INDUSTRY ANALYSIS (FMCG)2011-12

SUBMITTED BY:AJAY YADAV ANANT JAIN JALDEEP VISHNU VINIT JAIN

INDIAN FMCG SECTOR

FMCG sector is the fourth largest sector in the economy with an estimated size of Rs.1,300 billion The sector has shown an average annual growth of about 11% per annum over the last decade. Indias FMCG market is highly fragmented and a considerable part of the market comprises of unorganized players selling unbranded and unpackaged products.

There are approximately 12-13 million retail stores in India, out of which 9 million are FMCG kirana stores.

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FMCG includes a wide range of products categorized broadly into segments given below:

MAJOR SEGMENTS OF THE FMCG INDUSTRY:

Source:-Analyst: Ms. Binal R. Vora

Household Care :

The detergents segment is growing at an annual growth rate of 10 to 11 per cent during the past five years Household care segment is featured by intense competition and high level of penetration. With rapid urbanization, emergence of small pack size and sachets, the demand for the household care products is booming. In washing powder segment, HUL is the leader with ~38 per cent of market share. Other major players are Nirma, Henkel and Proctor & Gamble.

Personal Care:

Personal care segment includes personal wash products, hair care products, oral care products, cosmetics etc. The Indian skin care and cosmetics market is valued at $274 million and is dominated by HUL, Colgate Palmolive, Gillette India and Godrej. The coconut oil market accounts for 72 per cent share in the hair oil market. The hair care market can be segmented into hair oils, shampoos, hair colorants & conditioners, and hair gels the market is dominated by HUL with around ~47 per cent market share P&G occupies second position with market share of around ~23 per cent.

Personal wash can be further segregated into three segments namely Premium, Economy and Popular. Here also, HUL is the leader with market share of ~53 per cent Godrej occupies second position with market share of ~10 per cent. Swelling disposable incomes of the Indian consumers, growth in rural demand and upgrading to the premium products are the key drivers for future demand growth in major FMCG categories.

The oral care market can be segmented into toothpaste - 60 per cent; toothpowder - 23 per cent; toothbrushes - 17 per cent. This segment is dominated by Colgate-Palmolive with market share of ~49 per cent

while HUL occupies second position with market share of ~30 per cent.
In toothpowders market, Colgate and Dabur are the major players.

Food and Beverages:

This segment comprises of the food processing industry, health beverage industry, bread and biscuits, chocolates & confectionery, Mineral Water and ice creams. The three largest consumed categories of packaged foods are packed tea, biscuits and soft drinks. Indian hot beverage market is a tea dominant market. The major share of tea market is dominated by unorganized players. Leading branded tea players are HUL and Tata Tea. Major players in food segment are HUL, ITC, Godrej, Nestle and Amul.

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The sector can further classified into premium and mass segments: Premium segment: Serve mostly to the higher / upper middle income consumers which comprise 25% of total population.

Mass segment: Serve to consumers in semi-urban or rural areas of India which comprise 75% of total population.

INDIAN CONSUMERS SPENDING PATTERN :

INDIA OCCUPIES 17% OF THE WORLDS POPULATION THAT HALF OF THESE PEOPLE ARE BELOW THE AGE OF 25

Analysis of FMCG Sector in India:

The analysis of the FMCG sector of India is carried out on the basis of following: Pest Analysis Swot anlysis Industry Analysis of FMCG Sector Peers comparision Key drivers of growth in FNCG Sactor Main Competitors Key concerns for FMCG Sector Major Government Policies/Changes Sensex Vs BSE fmcg index Future outlook

INDUSTRY ANALYSIS OF FMCG SECTOR

The FMCG sector in India is expected grow at a compound annual

growth rate at 9% to a size of 1, 43,000 crs by 2010 from rs 93000

crs at present.

The industry is growing double digit growth in last 2 yrs. Annual revenues of us $14.74 billion. Market growth rate Rural -40%, urban -25%

FMCG MARKET SIZE IS INCREASING YEAR TO YEAR:

1. Transportation and infrastructure development in rural areas helps in distribution network. 2. Restrictions in import policies. 3. Help for agricultural sector .

1. GDP rate increase along 2. Increase in disposable income at 10 % annually for next 8 yrs. 3. Indian FMCG Recorded 16% Sales Growth in Last Fiscal. 4. The FMCG sector is a 4th largest sector of Indian

PEST
Analysis (FMCG Sector) 1. Rural employment 2. Volume-driven growth in rural 1. Technology has been simplified market. and available in the industry. 3. Major young population can 2. Foreign players helps in high increase revenue . technological development.

4. The Indian culture, social & life styles are changing drastically.

SWOT ANALYSIS
STRENGTHS Low cost operations. Strong Brands. Established distribution networks. OPPORTUNITIES Large domestic market. Imports. THREATS WEAKNESS Low export levels. Small scale sector reservations

Export potential.
Increase in income levels.

Tax & Regulatory Structures.

THE TOP 10 COMPANIES IN FMCG SECTOR :

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Hindustan Unilever Ltd. ITC (Indian Tobacco Company) Nestl India GCMMF (AMUL) Dabur India Asian Paints (India) Cadbury India Britannia Industries Procter & Gamble Hygiene and Health Care Marico Industries

Peers Comparison:

FMCG INDUSTRY GROWING:

Source: AC Nielsen

FMCGs GDP contribution :

The Fast Moving Consumer Goods, FMCG, sectors contribution to the countrys GDP now stands at 24.3 per cent.

Key Drivers for growth in FMCG Sector:

Rapid increase in the rate of urbanization, Rise in disposable incomes enabling the companies to focus on premium product brands, Constant innovation in existing products from customer feedback, Penetration to rural markets with strong distribution channels, Rise in rural non-agricultural income and benefits from government welfare programmes contributes to top-line growth for FMCG companies, Investment in this sector stocks also attracts investors attention because the demand for FMCG products is throughout the year There is a potential for all the FMCG companies as the per capita consumption of almost all products in the country is very low compared to world standards, thee exists there huge untapped opportunities.

LABOR COST IN INDIA:

Source: IMF World economic Outlook Database, Oct 2010

As can be seen from the above diagram, labor cost in India is amongst the lowest in emerging Asian countries. Easy raw material availability and low labor costs have resulted in a lower cost of production. Many multi-nationals have set up large low cost production bases in India to outsource for domestic as well as export markets.

The following factors make India a competitive player in FMCG sector:

Because of the diverse agro-climatic conditions in India, there is a large raw material base suitable for food processing industries. India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew

The second largest producer of rice, wheat and fruits &vegetables.

India also produces caustic soda and soda ash, which are required for the production of soaps and detergents. The availability of these raw materials gives India the location advantage.

Presence across value chain:

Indian companies have their presence across the value chain of

FMCG sector, right from the supply of raw materials to packaged

goods in the food-processing sector.

This brings India a more cost competitive advantage. For example, Amul supplies milk as well as dairy products like cheese, butter, etc.

Key concerns for FMCG sector

Rise in inflation leading to increase in raw material costs, New packaging norms from 1st July which is expected to increase cost of regular products like biscuits, coffee, tea, toiletries and personal care items by about 10% and more, Rising fuel cost leading to increase in distribution costs, Decline in industrial growth, Slowing economy will lead to lower demand of FMCG products affecting its volume growth, Sharp depreciation in the value of rupee against other currencies because most companies such as Marico, Godrej Consumer Products, Colgate, Dabur, etc import raw materials. The margins of these companies will be under pressure until the rupee stabilizes.

Why FMCG is top performer among other sectors?

In last 15 months, FMCG sector attracted many investors and gave strong returns to them. The other sector indices gave negative returns in the range of 2% to 38% due to slowdown in the economy, high interest rates and rising inflation

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SENSEX Vs BSE FMCG Index:

Drop in 2008 i.e. during slowdown in the economy. Laggard in 2009 when economy was recovering and major sectors started performing well contributing to growth in SENSEX. BSE FMCG index in 2010 was outstanding on back of fiscal stimulus but got hit again in 2011 due to European debt crisis and domestic reasons. In 2011, SENSEX was volatile and gave negative returns of 25% at end of year whereas; FMCG is the only sector which gave strong returns of 9% in 2011

Investing though Equity Route

Invest in FMCG stocks at a right time analyzing the fundamentals and peer comparison of these stocks. FMCG index mainly compose by 3 players ITC Ltd Hindustan Unilever Ltd Nestle India Ltd. They together contribute 80% market cap to total of BSE FMCG index. So, lot is dependent on the performance of these three stocks which is consistent over the past few years and driving FMCG index to new heights.

Investing through Mutual Fund Route:

There are two sector funds available in market which invests mainly into FMCG stocks. So, you can opt to invest in these schemes considering historical returns, portfolio and risk analysis. The returns from mutual fund schemes have outperformed benchmark index from 2009 onwards till date

MAJOR GOVERNMENT POLICIES/CHANGES:

It is unlikely that the government's initiatives will boost the sector overnight. The ongoing price wars mean that company earnings will continue to be volatile. Hence, in the short term, one should look at individual companies' prospects rather than the overall sectors prospects. This means that it is better to leave mutual funds that concentrate on FMCG companies and instead buy shares depending upon the company. It is not necessary that an MNC will be better than an Indian company. One should look at a company's profile and analyze its prospects before investing in its shares. It is not that you will lose out by buying FMCG stocks. But, in buying an FMCG stock, it will be ideal to cash in during short bursts of activity.

Future Outlook:

According to Nielsens research report entitled Consumer 360, the Indian FMCG market is estimated to grow to USD 100 billion by 2025 from USD 13 billion in 2012. According to report, the key areas driving this growth would be increase sales and acceptance of branded products, regular consumption of FMCG goods, etc. However, this growth will not be smooth there will be some untimely jerk led by economic slowdown, increase in inflation, etc. Its recommended to stay invested in this sector for long term to gain strong profits with uptrend in future and defensive characteristics. Invest in FMCG stocks when valuations get cheaper and market is bearish or opt for safer route to invest regularly in mutual fund schemes. These will invest your amount in various companies with presence in FMCG sector and diversify the risks