Nifty FMCG Index: The index is designed to reflect the behavior and performance of Fast

Moving Consumer Goods (FMCG). They are those goods and products, which are non-durable,
mass consumption products and available off the shelf. The index comprises of 15 companies
and base date of the index is December 1995 and base value of 1000 points.
FMCG INTRODUCTION:
Indias FMCG sector is the fourth largest sector in the economy and creates employment for
more than three million people in downstream activities. Its principal constituents are Household
Care, Personal Care and Food & Beverages. The total FMCG market is in excess of Rs. 85,000
Crores. It is currently growing at double digit growth rate and is expected to maintain a high
growth rate. Fast Moving Consumer Goods (FMCG) - alternatively known as consumer
packaged goods (CPG) are products that are sold quickly and generally consumed at a regular
basis, as opposed to durable goods such as kitchen appliances that are replaced over a period of
years. The FMCG industry primarily engages in the production, distribution and marketing
operations of CPG. FMCG product categories comprise of food and dairy products,
pharmaceuticals, consumer electronics, packaged food products, household products, drinks and
others. Meanwhile, some common FMCG include coffee, tea, detergents, tobacco and cigarettes,
soaps and others. The big names in this sector include ITC, Sara Lee, Nestle, Reckitt Benckiser,
Unilever, Procter & Gamble, Coca-Cola, Carlsberg, Kleenex, General Mills, Pepsi, Mars and
others. In recent years, the fast moving consumer goods sector (FMCG) is witnessing increased
use of sales promotion activities all over the world. This sector is characterized by products
having low unit value and requiring frequent purchases and consumer behavior reflecting less
loyalty, impulse buying, and low involvement on the part of a consumer.
Products which have a quick turnover, and relatively low cost are known as Fast Moving
Consumer Goods (FMCG). FMCG products are those that get replaced within a year.
Examples of FMCG generally include a wide range of frequently purchased consumer products
such as toiletries, soap, cosmetics, tooth cleaning products, shaving products and detergents, as
well as other non-durables such as glassware, bulbs, batteries, paper products, and plastic goods.
FMCG may also include pharmaceuticals, consumer electronics, packaged food products, soft
drinks, tissue paper, and chocolate bars. The fast-moving consumer goods (FMCG) sector is an

important contributor to Indias GDP. It is the fourth largest sector of the Indian economy. The
FMCG market is estimated to treble from its current figure in the coming decade. Penetration
levels as well as per capita consumption of most product categories like jams, toothpaste, skin
care and hair wash in India are low, indicating the untapped market potential. The growing
Indian population, particularly the middle class and the rural segments, present an opportunity to
makers of branded products to convert consumers to branded products. The Indian rural market
with its vast size and demand base offers a huge opportunity for investment. Rural India has a
large consuming class with 41 per cent of Indias middle-class and 58 Per cent of the total
disposable income.
The FMCG product category in India is also witnessing severe competition like the US markets.
Fast moving consumer goods (FMCGs) constitute a large part of consumers budget in all
countries. Retail trade in these products, that is, their supply to households, has attracted
considerable interest from consumers and policy-makers because a well-functioning retail sector
is essential for daily provision of these essential products at high quality and low cost. The retail
sector for FMCGs is the process of a drastic transformation. New, modern retail formats, like
chain stores and hyper/supermarkets, have rapidly diffused in almost all major urban areas, and
increased their market share at the expense of traditional formats (grocery shops, green groceries,
etc.) in the last couple of decades. This rapid transformation has raised concerns about
competitive conditions in the sector.
FMCG Industry is characterized by a well established distribution network, low penetration
levels, low operating cost, lower per capita consumption and intense competition between the
organized and unorganized segments.
The Rs 85,000- crore Indian FMCG industry is expected to register a healthy growth in the third
quarter of 2008-09 despite the economic downturn. The industry is expected to register a 15%
growth in Q3 2008-09 as compared to the corresponding period last year. Unlike other sectors,
the FMCG industry did not slow down since Q2 2008. The industry is doing pretty well, bucking
the trend. As it is meeting the every-day demands of consumers, it will continue to grow.
Through the nineties, the FMCG markets grew at almost 15% per annum in value. Suddenly, in
2000 FMCG market growth stalled and then declined for the next four years. The rapid opening
up of the economy resulted in many new avenues of expenditure for the consumers growing

income. A sharp drop in interest rates from 18% to 8% led to explosive demand for consumer
durables like white goods, two wheelers and automobiles. Mobile phone ownership and usage
exploded due to its amazing lifestyle and convenience benefits as well as lower prices.
Entertainment, leisure and travel sectors also boomed. The lure of new avenues of expenditure in
products and services led to consumers restricting their spending on FMCG. Consumers
downgraded to lower priced substitutes from higher quality brands.
1. PAST SALES AND EARNING PERFORMANCE:
SALES
Sales are a key function in the success of any FMCG company. It takes strong business planning,
alongside the very best in-store sales execution, to ensure an increase in both net revenue and
market share. Which means, in the strongest sales departments, results are powered by integrated
working: global and local teams liaising closely to achieve the best outcomes for the business?

The joy of working in sales is that results really do speak for themselves. So once you begin to
achieve in this sector, you can expect your career to move very quickly. Your career
development will see you learning all the skills you need to deliver results through retailers.
Allowing you the chance to gain experience in all aspects of local and global sales, as well as in
marketing.
Earnings Performance:
ITC on Friday reported a decline in revenue and almost flat growth in net profit for the
September quarter, with a drop in cigarette volume sales and slow consumer demand in the fastmoving consumer goods (FMCG) sector.

Analysts said there was a 16 per cent decline in cigarette volumes, in keeping with the trend in
the earlier two quarters. Net profit rose 0.2 per cent to Rs 2,431 crore versus Rs 2,425 crore in
the same quarter last year. Revenue fell 1.4 per cent to Rs 8,904 crore, compared to Rs 9,024
crore last year.

What supported the bottom line was the operating-level performance. This helped improve

operating margins by two per cent over a year ago, to Rs 3,560 crore and the margin expanded
by 130 basis points to 40 per cent, analysts said.

The performance reflected the unprecedented pressure on legal cigarette industry volumes, lack
of trading opportunities in agricultural commodities and a sluggish demand environment in
FMCG. Plus, prolonged disruption in the instant noodles category due to regulatory challenges.
Revenue from the crucial cigarettes portfolio, which gives ITC its lions share of profit, declined
1.5 per cent to Rs 4,317 crore for the quarter, compared to Rs 4,251 crore last year. However, the
category's earnings before interest and tax (EBIT) improved three per cent to Rs 2,969 crore.
Analysts attributed this to the price increases it did after the rise in taxes in the Union budget the latter went up 18 per cent and ITC raised the price of cigarettes by around 15 per cent in
March.
Revenue from the non-cigarette FMCG business includes packaged foods, apparel, education
and personal care products rose seven per cent to Rs 2,352 crore, from Rs 2,196 crore during
the same period last year. However, the segment continued to remain in the red, with EBIT
declining 7.6 per cent to Rs 11.1 crore against Rs 10.3 crore a year ago.
Segment revenue had an underlying growth of 10 per cent during the quarter. While most
categories witnessed expansion in gross margin, driven by product-mix enrichment and stable
input costs, the segment results were hit due to gestation costs of new categories juices, gums
and dairy, and higher brand investments," the company said.

Revenue from its hotels business rose 10.9 per cent to Rs 290 crore and the EBIT loss declined
to Rs 5.5 crore from Rs 9.6 crore in the year-ago period. Revenue from the paper business was
Rs 1,254 crore, against Rs 1,284 crore in the year-ago period, with EBIT down 13.6 per cent and
margin contraction of 210 basis points.

Revenue from agribusiness declined almost 10 per cent, to Rs 1,844 crore against Rs 2,059 crore
earlier, due to lack of export opportunities in wheat, coffee and soya, lower global prices and

poorer quality due to unseasonal rain.

The ITC scrip closed at Rs 334.70, a fall of 4.3 per cent. The benchmark index closed at Rs
26,656.83, declining 0.7 per cent.

Past sales:
Keep on moving
When we talk about fast moving consumer goods (FMCG), we are talking about the things we
all consume regularly, such as food, drinks and toiletries. These goods are fast moving because
they have a short shelf life, either because they have expiry dates or because we gobble them up
really quickly.
If these goods are so fast moving, then why do we need salespeople trying to flog them? Well,
why dont you read on and find out?
Why is it important? What does it involve?
Consumer goods companies sometimes need their products to get some serious sales treatment.
They need to make sure that the right stores are stocking their products and they need to ensure
that consumers are actually consuming their goods. FMCG sales initiatives can be a great way to
bolster a companys ad campaigns and actively influence sales activity.
People who pursue careers in FMCG sales are required to showcase a companys products to
retail companies, or directly to consumers in shopping centres, supermarkets and other retail
outlets. Their overall objective is to improve sales figures and boost revenue.
A large amount of this sales activity is in face-to-face situations. Consequently, these guys might
be required to be travel around the country a lot.
Break it down for me a little bit!
The business to business (B2B) side of FMCG sales is probably the most important. People who
focus on this area tend to arrange and attend meetings with the buying department of retail
companies, showcase their products and try to convince clients to order their products in bulk.

These guys might be required to travel around the country to meet existing and new clients on a
daily basis. They will need to know their products inside out, have a detailed understanding of
their sales data and have excellent communication skills to help them persuade buyers to place
orders. Its all about building relationships with clients, so that they will continue to place repeat
orders.
The business to consumer (B2C) side of FMCG sales is focused on selling products directly to
consumers in retail settings or in their own homes. These methods are discussed in greater detail
in the Direct, Face-to-Face & Field Sales subsector, so head there now for more information!
To be successful in this area of sales, you will need to be confident, friendly and have excellent
communication and presentation skills. You will be constantly on the go and therefore you will
have to be able to cope with the travelling aspect of the role.
As in all sales careers, hard work, determination and energy can be rewarded handsomely with
worthwhile commission schemes. However, be aware that some careers in FMCG sales might
only pay on a commission basis (i.e. with no basic salary). This can be particularly risky,
especially for people coming in at entry level with no experience.
If you reckon youve got the knowhow to sell B2B, or the blinding-white, ingratiating smile to
convince consumers to buy your products, this might be the perfect career path for you!
2. PERMANENACE:
The permanency of the FMCG is forever as they are vital for the market. FMCG is important for
day to day life of the customer.
3. GOVERNMENT ATTITUDE TOWARDS FMCG
To understand why these high valuations might not be sustainable, we need to see why the sector
has been in such high demand in the last few years. The main reason, say analysts, is high
government spending, which been acting as a stimulus. Also, there are not too many sectors
growing

as

fast

as

the

FMCG

sector.

"Government policies that have been positive for demand and strong economic activity until last

year helped earnings of FMCG companies. Plus, there was demand for defensive stocks due to
weakness in investment expenditure.

Lower raw material prices have given rise to competition from unorganised FMCG companies.
This is because as raw material prices rise, companies in the unorganised space are unable to
control costs due to lack of scale. When raw material prices fall, they make a comeback.

The government stimulus, too, may be running out. "Given that the government's ability to
maneuver consumer demand is curtailed by fiscal deficit concerns, and sales are beginning to
soften following inflation and weak income growth, the risks to earnings growth are rising,".

FUTUREMAP:

sustaining the present higher valuations will be challenging for FMCG companies. Also, the
current base is high and so demand growth is not likely to be as high as in the recent quarters,
analysts.

Recently, valuations have been supported by promoters buying additional shares from the
market. For instance, Hindustan Unilever's (HUL's) parent Unilever Plc wants to buy a 22.52%
stake in the Indian unit at Rs 600 per share. The market price of the stock was Rs 595 on 13 June
2013. After the open offer, Unilever will hold 75% in the company. Similarly, in February,
GlaxoSmithKline Plc increased stake in its Indian arm, GlaxoSmithKline Consumer Healthcare,
from 42.3% to 72.5%. The deal, at Rs 3,900 a share, was valued at Rs 4,800 crore; the parent
said it was part of a strategy to invest in the world's fastest growing market. These two deals
have put further upward pressure on valuations of Indian FMCG companies, say analysts.

In addition, higher competition amid softening demand may weigh on profitability. "Competitive
intensity could rise in a weakening environment as companies concentrate on volume gains,
weakening profit growth further," says Rai of Kotak.

However, analysts are quick to point out that the growth will be not be bad overall, as India

is still a low consumption country. It's just that the sharp rally over the last few years has made
these stocks very expensive, they say. "Volume growth will stabilize and margins will expand,
but not to the extent that we saw in 2012,"says Bobade of BRICS Securities.
4. LABOR CONDITION:
Labor Condition FMCG
NEW DELHI: Carmakers, apparel firms and FMCG companies among others have urged the
government to withdraw a new labour law that seeks to provide job security, pay parity and
better working conditions to over three lakh sales personnel in ten sectors.
In January, the labour ministry extended the Sales Promotion Employees Act which currently
governs medical representatives of the pharmaceutical companies to almost a dozen other
sectors. This makes it mandatory for employers in these sectors to give a letter of appointment to
all sales employees, besides benefits such as earned, medical, extraordinary, study and casual
leaves. Firms are also barred from keeping arbitrary working hours and conditions, besides
making it tough to sack sales employee.

In a letter to the labor secretary, Sharad Patil, secretary general of the Employers Federation of
India said the industry had earlier made a 'total strong and unequivocal opposition' during a tripatriate meeting among the employers, trade unions and the government. Yet, the government
recorded in its minutes of the meeting that a 'broad consensus' was reached to go ahead with the
new law, conceding to the demands of unions, he said.
Human resource experts say employers will have to overhaul their HR policies with the new law
which covers companies in businesses such as cosmetics, soaps and disinfectants; ready-made
garments; soft drink, mobiles including accessories; electronics, computers, electrical appliances
and paints. Other sectors that will be under the purview of the new Act include ayurvedic, unani
and homeopathic medicines; surgical equipment, artificial prosthesis and diagnostics.
The Employers Federation of India, the apex body of employers dealing with labour issues, has
asked the government to rescind the notification and implement it only after taking into account

the concerned industries. Its members include Maruti Suzuki, Hyundai Motors, Hindustan
Unilever, Colgate, P&G, PepsiCo and Raymond.
But it will be the smaller firms who will be worst affected as they don't have an organised legal
or HR team who can deal with such laws, said Patil.
At present, sales personnel in most sectors are covered under either the Factories Act or the
Shops & Establishment Act of the respective states. Labour experts say employers in the
identified sectors will now automatically have to comply with six other central labour laws such
as the Industrial Disputes Act of 1947 while dealing with sales personnel.
The employers association also wants the government to initiate action against trade unions, such
as the medical representatives' union for alleged unlawful practices against the interest of the
drug industry.
5. Fast Moving Consumer Goods Competitive Conditions and Policies:
Private label products can help some medium-sized suppliers to be more competitive against
large suppliers who have established brands. The transformation of the retail market is likely to
have a long-lasting impact on wholesale trade and the distribution of FMCGs as well. Traditional
wholesalers are the most likely losers, because large retailers tend to buy directly from suppliers.
Logistics companies that provide a wide range of complementary services will play an
increasingly more important role in the distribution of FMCGs.
The retail market in INDIA is competitive. Prices across retail formats differ substantially for
a market operating on a very thin profit margin. However, these differences are likely to stem
from cost differences. There are some practices applied by retail companies that are potentially
anticompetitive (price flexing, listing fees, slotting fees, etc.). However, these practices do not
distort competition in the retail market seriously, because these companies seem to lack a
significant degree of market power. These markets need to be scrutinized closely by the
Competition Authority to guarantee further development of the retail market. Supermarkets,
chains stores and foreign firms are likely to increase their market shares in the future.

SWOT
Strengths Low operational costs.
Presence of established distribution networks in both urban and rural areas.
Presence of well-known brands in FMCG sector.
Favourable governmental Policy:
Indian Government has passed the policies aimed at attaining international competitiveness
through lifting of the quantitative restrictions, reducing excise duties, 100 per cent export
oriented units can be set up by government approval and use of foreign brand names etc.
Foreign Direct Investment (FDI):
Automatic investment approval up to 100 per cent foreign equity or 100 per cent for NRI and
Overseas Corporate Bodies investment is allowed for most of the food processing sector except
malted food, alcoholic beverages and those reserved for small scale industries (SSI).
Opportunities Untapped rural market, changing life style.
Rising income levels, i.e. increase in purchasing power of consumers.
Large domestic market with more population of median age 25. High consumer goods
spending.
India is the largest milk producer in the world, yet only around 15 per cent of the milk is
processed. The organized liquid milk business is in its infancy and also has large long-term
growth potential. Even investment opportunities exist in value-added products like desserts,
puddings etc.
Only about 10-12 per cent of output is processed and consumed in packaged form, thus
highlighting the huge potential.

 India is under penetrated in many FMCG categories as shown in below diagram. With rise in
per capita incomes and awareness, the growth potential is huge.
Lower price and smaller packs are also likely to drive potential up trading for major FMCG
products

WeaknessLower scope of investing in technology and achieving economies of scale, especially in small
sectors
Low exports levels
"Me-too products, which illegally mimic the labels of the established brands. These products
narrow the scope of FMCG products in rural and semi-urban market.

Threats Removal of import restrictions resulting in replacing of domestic brands

Tax and regulatory structure
Rural demand is cyclical in nature and also depends upon monsoon.

PORTERS 5 FORCE MODEL:

Rivalry among Existing Players Rivalry among Existing:

Rivalry among players is very high in FMCG

Price competition Players

Advertisement & Promotional Stuff

Distribution

New product

Storage

Exit Barriers are low

Warranty & Guarantee

POTENTIA L ENTRANTS Potential Entrants

POTENTIA L ENTRANTS Barriers Government Rules &R egulations FDI Licensing

Rules Food Security Bill Government Service And Tax

Strong Distribution Network Required

High Capital Requirement

Already Existing Strong Brand Names

Raw Material Availability

Low Labor Cost

BUYERS
Concentration on relative purchase, information available, product importance
SUPPLIER
Switching cost, Relative supply, Importance of input, information about substitutes, employee
solidarity
SUBSTITUTE

Substitutes Utility Switching Cost

Utility= Threat More

Switching Cost=Threat Less

PEST ANALYSIS:
Political &legal:

Political stability.

Tax exemption in sales and excise duty for small scale industries.

Transportation and infrastructure development in rural areas helps in distribution

network.

Restrictions in import policies.

Help for agricultural sector

Economical:
The GDP rate of Indian economy is increasing every year. It is expected in future it would
be better in comparison with other countries.
Inflation rate is increasing across the world and India is also no exception. The government
and Reserve Bank of India both are trying to control the inflation rate with the help of
different measures.
Increase in disposable income has taken place due to higher GDP rate. The per capital
income is increasing so the customers are having more income to spent for various reasons.
Indian FMCG sector recorded 16% sales growth in last fiscal year and it is expected it
would further improve in the forthcoming years.
The FMCG sector is a 4th largest sector of Indian economy with market size of more than
60,000 crore. The Indian Territory is very large and number of customers is also very high.
Social:

Demographical analysis.

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

The total population is nearly 115 crores and population includes rich, poor, middle
class, male, female, located in rural, urban and sub urban areas.

Increase level of education etc.

Increase awareness among rural market.

Technology:

Technology has been simplified and available in the industry. Where technology is not
available then it is brought from foreign countries to meet FMCG sector requirements.

Foreign players help in high technological development. With research and development
facilities the new technologies are developed alone or with the help of foreign players.

IMPACT OF THE FMCG SECTOR IN INDIA

SOCIAL CONTRIBUTION:
The FMCG sector creates employment for people with lower educational qualifications. It
encourages many to become small entrepreneurs by setting up their own Kirana stores. FMCG
companies have undertaken specific projects to integrate with rural India. Examples include ITC
e-Choupal and Choupal Sagar, HULs Shakti Amma Network, etc.
FISCAL CONTRIBUTION:
Cascading multiple taxes (import duty, CENVAT, service tax, CST, State VAT, octroi/entry tax,
and income tax) are paid at multiple points by the FMCG sector. On an average, ~30% of the
sectors revenue (USD13.5 billion) goes into direct and indirect taxes.
EMPLOYMENT CONTRIBUTION:
The FMCG sector is one of the largest employers in India. The sectors total salary outlay on
direct employment is estimated at approximately 6% of turnover (USD2.7 Billion). Out of the
~1213 million retail stores in India, ~9 million are FMCG Kirana stores. Thus, the sector
provides livelihood to ~13 million people.
SECTOR COMPOSITION RURAL VS. URBAN (2013)
The urban sector constitutes 67% of the total FMCG market and had a market size of ~USD30
Billion in 2013. The rural FMCG sector with a market size of ~USD15 Billion contributes the
remaining 33%. However, in the last few years, the FMCG market has grown at a faster pace in
rural India compared with urban India. The urban FMCG market grew 8% while rural India

expanded 12.2% in 2013, as per AC Nielsen. It also forecasts the rural FMCG market to reach
USD100 billion by 2025.
FINANCIAL RATIO ANALYSIS
Ratio

2015

2014

2013

2012

2011

2010

Current ratio

1.01

0.945

0.945

0.95

0.915

1.005

Fixed Assets Ratio

4.825

4.775

4.795

4.375

4.06

3.985

Inventory ratio

9.43

8.975

8.85

7.58

7.275

6.735

Debtors ratio

33.42

32.055 37.665

33.15

30.305

31.96

Total assets turnover ratio

4.385

4.505

3.88

4.385

4.525

Interest cover ratio

245.565 338.64 134.165 1445.215 6161.12 236.285

PBIDTM

23.37

23.44

21.865

21.715

20.65

21.055

PBITM

21.975

22.04

20.485

20.255

19.05

19.39

PBDTM

23.27

23.35

21.69

21.58

20.505

20.865

CPM

16.495

17.275 16.03

16.015

15.275

15.445

APATM

15.105

15.87

14.655

14.555

13.675

13.78

ROCE

80.79

86.73

76.115

68.76

72.29

77.62

RONW

68.945

83.14

69.66

61.405

60.67

62.085

4.275

INTERPRETATION:
Current ratio is a liquidity ratio that measures companies ability to pay its debt. Here current
ratio is for 5 year is near by 1 which shows it is good.
Debtor ratio shows how efficient a company it at collecting its credit sales from its customer.
Interest cover ratio that measures companies ability to make interest payment on its debt in a
timely manner.
The total assets turnover ratio is an efficiency ratio that measure companies ability to generate
sales from its assets by comparing net sales with average total assets.

CONCLUSION OF PORTFOLIO ANALYSIS:

From the 15 listed company in the FMCG stock of NSE we found that 8 companies are
appropriate for investment. As per over portfolio analysis the investment proportion with the
companies are as below:
COMPANY NAME

% OF INVESTMENT

COLGATE -PALMOLIVE
GODREJ INDUSTRIES LTD
GlaxoSmithKline Consumer Healthcare Limited
BRITANNIA INDUSTRIES LTD
EMAMI
MARICO
DABUR
Tata Global Beverages Limited

0.258021
9.074218
22.91506
16.50583
8.235819
16.74994
16.74994
9.511166