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ISI Analytics

FAST MOVING CONSUMER GOODS


INDUSTRY
ISSUE 1H 2010

India Industry Research

ISI Analytics – the Business research arm of ISI Emerging Markets


A Euromoney Institutional Investor Company
www.securities.com
FMCG
1. Industry Profile 1
1.1 Industry Overview
1.2 General Economic Environment
1.3 India’s FMCG Industry Overview
1.3.1 Food Inflation
1.3.2 Food and Beverages Industry
1.3.3 Household Care
1.3.4 Personal Care

2. Market Trends and Outlook 11


2.1 Union Budget 2010-11
2.2 e-Choupal
2.3 Growth in Rural Market
2.4 Regulatory Issues
2.4.1 National Food Processing Policy
2.4.2 FDI Policy in Retail Trading (Single Brand)
2.4.3 Government Policies and Initiatives

3. Leading Players and Comparative Matrix 19


3.1 Leading Players
3.1.1 Hindustan Unilever Ltd (HUL)
3.1.2 Nirma Ltd
3.1.3 Dabur India Ltd (DIL)
3.1.4 Colgate-Palmolive India Ltd (CPIL)
3.1.5 Godrej Consumer Products Ltd (GCPL)
3.2 Comparative Matrix
3.3 SWOT Analysis

Notes: 1 RMB = INR 6.5539


1 NZD = INR 31.5560
1 USD = INR 44.7415
1 lakhs = 100,000 units
1 crores (cr) = 10,000,000 units
ISI Analytics

1. Industry Profile
1.1 Industry Overview Approximately 50% of consumers in Vietnam
are under the age of 30 and this figure is
Fast Moving Consumer Goods (FMCG) - projected to increase to 70mn by 2018. In
alternatively known as consumer packaged addition, the number of high income earners
goods (CPG) are products that are sold (from USD500 per month) has trebled over
quickly and generally consumed at a regular the past six years while the number of low
basis, as opposed to durable goods such as income earners (under USD250 per month)
kitchen appliances that are replaced over a decreased from 62% in 1999 to 9% in 2008
period of years. The FMCG industry primarily in major cities such as Hanoi and Ho Chi
engages in the production, distribution and Minh City.
marketing operations of CPG. FMCG product
categories comprise of food and dairy In China, statistics compiled by the China
products, pharmaceuticals, consumer Chain Store and Franchise Association
electronics, packaged food products, showed that 100 major FMCG firms reaped
household products, drinks and others. sales income of RMB530bn in 2006 after
Meanwhile, some common FMCG include sound growth of 20% over figures obtained
coffee, tea, detergents, tobacco and in the previous year. Sixteen out of the 100
cigarettes, soaps and others. The big names examined firms are foreign-funded firms that
in this sector include Sara Lee, Nestle, garnered RMB168.8bn in sales volume.
Reckitt Benckiser, Unilever, Procter & Improved efficiency also contributed
Gamble, Coca-Cola, Carlsberg, Kleenex, significantly to average sales growth of 27%
General Mills, Pepsi, Mars and others. yoy. Meanwhile, the remaining 84 domestic
firms reaped RMB360.8bn in sales after a
FMCG in Vietnam urban area grew 19% in 17% growth.
2008 as a result of the rising number of
young and sophisticated consumers.

Chart 1: FMCG Value Growth in 2008 in Selected ASEAN Countries

Sources: Asean Affairs; TNS Media Vietnam

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New Zealand’s FMCG plays a vital role in its 1.2 General Economic Environment
economy, in which it accounted for 5% of
GDP, 31% of manufacturing GDP and 26% India is one of the economies that shrugged
of manufacturing employment, while offering off the effects of the recent global financial
63,000 full time jobs to its people. The crisis with a growth of 7.87% during July-
nation’s export for food and beverage (F&B) September 2009, up from 6.1% during the
trebled over the past 17 years, growing from previous quarter. Analyst projected that the
NZD6.96bn in 1990 to NZD21.43bn in 2008. nation’s economic growth is projected to
Dairy, meat, seafood, fruits and vegetables, grow between 7-7.5% in 2010-11 and could
wine as well as specialty food industries are be the world’s fastest expanding economy
among the main categories of the country’s within the next four years relying on higher
F&B industry. Dairy industry that produces pool of savings to help finance development
goods ranging from high quality basics (milk in the country to surpass China. Expanding
powders, butter and etc.) to specialty foods at an average GDP of 7.1% over the decade
(ice-cream, artisan cheeses and etc.) is through the third quarter of 2009, it is
responsible for 22% of total exports, while possible for the Indian economy to
dairy exports in 2008 amounted to experience a double-digit growth within the
NZD9.29bn. next four years.

In Malaysia, total FMCG expanded 8.2% in The country’s finance ministry reported that
2007 with average prices increasing by 4.2% its fast-growing USD1.2tr economy currently
as inflation kicks in. Malaysians continued to has saving rate of 32.5% of GDP compared
purchase convenient and indulgent products to 28% in Japan, 30% in South Korea and
in spite of inflationary pressures, whereby 38% in Malaysia. With the support of growing
new launches for ice cream and snacks as population in its workforce (220mn people by
well as innovative products such as ice 2030) as well as increasing savings by
cream minis were signs of successful young working Indians that will add
convenient indulgence. In addition, fabric momentum to the nation’s growth. According
softener and air freshener experienced to estimates published by the Index of
notable growth. A survey that involved 1,000 Industrial Production (IIP), index for
Malaysians indicated that Malaysians electricity, manufacturing and mining each
continue to be loyal to brands despite the registered growth rates of 7.5%, 9.2% and
global financial slowdown, particularly in 9.5% during the second quarter of 2009-10.
FMCG goods such as dairy products (76%),
staple food (78%), soft drinks (61%), canned
products (68%), healthcare (78%) and
cosmetic products (74%).
Table 1: Key Economic Indicators

GDP Inflation Inward Population


Export Import Population
(yoy) (yoy) FDI Growth yoy
% % USD mn USD mn USD mn Person mn %
Mar-08 8.63 7.87 2,838 17,254 23,574 2002-03 1,056 1.54
Jun-08 7.8 7.69 -618 19,181 28,951 2003-04 1,072 1.52
Sep-08 7.75 9.77 1,159 15,789 31,136 2004-05 1,089 1.59
Dec-08 5.8 9.7 1,392 13,368 19,456 2005-06 1,106 1.56
Mar-09 5.76 8.03 1,067 12,916 16,597 2006-07 1,122 1.45
Jun-09 6.13 9.29 2,824 12,972 22,166 2007-08 1,138 1.43
Sep-09 7.87 11.64 6,607 13,608 21,377 2008-09 1,154 1.41
Source: CEIC
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Indian remains a resilient market for daily basis and 75.6% live with less than
overseas investors and local consumers. USD2 per day. In the Union Budget 2009-10,
Overseas investment inflows into India’s INR39,100cr was allocated for rural
stock market totaled to USD816.69mn during employment programmes, up 144% over the
the first trading week of 2010, while local 2008-09 budget. During the first half of 2010,
currency rating outlook was raised from India’s Finance Minister expanded
‘stable’ to ‘positive’ by Moody’s Investors microfinance programmes through the
Service as the country demonstrates budget 2010-11 by doubling the allocation of
resilience to the global financial meltdown as INR400cr to the Micro-Finance Development
well as positive outlook that its economy will and Equity Fund.
resume high levels of economic growth.
According to India’s Economic Survey, a
Among the BRIC countries, China’s reduction in unemployment rate is expected
unemployment rate of 4.3% is the lowest to take place during the end of the 11th Five
among these markets while India’s IT-driven Year Plan (2007-12). The Survey also
growth path is projected to provide job projected that the country’s labour force from
opportunities that will lower the country’s 2007 to 2012 is expected to be around 45mn
current unemployment rate of 7.2%. Russia (unemployment rate to fall below 5% by
and Brazil’s current jobless rate are at 9.9% 2012) against 58mn employment
(mid-2009) and 8.1% respectively. On the opportunities that would be created during its
other hand, Brazil’s jobless rate is projected 11th Five Year Plan. During April-June 2009,
to decline steadily as a result of its diversified employment rate fell by 131,000, with
economy. declines in employment rate of 38,000 in
April and 157,000 a month later before
The World Bank estimated that 41.6% of increasing 64,000 in June.
India’s population lives below USD1.25 on a

Chart 2: Gross Domestic Saving – Household

8,000 30.5

7,000
% of Personal Disposable

30
6,000
Income (%)

5,000 29.5
INR bn

4,000

3,000 29

2,000
Financial Savings 28.5
1,000 Physical Savings
% of Personal Disposable Income
0 28
2004/05 2005/06 2006/07 2007/08 2008/09

Source: CEIC

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ISI Analytics

1.3 India’s FMCG Industry Overview With a total market size in excess of
USD14.7bn, India’s FMCG industry is the
India’s FMCG sector was valued at fourth largest sector in its economy and
INR60,000cr in 2004 after a growth of 4% plays a vital role in India’s socio-economic
during 2003-04. According to a report by the front with nearly eight million stores selling
Federation of Indian Chambers of FMCG and employing some 25mn people as
Commerce and Industry (FICCI), several wholesalers, distributors and others. Besides
FMCG registered double-digit growth in that, the FMCG sector purchases nearly
value terms, for example, shaving cream INR9,600cr worth of agricultural products
(20%), deodorant (40%), branded coconut oil and processes them into value-added
(10%), anti-dandruff shampoos (15%), hair products while the sector accounted for
dyes (25%) and cleaners and repellents nearly 40% of the media industry’s revenue.
(20%). On the contrary, negative growth of
up to 8% was registered in products such as Sales in the FMCG sector grew by a
personal healthcare, laundry soaps, dish staggering 14.8% during the six-month
wash, toilet soap, toothpaste and period ended September 2009 but only
toothpowder. expanded 7% during the two-month period
ended November 2009. As a result of lower
In 2008, India’s FMCG sector had a value of growth in the sector, India’s top 10 FMCG
INR86,000cr and analysts projected a growth companies experienced deceleration in sales
of 15% in 2010 (2009: 12%) as the economy growth from 9.9% during the first half of the
shows signs of recovery. According to the financial year (April-September 2009) to a
FICCI-Technopak report, the FMCG sector growth of 3.3% during the October-
will grow at a rate of 10-12% within the next November period. In addition, contributing
decade to reach INR206,000cr by 2013 and factors such as price increase of 50-100%
INR355,000cr by 2018. The implementation for most agri-commodities as well as higher
of the proposed Goods and Services Tax crude oil prices caused operating margin to
(GST) and the less restrictive foreign direct fall during the October-December quarter.
investment (FDI) policies are expected to
contribute to the growth of the FMCG sector
to INR225,000cr by 2013 and INR456,000cr
by 2018.

Table 2: FMCG Category and Products

Category Products

Health beverages; soft drinks; staples/cereals/ bakery products (biscuits,


bread, cakes); snack food; chocolates; ice cream; tea; coffee; soft drinks;
Food and Beverages
processed fruits; vegetables; dairy products; bottled water; branded flour;
branded rice; branded sugar; juices etc.
Fabric wash (laundry soaps and synthetic detergents); household
cleaners (dish/utensil cleaners, floor cleaners, toilet cleaners, air
Household Care
fresheners, insecticides and mosquito repellents, metal polish and
furniture polish).
Oral care; hair care; skin care; personal wash (soaps); cosmetics and
Personal Care
toiletries; deodorants; perfumes; feminine hygiene; paper products.

Source: India Brand Equity Foundation (IBEF)

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ISI Analytics

1.3.1 Food Inflation year. In addition, food inflation hiked 19.95%


in the week to December 5, 2009, indicating
As a result of the 2007-08 food price crisis, the most significant increase since
international food prices reached its peak in December 1998. Inevitably, high food
2008 but fell drastically a year later. inflation could restrict consumers’ demand
Developing countries were largely affected and pricing flexibility for FMCG while
by the hike in food prices, where share of lowering consumers’ purchasing power that
expenditure on food accounts for a large diverts purchases away from certain FMCG.
proportion of total consumer spending.
According to Chart 3, developing countries Table 3 indicated that retail price for rice in
such as Indonesia, India and China each Bangalore had the most drastic hike in price,
spent 41.9%, 34.9% and 33.0% of their where its price increased two-fold from
consumer spending on food in 2008. INR12 per kg in 2007 to INR36 per kg two
years later. The only price drop shown in the
In 2010, due to speculation that the Indian table is the wheat price in Ahmedabad, in
central bank may hike interest rates after which its price fell 6.5% from INR12.3 per kg
instructing banks to raise more cash in 2007 to INR11.5 per kg the next year
reserves, the nation’s food prices inflated for before rising a staggering 30.43% to INR15
a second week. An index that measures per kg in 2009. Another notable increase is
wholesales prices of lentils, rice, vegetables the price for rice in Ahmedabad, where a
and other food products jumped 17.56% in hike of INR10.2 per kg to INR23 per kg in
the week to January 23 over the previous 2009 from INR12.8 per kg two years earlier.

Chart 3: Share of Expenditure on Food in Total Consumer Spending in 2008

USA 5.9

EU 11.8

South Af rica 18.6

Brazil 24.0

China 33.0

India 34.9
41.9
Indonesia

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0

% of total s pe nding

Sources: Euromonitor; OECD; Eurostat

Table 3: Agriculture Retail Price in Selected Cities


Rice Wheat Atta
INR per kg
2007 2008 2009 2007 2008 2009 2007 2008 2009
Delhi 16.0 22.0 23.0 12.0 13.0 15.5 13.0 14.0 17.5
Ahmedabad 12.8 16.5 23.0 12.3 11.5 15.0 13.0 13.5 16.0
Mumbai 15.3 17.5 19.0 15.5 16.0 20.0 16.0 17.0 22.0
Bangalore 12.0 17.0 36.0 16.0 16.0 21.0 16.0 17.0 21.0
Hyderabad 11.0 14.0 19.0 12.0 14.0 19.0 16.0 17.0 17.0
Chennai 15.0 18.0 22.0 17.0 18.0 21.0 18.0 20.0 22.0

Source: CEIC

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ISI Analytics

1.3.2 Food and Beverages Industry exhibited sound growth of 14-15% over the
past three years. A total of USD143.8mn of
India’s food industry accounted for nearly FDI flowed into India’s food processing
65% of the nation’s retail market and has an industry in 2007-08, up USD138.1mn from
estimated value of USD182bn, while exports previous fiscal of USD5.7mn.
of fresh and processed vegetables, fruits,
livestock and cereals hike 10% to reach In order to allow the food processing sector
USD8.67bn in 2008-09. According to a report to prosper, the Indian government formulated
by Associated Chambers of Commerce and the Vision-2015 action plan. In which it plans
Industry of India (ASSOCHAM), India’s food to treble the size of this industry from nearly
market (includes processed F&B) has a USD70bn to USD210bn, thus increasing the
current market size of INR7,198cr after a level of processing of perishables from 6% to
17% growth in 1Q 2009-10 and is projected 20%, thus expanding value addition from
to grow 19% during 2Q FY10. 20% to 35% as well as strengthening the
nation’s share in global food market from
Agricultural and Processed Food Products 1.5% to 3%. Moreover, the government
Export Development Authority (APEDA) introduced a blueprint for enhancing growth
projected that India’s farm product exports in in the country’s food processing sector
the global trade will expand from its current through the formulation of the National Food
2% to more than 5%, and India’s exports of Processing Policy, infrastructure
agricultural products might double to hit improvements in the rural areas as well as
USD20.6bn within the next five years. Each the simplification of tax structures.
year, India produces 105 tonnes of milk
(highest in the world), 150 tonnes of fruits • Snacks and Confectionery
and vegetables (second largest), 485 mn
livestock (highest), 230 mn tonnes of food- This market is poised for steady growth of
grain (third largest) and 7m tonnes of fish 15-20% with an estimated worth of USD3bn.
(third largest). The branded snack market has an estimated
value of USD1.34bn, while the unorganized
• Spices market has an estimated value at
USD1.56bn with a potential growth rate of 7-
In spite of a challenging economic 8%.
environment, spice exports for India rose 6%
in dollar terms to its all-time high of • Health Food
USD11.68bn (or 470,520 tonnes) in 2008-09,
up from USD11.01bn (or 444,250 tonnes) FMCG companies forayed into India’s
during the previous fiscal. growing branded health food sector.
Hindustan Unilever Ltd’s (HUL) health food
• Food Processing brand - Kissan Amaze is being marketed on
a trial basis in three southern states in India.
On the food processing front, the Indian Meanwhile, joint venture partnership
market has an estimated value of between Godrej Food & Beverages Ltd and
USD13.05bn that includes biscuits, Hershey Company - Godrej Hershey Foods
chocolates, ice-cream, confectionery, & Beverages Ltd (GHFBL) has plans to
snacks, cheese and butter. With major global introduce several brands from its
companies such as Britannia, Nestle, Amul, international portfolio into the Indian branded
ITC Foods, Parle, Kellogg’s, health food sector.
GlaxoSmithKline and others, this sector

FMCG india 6
ISI Analytics

• Dairy as well as favourable government policies,


India’s alcoholic beverages category saw
Dairy India 2007 projected that India’s consistent growth over the years (9% CAGR
current dairy sector is USD62.67bn with a by 2013) with its wine industry expanding at
5% yoy growth, of which its exports a rate of 25% yoy growth.
increased from USD210.5bn in 2007-08 to
USD113.57bn a fiscal year later. India’s • Outlay, Expenditure and Investments
position as the world’s largest milk producer
was maintained with production of 110mn Investments play an important role for growth
tonnes in 2008-09. of India’s food sector, particularly in the food
processing industry. The food processing
• Beverages industry currently employs some 48 mn
people (direct employment: 13mn; indirect
India’s market size for carbonated drinks was employment 35mn). And in 2004-05, this
nearly USD1.5bn, while the juice and juice- sector contributed INR280,000cr (or nearly
based drinks market size was nearly 14%) to manufacturing GDP. Outlay and
USD0.25bn. The fruit-drink market is an expenditure for this sector each increased
expanding market that has a growth rate of 60.21% and 72.06% from 2004-05 to 2008-
25% while sports and energy drinks category 09. On the contrary, inflow FDI contracted
have potential to expand due to its low 26.9% from 2007-08 to the next fiscal when
penetration in the domestic market. As a global financial crisis adversely affected
result of rising disposable income among the inward investments (Chart 4).
Indian population, growth in foreign tourists

Chart 4: Outlay, Expenditure and Inflow FDI for Food Processing Industry

10 700
Outlay & Expenditure

Inflow FDI (in INR cr)


600
8
500
(in INR cr)

6 400

4 300
200
2
100
Outlay Expenditure Inflow FDI
0 0
2004-05 2005-06 2006-07 2007-08 2008-09

Source: Ministry of Food Processing Industries (MOFPI)

Table 4: Production of Selected Food Products


Wheat
Chocolate and Sugar Malted Milk
Biscuits Flour and Sugar Salt
Confectionary Food Powder
Maida
Tonnes Tonnes Tonnes
Tonnes Tonnes Tonnes Tonnes
th th th
2007 1,248,081 55,898 82,115 17,992 2,169 26,905 18,388
2008 1,378,157 61,787 61,821 17,889 2,146 26,025 17,425
Mar-09 355,344 17,079 13,421 51,253 547 7,875 5,433
Jun-09 377,363 13,635 12,847 27,467 572 701 11,428
Source: CEIC
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ISI Analytics

Chart 5: Exports of Selected Food Products

350 1,600
Dairy Products, Processed Fruits &

Dairy Products
Juices and Processed Vegetables

300 Processed Fruits and Juices 1,400


Processed Vegetables
1,200

Spices (in USD mn)


250 Spices
(in USD mn)

1,000
200
800
150
600
100
400
50 200

0 0

Mar-09

Jun-09
2003

2004

2005

2006

2007

2008

Sep-09
Source: CEIC

Chart 6: Production for Selected Beverages Products

700
Beer (Litre th)
600 Coffee (Ton)
Tea (Ton)
500 Soft Drinks and Soda (Bottle mn)

400
300
200
100
0
Jun-07

Oct-07

Dec-07

Feb-08

Jun-08

Oct-08

Dec-08

Feb-09

Jun-09
Aug-07

Apr-08

Aug-08

Apr-09

Source: CEIC

1.3.3 Household Care priced version of Tide introduced by P&G,


HUL retaliated by slashing prices by 10-30%
As a result of rapid urbanisation and for its detergent products, namely Rin and
emergence of small packs and sachets, this Surf where HUL cut the price for Rin from
segment saw high level of penetration, in INR70 to INR50 per pack. As for Surf Excel
which it is projected to grow at a CAGR of Blue, prices were brought down from INR91
2% from 2005 to 2010. Detergent production to INR82 for a 500gm pack. Contributing
in India expanded 66.92% from 639,472 close to one-fourth (in FY2009) of its total
tonnes in 1999 to 1,067,415 tonnes in 2007 sales, the detergent segment remains a key
before contracting 6.18% to 1,001,454 market for HUL. With P&G’s new urgency in
tonnes a year later. this segment, the company promoted Tide
Natural with smart advertising as well as
In 2010, Procter & Gamble (P&G) and HUL through volume discounts.
were engaged in a price war. With the lower

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ISI Analytics

1.3.4 Personal Care and etc.) was approximately INR8,000cr with


strong growth of 14.68% in the first quarter of
This segment of FMCG has been 2009-10 and is expected to post sound
experiencing growth for the past few years growth of 16% in 2Q FY10.
and has an estimated worth of USD4bn. Key
segments of India’s personal care industry The key trend in the personal care segment
include personal hygiene products, hair care, is moving away from health products towards
skin care, colour cosmetics, and fragrances. beauty products, hence consumers are
In addition, the largely dominated bar soap switching demand from basic products (such
segment saw annual growth of as soaps, shampoos, hair oils and etc.) to
approximately 5% for the past four years. specialized products (such as skin whitening
ASSOCHAM reported that India’s cream, anti-ageing products, sun block
INR3,360cr oral care market (includes lotions and etc.). With rising disposable
toothbrush and tooth powder) experienced a income from USD2,720 in 2008 to an
10.8% growth during the first quarter of estimated USD3,482 in 2012 as well as
2009-10. growing female population (2008: 178mn;
2012: estimated 191mn) between the age
Analysts estimated that this market will grow group 25-44 years will definitely boost this
11.5% during the second quarter of 2009-10 market segment.
with a projected market size of INR3,450cr.
However, the INR18.5bn skin care and Sales of whitening cream outpaced those of
cosmetics market that includes skin/fairness Coca-Cola and tea in India as most Indians
creams, shaving creams and deodorants, consider having fair-complexions an asset.
experienced a 11.52% growth during the first As a consequence, the country’s market for
quarter of 2009-10 and is projected to see a whitening cream expanded at a whopping
12% growth during 2Q FY10. Meanwhile, the 18% yoy growth while analysts predicted that
hair care market size (includes hair oils, it will grow to nearly 25% in 2010 with an
shampoos, creams, conditioners, hair dyes estimated market worth of USD432mn.

Chart 7: Market Share of Personal Care Products

16% 31% Hair Care


1%
Bath & Show er
6% Products
Colour Cosmetics

Fragrances

Skin Care
46%

Source: Tata Strategic Management Group

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ISI Analytics

Table 5: Industrial Production of Selected Personal Care Products


Hair Oil & Ayurvedic Soap Soap
Toothpaste Toothpowder
Hair Oil (IPP) * (SSI) **
Litre th Tonnes Tonnes th Tonnes Tonnes
2003 2,127 584,414 3,592 19,061 7,744
2004 7,521 502,045 3,647 17,673 8,382
2005 21,966 480,811 3,651 32,771 8,233
2006 26,308 484,775 3,697 48,189 7,237
2007 30,636 403,833 3,761 53,129 6,489
2008 34,485 445,665 3,816 66,632 7,802
Mar-09 9,248 135,270 960.2 17,097 2,018
Jun-09 10,055 156,102 961.4 18,731 2,052

* IPP = Independent Power Producer


** SSI = Small Scale Industries

Source: CEIC

Table 5 shows that industrial production of presence in the Indian market through
hair oil and Ayurvedic hair oil in India jumped increased penetration in the rural markets.
192.06% from 7.52mn litres in 2004 to The company has a 21% market share in the
21.97mn litres a year later and saw a growth INR2,200cr hair oil segment and aims to
of 56.99% from figures in 2005 to 34.49mn increase market share in this lucrative
litres in 2008. Industrial production of soap segment through cooling hair oil products.
(IPP) shrank 30.9% from 584,414 tonnes in
2003 to a low of 403,833 in 2007 before In 2010, Mumbai-based VVF Ltd acquired
gradually rising 41,832 tonnes to 445,665 three brands from Chennai-based Henkel
tonnes a year later. India (Henkel) – a FMCG company, namely
Aramusk and Moloy soaps as well as
On the contrary, production of soap (SSI) Mahobringol hair oil. Three months after the
grew 6.24% from 3,592,000 tonnes in 2003 acquisition, VVF - one of the world’s largest
to 3,816,000 tonnes in 2008. Production for contract manufacturers of bar soaps bought
toothpaste expanded 249.57% from 19,061 Henkel’s plant in Tiljala, Calcutta, in which
tonnes in 2003 to 66,632 tonnes in 2008 the cost of acquisition is estimated INR23cr
while production for toothpowder contracted while the plant accounted for INR18cr.
22.58% from its peak of 8,382 tonnes in
2004 to a low of 6,489 tonnes in 2007. The acquired brands are estimated to yield
little turnover at a national level but brands
In 2009, one of the FMCG companies – such as Aramusk is famous in its domestic
Marico Ltd (Marico) test marketed new market as it is one of the oldest male
products (Nihar Naturals Cooling Oil and deodorant soaps in India with a loyal
Parachute Advanced Cooling Oil) in order to consumer base. Meanwhile, Moloy
gain greater market share. In addition to sandalwood soap and Mahabringol hair oil
launching new products, Marico increased its are popular brands in eastern India.

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ISI Analytics

2. Market Trends and Outlook


2.1 Union Budget 2010-11 duty charges on medicinal and toilet
preparations will be reduced from 16% to
The FMCG industry is expected to yield 10%.
higher growth on the back of higher
disposable income led by income tax cuts, Most FMCG companies including HUL,
while FMCG prices are expected to hike. Colgate-Palmolive, Nestle, Reckitt Benckiser
Prices of daily use products such as soaps, and Dabur India Ltd have large
talcum powder, shampoos, hair dyes, manufacturing plants in excise-free zones
diapers and sanitary napkins are expected to that are not affected by a hike or cut in
increase by 2-5%, while diapers and sanitary excise duty, while higher cost of production
napkins that were previously fully exempt will inevitably cause price hike. Also, the
from excise are now slapped with a 10% establishment of five additional food parks
duty. However, prices of deodorants and will no doubt boost the food processing
perfumes are expected drop by 5% while industry.

Table 6: Union Budget 2010-11: Central Plan Outlay by Sectors


2009-10 Budget 2009-10 Revised 2010-11 Budget
in INR cr
Estimates Estimates Estimates
Agriculture and Allied Activities 10,629 10,123 12,308
Rural Development * 51,769 51,560 55,190
Irrigation and Flood Control 439 404 526
Energy 115,574 109,685 146,579
Industry and Minerals 35,740 30,694 39,019
Transport ** 94,306 88,948 101,997
Communications 16,731 16,099 18,529
Science Technology and Environment 11,207 9,908 13,677
General Economic Services 6,270 5,446 7,554
Social Services *** 103,856 101,370 127,570
General Services 1,400 1,353 1,535
Grand Total 447,921 425,590 524,484

* Includes provision for rural housing but excludes provision for rural roads
** Includes provision for rural roads
*** Excludes provision for rural housing

Source: Ministry of Finance

• Fertilizer Subsidy: Effective from 1st April, • Foreign Direct Investment: Clear
2010, a Nutrient Based Policy for this definition in the calculation of indirect
sector will enhance agricultural foreign investments in Indian companies
productivity as well as provide better simplifies the FDI regime. Also, complete
returns for Indian farmers, hence liberalisation of pricing and payment of
reducing the volatility in demand for technology transfer fee and trademark,
fertilizer subsidy. brand name and royalty payments will
ease the process of FDI.
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• Agricultural Growth: (d) Impetus to the Food Processing Sector:

(a) Agricultural Production: 1. The government will add another five


mega food parks, hence bringing India’s
1. The provision of INR400cr to strengthen food parks to a total of fifteen.
green revolution in Eastern India, namely 2. Cold storage and cold room facilities
Bihar, Chattisgarh, Jharkhand, Uttar (including farm level pre-cooling and
Pradesh, Bengal and Orissa. preservation or storage of agricultural
2. The provision of INR300cr for rain-fed and allied produce, marine products and
areas to organise 60,000 pulses and oil meat) will be available through External
seed villages and also the provision of Commercial Borrowings.
water harvesting watershed management
as well as soil health to increase • Infrastructure: A whopping INR173,552cr
productivity of dry farming areas. was allocated for infrastructure
3. The provision of INR200cr for development, while allocation for road
conservation farming that sustained the transport and railway transport each
gains made in the green revolution areas. amounted to INR19,894cr and
It involves concurrent attention to soil INR16,752cr.
health, water conservation as well as
preservation of biodiversity. • Energy: Allocation for the power sector
(excluding Rajiv Gandhi Grameen
(b) Reduction in Wastage of Produce: Vidyutikran Yojana) doubled to
INR5,130cr in 2010-11, up from
1. Government will address the issue INR2,230cr in 2009-10. The Coal
regarding the opening up of retail trade Regulatory Authority was introduced to
that will close the gap between farm gate, allow fair competition in the coal sector,
wholesale and retail prices. in which the Ministry of New and
2. An ongoing scheme for private sector Renewable Energy’s plan outlay rose
participation will lower deficit in storage 61.29% to INR1,000cr in 2010-11, up
capacity. from INR620cr. In addition, projects that
involve solar, small hydro and micro
(c) Credit Support to Farmers: power are to be established in Jammu
and Kashmir at a cost of INR500cr.
1. Banks are to meet target of
INR375,000cr set for agriculture credit • Education: Allocation for school
flow. education was increased from
2. In view of drought and floods in some INR26,800cr in 2009-10 to INR31,036cr
states, repayment period of the loan in 2010-11, thus showing a 15.81%
amount owed by farmers are to be growth. Moreover, under the Thirteenth
extended by six months from 31st Finance Commission grants for 2010-11,
December, 2009 to 30th June, 2010 states are entitled to some INR3,675cr
under the Debt Waiver and Debt Relief for elementary education purposes.
Scheme for Farmers.
3. Farmers who promptly repay short-term • Rural Development: The Mahatma
crop loans will receive additional Gandhi National Rural Employment
incentive of 2% (instead of 1%) for 2010- Guarantee Scheme and rural
11. development were allocated INR40,100cr
and INR66,100cr respectively. Besides

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that, allocated funds for Backward Region aqua-products leaving farms, also, this
Grant Fund expanded 25.86% from facility carries FMCG, durables, automotives
INR5,800cr in 2009-10 to INR7,300cr in and banking services back to the rural areas.
2010-11, while additional central
assistance of INR1,200cr will be provided 2.3 Growth in Rural Market
for drought mitigation in Bundelkhand.
The population in India’s rural areas currently
2.2 e-Choupal accounts for approximately 70% of the
country’s 1.14bn population, and has been
e-Choupal was developed by India’s experiencing an increase in income as well
conglomerate, Indian Tobacco Co. (ITC). as consumption and production. According to
Prior to the introduction of this facility, a report by IBEF, FMCG companies
farmers were restricted to selling their concentrate on rural markets for volume and
products in the local mandi through a urban markets for value while the previous
middleman, hence the low earnings. The market remained a major market for FMCG
availability of e-Choupal allowed farmers to companies (52.5% of total demand in 1998-
be trained to manage the Internet kiosk that 99). Most companies offer convenient
allows them to yield the best price through packaging and low-priced products to the
the access of daily prices of crops in India as rural market, and offer urban consumers with
well as overseas. Apart from changing the higher-valued products.
quality of farmers’ lives, e-Choupal provides
information regarding weather forecasts, A study projected that India’s consumer will
farming techniques, crop insurance and treble to become the fifth largest consumer
others. market by 2025 and (2007: 12th largest
consumer market). A report indicated that
Covering ten states across 40,000 villages, the nation’s per capita disposable income is
e-Choupal allows 4mn farmers (of which currently at USD556 (annual) and will more
constitutes a majority of 75% of the than doubled to a projected USD1,150 by
population living below poverty line) across 2015. Chart 8 showed that the consuming
India to obtain relevant information that helps population in India was 26% of its total
improve rural economy. The network of population in 2003 and is projected to double
6,500 e-Choupal centres expanded the to reach 54% as the number of aspirants fall
spectrum of commodities such as wheat, 350% between 2003 and 2015.
rice, pulses, soya, maize, spices, coffee,

Chart 8: Household Income Distribution

Sources: HUL; National Council for Applied Economic Research (NCAER); IBEF
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2.4 Regulatory Issues in order to provide mechanism to facilitate


the process of technology transfer through a
2.4.1 National Food Processing Policy network of R&D institution. In addition, agro
food parks will be built to facilitate the food
India’s food processing sector has enormous production process.
importance in the nation’s development and
with India being the second largest food The following will have greater priority and
producer in the world, this sector has solid special consideration in view of policy and
growth potential. Food production is plans:
expected to double within the next decade to
accommodate the rising consumption of • The North Eastern Region, the Hilly
value added food products. Benefits such as Areas, and ITDP (Initiative for
economic growth, growing agricultural yields, Transportation and Development
higher productivity and job creation will Programmes) areas in India shall be
definitely raise the living standards of the given priority in terms of attention and
Indian community, especially those living in consideration.
the rural areas. • Fiscal incentives (such as excise duty or
sales tax concession and tax holidays)
This policy will facilitate the establishment of are to be given to the above mentioned
cold chain, low cost pre-cooling facilities that areas as well as areas that are
are located near farms, cold stores and established outside these areas near the
grading, sorting as well as packing facilities market centre.
so that wastage levels can be lowered whilst • Food processing units can enjoy tax
improving quality and shelf life of those holiday (excluding liquor, cigarettes and
products. New technologies in the food aerated drinks and similar luxury
processing and packaging will be developed products) for a period of 10 years.

Table 7: Challenges, Constraints and Concerns

India is a major food producer with more than 600 mn tonnes of food products
Potential Growth under its production. It has growth potential to become the largest food producer
in the world.
Processing level is currently very low while wastage level is high that shrinks
Wastage
national wealth.
Value addition to raw products in India is only at a 7% and this figure is
Value Addition
considered low when compared to China’s 23% and Philippines’ 45%.
Small Scale and These sectors account for 75% of the food processing industry and only has
Unorganized local presence in which it lacks access to knowledge, technology and marketing
Sectors network.
The price gap between farmers’ realization and consumers’ final price is very
Low Demand big – caused by low productivity, high cost of production, spoilage due to poor
infrastructure and high cost of borrowing.
The marketability of processed food is low despite vast domestic market size.
Marketing Efforts However, this market has growth potential should awareness and educational
campaigns are held.

Source: Confederation of Women Entrepreneurs (CoWe)

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2.4.2 FDI Policy in Retail Trading USD46.6mn, meanwhile India’s retail sector
(Single Brand) is expected grow to a market size of
USD833bn by 2013 and USD1.3tn by 2018
In February 2010, ministers in India with a CAGR of 10%. The nation’s retail
advocated that its retail market lacks market saw exponential growth as
competition for a check on prices as well as developments take place in major cities,
liberalisation of the industry. The share of metros as well as tier-II and tier-III cities
FDI inflow to the retail trading (single brand) across India.
sector has been increasing over the years, in
which it accounted for 0.18% of India’s The 51:49 joint venture partnership between
INR469,364.98cr FDI inflows from April 2000 UK-based Marks & Spencer and India-based
to December 2009. However, from April Reliance Retail Ltd has 15 retail stores
2000 to December 2008, FDI inflow to the spanned across India while plans are being
retail trading sector only accounted for laid out to open as many as 35 stores over
0.03% of total FDI inflow of the next five years. Besides that, Europe’s
INR338,384.74cr. largest retail – Carrefour S.A. is expected to
commence its wholesale operations in India
The key driving forces for retail growth are by 2010. This retail giant also plans to
banks, capital goods, engineering, FMCG, establish its first wholesale cash and carry
software services, oil marketing, power, two- outlet in the National Capital Region and the
wheelers and telecommunication companies. company currently exports USD170mn worth
On July 2009, FDI inflows of retail trading of products from India.
(single brand) hit an approximate

Table 8: Sector-wise FDI Inflows

Apr 2000 to Apr 2000 to Apr 2000 to


FDI Inflows (in INR cr)
Dec 2009 Dec 2008 Dec 2007

Agriculture Services 7,123.17 785.44 741.22


Food Processing Industries 4,388.45 3,422.26 2,786.23
Retail Trading (Single Brand) 822.70 107.47 6.64
Soaps, Cosmetics & Toilet Preparations 680.50 498.49 434.18
Agricultural Machinery 668.95 664.91 639.98
Vegetable Oils and Vanaspati 605.63 376.92 175.88
Tea and Coffee * 381.38 377.43 142.21
Sugar 183.90 183.66 160.98

* Processing and warehousing coffee and rubber


Source: Department of Industrial Policy and Promotion

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2.4.3 Government Policies and Initiatives

The abolishment of most of the food and agro-processing


Removal of Quantitative industries (except for alcohol, cane sugar, hydrogenated animal
Restrictions and Reservation fats and oils etc. and items reserved for the exclusive
Policy manufacture in the SSI sector) as well as the removal on
quantitative restrictions in 2001 led to market expansion in the
FMCG industry.

State government such as Himachal Pradesh, Uttaranchal and


Jammu and Kashmir provided companies with fiscal incentives
(such as allotment of land at concessional rates, 100% subsidy on
project reports and 30% capital investment subsidy on fixed
Central and State Initiatives capital investment up to USD63,000) that encouraged them to
establish manufacturing plants in their respective regions.

The reduction of excise and import duty allows most of the


processed food products to be exempted from excise duty.

Table 9: Sector-specific Infrastructure

Location (District) in Andhra Pradesh Name of Park


Chittoor Food processing park (existing)
Ranga Reddy Agri-biotech park (existing)
Guntur, Khammam and Nellore Food processing park (upcoming)

Location (District) in Uttar Pradesh Name of Park


Barabanki and Varanasi Agro park
Food Processing Policy, 2004-2009
• Targets to facilitate better returns for farmers and attract investment in this sector.
• Will emphasize on employment opportunities as well as minimise wastage on agri-products.

Sugar Policy, 2004


• Incentives and concessions such as exemption of entry tax on sugar, reimbursement of
administrative charge and trade tax on molasses to establish sugar mills in Uttar Pradesh.

Location (District) in Madhya Pradesh Name of Park


Mandideep, Pillukhedi, Borgaon and Maneri Food Park
Biotechnology Policy, 2003
• Targets to conserve the state’s biodiversity and the sustainable use of its biotic resources.
• Production of high-yielding, draught and pest resistant seeds for agriculture and horticulture
crops that is suitable for different agro-climatic areas.
Sources: HUL; NCAER; IBEF

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2.4.3.1 Milk and Milk Powder Control manufacturing process of milk and milk
Order, 1992 (MMPO) products.
(e) Establishment, promotion or registration
With intentions to maintain and increase the of any industry that is relatable to milk
supply of liquid milk that are of desired products.
quality in view of public interest, the central
government of India introduced the MMPO in 2.4.3.2 Meat Food Product Order, 1973
order to regulate the production, supply and
distribution of milk and milk products, This Order came into effect from 15th July,
whereby ‘milk’ carries the meaning of milk of 1975 with instructions stating that no person
cow, buffalo, sheep, goat or a mixture shall conduct business his/her business as a
thereof, raw or processed in any form and manufacturer except under and in
includes pasteurised, sterilised, recombined, compliance with the terms and conditions of
flavoured, acidified, skimmed, toned, double a license granted to him/her under this
toned, standardised or full cream milk. Order. As stated in the Order, sanitary and
other requirements are to be complied with
The functions of this board are as follows: by a licensee are as follows:

• Provide assistance and advise the • All parts of the factory shall always be
central government on any matter that kept clean, lighted, ventilated and should
concerns the production, manufacture, be cleaned, disinfected and deodourised
sale, purchase and distribution of milk at a regular basis.
and milk products. • All factories shall be equipped with
• Registering authorities or other officials adequate cold storage facilities, efficient
authorised by it may carry out periodic drainage as well as plumbing systems.
inspection of any premises that • The factory shall be constructed and
manufacture or process milk or milk maintained as to allow hygienic
products, or business in which milk or production. All operations relating to the
milk products are carried out. This is to preparation or packing of meat food
ensure compliance that are stated in the products shall be carried out with strict
Order as well as genuine and proper hygienic procedures and the factory
supply of milk or milk products to premises shall not be utilized for living or
consumers. sleeping purposes provided that it is
• Without prejudice to the provisions of the separated from the factory by a wall.
previous provision, the board shall advise • Meat used for the preparations of meat
the central government on matters food products (if it is not slaughtered in
relating to: the factory) should only be obtained from
slaughter houses in which ante-mortem
(a) Facilitation of the supply of availability of and post-mortem inspections have been
liquid milk, through balancing uneven conducted in compliance with rules
distribution supplies in different regions prescribed and so certified by the local
and seasons. authority.
(b) Maintenance or increase in supplies of • All parts of the internal surface above the
milk as well as balance the distribution of floor or pavement of the slaughter house
milk and milk products. shall be washed with hot lime wash
(c) Establishment of appropriate standards within the first ten days of March, June,
and norms for controlling and handling September and December. Meanwhile,
milk and milk products. any blood or liquid refuse or filth in the
(d) Maintenance of proper sanitary and slaughter house shall be thoroughly
hygiene standards during the washed and cleaned with water and
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deodorant or disinfectant within three - No meat food products shall contain any of
hours after the completion of slaughter. the following preservatives in excess of the
• Requirements of the finished meat food quantity specified.
products:
Parts per mn
Name of Preservatives (by weight)
- No meat food products shall contain
any of the following poisonous metals 1. Commercial saltpetre 500
in excess of the quantity specified. 2. Sodium and potassium 200
nitrite
Name of Poisonous Parts per mn
3. Sulphur dioxide 450
Metal (by weight)
1. Arsenic 1
2. Copper 20
3. Lead 2.5
4. Tin 250
5. Zinc 50

- No meat food products shall contain


any of the following insecticides in
excess of the quantity specified.
Tolerance Tolerance
Name of Insecticide Limit mg/kg Name of Insecticide Limit mg/kg
(ppm*) (ppm*)
1. Aldrin dieldrin 0.20 11. Carbendazim 0.10

2. Dichlorodiphenyltrichloroethane 7.00 12. Benomyl 0.10

3. Fenitrothion 0.03 13. Carbofuran 0.10


4. Lindane 2.00 14. Cypermethrin 0.20
5. Chlorfenvinphos 0.20 15. Edifenphos 0.02
6. Chlorpyrifos 0.10 16. Fenthion 2.00
7. 2, 4-D 0.05 17. Fenvalerate 1.00
8. Ethion 0.20 18. Phenthoate 0.05
9. Monocrotophos 0.02 19. Phorate 0.05

10. Trichlorfon 0.10 20. Pirimiphos-methyl 0.05

* Parts per million

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3. Leading Players and


Comparative Matrix
3.1 Leading Players
Table 10: India’s Top 5 FMCG Companies (as at FY2009)
Total Revenue
Company Industry
(in INR th)
Food manufacturing, beverage and tobacco
1. Hindustan Unilever Ltd (HUL) production, chemical manufacturing, and 210,952,300
others
2. Nirma Ltd Chemical manufacturing 30,700,300
3. Dabur India Ltd (DIL) Food manufacturing, chemical manufacturing 28,522,700
4. Colgate-Palmolive India Ltd (CPIL) Chemical manufacturing 17,886,700
5. Godrej Consumer Products Ltd (GCPL) Chemical manufacturing 14,365,800

Source: EMIS

3.1.1 Hindustan Unilever Ltd (HUL) without production capacity constraints. With
the Ayush range and Ayush Therapy
Sunlight and Lifebuoy soaps were introduced Centres, HUL made its foray into the
in 1888 and 1895 respectively. And in 1895, Ayurvedic health and beauty segment in
Lever Brothers appointed agents in cities 2002 and a year later, the company
such as Mumbai, Chennai, Kolkata and launched Hindustan Lever Network through
Karachi. Several products were introduced the acquisition of the Amalgam Group. In
by this FMCG giant – Pears soap (1902), 2007, the company was renamed to
Brooke Bond Red Label tea (1903), Lux Hindustan Unilever Ltd.
flakes (1905), Vim scouring powder (1913),
Vinolia soap (1914), Rinso soap powder HUL’s soaps and detergents portfolio
(1922) and others. In 1924, Gibbs dental registered sound sales growth of 54% with
preparations were introduced and a year annual segmental margin slightly shrinking
later North West Soap Co. was fully under by 20 basic points. Despite cost pressures,
the control of Lever Brothers. Unilever was fabric wash remains its growth momentum
later established in 1930 through the merger and brands such as Surf, Rin, Sunlight and
between Lever Brothers and Margarine Unie. Wheel registered strong value and volume
growth. On the personal products front, HUL
In 1931, Unilever’s first subsidiary in India comprises categories such as hair care, skin
was established under the name Hindustan care, toothpaste, toothbrush, deodorants and
Vanaspati Manufacturing Co., followed by colour cosmetics, while its well-positioned
Lever Brothers India Ltd (1933) and United shampoo segment has a powerful brand
Traders Ltd (1935). The merger between portfolio that accommodates consumers’
these three companies resulted in the needs from different income groups - Clinic
establishment of HUL in 1956. India’s trade is a mass market brand, Sunsilk falls into the
liberalisation in 1991 benefited HUL’s growth mid-price market while Dove is in the
as less trade restrictions allowed this FMCG premium segment.
giant to explore different opportunities

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Following the detergent price war between past one year; in fact, it has underperformed
P&G and HUL, the latter’s stock was most of its smaller rivals since the past
downgraded by a majority of brokerage firms consecutive 12 months. HUL’s current
in March 2010. P&G indirectly decreased the operating margin of 14% is lower than its
price of Tide Naturals by increasing peak operating margin registered at 18% in
grammage (25% across stock-keeping units) 2002. FMCG giants such as Colgate and
and adding an extra 50g to a 200g pack of HUL are projected to have substantial control
Tide Naturals for the same price of INR10, of nearly 85% of India’s toothpaste market.
while 100g would be added to a 400g pack
of Tide Naturals at the same price of INR20. With soaring demand in the whitening cream
Share price at HUL fell 8.75% over 11th and segment in which HUL’s Fair & Lovely is the
12th March and closed at INR219.60 at the segment leader. The company’s cutting-edge
end of the week. Analysts estimated that skin-lightening technology is known to be the
HUL’s detergent segment could be rendered best in the world and has nearly 250mn
as the detergent price war intensifies, in consumers spanned across 30 countries.
which the segment accounts for 10-12% of This product contains no bleach or harmful
the company’s earnings before income tax. ingredients and was rated as the 12th Most
Trusted Brand in India by ACNielsen ORG-
Also in March 2010, analysts indicated that MARG in 2003.
HUL has been an underperformer over the

Chart 9: Share Price of HUL

Source: Bombay Stock Exchange

3.1.2 Nirma Ltd low-profile marketing operations, a new


domestic marketplace for the detergent
Nirma started its one-man operation in 1969 segment was created.
and at present, the company has grew into a
14,000 employee-base with annual turnover During the 1980s, Nirma’s brand was well
of more than INR2,500cr. Its operations ahead of its closest rival – HUL’s Surf, in
started off with door-to-door selling of Dr. which Nirma offered a perfect match of
Karsanbhai Patel’s detergent powder that product, price, promotion and place, hence
was priced at a shocking INR3 per kg while capturing a greater slice of market share in
the cheapest brand in the market was priced its domestic market. Currently, Nirma has the
at INR13 per kg. Through innovative and largest share in India’s detergent market

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(38%) and the second largest share toilet Worldwide recession impacted the
soap market (20%). company’s processed minerals segment as
global demand for soda ash deteriorated
Nirma witnessed a challenging FY2009 when following contractions in the construction and
the world’s financial system crumbled over, auto industries, whereby the glass industry
triggering poor economic performance in accounted for nearly 50% of worldwide
most developed countries. Nirma’s demand for soda ash. Processed minerals
consolidated revenue was mainly contributed are manufactured in the US and are mainly
by soaps and surfactants, processed marketed in markets such as the US, Latin
minerals as well as pharmaceutical with net America, Europe, China, Japan and Gulf
sales growing from INR2,684.46cr in countries. In order to counter the effects of
FY2007-08 to INR4,574.82cr during the next the recessionary pressure in the US market,
fiscal. Soaps and surfactants accounted for Nirma sought alternative markets,
57.64% of net sales for FY2009, down reallocated its employees, as well as
20.23% from previous year’s 77.87%. introduced maintenance programmes.

Chart 10: Production of Selected Goods

Linear Alkyl 86.74 2007-08


Benzene 78.71
2008-09

57.37
Toilet Soap
59.88

692.74
Detergents
640.28

0 200 400 600 800


Tonnes (in th)

Source: Company’s Annual Report

3.1.3 Dabur India Ltd (DIL) entered into joint venture agreements with
Israel-based Osem for food and France-
DIL was established in 1884 with its based Bongrain for cheese and other dairy
manufacturing plant set up two years later products.
and further expanded to setting up its
research laboratories in 1919. DIL was In 2003, Dabur demerged its pharmaceutical
restructured into a public limited company in operations from the FMCG operations so
1986 and entered into a joint venture that each entity can focus on their respective
partnership with Spain-based Agrolimen to operations. With this, DIL’s FMCG business
manufacture and market confectionary comprises of personal care products,
products in its domestic market. With its healthcare products as well as Ayurvedic
oncology formulation centre, DIL entered the specialities. In addition, its pharmaceutical
specialised healthcare area of cancer business includes allopathic, oncology
treatment in 1993. Two years later, DIL formulations and bulk drugs. And in

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2005, DIL adopted an inorganic growth Despite a challenging year that saw a
strategic through the acquisition of Mumbai- slowdown in the economy, DIL financial
based Balsara’s oral care and household performance showed a positive trend during
care product in a INR143cr all-cash deal and the FY2008-09. In which consolidated
added brands such as Promise, Babool, revenue increased to INR2,834.1cr after a
Sanifresh and Odonil to its product range. 18.3% growth while consolidated net profit
Also, the acquisition allows DIL to expand its grew by 17.5% to INR391.2cr. Also, during
scale of operation through synergies in its FY2008-09, the company had four divisions,
marketing, sales, distribution and namely, consumer care, international
procurement activities. business, consumer health, and others and
these divisions generated consolidated sales
A year later, DIL crossed the USD2bn mark of 72.8%, 18.5%, 7.3% and 1.4%
in market capitalisation and in line with its respectively.
commitment to adhere global best practices
and highest standards of transparency as Due to consistent profitable growth and
well as governance, DIL adopted the US improved market position, credit rating
GAAP (the US Generally Accepted agency Crisil upgraded DIL’s rating in terms
Accounting Principles). In 2007, the of its long-term bank facilities as well as non
company entered the organised retail convertible debentures from AA+ to the
business through H&B Stores Ltd – a wholly- highest grade in long-term rating of AAA.
owned subsidiary of DIL. In order to increase This upgrade also reflected DIL’s successful
presence in its domestic retail market, DIL integration of its operations following the
will invest INR140cr by 2010 with aims to acquisition of a major player in the women’s
establish a chain of stores selling health and skin care market – Fem Care Pharma Ltd as
beauty products. well as DIL’s strong market presence in the
herbal products segment.

Chart 11: Category-wise Share of Consumer Care Division Sales

Source: Company’s Website

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3.1.4 Colgate-Palmolive India Ltd (CPIL) oral care, personal care, home care as well
as pet nutrition and its products are sold in
Colgate’s business was established in 1806 more than 200 countries.
when William Colgate started a starch, soap
and candle business in New York City. In Colgate-Palmolive (India) Ltd (CPIL) was
1820, a starch factory located in New Jersey established in 1937 using hand-carts to
was built. However, the company was distribute its dental cream. Today, CPIL
restructured and renamed as Colgate & Co. distributes its products through 3.5mn retail
in 1857. Within the next two decades, outlets spanned across India. The Mumbai-
Colgate introduced perfumed soaps and based FMCG company has strong presence
toothpastes in jars. Wisconsin-based B.J. in the oral care segment, in which it has
Johnson Co. was producing soaps in 1864 approximately 46% market share in that
but Palmolive Soap was only introduced in segment. The company’s high sales volume
1898. Owing to the popularity of Palmolive was supported by the introduction of lower
soaps, the company was renamed as price-points variants and improved rural
Palmolive Co. and was later engaged in a distribution. Driven by the discount brand -
merger with Kansas-based soap producer Cibaca, India’s rural market currently
known as the Peet Brothers to become accounts for nearly 35% of its revenue.
Palmolive-Peet in 1926. Two years later,
Colgate-Palmolive-Peet Co. was established As a result of low per capita toothpaste
through a merger while Colgate was listed on consumption of 108-110gms (developed
the New York Stock Exchange in 1930. nations: 400-450gms; other Asian countries:
200-250gms), the Indian market offers
Again, the company was renamed as growth opportunities in the toothpaste
Colgate-Palmolive in 1953 and it acquired segment. In addition, its rural market offers
Hill’s Pet Nutrition in 1976, whereby the latter attractive growth opportunities. During the
is currently the global leader in pet nutrition. third quarter ended 31st December, 2009,
The joint venture partnership between Hong CPIL recorded net sales of INR490.6cr,
Kong-based Hawley & Hazel – a leading oral showing a growth of 17% over the
care company and Colgate-Palmolive corresponding a year ago. Similarly, net
allowed the latter to strengthen its position in profit for the third quarter of FY2009-10 hit
major markets in the Asian region. Today, INR116.4cr after a 29.77% growth against
the FMCG giant has sales that surpassed INR89.7cr (qoq).
USD15bn with core business that include

Chart 12: Index Comparison

Source: Bombay Stock Exchange

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ISI Analytics

During the end of 2009, Oral Health Month - In 2005, UK-based Keyline Brands Ltd (KBL)
a joint campaign by CPIL and the Indian was acquired by Godrej Group, in which the
Dental Association was successful in former operates in the toiletries and personal
concluding its 6th edition oral health care segment and its portfolio comprises of
awareness with an aim to promote the several niche brands such as Cuticura,
importance of good oral care habits. This Aapri, Erasmic, Nulon and Inecto. With major
awareness campaign was brought together customers such as Boots, Superdrug, Tesco,
with the support of 17,500 dental Asda, Sainsbury, and Morrisons in the UK,
professionals and was successful in covering KBL has a current turnover of nearly
1,000 towns across India. In addition, mobile GBP20mn.
dental vans were used to reach
underprivileged areas and provide more than Also during the end of 2009, GCPL
1.2lakhs free dental check-ups through 37 announced that it will concentrate on three
cities. core brands, namely No. 1 (soaps), Cinthol
(soaps, talcum powder and deodorant) and
3.1.5 Godrej Consumer Products Ltd Expert (hair colour). These three brands will
(GCPL) receive higher investments to further
innovate their brands. During the quarter
Godrej Group was established in 1897 and ended 30th September, 2009, the company
has since grown into a group that has a achieved a staggering 167.78% growth in
turnover of USD2.5bn with seven major consolidated net profit to reach INR93cr over
companies operating in real estate, FMCG, INR34.73cr during the same quarter a fiscal
industrial engineering, appliances, furniture, before. The surge in profit was mainly
security, agri care and other businesses. contributed by volume growth in soaps and
Nearly 20% of the group’s business is hair-care segments as well as lower cost of
conducted abroad and has market presence production such as palm oil.
in more than 60 countries.
In March 2010, GCPL entered an agreement
With its personal and home care products, to acquire Nigeria-based Tura from Tura
GCPL is one of the leading companies in Group – a leading personal care
India’s FMCG sector. GCPL offers products manufacturer and distributor of high quality
such as Cinthol, No. 1, Expert, Ezee and etc. personal care products in several African
to its domestic market. In order to ensure markets. Tura is one of the leading beauty
that it has market coverage in the pan-India products in Nigeria and this acquisition will
area, GCPL has established branch offices build GCPL’s pan-African presence as well
in Mumbai, Delhi, Kolkata and Chennai while as introduce its portfolio into other Western
its factories are located in Malanpur (Madhya African countries. The fact that Tura is a
Pradesh), Thana (Himachal Pradesh), Katha well-established beauty company that has
(Himachal Pradesh), Guwahati (Assam) and offered consumers with high quality products
Sikkim so that the company’s diverse in the personal care segment over the past
product portfolio can accommodate different 20 years will help provide GCPL a platform
requirements. Moreover, GCPL has several for value creation in the pan-African region.
international brands and trademarks in
Europe, Australia, Canada, Africa and the
Middle East.

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ISI Analytics

Chart 13: Sales Turnover (Net of Excise Duty) for Selected Segments

Fatty acids and glycerine 1,940.94 FY2007-08


3,519.80
FY2008-09
3,846.63
Detergents
4,284.81

Hair colour and other 26,219.20


toiletries 29,249.84

56,661.66
Soaps
71,379.77

0 20,000 40,000 60,000 80,000


INR lakhs

Source: Company’s Website

3.2 Comparative Matrix


Table 11: Financial Highlights (in INR cr unless otherwise stated)

HUL Nirma DIL CPIL GCPL


Mar 2009 * Mar 2009** Mar 2009** Mar 2009** Mar 2009**
Total Revenue 21,059.20 4,644.75 2,852.27 1,788.67 1,436.58
Net Profit 2,504.51 126.60 391.21 285.78 172.62
Net Profit Margin (%) 11.89 2.73 13.72 15.98 12.02
Return on Equity (%) 11.49 1.59 4.52 21.01 6.72
Return on Assets (%) 28.94 2.40 20.71 35.40 14.62
Debt / Equity Ratio (x) 29.90 34.12 12.37 43.53 23.90
EPS (INR) 11.46 12.85 4.548 20.89 6.83
Current Ratio (x) 0.98 3.79 1.18 0.86 2.22
Share Equity 217.98 79.57 86.51 13.60 25.70
Total Assets 8,653.97 5,276.53 1,889.11 807.22 1,180.81
Current Assets 5,786.78 2,341.64 950.80 500.05 732.75
Total Liabilities 6,516.50 2,715.06 1,070.30 591.95 613.96

Current Liabilities 5,883.94 619.74 807.65 583.52 329.89


Market Capitalisation
51,836.88 2,886.60 14,306.49 9,465.78 8,187.07
(as at 26/03/10)

* Period length of 15 months


** Period length of 12 months

Sources: Reuters; EMIS

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ISI Analytics

3.3 SWOT Analysis

HUL
Strengths Weaknesses
• CPIL and HUL are projected to share a • Engaged in price war with P&G - HUL’s stock
substantial combined market share of nearly was downgraded by a majority of brokerage
80% of India’s toothpaste segment (in 2009). firms in March 2010 as analysts estimated
• Has the highest total revenue and net profit that its detergent segment could be rendered
of INR21,059.20cr and INR2,504.51cr if the detergent price war intensifies.
respectively among India’s top 5 FMCG • Current operating margin of 14% is lower
companies. than its peak operating margin of 18% in
• Its shampoo segment has powerful brand 2002.
portfolio that accommodates consumers’
needs from different income group - Clinic is
a mass market brand, Sunsilk falls into to the
mid-price market while Dove is in the
premium segment.
• Issued bonus debentures with face value of
INR6 (with annual interest rate of 9% payable
annually).
• HUL’s INR1cr challenge advertising
campaign aims to promote Rin’s superior
value to its consumers.

Opportunities Threats
• Its Fair & Lovely brand is the leader in India’s • Competes with P&G in the detergent
whitening cream segment and serves 250mn segment, in which this segment accounts for
consumers across 30 countries. This product 10-12% of the company’s earnings before
was also rated as the 12th Most Trusted income tax.
Brand in India by ACNielsen ORG-MARG in • Detergent price war with its rival P&G will
2003. erode profit margins.
• Small players like Dabur is chipping away
HUL’s market share in the oral care, hair
care, soaps segment. During April-June
2009, Dabur’s shampoo segment grew by
7.3% while HUL’s share with Sunsilk brand
fell 50% (45.4% in value terms).
• HUL’s share in the toothpaste segment fell
from 29.6% to 28% during April-June 2008
while Dabur’s share increased from 9.3% to
10% and CPIL’s share grew from 47.7% to
49.5%.
• Calcutta High Court passed an interim order
that restrains HUL’s television commercial
that directly compares the performance of its
Rin with P&G’s Tide

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ISI Analytics

3.3 SWOT Analysis (Cont’)


Nirma
Strengths Weaknesses
• Nirma currently has the largest market share • Net sales grew from INR2,684.46cr in
in India’s detergent market (38%) and the FY2007-08 to INR4,574.82cr during the next
second largest share in toilet soap segment fiscal.
(20%).
• Sought alternative markets, reallocated its
employees and introduced maintenance
programmes to counter the effects of the
recessionary pressure in the US market.

Opportunities Threats
• Nirma’s consolidated revenue was mainly • Worldwide recession impacted Nirma’s
contributed by the soaps and surfactants, processed minerals segment as global
processed minerals and pharmaceutical demand for soda ash shrank due to
segments - the company could further invest contractions in the construction and auto
in India’s toothpaste segment as it offers industries.
potential growth opportunities (low per capital
toothpaste consumption).

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ISI Analytics

3.3 SWOT Analysis (Cont’)


DIL
Strengths Weaknesses
• Demerged its pharmaceutical operations • Lack financial stability and market presence
from FMCG segment so that each entity can to compete with multinationals like CPIL and
focus on their respective operations. HUL in the oral care market - both CPIL and
• Adopted an inorganic growth strategy HUL are estimated to enjoy a combined
through the acquisition of Mumbai-based market share of 85% in India while DIL has a
Balsara’s oral care and household care 10% share.
product in a INR143cr all-cash deal, thus
adding brands such as Promise, Babool,
Sanifresh and Odonil to its product range as
well as expand its scale of operation through
synergies.
• Consolidated revenue ballooned 18.3% to
INR2,834.1cr during the FY2008-09 while
consolidated net profit grew 17.5% to
INR391.2cr.
• During April-June 2009, Dabur’s shampoo
segment grew by 7.3%

Opportunities Threats
• Entered the organised retail business through • Competes with FMCG giants like HUL and
H&B Stores Ltd. CPIL in India’s INR16,000cr oral care
• Will invest INR140cr by 2010 to establish a segment.
chain of stores selling health and beauty
products.
• Seek to acquire South African hair care
company - Isoplus that generates sales of
nearly INR100cr.

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ISI Analytics

3.3 SWOT Analysis (Cont’)


CPIL
Strengths Weaknesses
• CPIL upped its shareholdings from a 75% • Has the lowest current ratio of 0.98 among
stake to 100% in the Hyderabad-based India’s top 5 FMCG company, therefore
toothpowder manufacturer - CC Health Care indicating that the company may face
Products at a cost of INR69.07lakh. problems meeting obligations in the short-
• CPIL is a leader in the toothpaste segment in term.
India with a substantial market share of 46%
(in 2009).
• Promoted the importance of good oral care
habits with the help of Indian Dental
Association.
• Net profit for 3Q FY2009-10 reached
INR116.4cr after achieving a growth of
29.77% against INR89.7cr (qoq).

Opportunities Threats
• High sales volume was due to the • Profit margins may erode when P&G
introduction of lower-price points variants and introduce its global toothpaste brand - Crest,
improved rural distribution network that in India at an attractive price point.
accounts for nearly 35% of its revenue.
• India’s toothpaste market offers potential
growth due to low per capita toothpaste
consumption of 108-110gms.

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ISI Analytics

3.3 SWOT Analysis (Cont’)


GCPL
Strengths Weaknesses
• Branches offices and factories are located in • Too much diversification may steer the
various parts of India so that the company’s company away from its core business
diverse product portfolio can accommodate operations.
different requirements.
• GCPL also have several international brands
and trademarks in Europe, Australia,
Canada, Africa and the Middle East.
• During the quarter ended 30th September,
2009, GCPL’s net profit grew 167.78% to
INR93cr.

Opportunities Threats
• UK-based Keyline Brands Ltd was acquired • Competes with other FMCG giants like HUL
by the Group, thereby allowing the Group to and CPIL that has vast experience in global
diversify country risks. FMCG segment.
• Surge in net profit was a result of lower palm
oil price.
• Acquired Nigeria-based Tura to penetrate
markets in the pan-African region.

The research report is based on material compiled from data considered to be reliable at the time of
writing. However, information and opinions expressed will be subject to change without notice. We do
not accept any liability directly or indirectly that may arise from investment decision-making based on
this report.

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