FMCG Sector in India

Introduction
4th largest sector in the Indian economy
Highly fragmented, volume driven, characterised by by low margins
Generated ~$44.9Bn in revenue in 2013, CAGRof 15.3% over 2006-12(source: IBEF)
Market size expected to grow to ~$135Bn in 2020 in India
Food products is the leading segment (43% of overall market); followed by Personal care (22%)
Urban sector contributes 2/3rd of the sectors total revenues
FMCG products contribute 43% of total rural spending
Salty snacks, refined edible oil, healthcare products, iodised salt are fast growing rural products
Grocers is most popular retail format (59% of FMCG sales)

FMCG Segments:
Household care (fabric wash, household cleaners)
Personal care (Oral care, hair care, skin care, cosmetics/deodorants, perfumes etc.)
Food & Beverages (Staples/cereals, bakery products, snacks, tea/coffee/soft drinks etc.)
Health care (over the counter products)

Market Shares:


Market Leader
Others
Hair Oil
Marico 42%
Dabur-15%
Bajaj-8%
Emami-5%
Shampoo
HUL-46%
P&G-24%
CavinKare-10%
Dabur-6%
Oral Care
Colgate-50%
HUL-22%
Dabur-13%

Skin Care
HUL-58%
Loreal-13%
P&G-10%
Emami-9%
Fruit Juice
Dabur-50%
Pepsico-45%



Growth Drivers:

Rising per capita incomes (estimated CAGR of 9.2% over 2001-19 by IMF) driving purchases
Change in consumer lifestyles and desire to experiment with brands
Availability of online channels to shop
Increased awareness of products and brands
Increased popularity of organised sector
Increased demand from rural sectors
Low penetration in branded products indicates scope for growth in volume sales
Government pro-industry policies higher MSPs, loan waivers, NREGA

Growth Opportunities:

Rural market: Leading players expected to leverage rural opportunities through strong
distribution networks
Innovative products driven by higher acceptance of products such as mens fairness creams,
flavoured yoghurt, and cuppa mania noodles
Rising disposable incomes have shifted purchasing trend from essential to premium products
Multinational FMCG players can leverage India as a hub for low cost product development
and export to international markets. HUL, Godrej Consumer, Marico, Dabur and Vicco
laboratories are amongst the top exporting companies.
Low penetration levels offer room for growth across consumption categories

Possible Growth Inhibitors:

Infrastructure Bottlenecks
Complex tax structure Different taxation policies across states allow room for price differences
Counterfeits and spurious products Low quality/adulterated products are sold in rural markets

Prominent Trends in the FMCG Sector:

1. Rising importance of Modern Retail: First time modern trade shoppers (FTMTS) have risen
considerably and total spending of this segment is expected to reach US$ 1 billion by 2015
(compared with US$ 280 million in 2012). This shopper segment is expected to drive sector
growth.
2. Slump in crude oil prices: With a large proportion of inputs in FMCG companies being crude
oil and its ancilliary products, there is rapid decrease in the cost of production.
3. Product Innovation: Innovation and customization of existing customer portfolios is a notable
trend.
4. Backward integration: is becoming the preferred strategy to increase profit margins
5. 3rd party manufacturing: Additional tax incentives have made 3rd party manufacturing
popular for many big players; helping FMCG companies to focus on front-end marketing
6. Rising importance of smaller-sized packs to sustain margins and maintain volumes
7. Focus on eco-friendly products
8. Increased penetration of private label goods
9. Focus on enhanced presence in Africa as large potential consumer market recognised.

Relevant Regulatory Developments:

1. GST: likely to be implemented soon will integrate multiple indirect taxes under a unified tax
system. Expected to reduce prices and increase consumption.
2. FDI: 51% investment in multi-brand retail and 100% investment in single brand retail has
been allowed.
3. Relaxation of license rules: Industrial license is not required for almost all food and agro-
processing industries, except few items such as beer, potable alcohol and wines.
4. Food Security Bill: Triggers higher consumer spending especially in rural areas

Product Portfolios for top Companies

Company
ITC Ltd.
HUL
P&G
Dabur
Emami

Best-Selling Products/Brands
Goldflake, Aashirvaad, Fiama Di Wills, Classmate, Sunfeast, Bingo, Yippee, Wills Lifestyle
Bru, Lipton, Knorr, Kissan, Wheel, Rin, Surf Excel, Vim, Lifebuoy, Lux, Dove, Axe, Close-Up
Pantene, Tide, Vicks, Whisper, Head&Shoulders, Gillette, Duracell, Olay, Oral-B, Ambipur
Chyawanprash, Hajmola, Dabur Honey, Pudin Hara, Honitus, Vatika, Red, Babool, Fem, Gulabari
Navratna, Zandu Balm, Fast Relief, HE, Kesari Jivan, Vasocare, Boroplus, Fair and Handsome

Key Company Financials (2014 annual figures)

Company
ITC
HUL
P&G
Dabur
Emami
Godrej
Marico

M.Cap. (Rs. Cr)

289795
187030
19957
40300
17423
34841
20569

Sales (Rs. Cr.)

35317
28019
2051
7094
1821
7602
4687

OPM
36.96%
16.37%
19.97%
16.20%
24.62%
15.71%
15.36%

Net Profit (Rs. Cr.)

8785.21
3867.49
302.02
913.92
402.47
759.73
485.38

CMP (09/01)
356.70
864.60
6148.2
229.45
767.55
1023.55
318.95

Company-wise News and Product Launches

1. Dabur:
Dabur launches a Brave and Beautiful campaign linked with Vatika Shampoo to salute
female survivors of cancer. Along with HUL and P&Gs social awareness campaigns linked
with Lifebuoy and Shiksha respectively, there is an increasing trend towards large scale
social initiatives amongst the larger industry players.
Dabur launched new health supplement Ratnaprash to be endorsed by Anil Kapoor
Stronger presence in hair oil market with launch of Jasmine Anmol Coconut Hair Oil

2. Emami:
Emami announced a partnership with German homeopathic company Hevert-Arzneimittel.
Technical know-how would be transferred from the German company for manufacturing in
India. This would allow Emami a larger share in the large and rapidly growing homeopathy
segment of the market, which is currently predominantly unorganised.
Emami is set to move towards products that more geared towards modern trade i.e. as
opposed to previous portfolio of Zandu, Navratna and Boroplus, Emami has recently added
mens deodrants (He deodrants), mens facewash, feminine hygiene products and light hair
oil.

3. HUL
Attempt towards consolidation and reduction of non-performing SKUs aim to reduce 25-
30% of non-performing SKUs in 2014-15
Large players such as HUL are working with modern e-tailers like Flipkart and Amazon to
sell goods through digital network.
The HUL share price rallied 20% upwards over the 1st two weeks of January owing to
substantial slump in crude oil prices. 40% inputs in the companys manufacturing rely on
crude and hence reduced input costs have resulted in strong positive investor sentiment.

4. ITC Ltd.
The government has proposed to amend the anti-smoking law recommending a ban on sale
of loose cigarettes and raising the minimum age for buying tobacco products to 21 years
from existing 18. This has negatively impacted sentiment for ITC, thus causing a fall in
share price. On the other hand, tobacco has been included in the ambit of GST and hence
tobacco tax is expected to be lower going forward.
ITC is one of forerunners in cost cutting among the FMCG players owing to weaker
economic conditions
The company is also looking to focus on regional markets and has launched the fruit juice
B Natural as part of this endeavor