sanifresh and Odonil to its product range.
Also, the acquisition allows DIL to expand its
scale of operation through synergies in its
marketing, sales, distribution and
procurement activities.

A year later, DIL crossed the USD2bn mark
in market capitalisation and in line with its
commitment to adhere global best practices
and highest standards of transparency as
well as governance, DIL adopted the US
GAAP (the US Generally Accepted
Accounting Principles). In 2007, the
company entered the organised retail
business through H&B Stores Ltd a wholly-
owned subsidiary of DIL. In order to increase
presence in its domestic retail market, DIL
will invest INR140cr by 2010 with aims to
establish a chain of stores selling health and
beauty products.

Despite a challenging year that saw a
slowdown in the economy, DIL financial
performance showed a positive trend during
the FY2008-09. In which consolidated
revenue increased to INR2,834.1cr after a
18.3% growth while consolidated net profit
grew by 17.5% to INR391.2cr. Also, during
FY2008-09, the company had four divisions,
namely, consumer care, international
business, consumer health, and others and
these divisions generated consolidated sales
of 72.8%, 18.5%, 7.3% and 1.4%
respectively.

Due to consistent profitable growth and
improved market position, credit rating
agency Crisil upgraded DILs rating in terms
of its long-term bank facilities as well as non
convertible debentures from AA+ to the
highest grade in long-term rating of AAA.
This upgrade also reflected DILs successful
integration of its operations following the
acquisition of a major player in the womens
skin care market Fem Care Pharma Ltd as
well as DILs strong market presence in the
herbal products segment.
Chart 11: Category-wise Share of Consumer Care Division Sales
Source: Companys Website
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FMCG india
3.1.4 Colgate-Palmolive India Ltd (CPIL)

Colgates business was established in 1806
when William Colgate started a starch, soap
and candle business in New York City. In
1820, a starch factory located in New Jersey
was built. However, the company was
restructured and renamed as Colgate & Co.
in 1857. Within the next two decades,
Colgate introduced perfumed soaps and
toothpastes in jars. Wisconsin-based B.J.
Johnson Co. was producing soaps in 1864
but Palmolive Soap was only introduced in
1898. Owing to the popularity of Palmolive
soaps, the company was renamed as
Palmolive Co. and was later engaged in a
merger with Kansas-based soap producer
known as the Peet Brothers to become
Palmolive-Peet in 1926. Two years later,
Colgate-Palmolive-Peet Co. was established
through a merger while Colgate was listed on
the New York Stock Exchange in 1930.

Again, the company was renamed as
Colgate-Palmolive in 1953 and it acquired
Hills Pet Nutrition in 1976, whereby the latter
is currently the global leader in pet nutrition.
The joint venture partnership between Hong
Kong-based Hawley & Hazel a leading oral
care company and Colgate-Palmolive
allowed the latter to strengthen its position in
major markets in the Asian region. Today,
the FMCG giant has sales that surpassed
USD15bn with core business that include
oral care, personal care, home care as well
as pet nutrition and its products are sold in
more than 200 countries.

Colgate-Palmolive (India) Ltd (CPIL) was
established in 1937 using hand-carts to
distribute its dental cream. Today, CPIL
distributes its products through 3.5mn retail
outlets spanned across India. The Mumbai-
based FMCG company has strong presence
in the oral care segment, in which it has
approximately 46% market share in that
segment. The companys high sales volume
was supported by the introduction of lower
price-points variants and improved rural
distribution. Driven by the discount brand -
Cibaca, Indias rural market currently
accounts for nearly 35% of its revenue.

As a result of low per capita toothpaste
consumption of 108-110gms (developed
nations: 400-450gms; other Asian countries:
200-250gms), the Indian market offers
growth opportunities in the toothpaste
segment. In addition, its rural market offers
attractive growth opportunities. During the
third quarter ended 31
st
December, 2009,
CPIL recorded net sales of INR490.6cr,
showing a growth of 17% over the
corresponding a year ago. Similarly, net
profit for the third quarter of FY2009-10 hit
INR116.4cr after a 29.77% growth against
INR89.7cr (qoq).


Chart 12: Index Comparison
Source: Bombay Stock Exchange
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FMCG india
During the end of 2009, Oral Health Month -
a joint campaign by CPIL and the Indian
Dental Association was successful in
concluding its 6
th
edition oral health
awareness with an aim to promote the
importance of good oral care habits. This
awareness campaign was brought together
with the support of 17,500 dental
professionals and was successful in covering
1,000 towns across India. In addition, mobile
dental vans were used to reach
underprivileged areas and provide more than
1.2lakhs free dental check-ups through 37
cities.

3.1.5 Godrej Consumer Products Ltd
(GCPL)

Godrej Group was established in 1897 and
has since grown into a group that has a
turnover of USD2.5bn with seven major
companies operating in real estate, FMCG,
industrial engineering, appliances, furniture,
security, agri care and other businesses.
Nearly 20% of the groups business is
conducted abroad and has market presence
in more than 60 countries.

With its personal and home care products,
GCPL is one of the leading companies in
Indias FMCG sector. GCPL offers products
such as Cinthol, No. 1, Expert, Ezee and etc.
to its domestic market. In order to ensure
that it has market coverage in the pan-India
area, GCPL has established branch offices
in Mumbai, Delhi, Kolkata and Chennai while
its factories are located in Malanpur (Madhya
Pradesh), Thana (Himachal Pradesh), Katha
(Himachal Pradesh), Guwahati (Assam) and
Sikkim so that the companys diverse
product portfolio can accommodate different
requirements. Moreover, GCPL has several
international brands and trademarks in
Europe, Australia, Canada, Africa and the
Middle East.
In 2005, UK-based Keyline Brands Ltd (KBL)
was acquired by Godrej Group, in which the
former operates in the toiletries and personal
care segment and its portfolio comprises of
several niche brands such as Cuticura,
Aapri, Erasmic, Nulon and Inecto. With major
customers such as Boots, Superdrug, Tesco,
Asda, Sainsbury, and Morrisons in the UK,
KBL has a current turnover of nearly
GBP20mn.

Also during the end of 2009, GCPL
announced that it will concentrate on three
core brands, namely No. 1 (soaps), Cinthol
(soaps, talcum powder and deodorant) and
Expert (hair colour). These three brands will
receive higher investments to further
innovate their brands. During the quarter
ended 30
th
September, 2009, the company
achieved a staggering 167.78% growth in
consolidated net profit to reach INR93cr over
INR34.73cr during the same quarter a fiscal
before. The surge in profit was mainly
contributed by volume growth in soaps and
hair-care segments as well as lower cost of
production such as palm oil.

In March 2010, GCPL entered an agreement
to acquire Nigeria-based Tura from Tura
Group a leading personal care
manufacturer and distributor of high quality
personal care products in several African
markets. Tura is one of the leading beauty
products in Nigeria and this acquisition will
build GCPLs pan-African presence as well
as introduce its portfolio into other Western
African countries. The fact that Tura is a
well-established beauty company that has
offered consumers with high quality products
in the personal care segment over the past
20 years will help provide GCPL a platform
for value creation in the pan-African region.

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FMCG india
Chart 13: Sales Turnover (Net of Excise Duty) for Selected Segments
Source: Companys Website
71,379.77
29,249.84
4,284.81
3,519.80
56,661.66
26,219.20
3,846.63
1,940.94
0 20,000 40,000 60,000 80,000
Soaps
Hair colour and other
toiletries
Detergents
Fatty acids and glycerine
INR lakhs
FY2007-08
FY2008-09
3.2 Comparative Matrix



HUL Nirma DIL CPIL GCPL
Mar 2009 * Mar 2009** Mar 2009** Mar 2009** Mar 2009**
Total Revenue 21,059.20 4,644.75 2,852.27 1,788.67 1,436.58
Net Profit 2,504.51 126.60 391.21 285.78 172.62
Net Profit Margin (%) 11.89 2.73 13.72 15.98 12.02
Return on Equity (%) 11.49 1.59 4.52 21.01 6.72
Return on Assets (%) 28.94 2.40 20.71 35.40 14.62
Debt / Equity Ratio (x) 29.90 34.12 12.37 43.53 23.90
EPS (INR) 11.46 12.85 4.548 20.89 6.83
Current Ratio (x) 0.98 3.79 1.18 0.86 2.22
Share Equity 217.98 79.57 86.51 13.60 25.70
Total Assets 8,653.97 5,276.53 1,889.11 807.22 1,180.81
Current Assets 5,786.78 2,341.64 950.80 500.05 732.75
Total Liabilities 6,516.50 2,715.06 1,070.30 591.95 613.96
Current Liabilities 5,883.94 619.74 807.65 583.52 329.89
Market Capitalisation
(as at 26/03/10)
51,836.88 2,886.60 14,306.49 9,465.78 8,187.07

* Period length of 15 months
** Period length of 12 months

Sources: Reuters; EMIS
Table 11: Financial Highlights (in INR cr unless otherwise stated)
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ISI Analytics
FMCG india
Strengths Weaknesses
CPIL and HUL are projected to share a
substantial combined market share of nearly
80% of Indias toothpaste segment (in 2009).
Has the highest total revenue and net profit
of INR21,059.20cr and INR2,504.51cr
respectively among Indias top 5 FMCG
companies.
Its shampoo segment has powerful brand
portfolio that accommodates consumers
needs from different income group - Clinic is
a mass market brand, Sunsilk falls into to the
mid-price market while Dove is in the
premium segment.
Issued bonus debentures with face value of
INR6 (with annual interest rate of 9% payable
annually).
HULs INR1cr challenge advertising
campaign aims to promote Rins superior
value to its consumers.

Engaged in price war with P&G - HULs stock
was downgraded by a majority of brokerage
firms in March 2010 as analysts estimated
that its detergent segment could be rendered
if the detergent price war intensifies.
Current operating margin of 14% is lower
than its peak operating margin of 18% in
2002.
Opportunities Threats
Its Fair & Lovely brand is the leader in Indias
whitening cream segment and serves 250mn
consumers across 30 countries. This product
was also rated as the 12
th
Most Trusted
Brand in India by ACNielsen ORG-MARG in
2003.
Competes with P&G in the detergent
segment, in which this segment accounts for
10-12% of the companys earnings before
income tax.
Detergent price war with its rival P&G will
erode profit margins.
Small players like Dabur is chipping away
HULs market share in the oral care, hair
care, soaps segment. During April-June
2009, Daburs shampoo segment grew by
7.3% while HULs share with Sunsilk brand
fell 50% (45.4% in value terms).
HULs share in the toothpaste segment fell
from 29.6% to 28% during April-June 2008
while Daburs share increased from 9.3% to
10% and CPILs share grew from 47.7% to
49.5%.
Calcutta High Court passed an interim order
that restrains HULs television commercial
that directly compares the performance of its
Rin with P&Gs Tide

HUL
3.3 SWOT Analysis
26
ISI Analytics
FMCG india
Strengths Weaknesses
Nirma currently has the largest market share
in Indias detergent market (38%) and the
second largest share in toilet soap segment
(20%).
Sought alternative markets, reallocated its
employees and introduced maintenance
programmes to counter the effects of the
recessionary pressure in the US market.

Net sales grew from INR2,684.46cr in
FY2007-08 to INR4,574.82cr during the next
fiscal.
Opportunities Threats
Nirmas consolidated revenue was mainly
contributed by the soaps and surfactants,
processed minerals and pharmaceutical
segments - the company could further invest
in Indias toothpaste segment as it offers
potential growth opportunities (low per capital
toothpaste consumption).

Worldwide recession impacted Nirmas
processed minerals segment as global
demand for soda ash shrank due to
contractions in the construction and auto
industries.
Nirma
3.3 SWOT Analysis (Cont)
27
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FMCG india
3.3 SWOT Analysis (Cont)
28
Strengths Weaknesses
Demerged its pharmaceutical operations
from FMCG segment so that each entity can
focus on their respective operations.
Adopted an inorganic growth strategy
through the acquisition of Mumbai-based
Balsaras oral care and household care
product in a INR143cr all-cash deal, thus
adding brands such as Promise, Babool,
Sanifresh and Odonil to its product range as
well as expand its scale of operation through
synergies.
Consolidated revenue ballooned 18.3% to
INR2,834.1cr during the FY2008-09 while
consolidated net profit grew 17.5% to
INR391.2cr.
During April-June 2009, Daburs shampoo
segment grew by 7.3%

Lack financial stability and market presence
to compete with multinationals like CPIL and
HUL in the oral care market - both CPIL and
HUL are estimated to enjoy a combined
market share of 85% in India while DIL has a
10% share.
Opportunities Threats
Entered the organised retail business through
H&B Stores Ltd.
Will invest INR140cr by 2010 to establish a
chain of stores selling health and beauty
products.
Seek to acquire South African hair care
company - Isoplus that generates sales of
nearly INR100cr.

Competes with FMCG giants like HUL and
CPIL in Indias INR16,000cr oral care
segment.
DIL
ISI Analytics
FMCG india
3.3 SWOT Analysis (Cont)
29
Strengths Weaknesses
CPIL upped its shareholdings from a 75%
stake to 100% in the Hyderabad-based
toothpowder manufacturer - CC Health Care
Products at a cost of INR69.07lakh.
CPIL is a leader in the toothpaste segment in
India with a substantial market share of 46%
(in 2009).
Promoted the importance of good oral care
habits with the help of Indian Dental
Association.
Net profit for 3Q FY2009-10 reached
INR116.4cr after achieving a growth of
29.77% against INR89.7cr (qoq).

Has the lowest current ratio of 0.98 among
Indias top 5 FMCG company, therefore
indicating that the company may face
problems meeting obligations in the short-
term.
Opportunities Threats
High sales volume was due to the
introduction of lower-price points variants and
improved rural distribution network that
accounts for nearly 35% of its revenue.
Indias toothpaste market offers potential
growth due to low per capita toothpaste
consumption of 108-110gms.

Profit margins may erode when P&G
introduce its global toothpaste brand - Crest,
in India at an attractive price point.
CPIL
ISI Analytics
FMCG india
3.3 SWOT Analysis (Cont)
30
Strengths Weaknesses
Branches offices and factories are located in
various parts of India so that the companys
diverse product portfolio can accommodate
different requirements.
GCPL also have several international brands
and trademarks in Europe, Australia,
Canada, Africa and the Middle East.
During the quarter ended 30
th
September,
2009, GCPLs net profit grew 167.78% to
INR93cr.

Too much diversification may steer the
company away from its core business
operations.
Opportunities Threats
UK-based Keyline Brands Ltd was acquired
by the Group, thereby allowing the Group to
diversify country risks.
Surge in net profit was a result of lower palm
oil price.
Acquired Nigeria-based Tura to penetrate
markets in the pan-African region.

Competes with other FMCG giants like HUL
and CPIL that has vast experience in global
FMCG segment.
GCPL
The research report is based on material compiled from data considered to be reliable at the time of
writing. However, information and opinions expressed will be subject to change without notice. We do
not accept any liability directly or indirectly that may arise from investment decision-making based on
this report.