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Items in this category include all consumables (other than groceries/pulses) people buy at regular intervals. The most common in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish, packaged foodstuff, household accessories and extends to certain electronic goods. These items are meant for daily of frequent consumption and have a high return. A major portion of the monthly budget of each household is reserved for FMCG products. The volume of money circulated in the economy against FMCG products is very high, as the number of products the consumer use is very high. Competition in the FMCG sector is very high resulting in high pressure on margins. FMCG companies maintain intense distribution network. Companies spend a large portion of their budget on maintaining distribution networks. New entrants who wish to bring their products in the national level need to invest huge sums of money on promoting brands. Manufacturing can be outsourced. A recent phenomenon in the sector was entry of multinationals and cheaper imports. Also the market is more pressurized with presence of local players in rural areas and state brands.
Overview Of FMCG Sector
What are FMCGs? WE regularly talk about things like butter, potato chips, toothpastes, razors, household care products, packaged food and beverages, etc. But do we know under which category these things come? They are called FMCGs. FMCG is an acronym for Fast Moving Consumer Goods, which refer to things that we buy from local supermarkets on daily basis, the things that have high turnover and are relatively cheaper. FMCG Products and Categories - Personal Care, Oral Care, Hair Care, Skin Care, Personal Wash (soaps); - Cosmetics and toiletries, deodorants, perfumes, feminine hygiene, paper products; - Household care fabric wash including laundry soaps and synthetic detergents; household cleaners, such as dish/utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellents, metal polish and furniture polish; FMCG in 2006 The performance of the industry was inconsistent in terms of sales and growth for over 4 years. The investors in the sector were not gainers at par with other booming sectors. After two years of sinking performance of FMCG sector, the year 2005 has witnessed the FMCGs demand growing.
Strong growth was seen across various segments in FY06. With the rise in disposable income and the economy in good health, the urban consumers continued with their shopping spree. - Food and health beverages, branded flour, branded sugarcane, bakery products such as bread, biscuits, etc., milk and dairy products, beverages such as tea, coffee, juices, bottled water etc, snack food, chocolates, etc. - Frequently replaced electronic products, such as audio equipments, digital cameras, Laptops, CTVs; other electronic items such as Refrigerator, washing machines, etc. coming under the category of White Goods in FMCG; Sector Outlook FMCG is the fourth largest sector in the Indian Economy with a total market size of Rs. 60,000 crores. FMCG sector generates 5% of total factory employment in the country and is creating employment for three million people, especially in small towns and rural India. Analysis of FMCG Sector Strengths: 1. Low operational costs 2. Presence of established distribution networks in both urban and rural areas 3. Presence of well-known brands in FMCG sector Weaknesses: 1. Lower scope of investing in technology and achieving economies of scale, especially in small sectors 2. Low exports levels 3. "Me-too" products, which illegally mimic the labels of the established brands. These products narrow the scope of FMCG products in rural and semi-urban market. Opportunities: 1. Untapped rural market 2. Rising income levels, i.e. increase in purchasing power of consumers 3. Large domestic market- a population of over one billion. 4. Export potential 5. High consumer goods spending Threats: 1. Removal of import restrictions resulting in replacing of domestic brands
including skin care.e. says an HSBC report. In urban areas. Hindustan Levers Limited (HLL) has shown a healthy growth in the last quarter.100 crores in 2010. male grooming. boosting purchasing power in the countryside. and the chocolates and confectionery categories are estimated to be the fastest growing segments.500 crores in 2005 to Rs 92. Also. urban India accounts for 66% of total FMCG consumption. it has been able to make a fine recovery since then. and hot beverages. Within the foods segment. it is estimated that processed foods. bakery. intense competition between the organized and unorganized segments characterize the sector. However.2. would help the urban areas maintain their position in terms of consumption. and dairy are long-term growth categories in both rural and urban areas. fabric care. the demand in urban areas would be the key growth driver over the long term. Hair care. increase in the urban population.1 billion is the fourth largest sector in the economy. Though the sector witnessed a slower growth in 2002-2004. Indian Competitiveness and Comparison with the World Markets The following factors make India a competitive player in FMCG sector: . That will translate into an annual growth of 10% over a 5-year period. FMCG companies have immense possibilities for growth. It is expected that the rural income will rise in 2007. However. if they are able to take the consumers to branded products and offer new generation products. the Indian rural FMCG market is something no one can overlook. hence providing better growth prospects to the FMCG companies. At present. household care. FMCG sector is also likely to benefit from growing demand in the market. rural India accounts for more than 40% consumption in major FMCG categories such as personal care. It has been estimated that FMCG sector will rise from around Rs 56. Increased focus on farm sector will boost rural incomes.2% of the world population in the villages of India. home and personal care category. female hygiene. along with increase in income levels and the availability of new categories. household care and feminine hygiene. And if the companies are able to change the mindset of the consumers. i. A well-established distribution network. An estimated double-digit growth over the next few years shows that the good times are likely to continue. will keep growing at relatively attractive rates. with rural India accounting for the remaining 34%. Slowdown in rural demand Tax and regulatory structure Scope Of The Sector The Indian FMCG sector with a market size of US$13. Better infrastructure facilities will improve their supply chain. they would be able to generate higher growth in the near future. FMCG Sector is expected to grow by over 60% by 2010. Because of the low per capita consumption for almost all the products in the country. For example. Growth Prospects With the presence of 12.
wheat and fruits &vegetables. etc. Many MNC's have established their plants in India to outsource for domestic and export markets.y Availability of raw materials Because of the diverse agro-climatic conditions in India. sugarcane. India also produces caustic soda and soda ash. India is the largest producer of livestock. there is a large raw material base suitable for food processing industries. Low labor costs give the advantage of low cost of production. India's labor cost is amongst the lowest in the world. milk. coconut. For example. Amul supplies milk as well as dairy products like cheese. right from the supply of raw materials to packaged goods in the food-processing sector. This brings India a more cost competitive advantage. Top 10 FMCG Companies . The availability of these raw materials gives India the location advantage. y Labor cost comparison Low cost labor gives India a competitive advantage. butter. y Presence across value chain Indian companies have their presence across the value chain of FMCG sector. which are required for the production of soaps and detergents. spices and cashew and is the second largest producer of rice. after China & Indonesia.
Heinz Indian Consumer Class India has a population of over 1 billion and 4 climatic zones . 10. Finance and marketing.FMCG sector is an ever growing sector and is currently in a boom phase. Nirma Ltd. Freshers are looking for jobs in FMCGsector as these jobs will give them the best career in the industry. Several religious and personal . 3. administration. NO. 1. ITC (Indian Tobacco Company) Nestlé India GCMMF (AMUL) Dabur India Asian Paints (India) Cadbury India Britannia Industries Procter & Gamble Hygiene and Health Care Marico Industries Secondary Players 1. operations. 3. 2. purchasing. 5. supply chain. 6. Companies Hindustan Unilever Ltd. Colgate-Palmolive (India) Ltd. manager. supervisor. 5. 7. 8 9. Parle Agro 6. S. product development. 4. J. Godrej Consumers Product Ltd. There are many jobs in FMCG sector at diiferent levels like sales. general management. 4. H. FMCG sector is famous for jobs that are not only well paying but also gives the best perks and bonuses. Tata Tea Ltd. 2. HR.
any number of opportunities are available . Consumer goods marketers experience that dealing with India is like dealing with many small markets at the same time. India is also different in culture if compared with other Asian countries. Besides . increase in demand. presence of large number of young population. Market Size in $ million Market Share in % Indian Companies 1992 Breakfast cereals Wafers.beliefs. As the restrictions on foreign investments were relaxed in 1991. Consumer goods marketers are often faced with a dilemma regarding the choice of appropriate market segment. Multi-National Companies have been entering India since then. 15 official languages. Income 2. In India they do not have to face this dilemma largely because rapid urbanization. The bottom line is that Indian market is changing rapidly and is showing unprecedented consumer business opportunity . Indian consumer goods market is expected to reach $400 billion by 2010. different social customs and food habits characterize Indian consumer class. India has the youngest population amongst the major countries. India has high distinctiveness in demand and the companies in India can get lot of market opportunities for various classes of consumers.030 100 100 98 97 MNCs Indian Companies 2004 0 0 2 3 52 37 51 49 48 63 49 51 MNCs 1992 1992 $=30 rupees 2004 $=45 rupees Source: Center for Monitoring Indian Economy (CMIE) Indian consumer class can be classified according to the following criteria: 1. There are a lot of young people in India in different income categories. Socio-Economic status . potato chips Washing Machines TV 2 6 40 630 2004 25 35 570 3. Therefore.
Rs.3 12.3.8 199. Age demographics 4. 215.095 billion people. Middle middle income 4. Geographical dispersion Income Based Classification India has a population of 1.1 44 33 164. India's population can be divided into 5 groups on the basis of annual household income. comprising of 1/6th of the world population. Consumer Classification According to National Council of Applied Economic Research (NCAER) there are 5 consumer classes that differ in their ownership patterns and consumption behavior across various segments of goods.9 74.2 Change 416% 179% 37% -65% -61% 21% .6 28.0 54. These groups are: 1.000 Rs.6 71. 22-45. Upper middle income 3.2 90.8 2001 2. Annual Income in Rs.000 1996 1. In addition to that. 16.000 and more Rs 45.000 Rs.7 2007 6. Higher income 2.4 180. 16-22.2 32.000 Below Rs. The real purchasing power of Indian rupee is higher than the international exchange value. Consumer Classes The Rich The Consuming Class The Climbers The Aspirants The Destitute Total Source: NCAER The 5 classes of consumer households (consumer classification) show the economic development across the country based on consumption trends. Lower income The income classification does not represent a real scenario for an international business because the purchasing power of currencies differs significantly.1 23.215.5 54.1 15. income classification is not an effective tool to ascertain consumption and ownership trends in the economy. Lower middle income 5.
B2.constitutes 21% of the urban population . This is called as Socio-Economic Classification (SEC). which is mainly used by market planners to target market before launching their new products. A2. C.constitutes over a quarter of urban population Sec C refers to Middle-class-. SEC is made to understand the purchase behavior and the consumption pattern of the households. The urban area is segregated into: A1. D. E2. Indian households can also be segmented according to the occupation and education levels of the chief earner of the household (the person who contributes most to the household expenses). E1. B1.Socio-Economic Classification In addition to income classification and consumer classification. Socio-Economic Classification Occupation Education Less 5-9 than 4 School Some Postyrs of Illiterate Graduate yrs in certificate college graduate school school Skilled Unskilled Shop owner Petty trader Employer ofAbove 10 persons Below 10 persons None Clerk Supervisor Professional Senior executive Junior executive B1 C D D D D B1 C B1 B2 C D D D B1 C A2 B2 B2 D C D B1 C A2 B1 B1 C C B2 B1 B2 A1 A2 A2 B2 B2 B1 A2 B1 A1 A1 A1 B1 B1 A2 A1 A2 A1 A1 A1 B1 A2 A1 A1 A2 E2 E2 D E2 E1 E2 D D D E1 C D C D B2 C C D B2 C B2 D A2 B2 B2 D A2 B2 Source: Indian readership survey (IRS) Sections A & B refer to High-class.
constitutes over half the urban population To understand the table. Education of chief Type of House wage earner Pucca Professional degree Graduation/ PG College SSC/HSC Class 4-Class 9 Up to class 4 Self-learning Illiterate R1 R1 R1 R2 R3 R3 R3 R4 Semi-pucca R2 R2 R2 R3 R3 R3 R4 R4 Kuchcha R3 R3 R3 R3 R4 R4 R4 R4 . R2. while Skilled Workers are about 28%.Sections D & E refer to Low-class-. Ahmedabad. The rural area is segregated in to: R1. R4. Bangalore. consider an example: A trader whose monthly household income (MHI) is more than that of a person in section A cannot be included in this SEC because his educational qualification or occupation do not qualify him for inclusion. Those top 7 cities are Mumbai. R3. With increase in economic prosperity. More than 80% of the population of upper strata consumers is living in the top 7 cities. Kolkata. and Hyderabad. Less than half of the Chief Wage Earners of households belonging to sections D & E are unskilled workers. Delhi. this population (upper strata consumers) is growing at 10 percent annually. Sec C constitutes households whose Chief Wage Earners are employed as : Skilled workers Petty traders Clerk/Supervisor Shop owners 33% 12% 37% 18% 3/4th of them have studied till 10th or 12th class while the remaining 1/4th have studied till 9th class. Petty Traders are 18%. Chennai.
The expenditure on essential goods and services has a higher share in developing countries as compared with that of developed countries. and 10.63% 4.25% .thirds of its population is below the age of 35.Age Demographics India is a very young nation. Nearly two.7 934. rent.68% Essential Services (water.25% 14. Education.1 109.5 239.51% Less than 4% 3.2 122.9% 0.1 2001 108.1% fuels) Clothing Footwear Medicare Transport & Communication Recreation. power. Marketers explain that the boom in the consumption level and leisure related expenditure is because of this young population.0 246. It will have a significant impact over the consumer goods market. Age distribution if Indian population (In Millions) Year/ Age Below 4 yrs 5-14 yrs 15-19 yrs 20-34 yrs 35-54 yrs 55 & above Total 2006 113.4 1996 119.5 221. if compared with some advanced and developed countries.3 101.2 Consumption Trends Food Essentials 45.7 1094.4 279.7 1012. it is expected that this will generate trade opportunities and continuous investment in the economy.2 118.7 224 178. and nearly 50 % is below 25.2 90. and Culture Home Goods 4.1 88.8 207. There is huge potential for further consumption of goods and services due to the increased level of disposable income.1 239. In addition to that.5 233.
Finance Minister proposed to introduce an integrated Goods and Service Tax by April 2010. Britannia. and employment is directly proportionate to reduction in indirect taxes. and Brazil FMCG Sector on a Buying Spree . Indonesia. which is beneficial for FMCG companies because it is a big market for FMCGs. and agricultural development.the highest in Asia. classified according to their market potential. Reduction of excise duty on food mixes from 16% or 8% to nil is positive for ITC. linked to the wealth creation from trade. Last year. There are poor districts in many states. Indirect taxes constitute no less than 35% of the total cost of consumer products . Reduction of custom duty on food processing machinery and their parts from 7. industrial. Full exemption of excise duty on biscuits priced at 50 rupees or less per kg is positive for ITC.This is an exceptionally good move because the growth of consumption.Geographical Dispersion of Market Potential There is large difference in economic prosperity levels among several states in India. and Parle. there are some barriers to the growth of the sector. India has 500 districts. Reliance Retail to Enter the Packaged Tea Market Emami Set to Invest Rs 220 Crore for Expansion in FMCG Sector Godrej Targeting FMCG Acquisitions in China. Nevertheless. According to CNBC. Exemption of free samples and displays from the purview of FBT will be beneficial for FMCG companies because they spend huge amount of money on advertising and brand building. Development of rural infrastructure is in focus. Dabur. ITC. FMCG sector growth story will continue because of the positive budget. Budget 2007-2008 for FMCG Sector y y y y y y Reduction of duty on edible oil will have a positive impact on Marico. Better infrastructure will improve the supply chain. out of which 150 districts (category A) and next 150 districts (category B) account for 78% and 15% of the national market potential respectively. Category C districts have 40% of the geographical share. HLL. production.5% to 5%. Remaining 200 districts (category C) are backward and account for only 7% of national market potential. and Marico will be amongst the most benefited companies. Recent Developments in Fast Moving Consumer Goods (FMCG) Sector FMCG sector is no doubt registering an up trend in growth.
Challenges before the Indian FMCG Sector & Designing a Blueprint for Future Tuesday. while there are sectors that have outperformed this benchmark index. By 2015. Surf Excel is funding the education of children.and wield proportionately higher spending power. While the latter has been crowded by a large number of local players.Corporate Social Responsibility FMCG companies have now started taking Corporate Social Responsibility seriously. During this period. .including Sara Lee. Most brands link themselves with the social causes. For instance. Indians under 20 are estimated to make up 55% of the population . to encounter domestic violence. The Indian FMCG market has been divided for a long time between the organized sector and the unorganized sector. Changes in demographic composition of the population and thus the market would also continue to impact the FMCG industry. Ponds has tied up with the United Nations Development Fund(UNDF) for Women. approximately 47 per cent of India's 1 + billion people were under the age of 20. May 18. there are also sectors that have under performed. FMCG registered gains of just 33% on the BSE FMCG Index last year. Together. 2010 A few FMCG companies have already outsourced manufacturing to some degree . The economic growth would impact large proportions of the population thus leading to more money in the hands of the consumer. and teenagers among them numbered about 160 million. Nike and several beverage companies Markets all over the world have been on a roll in 2003 and the Indian bourses are no exception having gained almost 60% in 2003. Means. they wielded INR 14000 Cr worth of discretionary income. Recent survey conducted by a leading business weekly. At the macro level. Indian economy is poised to remained buoyant and grow at more than 7%. thereby linking consumers with the brands and gaining goodwill in the market. companies that are able to influence and excite such consumers would be those that win in the market place. and their families spent an additional INR 18500 Cr on them every year.
Other challenges of similar magnitude exist across the FMCG supply chain. unpackaged home made products. He seldom ever looks at the technical specifications. toothpaste. power. The fact is that FMCG is a structurally unattractive industry in which to participate.S. luxury. the former has varied between a two-player-scenario to a multi-player one. At the macro-level. over the long term.The consumer spends little time on the purchase decision. Structural Analysis Of FMCG Industry Typically. India's Rs.The products often cater to 3 very distinct but usually wanted for aspects .competing on margins. Price and income elasticity of demand varies across products and consumers. river linking) are likely to enhance the living standards across India. This makes logistics particularly for new players extremely difficult. Even so. India is home to six million retail outlets and super markets virtually do not exist. shampoos. the opportunity keeps FMCG makers trying. This is the latent potential that most FMCG companies are looking at. creams. and cigarettes.460 billion FMCG market remains highly fragmented with roughly half the market going to unbranded. However. They meet the demands of the entire cross section of population. Going forward. rails. toilet soaps. India's per capita consumption of most FMCG products is much below world averages. Unlike the U. food products.Individual items are of small value (small SKU's) although all FMCG products put together account for a significant part of the consumer's budget.necessity. This presents a tremendous opportunity for makers of branded products who can convert consumers to branded products. Take distribution as an example. market for fast moving consumer goods (FMCG). which is dominated by a handful of global players. Even in the much-penetrated categories like soaps/detergents companies are focusing on getting the consumer up the value chain. successfully launching and growing market share around a branded product in India presents tremendous challenges. much of the battle will be fought on sophisticated distribution strengths. Till date. the efforts on the infrastructure front (roads. The sector covers a wide gamut of products such as detergents. . beverages. confectioneries. 2. 3. Typical characteristics of FMCG products are: - 1. a consumer buys these goods at least once a month. Brand loyalties or recommendations of reliable retailer/ dealer drive purchase decisions. comfort. powders.
Also. the business has low working capital intensity as bulk of sales from manufacturing take place on a cash basis. 5.FMCG leaders. Modifications and improvements rarely change the basic process.4. recommendation of the retailer or word of mouth.Brand switching is often induced by heavy advertisement. 2. The fast rising economic performance of has created an environment of optimism on the part of the investors to invest more. Low Capital Intensity .Technology . The time gap in the period of 2001-06 is considered as the best time for India's business leaders.sometimes its essential to get certain products manufactured near the market. and (3) logistics .Most product categories in FMCG require relatively minor investment in plan and machinery and other fixed assets.Manufacturing of products by third party vendors is quite common.Basic technology for manufacturing is easily available. Benefits associated with third party manufacturing include (1) flexibility in production and inventory planning. Design and Manufacturing 1. technology for most products has been fairly stable. 3. India Opening up of markets have given immense opportunities to the business leaders in India to capture the opportunities over the globe. Distinguishing features of Indian FMCG Business FMCG companies sell their products directly to consumers.Limited inventory of these products (many of which are perishable) are kept by consumer and prefers to purchase them frequently.Third-party Manufacturing . Major features that distinguish this sector from the others include the following: - 1. (2) flexibility in controlling labor costs. . as and when required. FMCG Giants. Also.
T. packaged food products and drinks. and some others have brought tremendous success for the country. FMCG in India has strong MNC presence.C. characterizes FMCG sector. are products that have a quick turnover. A well-established distribution network.76 Nirma Marico Industries Emami 3. name of companies and value of equity holding. kitchen appliances). and relatively low cost.6 in 2003.4 billion in 2015 from US $ billion 11.143. Company /group Value of equity holdings (Rs crore) Business FMCG FMCG FMCG FMCG FMCG Dabou Group 5. and chocolate bars. This is a complete list of some successful persons in the fields of FMCG: Promoter/chairman/family head V. MP3 players. intense competition between the organized and unorganized segments. cosmetics. soap. skin care. bulbs.815.g. teeth cleaning products. presence across the entire value chain. paper products and plastic goods. batteries. shaving products and detergents.63 936. FMCG in India has gained a competitive. Here in this section we have covered various sectors of Indian Economy and the successful persons in the respective areas. It has been expected that FMCG market will reach to US$ 33. toothpaste. Examples of FMCG generally includes a wide range of frequently purchased consumer products such as toiletries. FMCG products.Indian Industries in the fields of .78 2.1 billion is the fourth largest sector in the economy. tissue paper. Music Systems etc. A subset of FMCGs are Fast Moving Consumer Electronics which contain innovative electronic products such as mobile phones. Examples of FMCGs are soft drinks. GPS Systems and Laptops which are replaced more frequently than other electronic products. consumer electronics. . Mariwala & family The Agarwal & the Goenka families Brief about FMCG Sector INTRODUCTION Fast Moving Consumer Goods (FMCG). hair wash etc in India has low per capita consumption as well as low penetration level that is a sign of untapped . Most of the product categories like jams. Patel & family Harsh C.V. FMCG may also include pharmaceuticals. which are generally replaced less than once a year (e. although these are often categorized separately.Burman Adi Godrej Karsanbhai K.94 Godrej Group 5.085.560. as well as other non-durables such as glassware. White goods in FMCG refers to house hold electronic items such as Refrigerator. digital cameras. .06 y FMCG IN INDIA The Indian FMCG sector having a market size of US$13.
Dabur (new product launches) and ITC (gains from stocking up of inventory in cigarettes ahead of price hikes). Now gradually people are shifting to processed and packaged food and the figures are expected to 200 million people by 2010. Better reach (significant investments in distribution infrastructure). however. some companies (ITC. NREGS and rising food prices to drive rural incomes) will be the key drivers aiding a modest volume growth for our FMCG universe. After the Union Budget. The middle class and the rural segments of Indian population gives the opportunity to brand makers to convert consumers to branded products. GCPL) have been forced to pass on the excise duty hikes to the end customers. increased literacy and rising per capita income Indian FMCG Sector 4Q FY2010 outlook By Angel Broking Date: 10 April 2010 Contributed by Angel Broking For 4QFY2010. We expect HUL and Marico to emerge as key laggards in terms of revenue growth. strong support from higher Ad spends and support from rural markets (higher MSPs. as we model in lower value growth due to price cuts affected in their core categories. . for most companies the focus continues to be on volume growth. India is one of the largest emerging markets in FMCG sector because of y Large domestic market y India ± an extravagant spender on consumer goods y Demand-supply gap y Rapid urbanization. This left India with the requirement of US $28 million in the food processing Industry. largely led by companies like GCPL (consolidation effect of Sara Lee).market potential. we expect our FMCG universe to post a steady revenue growth of 16%.
Groundnut oil and Copra declined between 1-6%. while LAB. However. by . which peaked out last year due to drought conditions in India and Bangladesh. Coffee prices have risen by about 20% this quarter and are expected to remain firm in the coming quarters. Soda Ash and Caustic Soda prices have declined 0-8%.Input costs exhibit mixed trends For 4QFY2010. Rising crude oil prices (by about 4% this quarter) have increased the transportation cost for all companies in our FMCG universe. HDPE has surged by about 9% this quarter. prices of the agri-commodities in general registered a decline. Prices of Barley. ITC takes the brunt The Union Budget 2010-11 continued with its thrust on Rural Development. Soyabean oil. Budget Blues. The Government continued with its efforts in increasing the disposable income in the hands of the people. Tea prices. are expected to ease out this year due to improving weather conditions. while Sugar and Milk prices declined by about 40% and 12% respectively.
GCPL has decided to hike prices in the range of 8-10% in baby diapers and 2-5% in other FMCG categories. Hence. has just started and is likely to significantly impact HUL's Earnings. coupled with a 5% increase in the import duty on crude. coupled with the surge in the transportation cost). Emami has also increased prices of its products between 3-7%. P&G finally struck back. though lower in quantum. Moreover. Media reports suggest that the company is also increasing the pack size of its mother brand. taking a 20% indirect price cut (via a 25% grammage hike) in Tide Naturals. It's raining price cuts for HUL and P&G« After P&G's launch of Tide Naturals (cheaper variant of Tide) in December 2009. Tide. was significantly higher than our expectations.effecting a reduction in indirect taxes and by expanding public expenditure on programs like the NREGS and Bharat Nirman. The price war in 2004 took almost a year to get over. with a roll-back in excise duty cut (hiked 2%) is negative for select FMCG companies in our universe. Britannia is hiking prices in the range of 2-10%. The grammage increases equate to a price cut of almost 20% in both Tide and Tide Naturals. which saw HUL following suit. which will now retail at Rs56/kg (Rs70/kg) and Rs40/kg (Rs50/kg). will negatively impact the transportation and packaging costs. which include soaps. due to the increase in the input costs (as a result of the excise duty hike. . when P&G finally announced 4-5% price hikes in February 2005 in Ariel and Tide. thus affecting the entire FMCG sector. Crude derived inputs might also see a price increase. by a similar percentage. HUL finally reacted in late January by introducing a fresh round of price cuts (10-30%) in Rin and Surf Excel (either via direct price cuts or via grammage increases). the budget was a bundle of woes. CavinKare is also looking at taking price increases on product packs of above Rs10. For the sector per se. ITC Foods is also planning to take price hikes for its impacted brands soon. we believe that the 2010 price war. however. along with a partial withdrawal of the stimulus package. Postponement of the GST to next year and increase in the MAT rate to 18% (15%). that was not before the damage was done to HUL's Margins and Profitability. and on Rural Infrastructure. «while the Budget forces others to take Price hike Forced by the excise roll-back in Budget. the hike in customs duty on diesel and petrol. In retaliation to HUL's price cuts and the comparative ads (Rin v/s Tide) broadcast by HUL. However. The hike in the excise duty between 10-18% for filter cigarettes exceeding 60mm length (negative for ITC). respectively. due to an increase in input costs.
Maggi Rasile Chow (a two-minute noodle for the rural and semi-urban class) in its processed food segment. HUL ranked a close second. a breakthrough made through its unique patented freezing technology. New product launches gain momentum Keeping abreast with our expectations. which had increased prices of its flagship brand Gold Flake Kings by 7% prior to the Union budget. The companies are also increasingly spending on Research and Development. owned by the Jatania family of Lornamead fame (recently sold Yardley rights to Wipro for select markets). with members from Rapidol. Another important acquisition. The company launched Maggi Masala-ae-Magic (a taste enhancer). Nestle led the pack in new product launches. with the setting up of Althea Life Sciences in the suburbs of Gurgaon. and these are being executed by Dabur Research Foundation (DRF). With a deal size of about Rs25cr and a market share of about 10%. Kinky. the premium Nescafé Cappucino in chocolate and vanilla flavors and Nescafé Iced coffee in its beverages segment. foreign and Indian. the group's 30-year-old entity. Among the most prominent deals completed this quarter was Godrej Consumer's (GCPL) acquisition of Tura.ITC. Code 10. most FMCG companies maintained their momentum in launching new products. Moreover. FMCG majors like ITC and Dabur are investing heavily on R&D to launch new innovative products. The . this brand has the potential to grow even further in that market. ITC has recently launched gel bathing bars under Fiama Di Wills brand. though on a small scale. Acquisitions and Innovations at the forefront FMCG majors are increasingly focusing on expanding their global footprint by acquiring companies in niche segments to fill gaps in their product portfolio. with launches of new variants under its iconic brands Lux and Brooke Bond. for 'lighter eating' in its coated wafer segment. GCPL is expected to institute a cross-functional team. an African personal care brand from Tura Group. and Milkybar crispy and Munch Guru. The group has research contracts with over 20 clients. Tura and its Indian management team to leverage synergies. from Colgate-Palmolive. was Marico acquiring the Malaysian hair styling brand. hiked rates by 8-20% across its portfolio to combat higher excise rates introduced in the Budget. Dabur is staging a comeback to the pharmaceutical discovery research arena (Ayurvedic Research).
The competition in the instant noodle segment intensified. Madhya Pradesh.Lux Purple Lotus cream. On the other hand. Dabur India and HUL in the oral care segment.company launched Brooke Bond Sehatmand in the states of Uttar Pradesh. Asian Paints posted yet another quarter of steady gains. HUL underperforms. GSK Consumer emerged as the biggest outperformer this quarter supported by new product launches. Additionally. with GSK Consumer launching Horlicks Foodles and HUL launching Knorr Noodles (already present in Pakistan). Jharkhand and Chattisgarh for the health conscious customer segment.Hajmola Kaccha Aam and is currently test marketing products for its 'ready-to-eat' portfolio under its Hommade brand. in-line with our expectations. Bihar. Marico extended its good-for-heart equity. and a new variant of Lux. competing with Nestle's Maggi. Dabur launched a new variant of Hajmola. Midcaps shine The BSE FMCG Index posted a marginal 1% outperformance vis-à-vis the Sensex. with the launch of Saffola Arise. ITC may soon follow suit with its launch of Sunfeast noodles. Saffola. . owing to steady demand conditions for Paints and a benign input cost environment. P&G is soon launching toothpaste under its global brand Crest. HUL was the sole underperformer. directly competing with Colgate-Palmolive India. owing to the intensifying competitive scenario (P&G getting aggressive) and concerns over its impact on profitability.Renew Wine Red and Renew Plum Crazy. Godrej Consumer launched two hair color variants of Renew . to functional foods.
driven largely by Volume growth and improvement in the Product-mix. owing to gains from stocking up of inventory. the segment leader. aided by Margin expansion for most companies. significant Margin . is expected to report a drop in recurring Earnings by 4%. Asian Paints. owing to weak Revenue traction and a drop in Margins (price cuts and sustained Ad-spends). Valuations appear rich. due to lower input costs (yoy basis) and rationalisation of ad spends (except HUL and Nestle). HUL. aided by Top-line growth (up-tick in Hotel Revenue) and Margin expansion. despite price hikes (affected only in March). We expect ITC to post 2% increase in Cigarette Volumes. Stay Selective Most FMCG companies have witnessed a sharp rally in the recent past. ITC's Earnings are expected to grow by a strong 33% yoy.Quarter of robust Earnings. Earnings for the quarter are expected to grow at a strong pace of 21% yoy. GCPL and ITC are expected to report the strongest Earnings growth during the quarter. except for HUL For 4QFY2010. and are currently trading at rich valuations that are being driven by a steady Earnings growth. we expect our FMCG universe to post a modest Top-line growth of 16% yoy.
However. news-flow from acquisitions).expansion. any further re-rating from the current valuations seems less likely. most companies are trading in line with their five-year averages. we continue to emphasise selective stock picking. In terms of their One-Year Forward P/Es. While the long-term consumption story for the FMCG industry remains intact. but at a 20-30% discount to their peak valuations (in FY2007). Hence. low competition and support from parent) as our Top-picks. Dabur (new product launches and benign input costs) and Nestle (strong urban portfolio. as we believe that both earnings upgrades and P/E re-ratings are likely to take a breather from the current levels. Among the heavyweights. a diverse product portfolio and with stronger pricing power. other segments to see up-tick) to HUL (poor competitive environment). We maintain our stance of Equal-weight on the FMCG sector. a strong defensive appeal and a steady Earnings growth are likely to cap the downside as well. we prefer ITC (strong resilience to pricing actions in cigarettes. and a sustained volume growth. and prefer a set of companies with a leadership position in their product categories. . In Midcaps. we rate GCPL (steady Earnings growth.
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