COMPARATIVE ANALYSIS

BETWEEN FMCG AND

INFRASTRUCTURE SECTOR
Portfolio Management


BY
SWATI SINGH
SHIVAM GUPTA
ADHIRAJ SINGH SODHI
SHUBHAM RANDHAR
SAURAV KUMAR

FMCG SECTOR IN INDIA
Introduction

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. These
products are purchased by the customers in small quantity as per the need of individual or
family. These items are purchased repeatedly as these are daily use products. The price or value
of the products is not very high. These products are having short life also. It may include
perishable and non-perishable products, durable and non-durable goods. 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. A subset of FMCGs is Fast Moving Consumer Electronics which include
innovative electronic products such as mobile phones, MP3 players, digital cameras, GPS
Systems and Laptops. These are replaced more frequently than other electronic products. White
goods in FMCG refer to household electronic items such as Refrigerators, T.Vs, Music Systems,
etc. The Indian FMCG sector is explained below in detail.

Fast Growing Sector

In 2005, the Rs. 48,000-crore FMCG segment was one of the fast growing industries in India.
According to the AC Nielsen India study, the industry grew 5.3% in value between 2004 and
2005. The Indian FMCG sector is the fourth largest in the economy and has a market size of
US$13.1 billion. Well-established distribution networks, as well as intense competition between
the organized and unorganized segments are the characteristics of this sector. FMCG in India has
a strong and competitive MNC presence across the entire value chain. The middle class and the
rural segments of the Indian population are the most promising market for FMCG, and give
brand makers the opportunity to convert them to branded products. Most of the product
categories like jams, toothpaste, skin care, shampoos, etc., in India, have low per capita
consumption as well as low penetration level, but the potential for growth is huge. The Indian
Economy is surging ahead by leaps and bounds, keeping pace with rapid urbanization, increased
literacy levels, and rising per capita income. The big firms are growing bigger and small-time
companies are catching up as well. According to the study conducted by AC Nielsen, 62 of the
top 100 brands are owned by MNCs, and the balance by Indian companies. Fifteen companies
own these 62 brands, and 27 of these are owned by Hindustan Lever. Pepsi is at number three
followed by Thumps Up. Britannia takes the fifth place, followed by Colgate (6), Nirma (7),
Coca-Cola (8) and Parle (9). These are figures the soft drink and cigarette companies have
always shied away from revealing. Personal care, cigarettes, and soft drinks are the three biggest
categories in FMCG. Between them, they account for 35 of the top 100 brands.


TOP 10 COMPANIES IN FMCG SECTOR

1. Hindustan Unilever Ltd.
2. ITC (Indian Tobacco Company)
3. Nestl India
4. GCMMF (AMUL)
5. Dabur India
6. Asian Paints (India)
7. Cadbury India
8. Britannia Industries
9. Procter & Gamble Hygiene and Health Care
10. Marico Industries

SCOPE OF THE SECTOR

The Indian FMCG sector with a market size of US$13.1 billion is the fourth largest sector in the
economy. A well-established distribution network, intense competition between the organized
and unorganized segments characterizes the sector. FMCG Sector is expected to grow by over
60% by 2010. FMCG Sector is expected to grow by over 60% by 2010. That will translate into
an annual growth of 10% over a 5-year period. It has been estimated that FMCG sector will rise
from around Rs 56,500 Crores in 2005 to Rs 92,100 Crores in 2010.
GROWTH PROSPECTS

With the presence of 12.2% of the world population in the villages of India, the Indian rural
FMCG market is something no one can overlook. Increased focus on farm sector will boost rural
incomes, hence providing better growth prospects to the FMCG companies. Better infrastructure
facilities will improve their supply chain. FMCG sector is also likely to benefit from growing
demand in the market. Because of the low per capita consumption for almost all the products in
the country, FMCG companies have immense possibilities for growth. And if the companies are
able to change the mindset of the consumers, i.e. if they are able to take the consumers to
branded products and offer new generation products, they would be able to generate higher
growth in the near future.


ANALYSIS OF FMCG SECTOR IN INDIA
Pest Analysis

Pest analysis of FMCG sector in India is carried out on political, economical, social and
technological aspects. It is explained
Below:

POLITICAL:
Tax exemption in sales and excise duty for small scale industries.
Transportation and infrastructure development in rural areas helps in distribution network.
Restrictions in import policies.
Help for agricultural sector.

ECONOMICAL:
The GDP rate of Indian economy is increasing every year. It is expected in future it would be
better only in comparison with other countries.
Inflation rate is increasing across the world and India is also no exception. The
Government and Reserve Bank of India both are trying to control the inflation rate with the help
of different measures.
Increase in disposable income has taken place due to higher GDP rate. The per capita income is
increasing so the customers are having more income to spend for various reasons.


Indian FMCG sector recorded 16% sales growth in last fiscal year and it is expected it would
further improve in the forthcoming years.

The FMCG sector is a 4th largest sector of Indian economy with market size of more than
60,000 crore. The Indian Territory is very large and number of customers is also very high.

SOCIAL:

DEMOGRAPHICAL ANALYSIS The Indian culture, social & life styles are changing
drastically. The total population is nearly 115 crores and population includes rich, poor, middle
class, male, female, located in rural, urban and sub urban areas, different level of education etc.

TECHNOLOGY:
Technology has been simplified and available in the industry. Where technology is not
available then it is brought from foreign countries to meet FMCG sector requirements.
Foreign players help in high technological development. With research and development
facilities the new technologies are developed alone or with the help of foreign players.

INDUSTRY ANALYSIS OF FMCG SECTOR
(i) The fmcg sector in India is expected grow at a compound annual growth rate at 9% to a size
of 1, 43,000 crs by 2010 from rs 93000 crs at present.
(ii) The industry is growing double digit growth in last 2 yrs.
(iii) Annual revenues of us $14.74 billion.
(iv) Market growth rate Rural -40%, urban -25%




MAIN COMPETITORS
The FMCG sector is developing fast and at present there is high level of competition in this
sector. The main competitors are HUL, Britannia, Nestle, Cadbury, Colgate, Amul, ITC, Dabur,
Emami, Nirma and Marico.

SWOT ANALYSIS
SWOT analysis of this sector is carried as follows:
(i) Strengths:
Well-established distribution network extending to rural areas.
Strong brands in the FMCG sector.
Low cost operations
(ii) Weaknesses:
Low export levels.
Small scale sector reservations limit ability to invest in technology and achieve
Economies of scale.
Several "me-too products.
(iii) Opportunities:
Large domestic market.
Export potential
Increasing income levels will result in faster revenue growth.

THREATS:
Imports
Tax and regulatory structure
Slowdown in rural demand


FACTORS AFFECTING THE GROWTH
Over the years, demand for consumer durables has increased with rising income levels, double-
income families, changing lifestyles, availability of credit, increasing consumer awareness and
introduction of new models. Products like air conditioners are no longer perceived as luxury
products. The biggest attraction for MNCs is the growing Indian middleclass. This market is
characterized with low penetration levels. MNCs hold an edge over their Indian counterparts in
terms of superior technology combined with a steady flow of capital, while domestic companies
compete on the basis of their well-acknowledged brands, an extensive distribution network and
an insight in local market conditions. With companies opting for information technology a
reduction in inventory levels and an improvement in the working capital cycle is likely. This will
benefit companies by controlling costs and improving margins.

MAJOR GOVERNMENT POLICIES/CHANGES:
In the context of the positives and the negatives, investing in FMCG stocks is a tricky prospect.
Given this, one has to be active with FMCG stocks and should book profits as soon as the
targeted returns are reached. Unlike earlier times, nowadays, one cannot afford to buy an FMCG
stock and forget about it for a long time. It is unlikely that the government's initiatives will boost
the sector overnight. The ongoing price wars mean that company earnings will continue to be
volatile. Hence, in the short term, one should look at individual companies' prospects rather than
the overall sector's prospects. This means that it is better to leave mutual funds that concentrate
on FMCG companies and instead buy shares depending upon the company.
It is not necessary that an MNC will be better than an Indian company. One should look at a
company's profile and analyze its prospects before investing in its shares. It is not that you will
lose out by buying FMCG stocks. But, in buying an FMCG stock, it will be ideal to cash in
during short bursts of activity.


EXPECTED FUTURE TRENDS

Following trends are expected in future:
Huge investments in promoting brands, setting up distribution networks and intense competition
are what FMCG companies face. Creating strong brands is important for FMCG companies and
they will have to devote considerable money and effort in developing brands. Given the
fragmented nature of the Indian retailing industry and the problems of infrastructure, FMCG
companies also need to develop extensive distribution networks to achieve a high level of
penetration in both the urban and rural markets. This will require a lot of resources. The
unorganized sector has a presence in most product categories of the FMCG sector. Small
companies from this sector have used their locational 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. And this will only lead to price wars, which, though
good for consumers, will affect the bottom lines of companies.


KEY PLAYERS:
Here are many domestic and MNCs in Indian FMCG sector and they are mentioned in the list:

COMPANY NAME
1. Hindustan Lever Ltd.
2. I T C Ltd.
3. Nirma Ltd.
4. Nestle India Ltd.
5. Britannia Industries Ltd.
6. Colgate-Palmolive (India) Ltd.
7. Godfrey Phillips India Ltd.
8 Dabur India Ltd.
9. Godrej Soaps Ltd.
10. Marico Industries Ltd.
11. Cadbury India Ltd.
12. Procter & Gamble Hygiene & Health Care Ltd.

New players Planned to Venture

The following new players have planned: Mangalore-based CAMPCO has announced plans to
enter the FMCG sector by marketing, and promoting Effermint toothpaste. For CAMPCO this
marks its maiden entry into the FMCG sector, while for Thrissur-based Effermint India, this is
the second time that it is entering in to a marketing tie-up with a large player. It had on an earlier
occasion partnered with TOMCO, Godrej Consumer Products Ltd (GCPL) has launched a new
brand of soap, Nimin, on the germicide platform. Pegged on a par with Lifebuoy's variant in the
sub-popular category, Nimin is priced at Rs 8 for 75 gm and Rs 13 for 125 gm. GCPL has also
decided to enter the hair oil market with a brand under its company name. The company is
already test marketing a thanda tel under the Godrej brand in UP. Now, players such as Marico
have entered the category with Shanti Thanda Tel.








Infrastructure Sector in India

Introduction
Infrastructure is the basic physical and organizational structure needed for the operation of a
society or enterprise, or the services and facilities necessary for an economy to function. It can be
generally defined as the set of interconnected structural elements that provide a framework
supporting an entire structure of development. It is an important term for judging a country or
region's development.

The term typically refers to the technical structures that support a society, such as roads, bridges,
water supply, sewers, electrical grids, telecommunications, and so forth, and can be defined as
"the physical components of interrelated systems providing commodities and services essential
to enable, sustain, or enhance societal living conditions.

INFRASTRUCTURE
Infrastructure development reflects the health of the economy of any nation because
infrastructure is directly proportional to the development and growth of the country. Being a
rapidly growing nation, India has always given higher importance to the infrastructure sector and
it has received considerable attention from the government as well as private players. Indian
infrastructure sector mainly includes development of roads, airports, shipping and ports which
have contributed greatly to the economy of India over the last decade.

When it comes to development in infrastructure sector, the Government of India has always been
very proactive. A large focus has always been given on execution of associated projects via
Public Private Partnerships (PPPs), fiscal incentives, tariff policies, budgetary allocations and
participation of private companies.

According to research done by Infrastructure Development Finance Co. the infrastructure sector
of India contributes more than 8% of the countrys GDP. The figures are going to touch 10% by
year 2017 to uphold the growth objectives. Indian infrastructure sector is well poised to take a
big leap and it provides several investment opportunities for foreign investors from across the
world.


INVESTMENT OPPORTUNITIES FOR FOREIGN INVESTORS (NRIS/PIOS) IN
INFRASTRUCTURE SECTOR OF INDIA


Private Equity firms which are looking for stable returns on their investment can avail
opportunities in the Indian Infrastructure sector. According to a recent analysis, India has
been attracting huge amount of unlisted, close-ended fund, thereby making it a highly
preferred choice among all other investment sectors.
PE firms which want to invest in Infrastructure sector of India can opt for segments like
roads, power, ports, telecom and many more.
The infrastructure sector of India will attract an investment of more than US$1.1 trillion
in the next five years. This also includes ambitious projects such as National Highway
Development Project (NHDP).
Investment opportunities for foreign investors mainly offered by NHAI for executing the
upcoming phases of NHDP. Contracts will be offered to foreign companies depending
upon the sector being tendered. In the next five years, an investment inflow of around
US$75 billion will be required to boost the infrastructure sector in India which is
projected to expand at 20% every year.
Over the next decade, more than 90 million jobs would be generated across different
sectors in India, which would create a need for more than 8 million square feet of office
space. This would be one of the key attractions for foreign players who are looking for
opportunities to invest in industrial infrastructure sector.
The Government of India has also projected the Indian Railways Vision 2020 which
targets to tackle the issues related with infrastructure, by opening up doors for NRIs to
invest in Indian infrastructure sector.
Recently, the Indian government has approved 9 different road projects worth US$ 2
billion to be implemented by State Governments under Public Private Partnership model.

Indian Finance Ministry is ready to fund 20% of financial requirement, while the other 20%
would come from Highways Ministry. Foreign investment may be invited in order to make all
the projects financially feasible.


GOVERNMENT INITIATIVES TO ENCOURAGE FOREIGN INVESTMENT IN INDIA

100 percent FDI is allowed under automatic route for infrastructure development in power
sector.

Foreign Direct investment of 100% is permitted under automatic route in infrastructure
related to petroleum products, natural gas pipelines and petroleum refining by private sector.


49 percent FDI is allowed under Government route in any petroleum refining in Public Sector
Undertaking (PSU). However, dilution or divestment of domestic equity is now allowed in
existing PSUs.

100 percent FDI is permitted under automatic route in setting up new and established
industrial park.


In order to ensure quicker execution of major projects, the Government of India has declared
a single window clearance mechanism for issue and review of clearance associated with
important projects under the Cabinet secretary. The clearance board will be established on the
lines of Foreign Investment Promotion Board (FIPB), which would act as investment tracker
and problem solver for all the infrastructure projects worth more than US$150 million.

The clearance board will possess representatives from ministries of defense, commerce,
home, coal, environment & forest and department of space.


The Indian Cabinet Committee on Investment would also try to ease bottleneck which restrict
the expansion of infrastructure sector in the country.

In order to attract private and foreign investment, some more sectors like telecommunication, oil,
gas storage and irrigation have been allowed for viability gap funding under the scheme called
'Support to PPP in Infrastructure'.


TOP 10 INFRASTRUCTURE COMPANIES IN INDIA

1) GMR Infra
2) Lanco Infratech
3) Larsen
4) IRB Infra
5) BHEL
6) Jaiprakash Asso
7) Adani Ports
8) ILandFS Trans
9) Punj Lloyd
10) Essar Ports


GROWTH PROSPECT OF INFRASTRUCTURE SECTOR IN INDIA

According to the Indian Finance Ministry, the overall investment in infrastructure sector in
coming years may go up to US$1000 billion; more than 70% of it is expected from private and
foreign players.

For infrastructure sector, India is relying mainly on private sector investment through Public
Private Partnership. The PPP is planning to invest more than US$ 400 billion in infrastructure
sector in the next 5 years.

The Government of India is also planning to set up a dedicated panel to enhance the approval
process of infrastructure projects. In coming years, an investment inflow of more than US$1
trillion will be required in different projects such as harbor, highways and power plants.

The infrastructure sector of India will require investment of more than US$ 1.8 trillion in the
coming decade and this will create several opportunities for foreign investors to invest in India.