Fmcg (1)

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Fmcg (1)

  1. 1. Jan, 28 2009 FMCG SECTORMahesh Babaria Executive Summarymaheshb@ghallabhansali.com Products which have a quick turnover, and relatively low cost areMittal Dharod known as Fast Moving Consumer Goods (FMCG). FMCG products are thosemittald@ghallabhansali.com that get replaced within a year. Examples of FMCG generally include a wide range of frequently purchased consumer products such as toiletries, soap, cosmetics, tooth cleaning products, shaving products and detergents, as well as other non-durables such as glassware, bulbs, batteries, paper products, and plastic goods. FMCG may also include pharmaceuticals, consumer electronics, packaged food products, soft drinks, tissue paper, and chocolate bars. 85,000 Crores Indian Indiaʹs FMCG sector is the fourth largest sector in the economy and FMCG market is one creates employment for more than three million people in downstream of the important activities. Its principal constituents are Household Care, Personal Care and sector and has registered a robust Food & Beverages. The total FMCG market is in excess of Rs. 85,000 Crores. It growth rate. is currently growing at double digit growth rate and is expected to maintain a high growth rate. FMCG Industry 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. The Rs 85,000-crore Indian FMCG industry is expected to register a healthy growth in the third quarter of 2008-09 despite the economic downturn. The industry is expected to register a 15% growth in Q3 2008-09 as compared to the corresponding period last year. Unlike other sectors, the FMCG industry did not slow down since Q2 2008. the industry is doing pretty well, bucking the trend. As it is meeting the every-day demands of consumers, it will continue to grow. In the last two months, input costs have come down and this will reflect in Q3 and Q4 results. Ag-gregate sale FMCG industry is Market share movements indicate that companies such as Marico Ltd expected to increase and Nestle India Ltd, with domination in their key categories, have improved by 19.2 per cent their market shares and outperformed peers in the FMCG sector. This has during the December been also aided by the lack of competition in the respective categories. Single- 2008 quarter. 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.www.ghallabhansali.com Page 1
  2. 2. Jan, 28 2009 FMCG SECTOR Swot Analysis Strengths: • Low operational costs • Presence of established distribution networks in both urban and rural areas • Presence of well-known brands in FMCG sector Weaknesses: • Lower scope of investing in technology and achieving economies of scale, especially in small sectors • Low exports levels • "Me-tooʺ 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: • Untapped rural market • Rising income levels, i.e. increase in purchasing power of consumers • Large domestic market- a population of over one billion. • Export potential • High consumer goods spending Threats: • Removal of import restrictions resulting in replacing of domestic brands • Slowdown in rural demand • Tax and regulatory structure Industry Category and Products Household Care Personal Wash:- The market size of personal wash is estimated to be around Rs. 8,300 Cr. The personal wash can be segregated into three segments: Premium, Economy Hindustan Unilever and Popular. The penetration level of soaps is ~92 per cent. It is available in 5 Lim-ited is the biggest million retail stores, out of which, 75 per cent are in the rural areas. HUL is the pro-ducer of Personal leader with market share of ~53 per cent; Godrej occupies second position wash and detergents. The seg-ment is with market share of ~10 per cent. With increase in disposable incomes, expected to grow by growth in rural demand is expected to increase because consumers are double digit. moving up towards premium products. However, in the recent past there has not been much change in the volume of premium soaps in proportion to economy soaps, because increase in prices has led some consumers to look for cheaper substitutes.www.ghallabhansali.com Page 2
  3. 3. Jan, 28 2009 FMCG SECTOR Detergents:- The size of the detergent market is estimated to be Rs. 12,000 Cr. Household care segment is characterized by high degree of competition and high level of penetration. With rapid urbanization, emergence of small pack size and sachets, the demand for the household care products is flourishing. The demand for detergents has been growing but the regional and small unorganized players account for a major share of the total volume of the detergent market. In washing powder HUL is the leader with ~38 per cent of mar-ket share. Other major players are Nirma, Henkel and Proctor & Gamble. Personal Care Skin Care:- The total skin care market is estimated to be around Rs. 3,400 Cr. The skin care The Skin Care market is at a primary stage in India. The penetration level of this segment in segment is expected to India is around 20 per cent. With changing life styles, increase in disposable register a growth rate incomes, greater product choice and availability, people are becoming aware of mare that 16 about personal grooming. The major players in this segment are Hindustan percent. Unilever with a market share of ~54 per cent, fol-lowed by CavinKare with a market share of ~12 per cent and Godrej with a market share of ~3 per cent. Hair Care:- The hair care market in India is estimated at around Rs. 3,800 Cr. The hair care market can be segmented into hair oils, shampoos, hair colorants & conditioners, and hair gels. Marico is the leader in Hair Oil segment with market share of ~ 33 per cent; Dabur occu-pies second position at ~17 per cent. Shampoos:- The Indian shampoo market is estimated to be around Rs. 2,700 Cr. It has the penetration level of only 13 per cent in India. Sachet makes up to 40 per cent of the total shampoo sale. It has low penetration level even in metros. 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. Anti- dandruff segment constitutes around 15 per cent of the total shampoo market. The market is further expected to increase due to increased marketing by players and availability of shampoos in affordable sachets.www.ghallabhansali.com Page 3
  4. 4. Jan, 28 2009 FMCG SECTOR Oral Care:- The oral care market can be segmented into toothpaste - 60 per cent; toothpowder - 23 per cent; toothbrushes - 17 per cent. The total toothpaste market is estimated to be around Rs. 3,500 Cr. The penetration level of toothpowder/toothpaste in urban areas is three times that of rural areas. 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. The oral care market, es-pecially toothpastes, remains under penetrated in India with penetration level ~50 per cent. Food & Beverages Food Segment :- The foods category in FMCG is gaining popularity with a swing of launches by HUL, ITC, Godrej, and others. This category has 18 major brands aggregating Rs. 4,600 Cr. Nestle and Amul slug it out in the powders segment. The food category has also seen innovations like softies in ice creams, ready to eat rice by HUL and pizzas by both GCMMF and Godrej Pillsbury. Tea :- The major share of tea market is dominated by unorganized players. More than 50 per cent of the market share is capture by unorganized players. According to Tea Board of India, the Leading branded tea players are HUL and Tata Tea. export of tea is expected to be more Coffee :- that 210 million kg for The Indian beverage industry faces over supply in segments like coffee and the year 2008 against about 179 million kg tea. However, more than 50 per cent of the market share is in unpacked or last year. loose form. The major players in this segment are Nestlé, HUL and Tata Tea. Growth Prospect Large Market India has a population of more than 1.150 Billions which is just behind China. According to the estimates, by 2030 India population will be around 1.450 Billion and will surpass China to become the World largest in terms of population. FMCG Industry which is directly related to the population is expected to maintain a robust growth rate.www.ghallabhansali.com Page 4
  5. 5. Jan, 28 2009 FMCG SECTOR India is second largest Country in terms of Popula-tion growth and increase in population has a direct rela-tion to FMCG Products. Source: UN Population Division: Medium variant Spending Pattern An increase is spending pattern has been witnessed in Indian FMCG market. There is an upward trend in urban as well as rural market and also an increase in spending in organ-ized retail sector. An increase in disposable income, of household mainly because of in-crease in nuclear family where both the husband and wife are earning, has leads to growth rate in FMCG goods. Changing Profile and Mind Set of Consumer People are becoming conscious about health and hygienic. There is a change in Survey by A. C. the mind set of the Consumer and now looking at “Money for Value” rather Nielsen shows about than “Value for Money”. We have seen willingness in consumers to move to 71 per cent of Indian evolved products/ brands, because of changing lifestyles, rising disposable take notice of pack- income etc. Consumers are switching from economy to premium product even aged goods labels contain-ing nutritional we have witnessed a sharp increase in the sales of packaged water and water information compared purifier. to two years ago which Findings according to a recent survey by A. C. Nielsen shows about 71 per was only 59 per cent. cent of Indian take notice of packaged goodsʹ labels containing nutritional information compared to two years ago which was only 59 per cent. Advantages To The Sector Governmental Policy Indian Government has enacted policies aimed at attaining international competitiveness through lifting of the quantitative restrictions, reducing excise duties, automatic foreign in-vestment and food laws resulting in an environment that fosters growth. 100 per cent ex-port oriented units can be set up by government approval and use of foreign brand names is now freely permitted.www.ghallabhansali.com Page 5
  6. 6. Jan, 28 2009 FMCG SECTOR Central & State Initiatives Recently Government has announced a cut of 4 per cent in excise duty to fight with the slowdown of the Economy. This announcement has a positive impact on the industry. But the benefit from the 4 per cent reduction in excise duty is not likely to be uniform across FMCG categories or players. The changes in excise duty do not impact cigarettes (ITC, Godfrey Phillips), biscuits (Britannia Industries, ITC) or ready-to-eat foods, as these prod-ucts are either subject to specific duty or are exempt from excise. Even players with manu-facturing facilities located mainly in tax-free zones will also not see material excise duty savings. Only large FMCG-makers may be the key ones to bet and gain on excise cut. Foreign Direct Investment (FDI) Automatic investment approval (including foreign technology agreements within specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food processing sector except malted food, alcoholic beverages and those reserved for small scale industries (SSI). There is a continuous growth in net FDI Inflow. There is an increase of about 150 per cent in Net Inflow for Vegetable Oils & Vanaspati for the year 2008.www.ghallabhansali.com Page 6
  7. 7. Jan, 28 2009 FMCG SECTOR Market Opportunities Vast Rural Market Rural India accounts for more than 700 Million consumers, or ~70 per cent of the Indian population and accounts for ~50 per cent of the total FMCG market. The working rural population is approximately 400 Millions. And an average citizen in rural India has less then half of the purchasing power as compare to his urban counterpart. Still there is an untapped market and most of the FMCG Companies are taking different steps to capture rural market share. The market for FMCG products in rural India is esti-mated ~ 52 per cent and is projected to touch ~ 60 per cent within a year. Hindustan Unilever Ltd is the largest player in the industry and has the widest market coverage. Export - “Leveraging the Cost Advantage” Cheap labor and quality product & services have helped India to represent as a cost ad-vantage over other Countries. Even the Government has offered zero import duty on capital goods and raw material for 100% export oriented units. Multi National Companies out-source its product requirements from its Indian company to have a cost advantage. India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew apart from being the second largest producer of rice, wheat, fruits & vegetables. It adds a cost advantage as well as easily available raw materials. Sectoral Opportunities Major Key Sectoral opportunities for Indian FMCG Sector are mentioned below: Dairy Based Products 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. Packaged Food Only about 10-12 per cent of output is processed and consumed in packaged form, thus highlighting the huge potential for expansion of this industry. Oral Care The oral care industry, especially toothpastes, remains under penetrated in India with penetration rates around 50 per cent. With rise in per capita incomes and awareness of oral hygiene, the growth potential is huge. Lower price and smaller packs are also likely to drive potential up trading. Beverages Indian tea market is dominated by unorganized players. More than 50% of the market share is capture by unorganized players highlighting high potential for organized players.www.ghallabhansali.com Page 7
  8. 8. Jan, 28 2009 FMCG SECTOR Company Prospects Hindustan Unilever Limited • Unilever is lowering its expenditure on packaging across its portfolio of food brands as part of a wider cost-cutting drive. HUL has pared down the colour palette used for print-ing across many products. The system has been used to reduce printed packaging costs for Unileverʹs products. It is also eco-friendly because it reduces waste in the printing process. HUL is taking different steps to reduce the cost and increase the margin. • Hindustan Unilever’s product - Pureit (a water purifier) has received the UNESCO Water Digest Water Award 2008-2009 in the category of best domestic non-electric water puri-fier. Pureit received the award for outstanding contribution in the field of water in India. The product is available across 21 Indian states and has reached more than 1 million homes in India giving them access to microbiologically safe drinking water. Pureit’s performance has been tested by leading international & national medical, scien-tific & public health institutions and meets the germ-kill criteria of the Environmental Pro-tection Agency, the drinking water regulatory agency in the USA. Procter & Gamble Hygiene & Health Care Limited (P&G) • The Company has 21 product categories out of which only 8 product have presence in India. The company is planning to launch the rest 13 product in India. The company expects to see a growth in other categories. • The company has an aggressive plan to set up 20 new factories across the World out of which 19 is expected to come in emerging markets and most of them would be seen in Brazil, Russia, India, and China (BRIC) nations. • Whisper which is one of the company’s power brands has recorded 50 per cent market share in urban India. Godrej Consumer Products Limited (Godrej) • The Board of Directors of Godrej Consumer Products Limited (GCPL) has approved the acquisition of 50 per cent stake of its joint venture partner SCA Hygiene Products’ stake in Godrej SCA Hygiene Limited. After the transaction, the Joint Venture which owns the ‘Snuggy’ brand of baby diapers will become a 100 per cent subsidiary of GCPL. • Godrej Consumer Products Limited has acquired 100 per cent stake in the Kinky Group Limited, South Africa. Kinky is among one of the largest brand into hair segment with product portfolio.www.ghallabhansali.com Page 8
  9. 9. Jan, 28 2009 FMCG SECTOR Dabur India Limited (Dabur) • Dabur has entered into the malted food drink market with the launch of a new health drink “Dabur Chyawan Junior”. According to the company, they expect to capture a market share of 10 per cent of the Rs. 1,900 Crores malted food drink market over the next two years. • Dabur has acquired 72.15 per cent of Fem Care Pharma Ltd (FCPL), a leading player in the women’s skin care products market, for Rs 203.7 Crores in an all-cash deal. The Company is expected to create synergy by this deal. • Dabur got approval from Government of Himachal Pradesh to set up another medicine manufacturing unit. The project has an expected investment of Rs. 130 Crores. Colgate-Palmolive (India) Limited • Colgate Palmolive (India) Ltd, which is currently holding 75 per cent of the share capital of SS Oral Hygiene Products Private Ltd, Hyderabad, has acquired the remaining 25 per cent share capital from the local shareholders at an aggregate price of Rs 77.70 lakh. Consequently, SS Oral Hygiene Products has become a wholly owned subsidiary of the company. Nestle India Limited • Nestle is planning to invest Rs 6 billion in India in 2009 for expansion of its business in the country.The company which has allotted an investment of Rs 3 billion in the Indian market in 2008, would be doubling the investment in 2009 as part of its business strategy. Nestle International is reinvesting and expanding in India and Nestle India will have all the financial resources to expand and grow from the parent company. • Nestle India reported a good increase in its standalone net profit for the second quarter.During the quarter, the profit of the company rose 26.54% to Rs 1,210.90 million from Rs 956.90 million in the same quarter, last year. The company posted earnings of Rs 12.56 a share during the quarter, registering 26.61% growth over prior year period. Net sales for the quarter rose 23.45% to Rs 10,356.30 million, while total income for the quarter rose 23.78% to Rs 10,423.40 million, when compared with the prior year period.www.ghallabhansali.com Page 9
  10. 10. Jan, 28 2009 FMCG SECTOR Disclaimer:- This document has been prepared by Ghalla Bhansali Stock Brokers Pvt. Limited(Ghalla Bhansali ) . This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such.Ghalla Bhansali or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors. This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Ghalla Bhansali and affiliates/ group companies to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. Ghalla Bhansali reserves the right to make modifications and alterations to this statement as may be required from time to time. However, Ghalla Bhansali is under no obligation to update or keep the information current. Nevertheless, Ghalla Bhansali is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither Ghalla Bhansali nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Past performance is not necessarily a guide to future performance. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. Ghalla Bhansali Stock Brokers Pvt. Limited generally prohibits its analysts, persons reporting to analysts and their family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Information Source CMIE IBEFwww.ghallabhansali.com Page 10

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