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Introduction
India is a consumer driven market, with consumer spending in the country projected to
more than double by 2025. These days, the Indian consumer segment, broadly categorized into
urban and rural markets, is attracting marketers from across the globe.
Global corporations see India as a key market for the future. The growth in the country's
consumer market is largely driven by a young demographic and rising disposable income. If
India sustains its current pace of growth for the foreseeable future, average household incomes
will likely triple over the next twenty years and the country will become the world's fifth largest
consumer economy by 2025, as per a study by the McKinsey Global Institute (MGI).
The Government of India has also played a significant role in the growth of the Indian consumer
segment. It has brought about policies which have attracted foreign direct investment (FDI) and
consequently boosted economic growth.
Market size
India has the potential to become the world's largest middle class consumer market with an
aggregated consumer spend of nearly US$ 13 trillion by 2030, as per a report by Deloitte titled
'India matters: Winning in growth markets'.
Driven by growing incomes and increasing affordability, the consumer durables market is
projected to expand at a compound annual growth rate (CAGR) of 14.8 per cent, from US$ 7.3
billion in FY12 to US$ 12.5 billion in FY15.
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Online retailing, both direct and via marketplaces, will grow threefold to become a Rs 50,000
crore (US$ 8.26 billion) industry by 2016, driven by a 50-55 per cent per year growth over the
next three years, as per rating agency Crisil. The growth of internet retail is also expected to
boost offline retail stores.
Investments
The following are some of the major investments and developments in the Indian
consumer market sector: The high penetration of internet and the growing use of smartphones
have helped top e-commerce firms leading to a rapid rise in their valuations, as per experts. This
rapid growth of internet-based companies comes at a time when Flipkart is valued at an around
US$ 4-5 billion and Justdial has market capitalisation of Rs 11,000 crore (US$ 1.81 billion).
Finland-based smartphone company, Jolla, has signed an agreement with Snapdeal.com to launch
its handsets in India. "India is the rising smartphone market of the world and we look forward to
welcoming many new Jolla fans across the country. Since late 2011 when we established the
company Jolla, we have received a tremendous amount of interest from India to enter this great
market," as per Mr Sami Pienimki, Co-founder and CMO, Jolla.
Ethnic apparel brand Soch will soon launch its own online retail store via which it will offer
specialised services to bring in customers. "We want to bridge the gap between online and
offline. I believe it is only a matter of time before these channels merge," as per Mr Vinay
Chatlani, SEO, Soch.
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Bharti Enterprises has agreed to sell a majority stake in its group company, Beetel Teletech to a
unit of US-based Brightstar Corp. The deal could allow Brightstar to test India's fast growing
mobile phones industry. "The new mobile business and related technologies that Brightstar is
bringing to Beetel will help drive significant growth by leveraging our deep distribution
strength," as per Mr Rakesh Bharti Mittal, Vice-Chairman, Bharti Enterprises.
Finnish packaging major Huhtamaki has entered into an agreement to buy Positive Packaging
which is known for producing packaging materials, for a transaction worth US$ 336 million.
"The transaction enhances our position in India and provides us with much improved access to
the fast growing markets of Africa and Middle East," as per Mr Jukka Moisio, CEO, Huhtamaki
Oyj.
Google has tied up with Indian handset-makers Karbonn, Micromax, and Spice to develop subUS$ 100 smartphones, some of which be in the market as early as September 2014. The initiative
could help propel the Indian brands' image globally and as well as bring in greater competition in
India's entry-level smartphone market, as per experts.
Government Initiatives
The Government of India has allowed 100 per cent FDI in the electronics hardwaremanufacturing sector via the automatic route. The government has also allowed 51 per cent FDI
in multi-brand retail trading and 100 per cent in single-brand retail trading in an effort to bring
more foreign investment into India.
Hyderabad will soon have a Rs 100 crore (US$ 16.52 million) National Institute for Footwear
Design and Development. The Government of Andhra Pradesh has allocated the required land at
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Gachibowli in Cyberabad. Funds for the centre have already been sanctioned by the Ministry of
Commerce.
With the growing demand for skilled labour among Indian industries, the Indian government
aims to train 500 million people by 2022, and is seeking participation of private players and
entrepreneurs for the purpose. Several corporate, government, and educational organizations are
putting in the effort to train, educate and generate skilled workers.
Road Ahead
India is set to become a key market for wearable technology such as smart watches and
fitness monitors, on the back of consumer interests in these latest gadgets and growing spending
on consumer durables. Respondents from India were most interested in purchasing fitness
monitors (80%), smart watches (76%) and internet-enabled eyeglasses (74%), as per Accenture's
Digital Consumer Tech Survey 2014.
American measurement company Nielsen projects that rural India's FMCG market will top the
US$ 100 billion mark by 2025. Online portals are anticipated to play a significant role for
companies trying to break into these markets. The Internet is also allowing for a cheaper and
more convenient means to increase a company's reach by overcoming geographical barriers.
Urban trends
With rise in disposable incomes, mid- and high-income consumers in urban areas have
shifted their purchasing trend from essential to premium products. In response, firms have started
enhancing their premium products portfolio. Indian and multinational FMCG players are
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leveraging India as a strategic sourcing hub for cost-competitive product development and
manufacturing to cater to international markets.
Top Companies
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 Unilever.
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Company vision
We meet every day needs for nutrition, hygiene and personal care with brands that help
people feel good, look good and get more out of life.Sustainability is at the heart of our business,
and through our brands, we seek to inspire people to take small everyday actions that can add up
to a big difference for the world. Our deep roots in local cultures and markets around the world
give us our strong relationship with consumers and are the foundation for our future growth. We
will bring our wealth of knowledge and international expertise to the service of local consumers
a truly multi-local multinational.
Our long-term success requires a total commitment to exceptional standards of performance and
productivity, to working together effectively, and to a willingness to embrace new ideas and learn
continuously. To succeed also requires, we believe, the highest standards of corporate behaviour
towards everyone we work with, the communities we touch, and the environment on which we
have an impact. This is our road to sustainable, profitable growth, creating long-term value for
our shareholders, our people, and our business partners.
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Positive impact
We aim to make a positive impact in many ways: through our brands, our commercial operations
and relationships, through voluntary contributions, and through the various other ways in which
we engage with society.
Continuous commitment
We're also committed to continuously improving the way we manage our environmental impacts
and are working towards our longer-term goal of developing a sustainable business.
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Underpinning these goals are nine commitments supported by targets spanning our social,
environmental and economic performance.
HUL Businesses
Home Care
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Personal Care
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Water Purifier
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Group Companies
Subsidiaries
Trust
Joint Venture
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Company Vision
Sustain ITC's position as one of India's most valuable corporations through world class
performance, creating growing value for the Indian economy and the Company's stakeholders
Core Principles.
ITC believes that any meaningful policy on Corporate Governance must provide
empowerment to the executive management of the Company, and simultaneously create a
mechanism of checks and balances which ensures that the decision making powers vested
in the executive management is not only not misused, but is used with care and
responsibility to meet stakeholder aspirations and societal expectations.
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value. ITC practices this philosophy by not only driving each of its businesses towards
international competitiveness but by also consciously contributing to enhancing the
competitiveness of the larger value chain of which it is a part."
ITC Businesses
It is ITC's strategic intent to secure long-term growth by synergising and blending the
diverse pool of competencies residing in its various businesses to exploit emerging opportunities
in the FMCG sector.
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The Company's institutional strength deep understanding of Indian consumer, strong trademarks,
deep and wide distribution network, agri-sourcing skills, packaging know-how and cuisine
expertise continue to be effectively leveraged to rapidly grow the new FMCG businesses.
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ITC has rapidly scaled up presence in its newer FMCG businesses comprising Branded
Packaged Foods, Lifestyle Retailing, Education and Stationery products, Personal Care products,
Safety Matches and Incense Sticks (Agarbatti), at an impressive pace over the last several years,
crossing Rs. 7000 crore mark in 2013. Its FMCG portfolio consists of 7 portfolios:
Group Companies
Subsidiaries
ITC Infotech
Surya Nepal Private Limited
Landbase India Limited
King Maker Marketing Inc. USA
Technico Pty Limited. Australia
Russell Credit Limited
Wimco Limited
Srinivasa Resort Limited
Fortune Park Hotels Limited
Bay Islands Hotels Limited
Gold Flake Corporation Limited
Maharaja Heritage Resorts Ltd
ITC Essentra Limited
Gujarat Hotels Limited
International Travel House
Joint Venture
Associate Companies
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Research Methodology
The objective of the project is to investigate the current strategy employed by HUL and
ITC and why it works for them. Fundamentally HUL and ITC are different business models as
HUL is a pure play FMCG Company whereas ITC is a conglomerate where FMCG happens to
be one small portion of the entire business.
Research comprises defining the problem statement, formulating hypothesis, probable solutions,
collecting, organizing and evaluating solutions and assessing the impact of the solutions
proposed.
Research Problem
HUL and ITC are two major players in FMCG industry. HUL happens to be a pure play
FMCG whereas ITC is a conglomerate. The objective of this report is to analyze and compare the
overall performance of these two companies. This performance comparison further boils down to
analyze their financial performance, market performance and supply chain performance. These
three sub angles together will fulfill and make the research comprehensive enough.
Sources of Data
As highlighted above most of the analysis would primarily be based on data points or facts
gathered through secondary research. The approach for each of the sub analysis is as follows:
1. Financial performance Since both the company happens to be a public listed
company, we have good set of information available through some of the major financial
websites. The challenge is more in terms of refining the data and brining them on the
same ground for comparison. Also since they are public listed company there websites
have their past annual reports which can be mined to get first hand information about the
company financials.
2. Strategy performance This analysis is more has to do with overall strategy analysis
which calls for a analyzing the company vision analysis, growth mindset, and overall
Risk which these companies have complied with to support their respective business
models. Again this analysis is primarily on secondary research which involves their
official websites, news websites, financial databases and discussion forums. I have also
gone ahead and contacted few officials from these two companies to get first hand
perception about the company as such.
3. Market performance The set of analysis was more to understand the positioning of
these two players in the market. Also how does consumer related to HUL and ITC
Company as a whole. This indirectly determines the lingering psyche of consumers about
each of the products of these companies. The main source of information for this taken
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through secondary research which was done across set of 35 consumers picked up in
general.
4. Supply chain performance This was again primarily on the basis of secondary
research performed to understand the supply chain configuration of each of these
companies and how do they differ from each other.
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ITC Limited
Others
(14.5)
Others
(45.8)
Promoter
(42.25)
Promoter
(0)
Flls (14.10)
Flls (19.26)
Dlls (4.12)
Dlls (34..67)
Stock Comparison
ITC
Current
Price BSE
355.85
Market
Capilization
283079.26
HUL
757
163747.26
Company
FaceValue
EPS (TTM)
P/E
No of shares
Rs. 1
Rs. 9.31
38.22
7955016340
Rs. 1
Rs. 17.56
43.11
2163107800
Ratio Analysis
Company (in Rs Cr)
ITC Limited
Particulars
Operating Profit Margin Ratio
Net Profit Margin Ratio
ROCE
ROE / RONW
FY 2014
36.96
25.46
47.43
32.64
FY 2014
16.22
13.53
132.89
111.54
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Price to Earnings
31.06
31.85
ITC Limited
Hindustan
Ltd
Particulars
Total Income from Operations
Expenses
FY 2014
35,317.08
22,265.19
FY 2014
29,233.28
24,491.60
Unilever
4,741.68
Depreciation
Finance Costs
Other income
PBT
Tax
PAT (before Minority Interest and share
of Associates)
Profit/ (loss) attributable to Minority
Interest
Share of profit / (loss) of Associates
964.92
6.37
970.95
13,051.55
4,060.93
295.54
40.68
570.98
5,215.18
1,259.44
8,990.62
3,955.74
109.81
10.17
8,891.38
-10.57
3,945.57
ITC Limited
Hindustan
Limited
Particulars
Share Capital
Reserves & Surplus
Net worth (shareholders funds)
Minority Interest
Long term borrowings
FY 2014
795.32
26,441.64
27,236.96
203.03
76.4
FY 2014
216.27
3,321.02
3,537.29
22.28
8.44
Unilever
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HUL
ITC
Overview
Performance
Overall
Strategy
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Growth Drivers
Risk
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To develop quality differentiation across the value chain, they have developed farm-tofactory spices supply chain that guarantee superior specifications and quality attributes. Some
impairment occurred in cigarette production in the Simra factory of the Terrain region owing to
frequent strikes and blockades. But it was minimized by the companys pro-active resource and
supply chain management. In the Agro-forestry mission of the company they have created a
source of long term sustainable supply of critical raw materials. In the paper and paperboard
business, the conventional nursery system was replaced by a novel technology that ensures
significant time reduction in raising eucalyptus saplings with improves survival rates. This has
positively impacted the fibre supply chain in the paper and paperboard business.
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ITC
3.76
5.51
5.26
HUL
8.29
7.20
9.26
The company having higher inventory turnover ratio indicates it has a better inventory
management system. But sometime a higher inventory ratio can be caused by a low level of
inventory which means frequent stock outs and loss of sales. HUL has recorded an increase in
sales by 15.5% and also its operating margin increased by 0.5%. This indicates the above counter
argument is not applicable for HUL .
Innovative supply chain and channel management practice by HUL has led to lower operating
cost increasing operating profit from 2964.94 crore rupees to 4076.43 crore rupees in 2009. HUL
was successful in decreasing its transportation and distribution cost and meeting the customers
demand.HUL also received the 2008-Express logistics & Supply chain Award in the category
FMCG Manufacturing Supply Chain Excellence.
ITC has the lowest average inventory turnover ratio among the three companies .But is seems
that ITC has a very well maintained distribution system. The Company size is very high with a
very long product line. The lower inventory turnover ratio can also be caused by ITD (Indian
tobacco department) strategically holding its inventory and creating artificial shortage in the
market. Its operating profit has increased from 4449.5 crore rupees to 4944.95 crore rupees this
year.
Fixed asset turnover/Activity ratio:
This ratio measures the sales per rupee of investment in fixed asset
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ITC
2.42
1.59
1.84
HUL
9.30
9.80
7.81
A companies having a high activity ratio has a high efficiency .HUL has a high fixed asset
turnover ratio because of its highly managed raw material procurement system which implies its
fixed asset utilization is effective. The fixed asset ratio for ITC is significantly low. This can
occur when there are bottlenecks in the companys raw material procurement chain .But there are
no direct data available to support this argument. Another reason for HULs high fixed asset
turnover ratio can be the companies fixed assets are old and are highly depreciated.
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Profitability ratio:
The profit margin ratio helps in finding the relationship between sales and profit. It shows
the margin left over after meeting all the expenses and manufacturing cost.
Gross Profit margin (in%) = Gross profit/Net sales
Year
ITC
HUL
2011
2012
2013
30.03
28.44
29.18
27.96
25.86
24.96
Year
ITC
HUL
2011
2012
2013
21.46
21.50
21.18
16.21
19.89
22.03
The one reason for lower gross profit for all the companies for last two years can be the
Inflationary trend experienced in the market. The cost of raw material procurement was high
during the period. But HULs increasing net profit can cause from the cutting down of operating
cost.
Return on Asset (ROA) = Profit after tax/Average total assets
Year
2011
2012
2013
ITC
0.27
0.27
0.25
HUL
0.72
0.81
1.24
Year
ITC
HUL
2011
2012
2013
69.39
66.24
97.07
39.41
50.69
44.30
The total length of supply chain is arrived by calculating the days of total inventory for supply.
Here again we can see that ITC has the maximum length of supply chain among the two
companies .The one cause can be ITC artificially holding the inventory. Lower the length of
supply chain more effective is the companies supply chain performance.
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Here competitive strategy varies from sector to sector and company to company. Thus, it is not
easy to predict a single or to find a single strategy for the whole sector. When we come on to
FMCG Sector main strategies lay behind market strategies, cost, and quality strategies. Here in
this report you are going to get information about such type of strategies of FMCG giants.
model for direct. Procurement is well known under which ITC partners with over 100,000
farmers for spices and wheat procurement and an even larger number for oilseeds. This kind of
rural pedigree is hard to beat.
Growth Drivers
HUL has been launching new products and brand extensions, with investments being made
towards brand-building and increasing its market share. HUL is also streamlining its various
business operations, in line with the One Unilever' philosophy adopted by the Unilever group
worldwide. Introduction of premium products and addition of new consumers via market
expansion will be HUL's growth drivers. ITC's backward integration to ensure that its products
pass efficiently from the farms to consumers has helped it to cut down supply and procurement
costs. ITC's non-cigarette FMCG business leverages the large distribution network the company
has developed by selling cigarettes over the years. A rich product mix, along with ramp-up of
investments in its new sectors, will be instrumental in charting ITC's growth path.
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Company Heard of
HUL
Dadur
10%
ITC
P&G
Nestle
26%
23%
22%
19%
2) According to our survey of 20 customers these are the 3 following products:Three Popular products of HUL
1) Fair and Lovely
2) Pepsodent
3) Surf Excel
Three Popular products of ITC
1) Bingo
2) Vivel
3) Dark Fantasy Choco Biscuits
Three Popular products of P&G
1) Olay
2) Tide
3) Head & Shoulder
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Ads Heard of
Others; 10%
Lakme; 10% Pepsodent; 25%
Ads heard of
Others; 7%
Dark Fantasy; 13%
Classmate; 47%
Bingo; 33%
Fair & Lovely; 55%
5) According to our survey of 20 customers these are the Information:Top 5 Favorite Brands
1)
2)
3)
4)
5)
Dove
Wheel
Pepseodent
Lux
Fair & Lovely
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6) According to the survey 43% of the people would like to invest in HUL. While others are
quite behind HUL in terms of investment preference. ITC has 20% of investment
preference. While Dabur has 19% of Investment preference.
Investment Prefrence
Column2
HUL
ITC
P&G
L'Oreal
Dabur
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Recommendations
Hindustan Unilever Limited
Overall HUL's strategy on focusing on mass category with well thought out brands seems
to be working at present. While this is a good strategy for a sustainable business, it needs to get
its grip better and firm in premium zed segment as that would help this company to improve its
cash flow also deal better with competition.
Recommended Actions
1. Grow portfolio in premium zed product category to improve gross profit margin at
company level
2. Improve footprint in Foods and Beverages category as current marketing campaigns does
not seem to be working good enough
ITC Limited
ITC has a huge reliance on Tobacco business which makes it susceptible to any future
health related regulations which if came in effect might prove to be a big hindrance on the
sustainability of the company. Hence emphasis should be on reducing dependency on Tobacco
business and growing other businesses.
Recommended Actions
1. Reduce dependency on Tobacco business by growing other non-tobacco businesses
2. Marketing campaign needs to be brought on par with other FMCG companies
3. Supply chain efficiency needs to be improved so as to free up capital from inventory and
invest it in marketing and advertising campaign
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Appendix
http://www.hul.co.in/
http://www.itcportal.com/
http://www.hul.co.in/mediacentre/newsandfeatures/2014/HUL-recognised-at-Asia-MarketingEffectiveness-and-Strategy-Awards-and-Goafest.aspx
http://www.sanasecurities.com/compare-financial-analysis/itc-vs-hindustan-unilever
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