Analysis Of Indian FMCG Industry –

Investment Perspective
Security Analysis & Portfolio Management Project
(Under guidance of Prof.PritamShekade)
Contents
FMCG Industry Overview.......................................................................................................................3
Structure and Characteristic of FMCG Industry.....................................................................................5
FMCG Sector Key Drivers.......................................................................................................................7
PEST Analysis.........................................................................................................................................8
FMCG Sector Sensitivity to Business Cycle............................................................................................9
BSE and BSE FMCG Index.....................................................................................................................10
Porter’s Five Force Model Analysis......................................................................................................14
SWOT Analysis.....................................................................................................................................16
Indian Attractiveness...........................................................................................................................17
Prospect & Outlook.............................................................................................................................18
Sources................................................................................................................................................20

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FMCG Industry Overview
Products which have a quick turnover, and relatively low cost are known
as Fast Moving Consumer Goods (FMCG). FMCG products are those that
get replaced within a year. Examples include a wide range of frequently
purchased consumer products such as toiletries, soap, cosmetics, tooth
cleaning products and detergents, as well as other non-durables such as
glassware, bulbs, batteries, paper products, and plastic goods.

India’s FMCG sector is the fourth largest sector in the economy and
creates employment for more than three million people in downstream
activities and 14 million in total. The sub sectors of FMCG sector are
Household Care, Personal Care and Food & Beverages. On the basis of
price, FMCG goods are divided into three segments- low priced, mid-
priced/ mass or popular and high-priced/ premium end. Typically the lower
segments of the market drive volumes. The premium segment is less
price-sensitive and more brand conscious.

The total FMCG market is in excess of $ 28 billion. FMCG sector is growing

at double digit growth rate of 15.4 per cent and is expected to maintain a
high growth rate. FMCG is characterized by a well-established distribution
network, low penetration levels, low operating cost, lower per capita
consumption and intense competition between the organized and
unorganized segments.

Unlike other sectors, the FMCG industry did not slow down during recent
recession. As it is meeting the every-day demands of consumers, it will
continue to grow. Market share movements indicate that companies such
as Marico Ltd and Nestle India Ltd, with domination in their key
categories, have improved their market shares and outperformed peers in
the FMCG sector. This has been also aided by the lack of competition in
the respective categories. Single product leaders such as Colgate
Palmolive India Ltd and Britannia Industries Ltd have also witnessed
strength in their respective categories, aided by innovations and strong
distribution. Strong players in the economy segment like Godrej Consumer
Products Ltd in soaps and Dabur in toothpastes have also posted market
share improvement, with revived growth in semi-urban and rural markets.

Major Segments Of The FMCG Industry

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 Household
Care Lighting
10% 2%
Tobacco
15% Food and
Beverages
53%

Personal
Care
20%

Household Care:

The detergents segment is growing at an annual growth rate of 10 to 11

per cent during the past five years. The local and unorganized players
account for a major share of the total volume of the detergent market.
The preference is given to detergents in urban area compared to bars.
Household care segment is featured by intense competition and high level
of penetration. With rapid urbanization, emergence of small pack size and
sachets, the demand for the household care products is booming. In
washing powder segment, HUL is the leader with ~38 per cent of market
share. Other major players are Nirma, Henkel and Proctor & Gamble.

India has an abundant supply of caustic soda and soda ash, the chief raw
materials required in the production of soaps and detergents, which
enables the household section of the industry to excel and grow.

Personal Care

Personal care segment includes personal wash products, hair care

products, oral care products, cosmetics etc. The Indian skin care and
cosmetics market is valued at $274 million and is dominated by HUL,
Colgate Palmolive, Gillette India and Godrej. The coconut oil market
accounts for 72 per cent share in the hair oil market. The hair care market
can be segmented into hair oils, shampoos, hair colorants & conditioners,
and hair gels. In the branded coconut hair oil market, Marico (with
Parachute) and Dabur are the leading players. Sachet makes up to 40 per
cent of the total shampoo sale. Again the market is dominated by HUL
with around 47 per cent market share; P&G occupies second position with
market share of around 23 per cent.

Personal wash can be further segregated into three segments namely

Premium, Economy and Popular. Here also, HUL is the leader with market
share of 53 per cent; Godrej occupies second position with market share
of 10 per cent. Swelling disposable incomes of the Indian consumers,

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growth in rural demand and upgrading to the premium products are the
key drivers for future demand growth in major FMCG categories.

The skin care market is at a primary stage in India. With the change in life
styles, increase in disposable incomes, greater product choice and
availability, people are becoming more alert about personal grooming.
The major players in this segment are Hindustan Unilever with a market
share of 54 per cent, followed by CavinKare with a market share of 12 per
cent and Godrej with a market share of 3 per cent.

The oral care market can be segmented into toothpaste - 60 per cent;
toothpowder - 23 per cent; toothbrushes - 17 per cent. This segment is
dominated by Colgate-Palmolive with market share of 49 per cent, while
HUL occupies second position with market share of ~30 per cent. In
toothpowders market, Colgate and Dabur are the major players.

Food and Beverages

This segment comprises of the food processing industry, health beverage

industry, bread and biscuits, chocolates & confectionery, Mineral Water
and ice creams. The three largest consumed categories of packaged foods
are packed tea, biscuits and soft drinks. Indian hot beverage market is a
tea dominant market. The major share of tea market is dominated by
unorganized players. Leading branded tea players are HUL and Tata Tea.
Major players in food segment are HUL, ITC, Godrej, Nestle and Amul.

Our country has a varied agro-climatic condition which enables to offer

extended raw material base suitable for many FMCG sub sections like food
processing industries etc.

Structure and Characteristic of FMCG Industry

Competition: The market of FMCG is very competitive and

manufacturers are coming forward with the latest ideas and techniques to
beat the competition and remain on the top. . There are top business
giants taking lead and several hundred emerging companies trying hard
to come forward and stand with leading FMCG producers. The easing of
the trade barriers encouraged the MNCs to invest in the Indian market to
cater to the needs of the consumers. The living standards rose in the
urban sector due to high disposable income along with the rise in the
purchasing power of the rural families which increased the sales volume
of various manufacturers of the FMCG products in India. The large-scale
companies such as HLL, Godrej Consumer, Marico, Henkel, Reckitt
Benckiser and Colgate have targeted the rural consumers and have also

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expanded their retail chain in the mid-sized towns and villages. On the
contrary to this, Nestle has always targeted the market of urban India and
focuses largely upon the value added products for the elite class or upper
middle class population.

Branding: Creating strong brands is important for FMCG companies and

they devote considerable money and effort in developing bands. With
differentiation on functional attributes being difficult to achieve in this
competitive market, branding results in consumer loyalty and sales
growth. Leading FMCG firms like HUL, ITC, Nestle, Procter & Gamble and
GlaxoSmithKline Healthcare – which account for almost 70 per cent of
FMCG revenues in the country – spend almost 10 per cent of their
turnover on advertising and brand promotion. The promotion strategy
includes tying up with top actors and other celebrity brand ambassadors,
besides going in for high-profile launches at leading retail mall and
outlets.

Distribution Network: Given the fragmented nature of the Indian

retailing industry and the problems of infrastructure, FMCG companies
need to develop extensive distribution networks to achieve a high level of
penetration in both the urban and rural markets. Once they are able to
create a strong distribution network, it gives them significant advantages
over their competitors. The supply chain of products in the FMCG market
in India is one of the longest supply chains an industry could really have.
What has been observed is that even though these FMCG companies are
big multinationals and Indian but face a major challenge of making their
products available in the market in the right quantities and in the right
time. This is simply because these companies don’t really have a wide
network of sales agents and other force which is required and is ideal for
catering their products to the markets. This aspect is taken over by
distributors, wholesalers and retailer whose margins on these products
actually double the price of these products when a final consumer buys it.
The products in this industry are transported from manufacturing units via
c & f agencies or warehouse to distributors who further sell the same to
wholesalers or stockiest who finally sell it to the retailers in the market.

Contract manufacturing: As FMCG companies concentrate on brand

building, product development and creating distribution networks, they
are at the same time outsourcing their production requirements to third
party manufacturers. Moreover, with several items reserved for the small
scale industry and with these SSI units enjoying tax incentives, the
contract manufacturing route has grown in importance and popularity.

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Large unorganized sector: The unorganized sector has a presence in
most product categories of the FMCG sector. Small companies from this
sector have used their geographical advantages and regional presence to
reach out to remote areas where large consumer products have only
limited presence. Their low cost structure also gives them an advantage.

FMCG Sector Key Drivers

Disposable Income:There is increase in disposable income, observed in

both rural and urban consumers, which is giving opportunity to many rural
consumers to shift from traditional unorganized unbranded products to
branded FMCG products and urban fraternity to splurge on value added
and lifestyle products. The increasing salaries, along with rising trend of
perks in the corporate sector at regular intervals, have increased people’s
spending power. As per some research, there is a high correlation
between Disposable per capita and HPC per capita.

Organized Retail:The emergence of organized retail have led to more

variety with ease in browsing, opportunity to compare with different
products in a category, one stop destination (entertainment, food and
shopping) etc, which is playing an important role in bringing boom in the
Indian FMCG market. Currently the modern trade is capturing 5% of the
total retail space, which will increase to 10% and 25% in 2010 and 2025
respectively. Also, as the credit card and organized retail trend picks up,
people won’t think much while buying and buy more.

Distribution Depth - Rural Penetration: There are 5500 towns and

6.38 Lacs villages with 2.5Mln and 5Mln outlets respectively. Due to
saturation and cut throat competition in urban India, many FMCG
companies are devising strategies for targeting rural consumers in a big
way. Many FMCG companies are focusing on increasing their distribution
network to penetrate with a step by step plan. This is the reason that
FMCG urban market size has dropped from 50% to 29% in last 5 years.
The FMCG market size for semi-urban and rural segment was 19% and
52% respectively for the year 2006-07. As per FICCI, the FMCG market
size for urban, semi-urban and rural for year 2007-08 was expected to be
57%, 21% and 22%, which clearly shows that rural market is the growth
engine for FMCG growth. Though the urban markets are growing too, the
incremental addition in consumer’s households is much more in rural
space as compared to urban markets. The planned development of roads,
ports, railways and airports, will increase FMCG penetration in the long
term. 180 million rural and semi-urban people’s attention has already
been diverted towards FMCG products, according to latest estimates
released by industry chamber, Assocham in 2008. The estimated number
of households using FMCG products in rural India has grown from 131

7
million in 2004 to 140 million in 2007, according to market research
company IMRB. Over 70% sale of FMCG products is made to middle class
households and over 50% of middle class is in rural India.

Buying Pattern Shift:The crisis of declining FMCG markets during 2001-

04 was driven by new avenues of expenditure for growing consumer
income such as consumer durables, entertainment, mobiles, motorbikes
etc. Now, as many consumers have already upgraded, their income is
being directed towards pampering themselves.

Favorable Indian Economy & Demographics:45% people in India are

under 20 years of age. Per capita disposable income has increased from
$550 to $600 in 2007 (9% increase). GDP is growing at a CAGR between 8
to 9%.In the next five years, affluent and aspirers as a total will supersede
strivers and will be dominated by aspirers, as per NCAER.

PEST Analysis

Political

Tax Structure: Complicated tax structure, high indirect tax, lack of

uniformity, high octroi& entry tax and changing tax policies.

Infrastructure Issues:Performance of FMCG is very much depended on

government spending on Agricultural Infrastructure, Power, and
Transportation Infrastructure.

Regulatory Constraints: Requirement for multiplicity of permits and

licenses for various states, prevailing outdated labor laws, Cumbersome
and lengthy export procedures, confusing and time consuming subsidy
availing procedures

Policy framework: Approval related to investment of FDI into Retail

sector (single-brand retail &multi-brand retail, License rules in setting up
of Industry, Changes in Statutory Minimum Price (SMP) of commodities
and Priority sector classification of Industries.

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Economical

GDP Growth: Growth of the industry is consistent with the Indian

economy

Inflation: Inflationary pressures alter the purchasing power of money.

This has a direct impact on consumer spending and business investment

Consumer Income: Increase in incomes is largely an outcome of

economic growth across sectors. Over the past few years, India has seen
increased economic growth, with a continuing and substantial impact on
consumer disposable incomes enabling good growth for the FMCG sector.

Private Consumption: The Indian economy, unlike other economies, has

a very high rate of private consumption (61%)

Urbanization: India has 70% of its population living in rural areas. With
rising urbanization, more people will have exposure to modern products
and brands and thus shift to branded and packaged goods and products.

Social

Change in consumer Profile:Rapid urbanization, increased literacy and

rising per capita income, have all caused rapid growth and change in
demand patterns, leading to an explosion of new opportunities. Around 45
per cent of the population in India is below 20 years of age and the young
population is set to rise further.

Change in Lifestyle: Changing Lifestyle of Indian consumers has led to

focus on premium products among Indian FMCG players.

Rural focus: As market is getting saturated, companies are focusing on

rural area for penetration, by providing consumers with bite-sized or
single-use packs.

Technology

Adoption of ERP, Supply Chain Optimization tools and Business

Intelligence Tools will help FMCG companies to integrate business
processes across the enterprise, suppliers and customers. With the level
of competition and sluggish growth most FMCG corporates are looking at
IT to reduce costs in the supply chain, and flatten the bottom line

Marketing and advertising through mobile and social media platforms

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Sensitivity to business cycle

Inflation: High food inflation has an adverse effect on the FMCG industry.
People will spend less money on discretionary items which will hit the
FMCG industry. The food inflation is very high around 12%, and the raw
material cost has increased up to 15 to 20 per cent compared to last year.
The operating margins which are typically about 20 per cent in the last
few years have seen a drop to almost 16 per cent. FMCG is also
dependent on the monsoons. A good monsoon will not give any inflation
worries and also increases the consumption power creating demand for
hair oil, biscuits, soaps, shampoos, laundry, and toilet soaps.

Interest Rates: As many companies are taking debt for their daily
operations, thus increase in interest rate will have adverse effect on the
profitability of FMCG companies

Consumer sentiments: Slowing global economy together with an overall

moderating consumer sentiment might lead to a slow volume growth of
FMCG segment.

BSE and BSE FMCG

BSE FMCG has base index value of 1000 with base period 01 February, 1999. It is
launched on full market capitalization method and effective August 23, 2004,
calculation method shifted to free-float market capitalization

Return

Returns - BSE FMCG SECTOR

1
YTD : 20.82% 1 Week 0.80% 6.00% 3 Months: 12.00%
Month:

6 114.50
19.40% 1 Year : 30.50% 2 Year : 53.10% 3 Year :
Months: %

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The Indian Fast Moving Consumer Goods (FMCG) sector is booming from
last several years and given steady returns to its investors despite
slowdown in the economy. FMCG sector has several multinational players
with strong presence in India such as Nestle, Procter and Gamble, Gillette,
etc.

December 2011 and March 2012 quarter results have been pretty good
for the top companies, a major reason for the overvaluation could be
attributed to the current economic scenario. In times of economic
uncertainty, investors tend to flock defensive sectors like FMCG driving up
prices of the companies which seems to be the case with the FMCG sector
currently.

Index Composition

Market
Capitalisation
Company Name (Rscrores) Weight
HUL 99,518.19 23.22
ITC 1,95,890.62 45.7
Nestle 43,543.75 10.16

The index is largely driven by ITC and HUL, as they contribute around 69%
to the total index. Both companies have posted good results, thus helping
the index to grow despite weak domestic market. If both these
companies are excluded then the index comes out to be overvalued by
only 7.82%. Therefore, the index has high dependency on these two
companies.

Comparison of BSE FMCG and Sensex

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FMCG sector is performing well due to strong characteristics and
dependence on consumption in domestic market. The returns table
(above) portraits that it registered lower drop in 2008 i.e. during slowdown
in the economy. The performance of FMCG sector was laggard in 2009
when economy was recovering and major sectors started performing well
contributing to growth in SENSEX. However, performance of BSE FMCG
index in 2010 was outstanding on back of fiscal stimulus but got hit again
in 2011 due to European debt crisis and domestic reasons. In 2011,
SENSEX was volatile and gave negative returns of approx. 25% at end of
year whereas; FMCG is the only sector which gave strong returns of 9% in
2011.

FMCG, top performer among other sector

In last 15 months, FMCG sector attracted many investors and gave strong
returns to them. The other sector indices gave negative returns in the
range of 2% to 38% due to slowdown in the economy, high interest rates
and rising inflation

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Safe havens in a bear market
The less cyclical an industry, the better its chances of riding out a
recessive period. Non-cyclical industries have more stable growth rates.
Non-cyclical industries also experience less volatile share prices. They
tend to be low-beta and that's a major advantage if the market-wide trend
is down.

That leaves just FMCG as a safe growth area. By default, it's likely to be
the only counter-cyclical defensive sectoral play. Dabur, ITC and
Hindustan Unilever have already seen outperformance in the recent past.
Colgate, Godrej Consumer and Marico, could all pick up steam even if the
rest of the market gets weaker. There's a case for being seriously over-
weight in the sector.

Peers Comparison

The peer table comprise of some listed FMCG companies in India. The
outperformers among these companies are HUL and ITC with strong
revenue Rs 199,390 mn and Rs 221,598 mn respectively in FY11. The
EBITA margin across the sector has remained in the range of ~15% to
~26.5%. However, EBITDA margin for ITC in FY11 was 37.5%. The
companies HUL and
ITC registered PAT of Rs 23,066 MN and Rs 50,700 MN in FY11.

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FMCG industry, as an investment: 

FMCG index has consistently given good return to investors over the
years. Infact, FMCG index has given a return of 12% in 2011 despite
negative returns from Sensex. Going forward, HUL and ITC are expected
to record good performance, which could lead to positive impact on the
valuation of the overall FMCG index. In FY-11, HUL has changed its
business strategy and started focusing on rural market through increase
in ad-spends, new launches and expanding distribution network. As a
result, it posted good results so far and is expected to deliver good results
in coming quarters as well. ITC, market leader in cigarettes, has
benefitted by favourable announcement in the Union Budget-13 wherein
the Government increased the excise duty on bidi and other tobacco
products which could lead to consumers shifting to cigarettes. With
favourable government policies and its focus on growing food processing
category, ITC is expected to post good results in coming years. Thus,
FMCG index, being a defensive sector, will remain a safe bet for investors.

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Porter’s Five Force Model Analysis

Rivalry among Competing Firms: In the FMCG Industry, rivalry among

competitors isvery fierce. Players from unorganized and organized sectors
continue to grab each other’s market shares.Low brand awareness
enables local players to market their spurious look-alike brands.
Organized retailers are competing for a limited density of population in a
crowded market and the competitors try to snatch their share of market.
Market Players use all sorts of tactics and activities from intensive
advertisement campaigns to promotional stuff and price wars etc. Hence

15
the intensity of rivalry is very high.

Potential Entry of New Competitors: FMCG Industry does not have

any measures whichcan control the entry of new firms. The resistance is
very low and the structure of the industry is so complex that new firms
can easily enter and also offer tough competition due to cost
effectiveness. Huge investments in promoting brands, setting up
distribution networks and intense competition, but the sector is not capital
intensive. Existing large players have competitive advantage on others
because of their large scale of operation, brand attachment, deeply
entrenched distribution network and the experience curve.

Potential Development of Substitute Products: There are complex

and never endingconsumer needs and no firm can satisfy all sorts of
needs alone. There are plenty of substitute goods available in the market
that can be re-placed if consumers are not satisfied with one. The wide
range of choices and needs give a sufficient room for new product
development that can replace existing goods. This leads to higher
consumer’s expectation.

Bargaining Power of Suppliers: The bargaining power of suppliers of

raw materials andintermediate goods is not very high. There is ample
number of substitute suppliers available and the raw materials are also
readily available and most of the raw materials are homogeneous. There
is no monopoly situation in the supplier side because the suppliers are
also competing among themselves.

Bargaining Power of Consumers: Bargaining power of consumers is

also very high. This isbecause in FMCG industry the switching costs of
most of the goods is very low and there is no threat of buying one product
over other. Customers are never reluctant to buy or try new things off the
shelf.

SWOT Analysis
Strengths: Weaknesses:

• Low operational costs • Lower scope of investing in

• Presence of established distribution technology and achieving

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networks in both urban and rural areas economies of scale, especially in small
• Presence of well-known brands in FMCG sectors
sector • Low exports levels
• Favourable governmental Policy:
 Indian Government has passed the
policies aimed at attaining
international competitiveness
through lifting of the quantitative
restrictions, reducing excise duties,
100 per cent export oriented units
can be set up by government
approval and use of foreign brand
names etc.
• FDI: Automatic investment approval up
to 100 per cent foreign equity or 100 per
cent for NRI and Overseas Corporate
Bodies investment is allowed for most of
the food processing sector except malted
food, alcoholic beverages and those
reserved for small scale industries (SSI).
Opportunities: Threats:
• Untapped rural market, changing life
style • Removal of import restrictions
• Rising income levels, i.e. increase in resulting in
purchasing power of consumers replacing of domestic brands
• Large domestic market with more • Tax and regulatory structure
population o • Rural demand is cyclical in nature
• High consumer goods spending and also depends upon monsoon.
• India is the largest milk producer in the
world, yet only around 15 per cent of the
milk is processed. The organized liquid
milk business is in its infancy and also has
large long-term growth potential. Even
investment opportunities exist in value-
added products like desserts, puddings
etc.
• Only about 10-12 per cent of output is
processed and consumed in packaged
form, thus highlighting the huge potential.
• India is under penetrated in many FMCG
categories as shown in below diagram.
With rise in per capita incomes and
awareness, the growth potential is huge.
• Lower price and smaller packs are also
likely to drive potential up trading for
major FMCG products
• Rural demand etc.

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Indian Attractiveness

Industry has witnessed heavy foreign direct investment (FDI) inflows as

they accounted for 2.1 per cent of the country’s total FDI during April
2000 - March 2010. Food processing is the most popular FMCG category; it
attracts over 53 per cent of total FDI in the industry.

India currently allows 100 per cent FDI in cash and carry segment and 51
per cent in single-brand retail, which is expected to be further increased
to 100 per cent.

India is also expected to allow 51 per cent FDI in multi-brand retail, which
will boost the nascent organised retail market in the country.
Leading players of consumer products have a strong distribution network
in rural India and are looking to capitalise on rising brand consciousness.
Technological advances such as internet and e-commerce would enable
better logistics in these areas.

Indian and multinational FMCG players can leverage India as a strategic

sourcing hub for cost-competitive product development and
manufacturing to cater to the international markets. The emergence of
organised retail has boosted the distribution of FMCG sector. A total of 7.8
million retail outlets sell FMCG in India.

The consumer story in India makes fast moving consumer goods (FMCG)
space an attractive destination for private equity and venture capital
investors.

Compared to the typical $20-50 million deals that took place in the past
few years, 2012 witnessed one of the largest PE deals in FMCG space with
the Singapore Government owned Temasek Holdings buying a five per
cent stake in Godrej Consumer Products Ltd (GCPL) for Rs 685 crore ($135
million).

Fast-moving consumer goods companies sustained sales momentum in

the quarter ended March 31, at a time when inflationary pressures were
high. Most companies reported double-digit top line growth, varying from

18
13 per cent (Nestle) to 39 per cent (P&G Hygiene and Health care).
Barring Nestle and Marico, most other companies have seen bottom line
growth between 15 and 35 per cent during the quarter.

Prospect & Outlook

The FMCG industry has benefitted from rising domestic consumption.

Total consumption expenditure forms a lion's share of 69% of GDP.
Growing employment, rising disposable income, a relatively young
population (median age of 26 years) and changing consumption pattern
have led to higher domestic consumption. The FMCG industry grew at a
compounded annual growth rate of 11% in the past decade. 

India is at the cusp of yielding the demographic dividend. As per the

International Labour Organisation, India will have the highest working
age population in the world by 2020. As per National Council of Applied
Economic Research, the proportion of middle class population will swell
from 13.1% at present to 37.2% by 2025-26. Thus higher working-age
population and rising middle class will translate into higher purchasing
power & boost consumerism. 

In the rural markets, deepening penetration and evolution in

consumption pattern will drive demand. As per Associated Chambers of
Commerce & Industry, the FMCG sector will witness more than 50%
growth in rural and semi-urban segments by 2012. The per-capita
expenditure in rural market is half that of the urban market. But at 150
million household, rural India is nearly three times bigger than urban
India holding immense potential demand. The FMCG sector is expected
to grow at a compounded annual growth rate of 12% and reach market
size of $ 74 bn by 2018. 

While the homegrown companies are looking to expand overseas, the

MNC subsidiaries are strengthening their domestic base to capitalize on
the growing demand. Going forward more MNCs will enter India, as the
government is likely to clear 51% FDI in multi-brand retail. Currently
organized retail comprises only 5% of FMCG sales with the market
dominated by more than 12 m small 'kirana' stores. Strong
macroeconomic fundamentals, burgeoning disposable income, robust
consumerism, greater rural penetration and growing organized retail
will drive future demand in FMCG industry.

 The Union Budget 2012-13 proved to a mixed bag for the FMCG

industry. On one hand, minor increase in the tax exemption limits and
some incentives on equity investments were positives as this would
increase the disposable income levels. But on the other hand, the
increase in excise duty more or less offset the above effect.  We feel

19
that smaller players would find it difficult to pass on the duty hikes to
end consumers and will chose to take the brunt of this hike in a bid to
maintain and grow market share. On the other hand, deep-pocket
players like Nestle, ITC and HUL with their leadership position and
strong brands will be able to pass on the hike to consumers.

Going forward, the easing of raw material prices and appreciation of

rupee against dollar would help the FMCG companies to maintain their
margins in future. With increase in disposable income and favourable
government policies, net sales growth is expected to remain robust in
coming quarters. Considering on-going economic uncertainty, we
expect that FMCG industry will remain an attractive industry for
investment, being a safe haven for investors.

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Sources:
www.bseindai.com

www.economictimes.com

www.assocham.org

www.in.finance.yahoo.com

www.ibef.org

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