FMCG Industry

Introduction

India is a consumer driven market, with consumer spending in the country projected to
more than double by 2025. These days, the Indian consumer segment, broadly categorized into
urban and rural markets, is attracting marketers from across the globe.

Global corporations see India as a key market for the future. The growth in the country's
consumer market is largely driven by a young demographic and rising disposable income. If
India sustains its current pace of growth for the foreseeable future, average household incomes
will likely triple over the next twenty years and the country will become the world's fifth largest
consumer economy by 2025, as per a study by the McKinsey Global Institute (MGI).

The Government of India has also played a significant role in the growth of the Indian consumer
segment. It has brought about policies which have attracted foreign direct investment (FDI) and
consequently boosted economic growth.

Market size

India has the potential to become the world's largest middle class consumer market with an
aggregated consumer spend of nearly US$ 13 trillion by 2030, as per a report by Deloitte titled
'India matters: Winning in growth markets'.

Driven by growing incomes and increasing affordability, the consumer durables market is
projected to expand at a compound annual growth rate (CAGR) of 14.8 per cent, from US$ 7.3
billion in FY12 to US$ 12.5 billion in FY15.

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Online retailing, both direct and via marketplaces, will grow threefold to become a Rs 50,000
crore (US$ 8.26 billion) industry by 2016, driven by a 50-55 per cent per year growth over the
next three years, as per rating agency Crisil. The growth of internet retail is also expected to
boost offline retail stores.

Investments

The following are some of the major investments and developments in the Indian
consumer market sector: The high penetration of internet and the growing use of smartphones
have helped top e-commerce firms leading to a rapid rise in their valuations, as per experts. This
rapid growth of internet-based companies comes at a time when Flipkart is valued at an around
US$ 4-5 billion and Justdial has market capitalisation of Rs 11,000 crore (US$ 1.81 billion).

Finland-based smartphone company, Jolla, has signed an agreement with Snapdeal.com to launch
its handsets in India. "India is the rising smartphone market of the world and we look forward to
welcoming many new Jolla fans across the country. Since late 2011 when we established the
company Jolla, we have received a tremendous amount of interest from India to enter this great
market," as per Mr Sami Pienimki, Co-founder and CMO, Jolla.

Ethnic apparel brand Soch will soon launch its own online retail store via which it will offer
specialised services to bring in customers. "We want to bridge the gap between online and
offline. I believe it is only a matter of time before these channels merge," as per Mr Vinay
Chatlani, SEO, Soch.

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Bharti Enterprises has agreed to sell a majority stake in its group company, Beetel Teletech to a
unit of US-based Brightstar Corp. The deal could allow Brightstar to test India's fast growing
mobile phones industry. "The new mobile business and related technologies that Brightstar is
bringing to Beetel will help drive significant growth by leveraging our deep distribution
strength," as per Mr Rakesh Bharti Mittal, Vice-Chairman, Bharti Enterprises.

Finnish packaging major Huhtamaki has entered into an agreement to buy Positive Packaging
which is known for producing packaging materials, for a transaction worth US$ 336 million.
"The transaction enhances our position in India and provides us with much improved access to
the fast growing markets of Africa and Middle East," as per Mr Jukka Moisio, CEO, Huhtamaki
Oyj.

Google has tied up with Indian handset-makers Karbonn, Micromax, and Spice to develop sub-
US$ 100 smartphones, some of which be in the market as early as September 2014. The initiative
could help propel the Indian brands' image globally and as well as bring in greater competition in
India's entry-level smartphone market, as per experts.

Government Initiatives

The Government of India has allowed 100 per cent FDI in the electronics hardware-
manufacturing sector via the automatic route. The government has also allowed 51 per cent FDI
in multi-brand retail trading and 100 per cent in single-brand retail trading in an effort to bring
more foreign investment into India.

Hyderabad will soon have a Rs 100 crore (US$ 16.52 million) National Institute for Footwear
Design and Development. The Government of Andhra Pradesh has allocated the required land at

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Gachibowli in Cyberabad. Funds for the centre have already been sanctioned by the Ministry of
Commerce.

With the growing demand for skilled labour among Indian industries, the Indian government
aims to train 500 million people by 2022, and is seeking participation of private players and
entrepreneurs for the purpose. Several corporate, government, and educational organizations are
putting in the effort to train, educate and generate skilled workers.

Road Ahead

India is set to become a key market for wearable technology such as smart watches and
fitness monitors, on the back of consumer interests in these latest gadgets and growing spending
on consumer durables. Respondents from India were most interested in purchasing fitness
monitors (80%), smart watches (76%) and internet-enabled eyeglasses (74%), as per Accenture's
Digital Consumer Tech Survey 2014.

American measurement company Nielsen projects that rural India's FMCG market will top the
US$ 100 billion mark by 2025. Online portals are anticipated to play a significant role for
companies trying to break into these markets. The Internet is also allowing for a cheaper and
more convenient means to increase a company's reach by overcoming geographical barriers.

Urban trends

With rise in disposable incomes, mid- and high-income consumers in urban areas have
shifted their purchasing trend from essential to premium products. In response, firms have started
enhancing their premium products portfolio. Indian and multinational FMCG players are

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leveraging India as a strategic sourcing hub for cost-competitive product development and
manufacturing to cater to international markets.

Top Companies

According to the study conducted by AC Nielsen, 62 of the top 100 brands are owned by
MNCs, and the balance by Indian companies. Fifteen companies own these 62 brands, and 27 of
these are owned by Hindustan Unilever.

The Top Ten India FMCG brands are:

1. Hindustan Unilever Ltd.

2. ITC (Indian Tobacco Company)

3. Nestle India

4. GCMMF (AMUL)

5. Dabur India

6. Asian Paints (India)

7. Cadbury India

8. Britannia Industries

9. Procter & Gamble Hygiene and Health Care

10. Marico Industries

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Five Forces for FMCG Industry analysis:
Rivalry among Competing Firms:

In the FMCG Industry, rivalry among competitors is very fierce. There are scarce
customers because the industry is highly saturated and the competitors try to snatch their share of
market. Market Players use all sorts of tactics and activities from intensive advertisement
campaigns to promotional stuff and price wars etc. Hence the intensity of rivalry is very high.

Potential Entry of New Competitors:

FMCG Industry does not have any measures which can control the entry of new firms. The
resistance is very low and the structure of the industry is so complex that new firms can easily
enter and also offer tough competition due to cost effectiveness. Hence potential entry of new
firms is highly viable.

Potential Development of Substitute Products:

There are complex and never ending consumer needs and no firm can satisfy all sorts of
needs alone. There are plenty of substitute goods available in the market that can be re-placed if
consumers are not satisfied with one. The wide range of choices and needs give a sufficient room
for new product development that can replace existing goods. This leads to higher consumers
expectation.

Bargaining Power of Suppliers:

The bargaining power of suppliers of raw materials and intermediate goods is not very
high. There is ample number of substitute suppliers available and the raw materials are also
readily available and most of the raw materials are homogeneous. There is no monopoly situation
in the supplier side because the suppliers are also competing among themselves.

Bargaining Power of Consumers:

Bargaining power of consumers is also very high. This is because in FMCG industry the
switching costs of most of the goods is very low and there is no threat of buying one product
over other. Customers are never reluctant to buy or try new things off the shelf.

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Hindustan Unilever Limited

Making Sustainable leaving commonplace

Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods
Company with a heritage of over 80 years in India and touches the lives of two out of three
Indians. HUL works to create a better future every day and helps people feel good, look good
and get more out of life with brands and services that are good for them and good for others.
With over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin
care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water
purifiers, the Company is a part of the everyday life of millions of consumers across India. Its
portfolio includes leading household brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair
& Lovely, Ponds, Vaseline, Lakm, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe,
Brooke Bond, Bru, Knorr, Kissan, Kwality Walls and Pureit.
The Company has over 16,000 employees and has an annual turnover of INR 27408 crores
(financial year 2013-2014). HUL is a subsidiary of Unilever, one of the worlds leading suppliers
of fast moving consumer goods with strong local roots in more than 100 countries across the
globe with annual sales of 49.8 billion in 2013. Unilever has 67.25% shareholding in HUL.

Company vision

We meet every day needs for nutrition, hygiene and personal care with brands that help
people feel good, look good and get more out of life.Sustainability is at the heart of our business,
and through our brands, we seek to inspire people to take small everyday actions that can add up
to a big difference for the world. Our deep roots in local cultures and markets around the world
give us our strong relationship with consumers and are the foundation for our future growth. We
will bring our wealth of knowledge and international expertise to the service of local consumers
a truly multi-local multinational.

Our long-term success requires a total commitment to exceptional standards of performance and
productivity, to working together effectively, and to a willingness to embrace new ideas and learn
continuously. To succeed also requires, we believe, the highest standards of corporate behaviour
towards everyone we work with, the communities we touch, and the environment on which we
have an impact. This is our road to sustainable, profitable growth, creating long-term value for
our shareholders, our people, and our business partners.

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Purpose & principles
Our corporate purpose states that to succeed requires "the highest standards of corporate
behavior towards everyone we work with, the communities we touch, and the environment on
which we have an impact."

Always working with integrity

Conducting our operations with integrity and with respect for the many people, organizations and
environments our business touches has always been at the heart of our corporate responsibility.

Positive impact
We aim to make a positive impact in many ways: through our brands, our commercial operations
and relationships, through voluntary contributions, and through the various other ways in which
we engage with society.

Continuous commitment
We're also committed to continuously improving the way we manage our environmental impacts
and are working towards our longer-term goal of developing a sustainable business.

Setting out our aspirations

Our corporate purpose sets out our aspirations in running our business. It's underpinned by our
code of business Principles which describes the operational standards that everyone at Unilever
follows, wherever they are in the world. The code also supports our approach to governance and
corporate responsibility.

Working with others

We want to work with suppliers who have values similar to our own and work to the same
standards we do. Our Business partner code, aligned to our own Code of business principles,
comprises ten principles covering business integrity and responsibilities relating to employees,
consumers and the environment.

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Unilever Sustainable Living Plan

In an uncertain and volatile world, we cannot achieve our vision to

double our size without also reducing our environmental footprint and
increasing our positive social impact. Launched in 2010, the Unilever
Sustainable Living Plan is our blueprint for sustainable growth. The Plan is
helping to drive profitable growth for our brands, save costs and fuel
innovation. Our Plan sets out three big goals

Underpinning these goals are nine commitments supported by targets spanning our social,
environmental and economic performance.

HUL Businesses

Home Care

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Personal Care

Foods & Beverages

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Water Purifier

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HUL Group of Companies

HUL Group Companies

Subsidiaries Unilever India Exports Limited India
Unilever Nepal Limited Nepal
Daverashola Estates Private Limited India
Ponds Exports Limited India
Levers Associated Trust Limited India
Levindra Trust Limited India
Hindlever Trust Limited India
Jamnagar Properties Private Limited India
Brooke Bond Real Estates Private Limited India
Lakme Lever Private Limited India
Aquagel Chemicals Private Limited
Trust HUL Securitization of Retirement Benefit Trust
Joint Venture Kimberly Clark Lever Private Limited

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Indian Tobacco Company Limited

Creating enduring Value for India

Indian Tobacco Company (ITC) is one of India's foremost private sector companies with a
market capitalisation of US $ 45 billion and a turnover of US $ 7 billion. ITC is rated among the
World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by
Forbes magazine and among India's Most Valuable Companies by Business Today. ITC ranks
among India's '10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and
published by the Economic Times. ITC also ranks among Asia's 50 best performing companies
compiled by Business Week.

Company Vision
Sustain ITC's position as one of India's most valuable corporations through world class
performance, creating growing value for the Indian economy and the Company's stakeholders
Core Principles.

Purpose & Principles

ITC's Corporate Governance initiative is based on two core principles. These are:

Management must have the executive freedom to drive the enterprise forward without
undue restraints; and this freedom of management should be exercised within a
framework of effective accountability.

ITC believes that any meaningful policy on Corporate Governance must provide
empowerment to the executive management of the Company, and simultaneously create a
mechanism of checks and balances which ensures that the decision making powers vested
in the executive management is not only not misused, but is used with care and
responsibility to meet stakeholder aspirations and societal expectations.

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Multiple Drivers of Growth
ITCs aspiration to create enduring value for the nation and its stakeholders is manifest in
its robust portfolio of traditional and greenfield businesses encompassing Fast Moving Consumer
Goods (FMCG), Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, and
Information Technology. This diversified presence in the businesses of tomorrow is powered by
a strategy to pursue multiple drivers of growth based on its proven competencies, enterprise
strengths and strong synergies between its businesses.

The competitiveness of ITCs diverse businesses rest on the strong foundations of institutional
strengths derived from its deep consumer insights, cutting-edge Research & Development,
differentiated product development capacity, brand-building capability, world-class
manufacturing infrastructure, extensive rural linkages, efficient trade marketing and distribution
network and dedicated human resources. ITCs ability to leverage internal synergies residing
across its diverse businesses lends a unique source of competitive advantage to its products and
services.

Within a relatively short span of time, ITC has established vital brands like Aashirvaad, Sunfeast,
Dark Fantasy, Delishus, Bingo!, Yippee!, Candyman, mint-o, Kitchens of India in the Branded
Foods space; Essenza Di Wills, Fiama Di Wills, Vivel, Vivel Cell Renew, Engage and Superia in
the Personal Care products segment; Classmate and Paperkraft in Education & Stationery
products; Wills Lifestyle and John Players in the Lifestyle Apparel business; Mangaldeep in
Agarbattis and Aim in the Safety Matches segment. This growth has been rated by a Nielsen
Report to be the fastest among the consumer goods companies operating in India. Today ITC is
the country's leading FMCG marketer, the clear market leader in the Indian Paperboard and
Packaging industry, a globally acknowledged pioneer in farmer empowerment through its wide-
reaching Agri Business, the second largest Hotel Chain in India and a trailblazer in 'green
hoteliering'. This portfolio of rapidly growing businesses considerably enhances ITC's capacity
to generate growing value for the Indian economy.

ITC's Agri-Business is one of India's largest exporters of agricultural products. The ITC
Groups contribution to foreign exchange earnings over the last ten years amounted to nearly
US$ 6.0 billion, of which agri exports constituted 57%. The Company's 'e-Choupal' initiative has
enabled Indian agriculture significantly enhance its competitiveness by empowering Indian
farmers through the power of the Internet. This transformational strategy has already become the
subject matter of a case study at Harvard Business School apart from receiving widespread
global acclaim.

As one of India's most valuable and respected corporations, ITC is widely perceived to be
dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a
commitment beyond the market". In his own words: "ITC believes that its aspiration to create
enduring value for the nation provides the motive force to sustain growing shareholder
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value. ITC practices this philosophy by not only driving each of its businesses towards
international competitiveness but by also consciously contributing to enhancing the
competitiveness of the larger value chain of which it is a part."

Global Exemplar in Sustainability

Acknowledged as a global exemplar in sustainability, ITC is the only enterprise in the
world, of comparable dimensions to be carbon-positive, water-positive, and solid waste recycling
positive. A testimony to its commitment to a low carbon growth path - over 41 % of the total
energy requirements of ITC is met from renewable sources. All ITC's premium luxury hotels are
LEED (Leadership in Energy and Environmental Design) Platinum certified making it the
"greenest luxury hotel chain" in the world. ITC's Paperboards and Paper business is an icon of
environmental stewardship.

ITC's production facilities and hotels have won numerous national and international awards for
quality, productivity, safety and environment management systems. ITC was the first company in
India to voluntarily seek a corporate governance rating.

The Company continuously endeavours to enhance its wealth generating capabilities in a

globalising environment to consistently reward more than 4,71,000 shareholders, fulfill the
aspirations of its stakeholders and meet societal expectations.

ITC Businesses

It is ITC's strategic intent to secure long-term growth by synergising and blending the
diverse pool of competencies residing in its various businesses to exploit emerging opportunities
in the FMCG sector.

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The Company's institutional strength deep understanding of Indian consumer, strong trademarks,
deep and wide distribution network, agri-sourcing skills, packaging know-how and cuisine
expertise continue to be effectively leveraged to rapidly grow the new FMCG businesses.

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 ITC has rapidly scaled up presence in its newer FMCG businesses comprising Branded
Packaged Foods, Lifestyle Retailing, Education and Stationery products, Personal Care products,
Safety Matches and Incense Sticks (Agarbatti), at an impressive pace over the last several years,
crossing Rs. 7000 crore mark in 2013. Its FMCG portfolio consists of 7 portfolios:

ITC Group of Companies

ITC Group Companies

Subsidiaries ITC Infotech
Surya Nepal Private Limited
Landbase India Limited
King Maker Marketing Inc. USA
Technico Pty Limited. Australia
Russell Credit Limited
Wimco Limited
Srinivasa Resort Limited
Fortune Park Hotels Limited
Bay Islands Hotels Limited
Gold Flake Corporation Limited
Joint Venture Maharaja Heritage Resorts Ltd
ITC Essentra Limited
Associate Companies Gujarat Hotels Limited
International Travel House

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Research Methodology

The objective of the project is to investigate the current strategy employed by HUL and
ITC and why it works for them. Fundamentally HUL and ITC are different business models as
HUL is a pure play FMCG Company whereas ITC is a conglomerate where FMCG happens to
be one small portion of the entire business.

Research comprises defining the problem statement, formulating hypothesis, probable solutions,
collecting, organizing and evaluating solutions and assessing the impact of the solutions
proposed.

Research Problem

HUL and ITC are two major players in FMCG industry. HUL happens to be a pure play
FMCG whereas ITC is a conglomerate. The objective of this report is to analyze and compare the
overall performance of these two companies. This performance comparison further boils down to
analyze their financial performance, market performance and supply chain performance. These
three sub angles together will fulfill and make the research comprehensive enough.

Sources of Data

As highlighted above most of the analysis would primarily be based on data points or facts
gathered through secondary research. The approach for each of the sub analysis is as follows:

1. Financial performance Since both the company happens to be a public listed

company, we have good set of information available through some of the major financial
websites. The challenge is more in terms of refining the data and brining them on the
same ground for comparison. Also since they are public listed company there websites
have their past annual reports which can be mined to get first hand information about the
company financials.

2. Strategy performance This analysis is more has to do with overall strategy analysis
which calls for a analyzing the company vision analysis, growth mindset, and overall
Risk which these companies have complied with to support their respective business
models. Again this analysis is primarily on secondary research which involves their
official websites, news websites, financial databases and discussion forums. I have also
gone ahead and contacted few officials from these two companies to get first hand
perception about the company as such.

3. Market performance The set of analysis was more to understand the positioning of
these two players in the market. Also how does consumer related to HUL and ITC
Company as a whole. This indirectly determines the lingering psyche of consumers about
each of the products of these companies. The main source of information for this taken

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 through secondary research which was done across set of 35 consumers picked up in
general.

4. Supply chain performance This was again primarily on the basis of secondary
research performed to understand the supply chain configuration of each of these
companies and how do they differ from each other.

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Financial Performance Analysis Latest Shareholding Pattern

Hindustan Unilever Limited ITC Limited

Others Others
(14.5) (45.8)
Promoter Promoter
(42.25) (0)
Flls (14.10) Flls (19.26)
Dlls (4.12) Dlls (34..67)

Stock Comparison
Current Market
Company FaceValue EPS (TTM) P/E No of shares
Price BSE Capilization
ITC 355.85 283079.26 Rs. 1 Rs. 9.31 38.22 7955016340

HUL 757 163747.26 Rs. 1 Rs. 17.56 43.11 2163107800

Ratio Analysis

Company (in Rs Cr) ITC Limited Hindustan Unilever Limited

Particulars FY 2014 FY 2014
Operating Profit Margin Ratio 36.96 16.22
Net Profit Margin Ratio 25.46 13.53
ROCE 47.43 132.89
ROE / RONW 32.64 111.54

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Price to Earnings 31.06 31.85

Key Financial Figures

Hindustan Unilever
Company (in Rs Cr) ITC Limited Ltd
Particulars FY 2014 FY 2014
Total Income from Operations 35,317.08 29,233.28
Expenses 22,265.19 24,491.60
Earnings Before Other Income, Interest,
13,051.89 4,741.68
Tax and Depreciation (Operating Profit)
Depreciation 964.92 295.54
Finance Costs 6.37 40.68
Other income 970.95 570.98
PBT 13,051.55 5,215.18
Tax 4,060.93 1,259.44
PAT (before Minority Interest and share
8,990.62 3,955.74
of Associates)
Profit/ (loss) attributable to Minority
109.81 10.17
Interest
Share of profit / (loss) of Associates -10.57
Consolidated Profit / (Loss) for the year 8,891.38 3,945.57

Key Balance Sheet Figures

Hindustan Unilever
Company (in Rs Cr) ITC Limited Limited
Particulars FY 2014 FY 2014
Share Capital 795.32 216.27
Reserves & Surplus 26,441.64 3,321.02
Net worth (shareholders funds) 27,236.96 3,537.29
Minority Interest 203.03 22.28
Long term borrowings 76.4 8.44

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Financial Ratio Comparison

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Overall Strategy Comparison
Category HUL
Overview Hindustan Unilever (HUL) is the
largest pure-play FMCG company
in the country and has one of the
widest portfolio of products sold via
a strong distribution channel. It
owns and markets some of the most
popular brands in the country across
various categories, including soaps,
detergents, shampoos, tea and face
creams.
Performance After stagnating between 1999 and
04, the company is back on the
growth track. In the past three
years, till 2008 HULs net sales
have witnessed a CAGR of 11%,
while net profit has posted a CAGR
of 17%.
Overall HUL always believes in customer
Strategy friendly products with major
emphasis on low cost overall
without compromising on the
quality of the product. They are
leveraging the capabilities and scale
of the parent company and focusing
on the value of execution. The
entire product product portfolio is
also being tweaked to include
premium offerings such as Ponds
Age Miracle and dove shampoo in
skin and hair care.
ITC
ITC is not a pure-play FMCG
company, since cigarettes is its
primary business. It is diversifying
into non-tobacco. FMCG segments
like foods, personal care, paper
products, hotels and agri-business to
reduce its exposure to cigarettes.
Despite diversification, ITCs reliance
on cigarettes is still huge. The
tobacco business contributes 40% to
its revenues, and accounts for over
80% of its profit. This cash-
generating business has enabled it to
take ambitious, but expensive bets in
new segments and deliver modest
profit growth.
ITC is focusing on delivering value at
competitive prices. Its tremendous
reach through extensive distribution
chain has been a competitive
advantage. Additionally, the
companys e-choupal model for direct
procurement is well known under
which ITC partners with over
100,000 farmers for spices and wheat
procurement and an even larger
number for oilseeds. This kind of
rural pedigree is hard to beat.
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Growth Drivers The Company has been launching
new products and brand extensions,
with investments being made
towards brand-building and
increasing its market share. HUL is
also streamlining its various
business operations, in line with the
One Unilever philosophy adopted
by the Unilever group worldwide.
Introduction of premium products
and addition of new consumers via
market expansion will be HULs
growth drivers.
Risk Being an MNC operating in India,
HUL is more conservative in its
strategies than its Indian
counterparts. Moreover, given
increasing competition, it faces the
risk of being overtaken by domestic
players in various categories.
Prolonged inflation may lead to
margin contraction, in case HUL is
not able to pass on this burden to
consumers. The companys large
size also poses a problem, since it
does not give HUL the agility to
address the competition it faces
from national and regional players.
ITCs backward integration to ensure
that its products pass efficiently from
the farms to consumers has helped it
to cut down supply and procurement
costs. ITCs non-cigarette FMCG
business leverages the large
distribution network the company has
developed by selling cigarettes over
the years. A rich product mix, along
with ramp-up of investments in its
new sectors, will be instrumental in
charting ITCs growth path.
Increased regulatory clamps on
tobacco, along with rising tax burden.
So, it has started an ambitious
diversification plan, which has its
own set of risks. With its foray into
the conventional FMCG space, ITC
has entered the high-clutter branded
products market. This will burden its
resources in terms of ad spend and
brand-building. Creating brand recall
and building market share in new
products are ITCs key challenges.
Export ban rising crop prices pose a
threat for its agri-business, taxing its
margins.
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Supply Chain performance Analysis

Supply chain management plays a crucial role in building the competitive strategy of the
organization. It helps in enhancing the productivity and profitability of the organization. For a
successful supply chain management it is necessary that every organization measures its supply
chain performance using relevant metrics. The supply chain performance of any company can be
measured by analyzing the financial reports of the company. The performance measures used for
this purpose are as follows.

Financial Ratios
Total Length of the Chain

HINDUSTAN UNILEVER LIMITED (HUL)

HUL formerly known as Hindustan Lever Limited (HLL) is Indias largest FMCG
Company. HULs distribution network is its key strength that has helped HUL reaches the top in
the list. Their focus is on ease of product availability, brand communication and high levels of
brand experience.HUL has a network of about 7000 redistribution stockiest covering almost one
million retail outlets.

They are simultaneously creating new channels like Project Shakti:- HULs partnership with self
help rural women, Hindustan Unilever Network:- direct selling channel, Out of Home:-
providing vending machines for hot beverages and Health and Beauty Services:- Lakme salons
and Ayush Therapy Centers.

As per the Annual report of 2008-2009 of HUL, India the company had done fairly good in its
supply chain efficacy. Excellent customer service performance was achieved at a significantly
lower cost through operational efficiencies and cost reduction measures. Eliminating waste and
hidden costs of various operations helped business in tackling inflationary pressures. Significant
reduction in procurement costs helped in leveraging the benefits of scale in the buying function.
Appropriate capital expenditure investments created capacity for future growth and proper
management of existing assets in accordance with the principle of TPM- Total Productive
Maintenance resulted in greater asset productivity.

Towards the end of 2008 the company took measures to improve its rural distribution system.
Changing scenario of rural customer demand and improved infrastructure enables the company
to offer new categories and product assortments in rural market.

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 Deployment of advanced IT solutions on the back of a strong suite of SAP application
systems led to significant improvements in planning and logistics. [2] In the changing face of
modern retail trade formats, the Company has committed resources to understand the changing
shopping habits and to deliver appropriate solutions to grow the business across categories.
Many initiatives were undertaken in customer service, category management and merchandising
to win at the point-of-purchase with shoppers and deliver highest quality service to Modern
customers.

INDIAN TOBACCO COMPANY (ITC)

One of the toughest competitors for any other FMCG organization in India is Imperial
Tobacco Company (ITC). It has diverse categories of different products. The warehousing
capacity of ITC is more than 3.5 million Sqft over 55 locations. ITC follows direct distribution
from factories to distributors.

The distribution Network of ITC is given below:-

According to the Annual Report of ITC, the company has made significant investments to
scale up its trade marketing and distribution. Excellence in channel management, state-of-the-art
technology solutions and considerable investments in training and development of the sales team
has enhanced its competitive abilities.

The biscuit business (Sunfeast) focused on supply chain efficiencies to increase the product
freshness and improve logistic costs. Till requisite scale is achieved, the business will have to
bear a high cost base in the interim, as the benefits of distributed manufacture to service
proximal markets are yet to be fully exploited.

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 To develop quality differentiation across the value chain, they have developed farm-to-
factory spices supply chain that guarantee superior specifications and quality attributes. Some
impairment occurred in cigarette production in the Simra factory of the Terrain region owing to
frequent strikes and blockades. But it was minimized by the companys pro-active resource and
supply chain management. In the Agro-forestry mission of the company they have created a
source of long term sustainable supply of critical raw materials. In the paper and paperboard
business, the conventional nursery system was replaced by a novel technology that ensures
significant time reduction in raising eucalyptus saplings with improves survival rates. This has
positively impacted the fibre supply chain in the paper and paperboard business.

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Inventory turnover ratio:

The inventory ratio measures how fast the inventory is moving through the firm and
generating sales.

Inventory turnover ratio = Cost of goods sold/ Average inventory

Year ITC HUL

2011 3.76 8.29
2012 5.51 7.20
2013 5.26 9.26

The company having higher inventory turnover ratio indicates it has a better inventory
management system. But sometime a higher inventory ratio can be caused by a low level of
inventory which means frequent stock outs and loss of sales. HUL has recorded an increase in
sales by 15.5% and also its operating margin increased by 0.5%. This indicates the above counter
argument is not applicable for HUL .

Innovative supply chain and channel management practice by HUL has led to lower operating
cost increasing operating profit from 2964.94 crore rupees to 4076.43 crore rupees in 2009. HUL
was successful in decreasing its transportation and distribution cost and meeting the customers
demand.HUL also received the 2008-Express logistics & Supply chain Award in the category
FMCG Manufacturing Supply Chain Excellence.

ITC has the lowest average inventory turnover ratio among the three companies .But is seems
that ITC has a very well maintained distribution system. The Company size is very high with a
very long product line. The lower inventory turnover ratio can also be caused by ITD (Indian
tobacco department) strategically holding its inventory and creating artificial shortage in the
market. Its operating profit has increased from 4449.5 crore rupees to 4944.95 crore rupees this
year.

Fixed asset turnover/Activity ratio:

This ratio measures the sales per rupee of investment in fixed asset

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Fixed asset turnover ratio = Net sales/Average net fixed assets

Year ITC HUL

2011 2.42 9.30
2012 1.59 9.80
2013 1.84 7.81

A companies having a high activity ratio has a high efficiency .HUL has a high fixed asset
turnover ratio because of its highly managed raw material procurement system which implies its
fixed asset utilization is effective. The fixed asset ratio for ITC is significantly low. This can
occur when there are bottlenecks in the companys raw material procurement chain .But there are
no direct data available to support this argument. Another reason for HULs high fixed asset
turnover ratio can be the companies fixed assets are old and are highly depreciated.

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Profitability ratio:

The profit margin ratio helps in finding the relationship between sales and profit. It shows
the margin left over after meeting all the expenses and manufacturing cost.

Gross Profit margin (in%) = Gross profit/Net sales

Year ITC HUL

2011 30.03 27.96
2012 28.44 25.86
2013 29.18 24.96

Net profit margin (in%) = Profit after Tax/Net sales

Year ITC HUL

2011 21.46 16.21
2012 21.50 19.89
2013 21.18 22.03

The one reason for lower gross profit for all the companies for last two years can be the
Inflationary trend experienced in the market. The cost of raw material procurement was high
during the period. But HULs increasing net profit can cause from the cutting down of operating
cost.

Return on Asset (ROA) = Profit after tax/Average total assets

Year ITC HUL

2011 0.27 0.72
2012 0.27 0.81
2013 0.25 1.24

Total length of supply chain (in days)

Inventory days of supply = 365/Inventory turnover ratio

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Year ITC HUL
2011 69.39 39.41
2012 66.24 50.69
2013 97.07 44.30

The total length of supply chain is arrived by calculating the days of total inventory for supply.
Here again we can see that ITC has the maximum length of supply chain among the two
companies .The one cause can be ITC artificially holding the inventory. Lower the length of
supply chain more effective is the companies supply chain performance.

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Growth Strategy Of HUL vs ITC

Five main competitive strategies are:

Overall low cost leadership strategy

Best cost provider's strategy
Broad differentiation strategy
Focused low cost strategy
Focused differentiation strategy

Here competitive strategy varies from sector to sector and company to company. Thus, it is not
easy to predict a single or to find a single strategy for the whole sector. When we come on to
FMCG Sector main strategies lay behind market strategies, cost, and quality strategies. Here in
this report you are going to get information about such type of strategies of FMCG giants.

Competitive strategies employed by HUL and ITC

HUL & ITC are major companies in FMCG market in India. When we compare both
companies on the basis of their strategies i.e. their competitive strategies in the present market.
When we look at the present segment breakup for both of the companies then we came to know
that their different products vary too much in the market. Now let us take a comparative analysis
of both the companies under some heads:

Performance

After stagnating between 1999 and '04, the company is back on the growth track. In the
past three years, till 2008 HUL's net sales have witnessed a CAGR of 11%, while net profit has
posted a CAGR of 17%. Despite diversification, ITC's reliance on cigarettes is still huge. The
tobacco business contributes 40% to its revenues, and accounts for over 80% of its profit. This
cash-generating business has enabled it to take ambitious, but expensive bets in new segments
and deliver modest profit growth.

Overall Strategy

HUL always believes in customer friendly products with major emphasis on low cost
overall without compromising on the quality of the product. They are leveraging the capabilities
and scale of the parent company and focusing on the value of execution. The entire product
portfolio is also being tweaked to include premium offerings such as Pond's Age Miracle and
dove shampoo in skin and hair care. HUL introduced Project Shakti to penetrate the rural market.
ITC is focusing on delivering value at competitive prices. Its tremendous reach through extensive
distribution chain has been a competitive advantage. Additionally, the company's e-choupal

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model for direct. Procurement is well known under which ITC partners with over 100,000
farmers for spices and wheat procurement and an even larger number for oilseeds. This kind of
rural pedigree is hard to beat.

Growth Drivers

HUL has been launching new products and brand extensions, with investments being made
towards brand-building and increasing its market share. HUL is also streamlining its various
business operations, in line with the One Unilever' philosophy adopted by the Unilever group
worldwide. Introduction of premium products and addition of new consumers via market
expansion will be HUL's growth drivers. ITC's backward integration to ensure that its products
pass efficiently from the farms to consumers has helped it to cut down supply and procurement
costs. ITC's non-cigarette FMCG business leverages the large distribution network the company
has developed by selling cigarettes over the years. A rich product mix, along with ramp-up of
investments in its new sectors, will be instrumental in charting ITC's growth path.

Strategic Growth summary of HUL

HUL prioritized opportunities which build upon the existing assets and capabilities. It
avoided spreading their management thinly. For example: HUL first made its sales and
distribution channel & supply chain management in manufacturing and selling wheat
flour and utilized it into the selling breads produced by wheat flour.

HUL is more focused on the innovations Example: In 1995 launched KISSAN

ANNAPURNA staple foods with the message staple food including iodized salt

Serving Rural population: In 2000 the 32% of the sales were from rural sector but in 2010
it is more than 50%.

It follows direct communication from the customers.

It believes in expanding the portfolio.

Each category has a different set of supply chain, production and consumer decision
making process issuing associated with it.

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Primary research Sample Input format

The questionnaire used for collecting information is as follows:

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Data Analysis & Findings

1) According to our survey of 20 customers we found out that HUL is the most company
heard of among all others (i.e. 26%)

Company Heard of
HUL Dadur ITC P&G Nestle

10%
26%
23%

19%
22%

2) According to our survey of 20 customers these are the 3 following products:-

Three Popular products of HUL

1) Fair and Lovely

2) Pepsodent
3) Surf Excel

Three Popular products of ITC

1) Bingo
2) Vivel
3) Dark Fantasy Choco Biscuits

Three Popular products of P&G

1) Olay
2) Tide
3) Head & Shoulder

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3) One advertisement of each of the companies is as follows:-

Ads Heard of Ads heard of

Others; 10% Others; 7%

Lakme; 10% Pepsodent; 25% Dark Fantasy; 13%

Classmate; 47%

Bingo; 33%
Fair & Lovely; 55%

4) Which of the following sentence is correct:-

1) HUL makes Water Purifiers

2) ITC deals in baby napkins
3) None of these any company has any dealing with Tobacco business

According to our survey of 20 customers

People said the 1st statement is correct (i.e., HUL makes Water Purifiers)

5) According to our survey of 20 customers these are the Information:-

Top 5 Favorite Brands

1) Dove
2) Wheel
3) Pepseodent
4) Lux
5) Fair & Lovely

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6) According to the survey 43% of the people would like to invest in HUL. While others are
quite behind HUL in terms of investment preference. ITC has 20% of investment
preference. While Dabur has 19% of Investment preference.

Investment Prefrence

Column2

HUL ITC P&G L'Oreal Dabur

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Recommendations

Hindustan Unilever Limited

Overall HUL's strategy on focusing on mass category with well thought out brands seems
to be working at present. While this is a good strategy for a sustainable business, it needs to get
its grip better and firm in premium zed segment as that would help this company to improve its
cash flow also deal better with competition.

Recommended Actions
1. Grow portfolio in premium zed product category to improve gross profit margin at
company level
2. Improve footprint in Foods and Beverages category as current marketing campaigns does
not seem to be working good enough

ITC Limited
ITC has a huge reliance on Tobacco business which makes it susceptible to any future
health related regulations which if came in effect might prove to be a big hindrance on the
sustainability of the company. Hence emphasis should be on reducing dependency on Tobacco
business and growing other businesses.

Recommended Actions
1. Reduce dependency on Tobacco business by growing other non-tobacco businesses
2. Marketing campaign needs to be brought on par with other FMCG companies
3. Supply chain efficiency needs to be improved so as to free up capital from inventory and
invest it in marketing and advertising campaign

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Appendix

http://www.hul.co.in/

http://www.itcportal.com/

http://www.hul.co.in/mediacentre/newsandfeatures/2014/HUL-recognised-at-Asia-Marketing-
Effectiveness-and-Strategy-Awards-and-Goafest.aspx

http://www.sanasecurities.com/compare-financial-analysis/itc-vs-hindustan-unilever

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