Final FMCG

FMCG SECTOR IN INDIA
CHAPTER 1. INTRODUCTION TO FMCG SECTOR IN INDIA

The Fast Moving Consumer Goods (FMCG) sector is the fourth largest sector in the Indian economy with a total market size in excess of Rs. 80,000 Crores. 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. 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. 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. This industry essentially comprises Consumer Non Durable (CND) products and caters to the everyday need of the population. The fast moving consumer goods business is characterized by two pillars ' strong brand equity and a wide distribution network. Brand equities are built over a period of time by technological innovations, consistent high quality, aggressive advertisement and marketing. Availability near the consumer through a wide distribution network is
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another crucial success factor, as products are of small value, frequently purchased daily use items. FMCG are products that have a quick shelf turnover, at relatively low cost and don't require a lot of thought, time and financial investment to purchase. The margin of profit on every individual FMCG product is less. However the huge number of goods sold is what makes the difference. Hence profit in FMCG goods always translates to number of goods sold. The FMCG sector represents consumer goods required for daily or frequent use. The main segments of this sector are personal care (oral care, hair care, soaps, cosmetics, and toiletries), household care (fabric wash and household cleaners), branded and packaged food, beverages (health beverages, soft drinks, staples, cereals, dairy products, chocolates, bakery products) and tobacco. The Indian FMCG sector is an important contributor to the country's GDP. It is the fourth largest sector in the economy and is responsible for 5% of the total factory employment in India. The industry also creates employment for 3 m people in downstream activities, much of which is disbursed in small towns and rural India. This industry has witnessed strong growth in the past decade. This has been due to liberalization, urbanization, increase in the disposable incomes and altered lifestyle. Furthermore, the boom has also been fuelled by the reduction in excise duties, de-reservation from the small-scale sector and the concerted efforts of personal care companies to attract the burgeoning affluent segment in the middle-class through product and packaging innovations Unlike the perception that the FMCG sector is a producer of luxury items targeted at the elite, in reality, the sector meets the everyday needs of the masses. The lower-middle income group accounts for over 60% of the sector's sales. Rural markets account for 56% of the total domestic FMCG demand. Many of the global FMCG majors have been present in the country for many decades. But in the last ten years, many of the
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smaller rung Indian FMCG companies have gained in scale. As a result, the unorganized and regional players have witnessed erosion in market share. The growth potential for FMCG Companys look promising over the long- term horizon, as the per-capita consumption of almost all products in the country is amongst the lowest in the world.
CHAPTER 2. OBJECTIVE OF THE STUDY

The FMCG Sector is one of the largest growing sectors each fiscal year and still there is immense growth left in coming years. So the main objective of my study is to show 1) THE SWOT ANALYSIS OF THE FMCG SECTOR IN INDIA 2) FMCG INDUSTRY CLASSIFICATION 3) GROWTH OPPURTUNITIES 4) MARKET PLAYERS IN INDIA 5) INTERNATIONAL COMPETETIVENESS 6) INDIAN EQUITY PLAYERS IN THE FMCG INDUSTRY AND EQUITY OUTLOOK Hence, these are the areas that I am going to cover in this project and would give the overview of the FMCG SECTOR in India. ANALYSIS OF THE FMCG PLAYERS FUTURE
CHAPTER 3. HISTORY AND PRESENT SCENARIO OF FMCG COMPANIES IN INDIA

In India, companies like ITC, HUL, Colgate, Cadbury and Nestle have been a dominant force in the FMCG sector well supported by relatively less competition and high entry barriers (import duty was high). These companies were, therefore, able to charge a premium for their products. In this context, the margins were also on the higher side. With the gradual opening up of the economy over the last decade, FMCG companies have been forced to fight for a market share. In the process, margins have been compromised, more so in the last six years (FMCG sector witnessed decline in demand).
CURRENT SITUATION
The growth potential for FMCG companies looks promising over the long-term horizon, as the per-capita consumption of almost all products in the country is amongst the lowest in the world. As per the Consumer Survey by KSATechnopak, of the total consumption expenditure, almost 40% and 8% was accounted by groceries and personal care products respectively. Rapid urbanization, increased literacy and rising per capita income are the key growth drivers for the sector. Around 45% of the population in India is below 20 years of age and the proportion of the young population is expected to increase in the next five years. Aspiration levels in this age group have been fuelled by greater media exposure, unleashing a latent
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demand with more money and a new mindset. In this backdrop, industry estimates suggest that the industry could triple in value by 2015 (by some estimates, the industry could double in size by 2012). In our view, testing times for the FMCG sector are over and driving rural penetration will be the key going forward. Due to infrastructure constraints (this influences the costeffectiveness of the supply chain), companies were unable to grow faster. Although companies like HLL and ITC have dedicated initiatives targeted at the rural market, these are still at a relatively nascent stage. The bottlenecks of the conventional distribution system are likely to be removed once organized retailing gains in scale. Currently, organized retailing accounts for just 3% of total retail sales and is likely to touch 10% over the next 3-5 years. In our view, organized retailing results in discounted prices, forced-buying by offering many choices and also opens up new avenues for growth for the FMCG sector. India offers a large and growing market of 1 billion people of which 300 million are middle class consumers. India offers a vibrant market of youth and vigor with 54% of population below the age of 25 years. These young people work harder, earn more, spend more and demand more from the market, making India a dynamic and inspirational society. Domestic demand is expected to double over the ten-year period from 2010 to 2020. The number of households with "high income" is expected to increase by 60% in the next four years to 44 million
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households. India is rated as the fifth most attractive emerging retail market. It has been ranked second in a Global Retail Development Index of 30 developing countries drawn up by A T Kearney. A.T. Kearney has estimated India's total retail market at $202.6 billion, is expected to grow at a compounded 30 per cent over the next five years. The share of modern retail is likely to grow from its current 2 per cent to 15-20 percent over the next decade, analysts feel. The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.1 billion. The FMCG market is set to treble from US$ 11.6 billion in 2008 to US$ 33.4 billion in 2015. Penetration in most level as well as per like capita jams, consumption product categories
toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. Burgeoning Indian population, particularly the middle class and the rural segments, presents an opportunity to makers of branded products to convert consumers to branded products. India is one of the worlds largest producers for a number of FMCG products but its FMCG exports are languishing at around Rs 1,000 crore only. There is significant potential for increasing exports but there are certain factors inhibiting this. Small-scale sector reservations limit ability to invest in technology and quality up gradation to achieve economies of scale. Moreover, lower volume of higher value added products reduce scope for export to developing countries. The
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FMCG sector has traditionally grown at a very fast rate and has generally outperformed the rest of the industry. Over the last one year, however the rate of growth has slowed down and the sector has recorded sales growth of just five per cent in the last four quarters. The outlook in the short term does not appear to be very positive for the sector. Rural demand is on the decline and the Centre for Monitoring Indian Economy (CMIE) has already downs called its projection for agriculture growth in the current fiscal. Poor monsoon in some states, too, is unlikely to help matters. Moreover, the general slowdown in the economy is also likely to have an adverse impact on disposable income and purchasing power as a whole. The growth of imports constitutes another problem area and while so far imports in this sector have been confined to the premium segment, FMCG companies estimate they have already cornered a four to six per cent market share. The high burden of local taxes is another reason attributed for the slowdown in the industry. At the same time, the long term outlook for revenue growth is positive. Give the large market and the requirement for continuous repurchase of these products, FMCG companies is expected to do well in the long run.
Moreover, most of the companies are concentrating on cost reduction and supply chain management. This should yield positive results for them. Thus, the present scenario is positive for FMCG companies in India and there is lots of potential upside seen in this sector in coming years
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except that the rising costs do not make any impact on the overall economy demand. Indias FMCG Market Size (In USD Billion)
Sources: Naukri Hub, IBEF, Chennai Online
Hence, given the size of the ever increasing market size, the present scenario looks promising for FMCG industry in India.
CHAPTER 4. STRUCTURE OF FMCG INDUSTRY IN INDIA

The FMCG industry is volume driven and is characterized by low margins. The products are branded and backed by marketing, heavy advertising, slick packaging and strong distribution networks. The FMCG segment can be classified under the premium segment and popular segment. The premium segment caters mostly to the higher/upper middle class which is not as price sensitive apart from being brand conscious.
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The price sensitive popular or mass segment consists of consumers belonging mainly to the semi-urban or rural areas who are not particularly brand conscious. Products sold in the popular segment have considerably lower prices than their premium counterparts. Following are the segment-wise details of FMCG industry in India 4.1 HOUSEHOLD CARE The size of the fabric wash market is estimated to be $1 billion, household cleaners to be $239 million and the production of synthetic detergents at 2.6 million tonnes. The demand for detergents has been growing at an annual growth rate of 10 to 11 per cent during the past five years. The urban market prefers washing powder and detergents to bars. The regional and small un-organized players account for a major share of the total volume of the detergent market. 4.1.1 Personal WashThe market size of personal wash is estimated to be around Rs. 8,300 Cr. The personal wash can be segregated into three segments: Premium, Economy and Popular. The penetration level of soaps is ~92 per cent. It is available in 5 million retail stores, out of which, 75 per cent are in the rural areas. HUL is the leader with market share of ~53 per cent; Godrej occupies second position with market share of ~10 per cent. With increase in disposable incomes, growth in rural demand is expected to increase because consumers are moving up towards premium products. However, in the recent past there has not been much change in the volume of premium soaps in proportion to economy soaps, because increase in prices has led some consumers to look for cheaper substitutes. 4.1.2 Detergents
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The size of the detergent market is estimated to be Rs. 12,000 Cr. Household Care segment is characterized by high degree of competition and high level of penetration. With rapid urbanization, emergence of small pack size and sachets, the demand for the household care products is flourishing. The demand for detergents has been growing but the regional and small unorganized players account for a major share of the total volume of the detergent market. In washing powder HUL is the leader with ~38 per cent of Market share. Other major players are Nirma, Henkel and Proctor & Gamble. 4.2 PERSONAL CARE The size of the personal wash products is estimated at $989 million; hair care products at $831 million and oral care products at $537 million. While the overall personal wash market is growing at one per cent, the premium and middle-end soaps are growing at 10 per cent. The leading players in this market are HLL, Nirma, Godrej Soaps and Reckitt & Colman. The oral care market, especially toothpastes, remains under penetrated in India (with penetration level below 45 per cent). The industry is very competitive both for organized and smaller regional players. The Indian skin care and cosmetics market is valued at $274 million and dominated by HLL, Colgate Palmolive, Gillette India and Godrej Soaps. The coconut oil market accounts for 72 per cent share in the hair oil market. In the branded coconut hair oil market, Marico (with Parachute) and Dabur are the leading players. The market for branded coconut oil is valued at approximately $174 million. Personal Care Products Market Sizes (In USD Million)
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Source- IBEF
4.2.1 Skin Care The total skin care market is estimated to be around Rs. 3,400 Cr. The skin care market is at a primary stage in India. The penetration level of this segment in India is around 20 per cent. With changing life styles, increase in disposable incomes, greater product choice and availability, people are becoming aware about personal grooming. The major players in this segment are Hindustan Unilever with a market share of ~54 per cent, followed by CalvinKare with a market share of ~12 per cent and Godrej with a market share of ~3 per cent. 4.2.2 Hair Care The hair care market in India is estimated at around Rs. 3,800 Cr. The hair care market can be segmented into hair oils, shampoos, hair colorants & conditioners, and hair gels. Marico is the leader in Hair Oil segment with market share of ~ 33 per cent; Dabur occupies second position at ~17 per cent. 4.2.3 Shampoos The Indian shampoo market is estimated to be around Rs. 2,700 Cr. It has the penetration level of only 13 per cent in India. Sachet makes up to 40 per cent of the total shampoo sale. It has low penetration level even in metros. Again the market is dominated by HUL with around ~47 per cent market share; P&G occupies second position with market share of around
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~23 per cent. Antidandruff segment constitutes around 15 per cent of the total shampoo market. The market is further expected to increase due to increased marketing by players and availability of shampoos in affordable sachets. 4.2.4 Oral Care The oral care market can be segmented into toothpaste - 60 per cent; toothpowder - 23 per cent; toothbrushes - 17 per cent. The total toothpaste market is estimated to be around Rs. 3,500 Cr. The penetration level of toothpowder/toothpaste in urban areas is three times that of rural areas. 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. The oral care market, especially toothpastes, remains under penetrated in India with penetration level ~50 per cent. 4.3 FOOD & BEVERAGES The size of the Indian food processing industry is around $ 65.6 billion, including $20.6 billion of value added products. Of this, the health beverage industry is valued at $230 million; bread and biscuits at $1.7 billion; chocolates at $73 million and ice creams at $188 million. The size of the semi-processed/ready-to-eat food segment is over $1.1 billion. Large biscuits & confectionery units, soya processing units and starch or glucose/sorbitol producing units have also come up, catering to domestic and international markets. The three largest consumed categories of packaged foods are packed tea, biscuits and soft drinks. The Indian beverage industry faces over supply in segments like coffee and tea. However, more than half of this is available in unpacked or loose form. Indian hot beverage market is a tea dominant market. Consumers in different parts of the country have heterogeneous tastes. Dust tea is popular in southern India, while loose tea in preferred in western India.
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The urban-rural split of the tea market was 51:49 in 2000. Coffee is consumed largely in the southern states. The size of the total packaged coffee market is 19,600 tonnes or $87 million. The total soft drink (carbonated beverages and juices) market is estimated at 284 million crates a year or $1 billion. The market is highly seasonal in nature with consumption varying from 25 million crates per month during peak season to 15 million during offseason. The market is predominantly urban with 25 per cent contribution from rural areas. Coca cola and Pepsi dominate the Indian soft drinks market. Mineral water market in India is a 65 million crates ($50 million) industry. On an average, the monthly consumption is estimated at 4.9 million crates, which increases to 5.2 million during peak season. 4.3.1 Food Segment The foods category in FMCG is gaining popularity with a swing of launches by HUL, ITC, Godrej, and others. This category has 18 major brands aggregating Rs. 4,600 Cr. Nestle and Amul slug it out in the powders segment. The food category has also seen innovations like softies in ice creams, ready to eat rice by HUL and pizzas by both GCMMF and Godrej Pillsbury.
4.3.2 Tea The major share of tea market is dominated by unorganized players. More than 50 per cent of the market share is capture by unorganized players. Leading branded tea players are HUL and Tata Tea. 4.3.3 Coffee The Indian beverage industry faces over supply in segments like coffee and tea. However, more than 50 per cent of the market share is in
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unpacked or loose form. The major players in this segment are Nestl, HUL and Tata Tea which have wide presence all over India in the coffee segment. SHORT DESCRIPTION OF FMCG STRUCTURE
CATEGORY
1) Household care
PRODUCTS
Fabric wash, Household cleaners, Floor cleaners, Toilet cleaners, Air fresheners, Insecticides and mosquito repellents; etc. Health beverages, Soft drinks, Staples/cereals, Bakery products, Snack food, Chocolates, Ice cream, Tea, Coffee, Processed fruits, Vegetables, Dairy products , Bottled water, Branded Flour, Branded rice, Branded sugar, Juices; etc. Oral care, Hair care, Skin care, Personal wash, Cosmetics and toiletries, Deodorants, Perfumes, Feminine hygiene, Paper products; etc.
2) Food and Beverages
3) Personal Care
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CHAPTER 5. SWOT ANALYSIS OF FMCG SECTOR IN INDIA

The size of the Indian fast-moving consumer goods (FMCG) sector is close to Rs 600 bn. The northern and the western regions of the country account for more than half of the market for consumer goods. Barring the fastest growing personal care segment, no other product segment has seen the entry of so many players. In the past decade, the personal care industry has witnessed a consumer boom. This has been due to liberalization, urbanization, and an increase in the disposable incomes,
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and altered lifestyles, especially a heightened level of awareness among the rural community, consequent to the onslaught of satellite television. Furthermore, the boom has also been fuelled by the reduction of excise duties, dereservation from the small-scale sector and the concerted efforts of personal care companies to woo the burgeoning affluent segment of the middle class through product and packaging innovations. Unlike in the past, when domestic companies were not perceived as competitive vis--vis multinational corporations (MNCs), the scenario is gradually changing, with some domestic companies, like Nirma, Marico and Jyothi Labs, standing up to their MNC counterparts. Also, competition amongst the MNCs has intensified, leading to shrinkage of margins. The personal and home care segment has very low entry barriers of technology and capital requirements. This attracts new players and has resulted in intensifying competition. Despite this, the strong distribution networks and heavy investments needed for brand building remain key deterrents to new players. Low margins and high volumes characterize the industry. While the level of disposable incomes determines the overall sector growth, the market has already been segmented and sub-segmented. Companies have launched products at a number of price points to drive up volumes. New products are being launched in niche segments, and old products re-launched. Brand equity drives the customers purchase decisions, and is the key to gaining market share. Also, competitive pressures have hiked the advertising budgets of most players. Besides, a profusion of promotional schemes are being offered. Most players, including Hindustan Lever Ltd (HLL), are struggling to maintain top line growth, despite the heavy advertising and sales promotion (ASP) expenditure. A lower price differential between the organized and the unorganized sectors from reducing excise duties allows the former to grow at the expense of the latter. The organized sector also has a superior
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distribution reach. Although most of the product categories are still in the growth phase, a few broad categories, like Detergents have reached a mature phase only in the urban market. According to industry sources, the affluent segment in the rural sector is growing at a faster rate than the urban one. For the past three years, the organized sector has been focusing on the rural markets, which are perceived to drive growth in the industry and which, to a very large extent, are dominated by unorganized players. 5.1 STRENGTH OF FMCG INDUSTRY 1) AGRICULTURAL OUTPUT -
India is one of the major agrarian economies in the world with around 70% of the population involved in agriculture and agri related activities. Therefore the raw materials in the form of agricultural output are provided by the Agricultural activities, hence providing instant raw materials to the FMCG industry in India. This is one of the major strength of the FMCG players in India. 2) LOW LABOUR COST
Indias Per Labour cost is lowest compared to various economies in the world which reduces the total labour cost of the FMCG companies in India. This is because of the large population and ability of Indian people to work more in less cost as compared to others.
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3)
VAST MARKET OPPORTUNITIES
Indias FMCG market is one of the largest growing markets all over the globe, with the population exceeding in billions. Still, there are various markets which are not penetrated by the FMCG players and this gives ample opportunities for these FMCG players to create a niche in every corner of India. 4) MERGERS AND ACQUISTIONS
In present Globalizations scenario, Mergers and acquisitions are playing a major role. These have been an important aspect from past 2 years and going ahead will help the FMCG companies to expand their product base as well as their profit margins. Example, Godrej Ltd has announced 5 acquisitions across personal care, household care and hair care since March 2010 in a bid to expand its operations in Asia, Africa and Latin America and these all operations have made the expected earnings to rise highly in coming quarters.
5)
LOW OPERATIONAL COSTS
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One of the major strength of FMCG industry is that the Operational costs in India are low as compared to other destinations. Various areas in Rural and Semi urban areas provide various facilities at cheap cost which benefits the FMCG companies earning directly and contributes to GDP growth as well. This is also because of various Tax benefits given to certain companies promoting Special Economic Zones (SEZ). 6) ESTABLISHED DISTRIBUTION NETWORKS
The supply chain of products in the FMCG market in India is one of the longest supply chains an industry could really have. There are as many as 5 levels of intermediaries involved in the entire supply chain through which a product passes before reaching the end consumer. What has been observed is that even though these FMCG companies are big multinationals and Indian but face a major challenge of making their products available in the market in the right quantities and in the right time. This is simply because these companies dont really have a wide network of sales agents and other force which is required and is ideal for catering their products to the markets. This aspect is taken over by distributors, wholesalers and retailer whose margins on these products actually double the price of these products when a final consumer buys it. The margins kept by these intermediaries range from 2% to 5%. The products in this industry are transported from manufacturing units via c & f agencies or warehouse to distributors who further sell the same to wholesalers or stockiest who finally sell it to the retailers in the market. These products are transported either via roadways or railways within the domestic markets and normally dont take more than a week to reach the retailers. FMCG products are normally a high volume ball game and products have to essentially be available in the market at all given points of time and at all given points of purchase and therefore the distribution
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activities are highly volatile and dynamic. The supply of products takes place virtually on a daily basis in fixed quotas or otherwise, to retailers as per their requisitions and the anticipation of demand and the performance of products in the recent past. All such criteria are taken into consideration before the quantum of products being dispatched to the next level of intermediary. Since its a volume game, manufacturers make all possible efforts to boost sales and promote their distributors to earn more and more orders from the retailers and wholesalers. A close check is maintained on the flow of the products on a daily, weekly, fortnightly and monthly basis to determine the trend in the business and flow of products and consumption. This activity also helps to find out drawbacks of the distribution system, if any, and rectify them within time. Thus, FMCG industry has great established distribution networks. 7) SECTOR One of the major strength in FMCG sector lies in its Brand value, which caters to day to day need of Indian people. The top FMCG majors like HUL, P&G, MARICO, ITC, etc; have created niche brands of products which are highly used in India and other countries as well. 8) INCREASE IN ORGANIZED MARKET SHARE Indian FMCG Industry comprises of two markets basically; Organized and Unorganized market. Earlier the market share of organized market share was less due to high existence of unorganized market in rural areas and other parts of India as well. But now in last few years organized market has also penetrated in to rural and semi rural areas raising its market share highly. So Indian FMCG companies are gaining more advantage due to high growth projector in rural areas in coming time as well. PRESENCE OF WELL KNOWN BRANDS IN FMCG
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5.2 WEAKNESS OF FMCG INDUSTRY 1) HIGHER ADVERTISEMENTS COSTS The main weakness of the FMCG Sector companies in India is its high advertisements costs which in turn lower the profit margins of the companies by huge level. Advertisements have become a vital thing for promoting FMCG because all major FMCG players advertise to show their brands effectively which they have come up with and if certain players do not advertise, they will not be able to reach to the maximum number of masses. Also, the brands are promoted by stars and celebrities which make the advertisements costlier for the companies because celebrities make a big impact to customers preferences; as said by A.C Nielsen Survey 2009. So, to stay ahead in the competition, FMCG companies are forced to make huge advertisement costs which lead to increase in their volume growth, though that beats their profits margins to large extent. 2) NO PRICE HIKE POSSIBLE Even if the profit margins of FMCG companies are low, even if the cost of raw materials increases, even if the excise duties and MAT (Minimum Alternate Tax) increases, the FMCG companies cannot suddenly increase the prices of its products. This is because if the prices are reduced suddenly then maybe it would bring down the customer base of the company and hence would impact the profitability and sales of the company. Hence, FMCG companies find it difficult to hike the prices when required. 3) GOVERNMENT RULES AND REGULATIONS The FMCG companies have to compulsorily follow stringent government rules and regulations and cannot avoid them. The regulations keep on changing on changing business and global scenarios and also change in
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demand and supply scenarios too. If the Fiscal deficit is high there may be increase in excise duties, increase in various corporate taxes, etc which would not be in favour of the FMCG companies. 4) LOW ECONOMIES OF SCALE As some of the local FMCG companies do not have access to high technology in their working, they are low in producing high economies of scale as compared to some major FMCG brands which have access to that high technology. So small companies are not able to invest in imported technology which can help them with large economies of scale in their production. Hence, they do not get much exposure to growth beyond certain levels. 5) LOW EXPORT LEVELS The FMCG industry witnesses low export levels which is essential in todays globalised economy to grow more. In fact, exports can also help to bring in more foreign currency as well as the company can earn global recognition with high growth. However, Indian FMCG companies are not that good at exports and this have been a negative side of our FMCG industry. 6) ME-TOO PRODUCTS Me-Too products, which illegally mimic the labels of the established brands, have been on the nerves of the FMCG sector in India. They mimic the established brands and try to cheat the consumers with the same look like products. There have been numerous examples of such kind of products which have cheated the consumers like PARACHUTE HAIR OIL By Marico company was copied and the same product of low quality was established in the market, keeping the design of the product same; i.e., Blue colour bottle and similarly the chocolate melody was also copied the same way. This were some of the examples but there are many such instance of metoo products in the FMCG market. These
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products narrow the scope of FMCG products in rural and semi-urban market.
7)
DEMAND IS SEASONAL SOMETIMES
The demand in FMCG products to some extent is seasonal and only high during festive seasons in some cases. This affects the profitability of the company and companies have to manage its production accordingly. So, in some companies the demand is just seasonal and not throughout the year which adds to the weakness of the FMCG industry in India. 8) POOR GOVERNMENT SPENDINGS One of the other weaknesses of FMCG industry is poor government spending on infrastructure and allied activities related to FMCG. Infrastructure plays an important role for these FMCG companies as it serves an important aspect for their Distribution of the products. Hence, if infrastructure is not available then it would be difficult for FMCG companies to market their products in rural areas and other far areas. It would severely acts as a barrier to FMCG distribution networks. 9) HIGH INVESTMENT TO GROW FMCG companies need high investment to expand their base as huge capital is required for manufacturing process, land, operating expense at higher levels, etc. Hence, if the small FMCG companies desire to grow, it would really find it difficult to expand its operations in this sector. 5.3 OPPURTUNITIES IN FMCG INDUSTRY 1) UNTAPPED RURAL MARKET 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. With population in the rural areas estimated to have risen to 153 million households by 2009- 10 and with higher saturation in the urban markets, future growth in the FMCG sector will come from
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increased rural and small town penetration. Technological advances such as the Internet and e-commerce will aid in better logistics and distribution in these areas. Rural marketing has become the latest marketing mantra of most FMCG majors. True, rural India is vast with unlimited opportunities, waiting to be tapped by FMCGs. So its not surprising that the Indian FMCG sector is busy putting in place a parallel rural marketing strategy. Among the FMCG majors, Hindustan Lever, Marico Industries, Colgate-Palmolive and Britannia Industries are a few of the FMCG majors who have been gung-ho about rural marketing. Seventy per cent of the nations population, i.e., rural India, can bring in the much-needed volumes and help FMCG companies to log in volumedriven growth. That should be music to FMCGs who have already hit saturation points in urban India. 2) RISING INCOME LEVELS If we see the statistics of last one decade, it is observed that the per capita income of average person have been increasing each year leaving higher amount of funds in to the hands of the people of India. Hence, this shows the potential for FMCG companies to operate in India as the consumers income levels is on a high rise from each year after year. Also, the government has been doing well by raising the Tax slabs this Fiscal budget with increasing the tax slab to higher amount leaving more money in to the hands of final consumer. 3) LARGE DOMESTIC MARKET India, with its population exceeding in billions, shows the potential of growth of FMCG industry in India. It have huge domestic market as the population is also so high, hence the companies would find a large market in India, hence the foreign markets are also having eyes on Indian FMCG Industry to invest or operate here because of the huge market opportunities which awaits for them.
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4)
EXPORT POTENTIAL
Indian FMCG companies have a huge export potential going ahead as they have already created huge Brand value in India and they are eyeing for Exports to earn foreign revenues and to make a mark in foreign markets as well. So, this provides ample opportunities for FMCG companies to export their product and go global. 5) HIGH CONSUMER GOODS SPENDING Theres high consumer goods spending in Indian market which gives lots of opportunities to FMCG companies to operate in India. The change in Indian consumers to shift to branded goods other then cheap goods makes a mark for the companies operating in India. Hence, this would lead a better future for the FMCG companies operating in India. 6) EASY AVAILABILITY OF FINANCE Another big opportunity which can be advantageous to FMCG industry is easy availability of finance from various sources, so that they can expand their base in working as well as pay off their debt as well. Thus, this is what most cheering for the FMCG companies operating in India that allows the freedom to operate in India and lure consumers with better products from time to time. 7) RAPID URBANISATION The era of liberalization of 1992 and the various policies made post liberalization have made far off changes in Indian industry. These have caused rapid urbanization in past two decades. Urbanizations have brought far off changes in Indian FMCG industry with lots of improvements and change in spending patterns giving boost to FMCG industry. Thus, Urbanization has made our companies operate at large scale in each and every part of our nation and the growing growth is supplied with this urbanization as well.
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5.4 THREATS TO FMCG INDUSTRY 1) INCREASE IN EXCISE DUTIES AND TAXES Recent hike in Excise duties from 8% to 10% in March have provided a threat to FMCG companies operating margins. Also the hike in MAT i.e. Minimum Alternate Taxes from 15% to 18% has created a pressure on FMCG companies profit margins. So, this can be seen that Hike in excise duties and various taxes affect the FMCG companies largely and affect their profitability to large extent. 2) ENTRY OF FOREIGN PLAYERS One of the biggest threats of the FMCG industry would be if the foreign players would be allowed to enter the Indian markets. The foreign players entry would see other major Indian players losing their market share to them. So this would be detrimental to small and emerging players of India in this industry as it would increase competition and decrease market share of Indian companies to large extent. 3) RISING COSTS OF RAW MATERIALS The continuous rise in raw materials have been really big threat for the FMCG industry and hampered its growth to certain extent as well. This is because of high inflationary pressures in an economy that the prices of raw materials go up which means the FMCG companies have to pay more for raw materials, which increases their production costs and this directly impacts the profitability of the company. Due to this, several FMCG majors in India have raised their prices of various products by some extent, so as to cope up with the rising costs. 4) TIMELY MONSOONS Monsoons play a very important role in determining faith of FMCG companies in India. It is because good monsoons would bring in raw materials at low cost, and also the availability of raw materials is at ease
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fulfilling the demand and supply equilibrium in the market. So, monsoons play an important role for FMCG industry. 5) INFLATION High inflation rates in an economy may harm the FMCG sector in some cases because it would lead to low consumer spending due to high food inflation which is on a continuous rise in recent past. High food inflation has an adverse affect on the FMCG industry. People will spend less money on discretionary items which will hit the FMCG industry. 6) SLOWDOWN IN RURAL DEMAND The FMCG industry revenues had been on a great rise from the rural markets as majority of the Indian population resides in rural and semi rural areas. So, if there is slowdown in rural demand due to any reasons, it would be a threat to the FMCG sector in big way. The main cause for slowdown may be the increase of unorganized sector in rural areas which do not provide any good quality of products and cheat the consumers with poor quality products at approximately same rates of branded products. So, this may prove threatful to the FMCG industry in big way. 7) CHEAP IMPORTS The last but not the least factor which would be a big threat to FMCG industry is cheap imports from China, Singapore and other Asian countries. If imports would become cheap and restrictions on capital account transactions would be lifted, then these countries may try and enter the Indian markets with the view to capture the market share of the existing players by selling goods at cheaper rates, as there they produce with high class technology and cheap labour as well.
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CHAPTER 6. MARKET AND SECTORAL OPPORTUNITIES FOR INVESTMENT

Measuring the opportunity: Domestic FMCG market to treble
FMCG Market Size (US$ billions)
Source: HH Panel data
According to estimates based on Indias current per capita consumption, the Indian FMCG market is set to treble from US$ 11.6 billion in 2009 to US$ 33.4 billion in 2015. The dominance of Indian markets by unbranded products, change in eating habits and the increased affordability of the growing Indian population presents an opportunity to makers of branded products, who can convert consumers to branded products. The investment potential in rural markets 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 India's middle-class and 58 per cent of the total disposable income. With population in the rural areas set to rise to 153 million households by 2009-10 and with higher saturation in the urban markets,
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future growth in the FMCG sector will come from increased rural and small town penetration. Technological advances such as the internet and e commerce will aid in better logistics and distribution in these areas. Already Indian corporate such as HLL and ITC have identified the opportunity and have initiated projects such as 'Project Shakti' and 'eChoupal' to first, expand rural income, and then, to penetrate this market.
Boosting Rural Income - Novel Experiments by Indian Corporates

PROJECT SHAKTI FMCG giant Hindustan Lever initiated 'Project Shakti' to spur growth and increase the penetration of its products in rural India while changing lives and boosting incomes. Through a combination of micro-credit and training in enterprise management, women from self-help groups turned direct-to home distributors of a range of HLL products and helped the company test hitherto unexplored rural hinterlands. The project was piloted in Nalgonda district in Andhra Pradesh (AP) in 2001; it has since been scaled up and extended to over 5,000 villages in 52 districts in AP, Karnataka, Gujarat, Chhattisgarh, Orissa and Madhya Pradesh with around 1,000 women entrepreneurs in its fold. The vision is to create about 11,000 Shakti entrepreneurs covering 100,000 villages and 100 million rural consumers by 2010. For HLL, greater penetration in rural
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areas is also imperative since over 50 per cent of its incomes for several of its product categories like soaps and detergents come from rural India. The project has borne fruit for HLL. In Andhra Pradesh, so far, since the experiment began, HLL has seen 15 per cent incremental sales from rural Andhra, which contributes 50 per cent to overall sales from Andhra of HLL products.
Source- IBEF publication Fast Moving Consumer Goods E-CHOUPAL An example of the successful application of IT is the e-Choupals experiment kicked off by diversified tobacco giant ITC. ITC has designed and set up internet kiosks called e-Choupals to support its agricultural product supply chain. The e-Choupals are totally owned and set up by ITC with the operators not having any investment or risk of their own. There are four kinds of e-Choupals tailored for shrimps, coffee, wheat and soyabean. The focus is on creating internet access for global market information to guide production and supply decisions. It provides price information and thus, price certainty to the farmers. In addition, the farmers get access to operational information, developed by ITC experts, pertaining to cropping, seeds, fertilizers etc. The initial benefits of the ITC effort include a substantial reduction in transaction costs, from 8 per cent to just 2 per cent. These gains are shared roughly equally between ITC and individual farmers. The longer-term goal is to use e-Choupals as sales points for soyabean oil and a range of other consumer goods. ITC
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has also set up its first rural mall near Bhopal, where it distributes products of other FMCG majors as well. Hence, incomes generated through e-choupals will be targeted by the FMCG major to drive their product sales. EXPORT POTENTIAL India has a locational advantage that can be exploited to use it as a sourcing base for FMCG exports. Export of pre-prepared meals with Indian vegetables for large Asian ethnic population settled in developed countries is a very big opportunity for India. South East Asia, which is presently being catered to by USA and EU, can be sourced from India due to its lower freight cost. Investments can also be made in Indian dairy industries to manufacture and package dairy food (through contract or local collaboration) for export to Middle East, Singapore, Malaysia, Indonesia, Korea, Thailand and Hong Kong. Commodities like dry milk, condensed milk, ghee and certain cheese varieties that are utilized as ingredients in foreign countries can also be exported. These markets can be expanded to include value-added ingredients like packaged cheese sauce and dehydrated cheese powders. Large export potential also exists in the soya products industry.
SECTORAL OPPURTUNITIES IN FMCG SECTOR IN INDIA

According to the Ministry of Food Processing, with 200 million, people expected to shift to processed and packaged food by 2010, India needs around US$ 28 billion of investment to raise food processing levels by 810 per cent. In the personal care segment, the lower penetration rates also present an untapped potential.
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Key sectoral opportunities are mentioned below: Staple: branded and unbranded While the expenditure on mass-based, high volume, low margin basic foods such as wheat, wheat flour and homogenized milk is expected to increase substantially with the rise in population, there is also a market for branded staples is also expected to emerge. Investment in branded staples is likely to rise with the popularity of branded rice and flour among urban population. Dairy based products India is the largest milk producer in the world, yet only 15 per cent of the milk is processed. The US$ 2.4 billion organized dairy industry requires huge investment for conversion and growth. Investment opportunities exist in value-added products like desserts, puddings etc. The organized liquid milk business is in its infancy and also has large long-term growth potential. Packaged food Only about 8-10 per cent of output is processed and consumed in packaged form, thus highlighting the huge potential for expansion of this industry. Currently, the Semi processed and ready to eat packaged food segment has a size of over US$ 5 Billion and is growing at 15 per cent per annum. Growth of dual income households, where both spouses are earning, has given rise to demand for instant foods, especially in urban areas. Increased health consciousness and abundant production of quality soybean also indicates a growing demand for soya food segment. Personal care and hygiene The oral care industry, especially toothpastes, remains under penetrated in India with penetration rates below 45 per cent. With rise in per capita incomes and awareness of oral hygiene, the growth potential is huge.
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Lower price and smaller Packs are also likely to drive potential up trading. In the personal care segment, according to forecasts made by the Centre for Industrial and Economic Research (CIER), detergent demand is likely to rise to 4,180, 000 metric tonnes by 2011-12 with an annual growth rate of 7 per cent between 2006 and 2012. The demand for toilet soap is expected to grow at an annual rate of 4 per cent between 2010-12 to 870,000 metric tonnes by 2013-14. Rapid urbanization is expected to propel the demand for cosmetics to 100,000 metric tonnes by 2011-12, with an annual growth rate of 10 per cent. Beverages The US$ 2 billion Indian tea market has been growing at 1.5 to 2 per cent annually and is likely to see a further rise as Indian consumers convert from loose tea to branded tea products. In the aerated drinks segment, the per capita consumption of soft drinks in India is 6 bottles compared to Pakistan's 17 bottles, Sri Lanka's 21, Thailand's 73, the Philippines 173 and Mexico's 605. The demand for soft drink in India is expected to grow at an annual rate of 10 per cent per annum between 2006-12 with demand at 805 million cases by 2011-12. Per capita coffee consumption in India is being promoted by the coffee chains and by the emergence of instant cold coffee. According to CIER, demand for coffee is expected to rise to 535,000 metric tonnes by 2012, with an annual growth rate of 5 per cent between 20010-12. Edible oil The demand for edible oil in India, according to CIER, is expected to rise to 21 million tonnes by 2011-12 with an annual growth rate of 7 per cent per annum. Confectionary
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The explosion of the young age population in India will trigger a spurt in confectionary products. In the long run the industry is slated to grow at 8 to 10 per cent annually to 870,000 metric tonnes by 2011-12.
CHAPTER 7. GROWTH PROSPECTS OF FMCG SECTOR IN INDIA

LARGE MARKET India has a population of more than 1.150 Billions which is just behind China. According to the estimates, by 2030 India population will be around 1.450 Billion and will surpass China to become the World largest in terms of population. FMCG Industry which is directly related to the population is expected to maintain a robust growth rate.
Source: UN Population Division: Medium variant
SPENDING PATTERN-
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An increase is spending pattern has been witnessed in Indian FMCG market. There is an upward trend in urban as well as rural market and also an increase in spending in organized retail sector. An increase in disposable income, of household mainly because of in-crease in nuclear family where both the husband and wife are earning, has leads to growth rate in FMCG goods. CHANGING PROFILE OF INDIAN CONSUMERSPeople are becoming conscious about health and hygienic. There is a change in the mind set of the Consumer and now looking at Money for Value rather than Value for Money. We have seen willingness in consumers to move to evolved products/ brands, because of changing lifestyles, rising disposable income etc. Consumers are switching from economy to premium product even we have witnessed a sharp increase in the sales of packaged water and water purifier. Findings according to a recent survey by A. C. Nielsen shows about 71 per cent of Indian take notice of packaged goods labels containing nutritional information compared to two years ago which was only 59 per cent. ADVANTAGES TO THE SECTORGovernmental Policy Indian Government has enacted policies aimed at attaining international competitiveness through lifting of the quantitative restrictions, reducing excise duties, and automatic foreign investment and food laws resulting in an environment that fosters growth. 100 per cent ex-port oriented units can be set up by government approval and use of foreign brand names is now freely permitted. Central & State Initiatives Recently Government has announced a cut of 4 per cent in excise duty to fight with the slowdown of the Economy. This announcement has a
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positive impact on the industry. But the benefit from the 4 per cent reduction in excise duty is not likely to be uniform across FMCG categories or players. The changes in excise duty do not impact cigarettes (ITC, Godfrey Phillips), biscuits (Britannia Industries, ITC) or ready-toeat foods, as these products are either subject to specific duty or are exempt from excise. Even players with manufacturing facilities located mainly in tax-free zones will also not see material excise duty savings. Only large FMCG-makers may be the key ones to bet and gain on excise cut. Foreign Direct Investment Automatic investment approval (including foreign technology agreements within specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food processing sector except malted food, alcoholic beverages and those reserved for small scale industries (SSI). There is a continuous growth in net FDI Inflow. There is an increase of about 150 per cent in Net Inflow for Vegetable Oils & Vanaspati for the year 2008.
Sour ce- www.ghallabhansali.com
Vast Rural Market

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Rural India accounts for more than 700 Million consumers, or ~70 per cent of the Indian population and accounts for ~50 per cent of the total FMCG market. The working rural population is approximately 400 Millions. And an average citizen in rural India has less than half of the purchasing power as compare to his urban counterpart. Still there is an untapped market and most of the FMCG Companies are taking different steps to capture rural market share. The market for FMCG products in rural India is estimated 52 per cent and is projected to touch 60 per cent within a year. Hindustan Unilever Ltd is the largest player in the industry and has the widest market coverage. Export - Leveraging the Cost Advantage Cheap labor and quality product & services have helped India to represent as a cost ad-vantage over other Countries. Even the Government has offered zero import duty on capital goods and raw material for 100% export oriented units. Multi National Companies outsource its product requirements from its Indian company to have a cost advantage. India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew apart from being the second largest producer of rice, wheat, fruits & vegetables. It adds a cost advantage as well as easily available raw materials. Buoyant rural spending Growth in rural India, where 50% of FMCG sales come from, has been quite strong. A lot of money is being spent in rural India through employment generation schemes, while the loan waiver changes sentiment substantially. The country has been blessed with good monsoons and good agricultural production. The food inflation has also helped farmers with rise in income. Hence the purchase power in rural areas has increased and spending behavior is also changing. These help FMCG companies with more revenues, while higher and middle class
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urban consumers demand is inelastic for the goods and services that FMCG companies offer, so slowdown in demand is not expected for FMCG. Favourable Pricing Strategies With the cost of almost every input ranging from palm oil and milk to packaging material zooming upwards, FMCG companies had increased the price smoothly to mange cost escalation. Colgate, for instance, had increased prices by 3-4% earlier this year while Dabur had upped prices of hair oil, chyawanprash and toothpaste by 4% and shampoos by 7%. Marico had increased prices of Parachute hair oil by 5-6% while Hindustan Lever too had upped prices of a few brands by about 1 to 28%. Companies with large product portfolios and a presence across price points - Hindustan Unilever and Dabur - managed to offset margin pressures through shifts in the product mix. With inflation showing signs of easing, the companies, which have taken price increases on their products, are likely to benefit in the forthcoming quarters. Decrease in Raw Material Prices During the second quarter the crude price has fell to almost $60 from record high of $ 147. For raw materials such as palm oil and packaging material, where prices bear clear linkages to crude oil, it has been big relief for FMCG companies. Though to match rising cost the companies had increased product pricing, the operating margin has shrunk by 150200 bps. However the companies made forward purchases or built up additional inventories in the latter part of 2007 and in the first quarter of 2008, to guard against a further rise. Dabur India, for which packaging is a key input, had covered most of its requirements for the June quarter through forward purchases in the March quarter itself. Now, after this challenging phase, FMCG makers may have less to worry about on the raw material front over the next few months, as a range of inputs - palm
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oil, packaging plastics and petroleum derivatives have seen a 20-30% price correction, tracking the meltdown in crude oil prices which will recover the operating margins. The government had also supported with decrease in peak import duty for raw materials and also excise cut in packaging material. The tax holiday at Himachal Pradesh, Jammu and Kashmir, Uttarakhand will be significant benefit for FMCG companies, which will also continue to improve bottom lines. Better Product mix The companies are improving its product mix with changing dynamics of consumer behavior. As consumers are becoming health conscious, the manufacturers are ready to woo them by offering more Ayurvedic and Herbal products. Change in life-style affluent Indians have also spurred the growth for FMCG products with increasing premiumisation of portfolios and categories like anti-aging solutions, hair colors etc. Besides, the Indian rural regions too are witnessing change in lifestyle, further pushing up the FMCG sales.
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CHAPTER 8. CHALLENGES BEFORE THE INDIAN FMCG SECTOR

At the macro level, Indian economy is poised to remained buoyant and grow at more than 7%, the economic growth would impact large proportions of the population thus leading to more money in the hands of the consumer. Changes in demographic composition of the population and thus the market would also continue to impact the FMCG industry. Recent survey conducted by a leading business weekly, approximately 47 per cent of India's 1 + billion people were under the age of 20, and teenagers among them numbered about 160 million. Together, they wielded INR 14000 Cr worth of discretionary income, and their families spent an additional INR 18500 Cr on them every year. By 2015, Indians under 20 are estimated to make up 55% of the population - and wield proportionately higher spending power. Means, companies that are able to influence and excite such consumers would be those that win in the market place. The Indian FMCG market has been divided for a long time between the organized sector and the unorganized sector. While the latter has been crowded by a large number of local players, competing on margins, the former has varied between a two-player-scenario to a multi-player one.
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Unlike the U.S. market for fast moving consumer goods (FMCG), which is dominated by a handful of global players, India's Rs.460 billion FMCG market remains highly fragmented with roughly half the market going to unbranded, unpackaged home made products. This presents a tremendous opportunity for makers of branded products who can convert consumers to branded products. However, successfully launching and growing market share around a branded product in India presents tremendous challenges. Take distribution as an example. India is home to six million retail outlets and super markets virtually do not exist. This makes logistics particularly for new players extremely difficult. Other challenges of similar magnitude exist across the FMCG supply chain. The fact is that FMCG is a structurally unattractive industry in which to participate. Even so, the opportunity keeps FMCG makers trying. At the macro-level, over the long term, the efforts on the infrastructure front (roads, rails, power, and river linking) are likely to enhance the living standards across India. Till date, India's per capita consumption of most FMCG products is much below world averages. This is the latent potential that most FMCG companies are looking at. Even in the muchpenetrated categories like soaps/detergents companies are focusing on getting the consumer up the value chain. Going forward, much of the battle will be fought on sophisticated distribution strengths. The major challenge is to tap the markets which are yet to be fully integrated and unorganized to increase the market share for the FMCG companies in India. So, the FMCG companies are trying hard to make their way to rural and semi-rural areas to tap the market opportunities waiting. One more thing which these FMCG companies are facing is rising cost of raw materials which is increasing day by day. These rising cost results in
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lower profit margins of the FMCG companies thereby decreasing the Bottom Line growth of the companys profitability. Going ahead as there are rising threats of global warming, the rainfalls have been affecting the FMCG companies. Last year as well, due to bad monsoons, FMCG companies were short of raw materials and therefore there was scarcity of certain products in the market. Also, the entry of foreign players in coming years could be detrimental to the interests of present FMCG companies operating in India. This union budget of 20102011 saw an increase in Excise duties on FMCG industry, which would be a big challenge for the companies to maintain their profit margins, and threat of potential increase of excise in coming years. So, the challenges need to be addressed well by these companies by adopting appropriate measures so that they can improve their profit margins and their overall market share. Hence, these were the challenges to FMCG companies in India which can deter their Top line and Bottom line growth.
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CHAPTER 9. FUTURE BLUE PRINT OF FMCG SECTOR

To offer a blue-print for an industry which is one of the most dynamic and demanding is like scheduling events in my life for the days to come. One thing in common between this two would always be the risk of uncertainty involved is very high. Any draft on these topics would certainly always involve issues like distributions, channel-conflict, optimizing operations (supply chain) and if not the last, rural marketing. This blueprint will delve 4 basic concepts and why it could be of major reckoning in the future. These are: 1. Excellence in operations - through Value Chain De-Verticalization 2. Rural marketing 3. Distributions 4. Brand managers to Business managers 1. Excellence in operations - Value Chain De-Verticalization Excellence in Operations remains an illusion for most FMCG companies. This will be remaining as long as they stay confined within the organizational structures and mindsets associated with today's vertically integrated business model. According to a McKinsey report based on
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problems and opportunities relating to operational excellence, the study comes out with the following findings: 1. Operations issues get neglected from top-management two main business processes of customer management and consumer management. It suggests that Operations issues get a lot less than 20% of the Executive Committee's agenda time. To compound the problem, only around 10% of top executives in FMCG companies have direct personal experience in Operations. It is hardly surprising; therefore, that the commitment to drive radical change may not be as strong in Operations as it is in the other two business processes. 2. Organization structure of many MNC's makes it's tough to optimize decision-making or to spread best practices across units or countries. Around 10% of FMCG companies have a global Operations director with full responsibility for both operational improvement and strategic resource allocation. 3. Most of the top quartile talent is siphoned for handling marketing or finance functions. Operations functions are short of management talent. High potential generalists often find FMCG Operations too internally focused and too technical. At the other end of the scale, senior Operations experts are often attracted to other industries - such as electronics, automotive or engineering - where Operations is both more highly regarded and more highly rewarded. These problems are not new. What is new is that a potential solution - the combination of organizational separation and value chain de-verticalization. De-verticalization-
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A multinational FMCG company those are able to achieve organizational separation - and functionally organized national companies. This effectively means outsourcing your supply chain activities to a third party. Typically this will involve selling the existing Operations assets and activities, including procurement, manufacturing, primary distribution, and process R&D, to a financial buyer, a third party manufacturer or a joint venture with other FMCG companies. In essence, this leaves an 'asset light' FMCG company and an 'asset heavy' supply company. How will it create value? From the perspective of the FMCG Company, the supply company of its will now is in a position to address the above-mentioned operational issues. A strongly incentivized management team often directly accountable to the capital markets - will be better able to attract and motivate talented operations managers, focus 100% of its attention on Operations issues and build operational skills. And operational excellence will translate directly into bottom-line impact. Thus de-verticalization allows the management of the FMCG company to focus entirely on customer and consumer management - the main engines of growth - while sharing in progressive Operations cost improvements through either an equity stake or 'open book' supply contracts. From the financial perspective this would also help the FMCG Company get a quantum leap in return on capital employed. Industry examples A few FMCG companies have already outsourced manufacturing to some degree - including Sara Lee, Nike and several beverage companies - or
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begun establishing themselves as specialized players. But compared to industries like automotive and electronics, where much of the industry value chain has already changed owners, FMCG is some way behind. One reason has been a lack of willing buyers of Operations assets. However, there certainly is a trend at present and a visible scope in the future wherein private equity firms, raw material suppliers and specialist manufacturers, constrained by growth in their traditional markets, are now actively exploring the FMCG de-verticalization opportunity.One big challenge remains in managing the interfaces between the two companies - for example, product development, forecasting and order processing. However, the lesson from multinationals that have successfully implemented organizational separation - and those that already make extensive use of co-packers or third party logistics providers - is that this challenge is far less daunting than it may at first appear. E-enablement technologies aid to disaggregate the value chain without losing the connectivity between its component parts. About the new product development process - that can be addressed by retaining a pilot plant inhouse". 2. Rural marketing Rural marketing has become the latest marketing mantra of most FMCG majors. True, rural India is vast with unlimited opportunities. All waiting to be tapped by FMCGs. Not surprising that the Indian FMCG sector is busy putting in place a parallel rural marketing strategy. Among the FMCG majors, Hindustan Lever, Marico Industries, Colgate-Palmolive and Britannia Industries are only a few of the FMCG majors who have been gung-ho about rural marketing.
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70% of the nation's population that means rural India can bring in the much-needed volumes and help FMCG companies to log in volumedriven growth. That should be music to FMCGs who have already hit saturation points in urban India. Not just rural population is numerically large; it is growing richer by the day Food grain production touched 200 million tonnes during fiscal 1999 against 176 million tonnes logged during fiscal 1991. Not just improved crop yields; tax-exemption on rural income too has been responsible for this enhanced rural purchasing power. Consider this statistics from a National Council of Applied Research (NCAER) survey: lower income group is expected to shrink from over 60 percent (1996) to 20 per cent by 2007 and the higher income group is expected to rise by more than 100 per cent. Value-volume trade-off Rural marketing could open the doors of paradise, but the path is paved with thorns. One major limitation here is this: most FMCG players just do not have the critical size for going all out for rural marketing. That is why most FMCG players are expected to concentrate both on rural and urban marketing: focus on urban markets for value and focus on rural markets for volumes. One result-oriented marketing strategy here is this: offer value-additions to existing lines to lure the urban consumer and alongside offer the rural consumer wide-ranging choices within a single product category in a bid to generate high volumes. What should the FMCG players do now?
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They should not only price their products competitively, but also offer their rural prospects maximum value for money spent. Certainly, reaching out to 3.33 million retail outlets is an uphill task. The only way out for Indian FMCG players: put in place an aggressive cost structure that would enable them to offer low-price and value-for-money products. But then, FMCG is a low-margin business with a high cost of raw materials. Consider the case of Marico: its material cost works out to a high of 59 per cent on sales. Therein lays the rural marketing paradox. However, customer-centric and market-savvy FMCG companies have always chased prospects when they perceive there is a latent demand. For instance, Hindustan Lever's Rin, Surf and Lux are available even in India's most obscure villages. Hindustan Lever had given shape to its rural strategy a few years ago when it perceived that its urban market was shrinking due to an industrial slowdown. Its Operation Bharat that focused on personal care products made the most out of surging rural incomes. The result was there for all to see. The company has been able to clock in double-digit profits every three years and log in double-digit revenues every four years. Britannia with its Tiger brand of biscuits and ColgatePalmolive with its low-priced and conveniently-packaged products designed for the rural masses have been other pioneers in rural marketing. 3. Distribution One of the age-old problems that FMCG has been facing not only in India but globally is that of distribution. Integrating operations with your
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distributors and channel partners is a Herculean task. Few ways to reduce pain involved in this link: Reducing supply chain costs by reducing intermediaries - Organised retail chains have set up systems for inventory management and quick servicing, thereby offering the opportunity for a company/supplier to reduce chain. Increasing sales by driving channel width - The relative share of grocers to FMCG sales has dropped from over 50% in the early 90's to 35% in the late 90's. On the other hand the contribution of chemist outlets and paan outlets has been increasing. This has been a result of both SKU's (sachets) and hardware (mini dispensers) being specifically designed to facilitate entry to these outlets and increase consumer interface. 4. Brand Managers to Business Managers Tough market situations and a more aware and savvier demanding consumer have necessitated that yesterday's Brand Managers be transformed into Business Managers who understand consumers and can innovate and be flexible to move with the consumer. Gone are the days when brands could be made to gallop with a big budget media plan, a generous dose of below-the-line and above-the-line activities and constant promotions and schemes in the market. Consumers who have become demanding yet inscrutable in terms of attitudes, outlook, moods and behaviour have rendered conventional Brand Management tools obsolete.
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distribution
cost
by
reducing
intermediaries
such
as
wholesalers/distributors and supplying directly to the warehouse of retail
This makes it all the more important for Brand Managers to develop strong consumer insights and constantly innovate. This requires immersing oneself in the consumer's life space and understanding her to open up new opportunities. These opportunities are hidden in seemingly insignificant behavioral patterns, which open up wide new opportunities for the brand. Developing strong consumer insight basically requires one to a) Align oneself to the challenge, in terms of correctly identifying the key issues and objectives. b) Leverage all that one knows and understands from available sources. c) Immerse oneself in the consumer's life space. d) Connect this insight to a usable platform/ idea. e) Executing it in a format that solves the challenge he started with. The above four are by no means an exhaustive list of new and radical approaches which organization are re-inventing or discovering. Its no denying that the FMCG space will be for time to come, remain a glamorous sector, but also be testimony to new innovations and excellence through-out the value-chain. A spate of new product launches, new schemes, brand extensions and new marketing initiatives across companies indicate that only the fittest ideas survive "Only the Paranoid Survive ", the famous line by Andy Grove seems relevant to this space.
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CHAPTER 10. MAJOR FMCG PLAYERS IN INDIA A) ITC LIMITED
THE ITC PROFILE
ITC is one of India's foremost private sector companies with a market capitalization of over US $ 22 billion and a turnover of US $ 6 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, among India's Most Respected Companies by Business World 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. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery,
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Safety Matches and other FMCG products. While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care and Stationery. 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 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." ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building capabilities, effective supply chain management and acknowledged service skills in hoteliering. Over time, the strategic forays into new businesses are expected to garner a significant share of these emerging high-growth markets in India. ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one of the country's biggest foreign exchange earners (US $ 3.2 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach. ITC's
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wholly
owned
Information
Technology subsidiary, ITC InfoTech India Ltd, provides IT services and solutions to leading global customers. ITC InfoTech has carved a niche for itself by addressing customer challenges through innovative IT solutions. 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. ITC employs over 26,000 people at more than 60 locations across India. The Company continuously endeavors to enhance its wealth generating capabilities in a globalizing environment to consistently reward more than 3,77,000 shareholders, fulfill the aspirations of its stakeholders and meet societal expectations. This over-arching vision of the company is expressively captured in its corporate positioning statement: "Enduring Value. For the Nation. For the Shareholder." ITC FMCG BRANDS It is ITC's strategic intent to secure long-term growth by synergizing emerging and blending in the the diverse FMCG pool of The competencies residing in its various businesses to exploit opportunities sector. Companys institutional strengths deep understanding of the Indian consumer, strong trademarks, deep and wide distribution network, agri-sourcing skills, packaging knowhow and cuisine expertise continue to be effectively leveraged to rapidly grow the new FMCG businesses. Over the last few years, ITC has rapidly scaled up presence in its newer FMCG businesses comprising Branded Packaged Foods, Lifestyle Retailing,
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Education
and
Stationery
products, Personal Care products, Safety Matches and Incense Sticks (Agarbattis) with Segment Revenues growing at an impressive compound annual growth rate of 38% during the last 5 years. The Companys unwavering focus on quality, innovation and differentiation backed by deep consumer insights, world-class R&D and an efficient and responsive supply chain will further strengthen its leadership position in the Indian FMCG industry. CIGARETTES ITC is the market leader in cigarettes in India. With its wide range of invaluable brands, it has a leadership position in every segment of the market. It's highly popular portfolio of brands includes Insignia, India Kings, Classic, Gold Flake, Silk Cut, Navy Cut, Scissors, Capstan, Berkeley, Bristol and Flake.
Source- www.itcportal.com
FOODS ITC made its entry into the branded & packaged Foods business in August 2001 with the launch of the Kitchens of India brand. A more broad-based entry has been made since June 2002 with brand launches in the Confectionery, Staples and Snack Foods segments. The packaged
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foods business is an ideal avenue to leverage ITC's proven strengths in the areas of hospitality and branded cuisine, contemporary packaging and sourcing of agricultural commodities. ITC's world famous restaurants like the Bukhara and the Dum Pukht, nurtured by the Company's Hotels business, demonstrate that ITC has a deep understanding of the Indian palate and the expertise required to translate this knowledge into delightful dining experiences for the consumer. ITC has stood for quality products for over 100 years to the Indian consumer and several of its brands are today internationally benchmarked for quality. In order to assure consumers of the highest standards of food safety and hygiene, ITC is engaged in assisting outsourced manufacturers in implementing world-class hygiene standards through HACCP certification. The Food segment have been growing tremendously for ITC this fiscal year and going forward it is expecting to see huge turnover from this segment itself as the demand is also expected to rise. The unwavering commitment to internationally benchmarked quality standards enabled ITC to rapidly gain market standing in all its 6 brands:
LIFESTYLE RETAILING ITC's Lifestyle Retailing Business Division has established a nationwide retailing presence through its Wills Lifestyle chain of exclusive specialty
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stores. Wills Lifestyle, the fashion destination, offers a tempting choice of Wills Classic work wear, Wills Sport relaxed wear, Wills Clublife evening wear, fashion accessories and Essenza Di Wills - an exclusive range of fine fragrances and bath & body care products and Fiama Di Wills - a range of premium shampoos and shower gels. Wills Lifestyle has also introduced Wills Signature designer wear, designed by the leading designers of the country. With a distinctive presence across segments at the premium end, ITC has also established John Players as a brand that offers a complete fashion wardrobe to the male youth of today.
PERSONAL CARE In line with ITC's aspiration to be India's premier FMCG Company, recognized for its world-class quality and enduring consumer trust, ITC forayed into the Personal Care business in July 2005. In the short period since its entry, ITC has already launched an array of brands, each of which offers a unique and superior value proposition to discerning consumers. Anchored on extensive consumer research and product development, ITC's personal care portfolio brings world-class products with clearly differentiated benefits to quality-seeking consumers. ITC's Personal Care portfolio under the 'Essenza Di Wills', 'Fiama Di Wills', 'Vivel Di Wills' 'Vivel UltraPro', 'Vivel' and 'Superia' brands has received encouraging consumer response and is being progressively extended nationally.
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EDUCATION AND STATIONERY ITC made its entry to the education and stationery business with its Paperkraft brand in the premium segment in 2002; and later expanded into the popular segment with its Classmate brand in 2003. By 2007, Classmate became the largest Notebook brand in the country. Together, Classmate and Paperkraft offer a range of products in the Education & Stationery space to the discerning consumer, providing unrivalled value in terms of product & price.
B) HINDUSTAN UNILEVER LTD COMPANY PROFILE

Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company, touching the lives of two out of three Indians with over 20 distinct categories in Home & Personal Care Products and Foods & Beverages. The companys Turnover is Rs. 17,523 Crores (for the financial year 2009 - 2010) 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
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countries across the globe with annual sales of about 40 billion in 2009 Unilever has about 52% shareholding in HUL. Hindustan Unilever was recently rated among the top four companies globally in the list of Global Top Companies for Leaders by a study sponsored by Hewitt Associates, in partnership with Fortune magazine and the RBL Group. The company was ranked number one in the AsiaPacific region and in India. The mission that inspires HUL's more than 15,000 employees, including over 1,400 managers, is to help people feel good, look good and get more out of life with brands and services that are good for them and good for others. It is a mission HUL shares with its parent company, Unilever, which holds about 52 % of the equity.
HUL BRANDS FOOD BRANDS

HUL is one of Indias leading food companies. Our passion for understanding what people want and need from their food - and what they love about it - makes our brands a popular choice. HUL ltd have
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continuously made innovations in food brands and provided with the world class products. Annapurna
Source-www.hul.co.in
Launched nationally in 1998, Annapurna Atta is aimed at helping the homemaker provide wholesome, tasty nutrition to her family. Annapurna Farm Fresh Whole Wheat Atta is made from premium quality wheat grains. These grains are ground using advanced technology so that the Atta absorbs more water while kneading, makes rotis stay soft for a longer time and retains the nutrition of vitamins and minerals of the wheat grains. Annapurna was awarded the prestigious Awaaz Consumer Award for the most preferred brand of Atta for two successive years in 2006 and 2007. Red Label
Red Label is a 107 year old brand and has tremendous equity and heritage in the Indian market. The oldest and largest brand in the Brooke Bond portfolio in India, It has both leaf and
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dust variants, as well as a health and immunity variant - Red Label Natural Care. Red has also launched a premium variant under the name Red Special Kissan

Kissan is in its 62nd year of its existence in India. Category leaders in Jams with an All India Share of 65%.
Kissan Jam
Kissan Squashes Kissan Tomato Ketchup
Kissan Tomato Ketchup
Kissan Squeezo Ketchup Strawberry
Kissan Jam Squeeze Mango
Kissan Jam Squeeze
Kwality Wall's
Kwality Walls, the brand with a big heart, offers a range of delightful frozen desserts that bring smiles to the faces of millions of Indians kids, teens and adults. We do so with our very popular brands - Cornetto,
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Feast, Paddle Pop, Selection & our award winning parlour concept, Swirls. Unilever is the world's biggest ice cream manufacturer, operating under the Heartbrand.
HOME CARE PRODUCTS

HUL has a diverse portfolio of brands offering home care solutions for millions of consumers across India Active Wheel
The new revolutionary Active Wheel gives consumers less elbow effort in their daily laundry thereby enabling them to enjoy some moments of leisure. With Active Wheel, consumers are able to balance their role of being an efficient & dutiful housewife as well as a smart homemaker, who manages her family budgets with ease by exploring her limited resources with unlimited resourcefulness. Wheel, biggest laundry brand in India, dominates a complex mass market laundry business in India. Wheel powder commands the market with 20 shares as per AC Nielson data. Rin Powder
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Sparkling white - clean clothes not only help us form great impressions on the people we meet but also provide us confidence to realize our ambitions. Rin understands this need and strives to deliver best in class whiteness through continuous innovation and product improvements supported by memorable campaigns like Uski saari, meri saari se safed kaise in the 90s to Safedi ka Shehanshah with Amitabh Bachchan. In 2007, Rin introduced the first ever shade in the laundry category, offering proof of whiteness to consumers with the Kya Saboot Hai campaign with Boman Irani. In 2008 Rin has been re launched and now provides Dugni Safedi, Dugni Chamak as compared to ordinary powders. Rin is now sold in developing markets in Africa, Asia and Latin America. Vim
Created in 1885, the Vim brand is still innovating and using the magic of natural ingredients to create unbeatable results over a hundred years later. Vim is sold in four continents, is the leading hand dishwashing brand in twenty countries, and is available to more than 2 billion people around the world. Vim began life as a soap (both in England, and in Thailand, where King Rama V asked Unilever to supply his household with soap), but is now available as a complete range of hand dishwashing including bars, powders and liquids. Whereas other products are only just
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beginning to realize the importance and power of natural ingredients, Vim's use of the power of lemons to provide its unbeatable degreasing power is well-established. We also use other natural products, such as lime, vinegar and green tea to maximize the results, and minimize the number of chemicals in our products and in the environment. Surf Excel
A pioneer in the Indian detergent powder market, Surf Excel has constantly upgraded itself over the years, to answer the constantly changing washing needs of the Indian homemaker. Today Surf Excel offers outstanding stain removal ability on a wide range of stains. This means that mothers now have the freedom to let their kids experience life without worrying about stains. Surf Excel quick wash is powered with a path-breaking technology- it reduces water consumption and time taken for rinsing by 50%. It is a significant benefit, given the acute water scarcity in most of India.
PERSONAL CARE BRANDS

Our personal care brands, including Axe, Dove, Lux, Pond's, Rexona and Sunsilk, are recognized and love by consumers across India. They help consumers to look good and feel good and in turn get more out of life.
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Axe With Best Quality Fragrance
AXE is a cool, iconic, youth brand available in more than 60 countries around the world. It was launched in India in 1999 and has already become the largest selling Male Deodorant in India. Apart from the deos, Axe also provides a grooming range for the young Indian male, viz. Shaving Gel, Foam, After-Shave lotion, and Cologne Talc. Each fragrance of Axe is a scent of desire, created by the international diva of fragrances; Ann Gottlieb. The formulation is a base with higher efficacy to help men in attracting the fairer sex better than ever! Dove
Since 1993, Indian women have relied on Dove for beautiful skin. Dove is known to be a keeper of promises and has given real products to women world over. To help you enjoy your own brand of beauty, Dove provides a wide range of personal care, hair care, skin care and deodorants. So choose a new way of pampering your skin, everyday, with Dove.
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Fair & Lovely
Developed in 1975, Fair & Lovely is the worlds first fairness cream. It contains no bleach or harmful ingredients. Instead, it provides visible fairness in a safe and reversible process. In 2003, it was rated as the Twelfth Most Trusted Brand in India by ACNielsen ORG-MARG. In 2004, it was identified as a Super Brand. Today, 250 million consumers across the globe strongly connect with Fair & Lovely as a brand that stands for beauty that empowers a woman to change her destiny. The brands commitment towards empowering women has inspired the initiation of Fair & Lovely Foundation. Lifebuoy
Lifebuoy, an undisputed market leader for 112 years, has a compelling vision to make 5 billion people across the world, feel safe and secure by meeting their personal care hygiene & health needs. Lifebuoy have undisputed Leader in the soaps market of India, with 18.4% share. It has a turnover of 350 million a year globally, 200 million in India. Also it
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has a consumer base of 140 Million households in India. Recent Awards: Voted in the top 10 most trusted brands in India in the Brand Equity Survey (came in at No. 9 in 2008 as well)Marketing excellence awards for its recent innovations and activations: Gold at the Emvies 2008 for best use of media innovation, ASIA Pacific CSR Award 2007, for Lifebuoy Swasthya. Lux Soap Brand
Lux stands for the promise of beauty and glamour as one of India's most trusted personal care brands. The brand name Lux has been derived from Luxury. Since Leela Chitnis in 1929, Bellwood beauties throughout ages have appeared in Lux commercials. Till date nearly 50 Bollywood heroines have featured in Lux ads. The first bar of Lux was made in India and sold for a princely sum of two annas in 1934. Lux has always believed in taking up ground-breaking endeavors and has always enjoyed venturing with various brand associations, be it a Coffee Table Book or A Lux Couture Show at the Lakme Fashion Week or coming up with a Chocolate seduction soap. Pepsodent
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Pepsodent is a 15 year old brand that offers various oral care solutions to specific need based solutions. Pepsodent was launched in 1993 in India and since then the brand has raised the benchmark on Oral Care solutions in India. Pepsodent has a range of toothpastes and toothbrushes that could take care of specific oral care needs. Pepsodent toothpaste fights germs to protect teeth against cavities and gives strong teeth, fresh breath and healthy gums. Pepsodent as an oral care expert offers solution to specific problems like bleeding gums and sensitive teeth.
Sunsilk
Sunsilk brand was launched in 1964 and is a global brand with its presence across 80 countries. The Sunsilk hair care range provides a complete hair care solution and functions as a 3-step combination of cleansing, nourishing and manageability that gives a 20 something girl
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the confidence to express herself. Its a Number 1 in Asia, Latin America and the Middle East. Recent Awards: Holds the Guinness World Record for the most heads of hair washed and styled in one day. Sunsilk brand is sold in more than 80 countries over the globe. It has sales of more than 1 billion a year. The products also comprises of Anti- dandruff solutions and conditioners which have to be applied along with Sunsilk shampoos for better results.
CHAPTER 11. EQUITY ANALYSIS OF FMCG COMPANIES IN INDIA

There are various FMCG companies in India which have listed themselves on the Indian stock exchanges, basically BSE and NSE. These companies got listed to get access to equity capital which can be utilized for various purposes, say expansion plans, debt restructuring, mergers, acquisitions, working capital requirements, or simply raise funds for future activities of the company. Even in Bombay Stock exchange, BSE FMCG INDEX is traded which comprises of all the FMCG companies which are listed with BSE. Each scrips have been
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given some weightage in the index according to their market capitalization. Some of the major FMCG companies listed on Indian stock exchanges include, HUL, ITC, United spirits, Marico, Dabur India, Nestle, Colgate Palmolive, Tata global beverage, etc. So, we are going to study few of the important stocks equity analysis and try to figure out the possible investments in these companies. A) HINDUSTAN UNILEVER LTD Hindustan Unilever's (HUL) FY10 annual report signifies heightened competitive activity and its strong response to drive long term growth. The following are the important intakes1)
Increase in commodity costs and food inflation has created an inflationary operating environment. In FY10, FMCG markets grew at a slower pace than in FY09. Strong growth potential and a slowdown in developed economies resulted in the entry of new players and increased aggression by existing MNCs. The resultant competitive intensity led to aggressive pricing action, and media and trade spend. HUL has taken multi-pronged initiatives to defend its leadership through innovation, right pricing and competitive media spends. HUL continues to invest in new categories such as deodorants, hair conditioners, surface cleaners and soupy snacks. HUL has significantly invested in supply chain capability aiming to increase rural and urban distribution.
2)
3)
4)
5)
6) HUL ltd has shown full faith in its operations which led to the recent Buyback of its own shares at a price of 280 Rs. 7) HUL is ready to drive up its volumes this quarter due to high demand of goods due to festivals.
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HUL re-launches major brands to regain lost ground HUL went through a major re-launch exercise in FY10 as major brands like Wheel, Rin, Lux, Lifebuoy, Breeze, Liril, Pepsodent, Clinic Plus and Fair and Lovely were re-launched. The re-launch of some brands was backed by pricing corrections (Rin and Lifebuoy), and the relaunch of others was led by product formulation changes (Wheel, Liril and Lux). Soap, detergents slip; personal products support margins HUL's FY10 volumes grew ~5% (FY09 adjusted for 12 months). Segmental volume growth is unascertainable due to the base of 15 months in FY09. In FY10, soaps and detergents posted value growth of 1.5% YoY and personal product sales rose 16.2%. Faster personal products growth enabled a 140bp rise in contribution resulting in a sales mix improvement. HUL ups the ante on new category development in food, skin care HUL recently launched various products, particularly in the skin care and food categories. In skin care, the Vaseline for Men range, Sure and Dove deodorants were launched during the year. Knorr Soupy Noodles marks the entry in the high growth easyto- cook snacks segment, which has been growing in high double digits. In the household care segment, HUL launched CIF surface cleaner and in the laundry segment it launched Comfort fabric conditioner. HUL has extended its water purifier brand to Pure IT compact for the economy segment and Pure IT auto fill for the premium segment. But most of these categories are small and HUL will have to drive category expansion in these segments so that they contribute meaningfully to sales and profits over time. HUL to expand rural reach; Shakti extended to Maharashtra, Orissa
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As smaller players expand their reach, HUL aims to take its distribution network to the next level to maintain a relative advantage. The rural network is being expanded threefold to improve the quality of coverage (formerly covered by indirect accounts). HUL covers 100,000 villages in 15 states through 45,000 Shakti Ammas. HUL has extended the network to Maharashtra and Orissa. HUL has also started Shakti Vani to increase awareness about health and awareness in rural areas. Volumes pick up in 2HFY10; profits might stay under pressure The impact of aggressive market intervention and re-launches is visible as volume growth rebounded sharply in 2HFY10. We believe volume growth will remain healthy in the near term as tactical pricing, trade promotion and product re-launches play out. This has arrested a declining trend in market share of a few products but significant share gains in soaps, detergents and toothpaste are not visible. We believe volume growth has been largely at the cost of margins as HUL invested heavily on advertising and trade promotion. ASP (as a percentage to sales) increased 340bp to 13.5% in FY10 and is likely to remain high due to high decibel advertising and media inflation. We are cautious about the sustenance of FY12 volume growth as HUL halts some of the high decibel advertising and trade push. Besides, we see margins being under pressure due to rising input costs (and the lack of pricing power); media inflation, increase in royalty and freight cost (after the increase in fuel cost).
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INCOME STATEMENT AND BALANCE SHEET
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RATIOS AND CASH FLOWS
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ANALYSIS OF HUL LTD1) The Net sales i.e. the Top line growth of the company have decreased this Fiscal year March 2010 to almost 13% , as the figures shows in the financial valuations. This has been due to slowdown of economy in this last fiscal. 2) The Net Profit after Tax i.e. the Bottom line growth of the company has decreased by 13% approximately to Rs.22, 020 millions. Thus, the bottom line have decreased due to intense margin pressures accompanied by higher advertisement costs, as HUL ltd is one of the highest advertising company in India. 3) If we look at the debt- equity ratio, it is smooth at around 0.2 which is relatively less and shows that the company is financially sound and less debt driven. The ideal debt- equity ratio is 1, and below 1 really shows that company does not depend much upon external borrowings, which indeed shows the strength of the company.
4)
The Earning per share have been reduced to some extent from 11.2 to 9.4 Rs, due to reduction in earnings this fiscal and stock prices reacting neutral.
5) The Price/Earnings ratio (P/E) is around 27 times which is discount to the Industry i.e. FMCG P/E of 31. Hence, going ahead the HUL stock can perform well and maintain the P/E of more than 31.This indicates a good upside potential for the stock movements of HUL ltd.
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6) If we see the technical aspect of share prices of HUL ltd, the share prices were neutral from the past 8 months. In the past 4 months the stock was revolving around 225 and 240 levels. This means that the stock had made a good support of 225 and good resistance at 240 levels. 7) Support means it is a price below which the stock does not go and Resistance means the price above which the stock does not go. So, in HUL ltd, the stock was providing good support at 220-225 Rs and strong resistance at 238-240 Rs. 8) Hence, this was the ideal time to invest in this stock when it was reaching 220 levels, which was acting as a solid support from past 1 year.
9)
However, after the stock being range bound most of the time i.e. around 6 months, HUL ltd announced buyback of its share in August at the price of Rs 280 and then the prices where around 260 Rs. Buyback of shares means a company buys it shares from the existing shareholders in the market. This shows a positive note, as this means the company is sure of its solid performance in coming quarters. Hence, soon after a Buyback of shares at a price of 280 Rs, soon the stock made a new high of RS 314 recently on 24th September2010. Hence, HUL ltd is presently quoting around 300 Rs and if it corrects to 280 Rs, it is a good buy for a short term target of 315 Rs and it would be a very good stock especially to own for long term horizon.
B) ITC LTD
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ITC, an associate of BAT (British American Tobacco), controls more than two thirds of the cigarette market in India. ITC has emerged as a diversified conglomerate with a leading presence in paperboards, hotels and processed foods. E-Choupal, an Agri-rural initiative, has been widely appreciated for its foresight in harnessing potential in the rural market. The following are the recent insights which have been related to ITC: Cigarette volumes fall 3.5%; increased prices, improved mix boost realizations We can estimate cigarette volumes to grow ~3.5% YoY (against our estimate of 4.5%) due to sharp price increases. Net sales grew 12.4% to Rs24.8b led by ~15% realization growth. The growth was due to a price increase (~16% YoY) and improved mix, which were partly offset by higher excise and VAT (~10%). The near-term outlook on cigarette volumes is uncertain due to a sharp price increase, though lower-thanexpected decline is a positive. Other businesses perform strongly; paperboard margins a positive surprise New FMCG business sales were up 32% YoY at Rs10b and EBIT loss declined 11% to Rs893m (4QFY10 loss of Rs787m). The agri business posted a 44% increase in sales to Rs13.5b and EBIT grew 23.2%. Margins contracted 150bp to 9.1% due to higher proportion of soya trading. Hotel business revenue grew 21% to Rs2b as a revival in the economic environment propped up occupancy (~60%) with ARR at Rs7, 500. Paper and paperboard sales rose 13% YoY to Rs7.9b and EBIT grew 47% YoY to Rs1.9b, enabling margin expansion of 550bp. Strong sales, EBIT growth boost ITCs 1QFY11 results
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An impressive performance in 1QFY11 was led by strong sales and EBIT growth across categories. A less-than-expected decline in volumes and a 160bp margin expansion were key highlights in the cigarettes division and strong sales and margin expansion in new FMCG, hotels and paper added to the momentum. Agri business sales grow; faster growth of low margin soya, wheat sales Impact margins The Agri business posted a 44% increase in sales to Rs13.5b and EBIT grew 23.2%. Margins contracted 150bp to 9.1% due to a higher proportion of soy trading. Sales will be a function of trading in soy and wheat as leaf tobacco prices are unlikely to increase. We estimate FY11 sales growth of 25% and EBIT growth of 12.5% in the agri business. EChoupal initiative has done a lot of benefit to ITC in increasing their rural market share, hence increasing their volume to large extent. Hotels business recovery underway; sales up, EBIT margins expand Revenue in the hotels business grew 21% to Rs2b as revival in the economic environment propped up occupancy levels (~60%) with ARR at Rs7, 500. EBIT grew 26% to Rs385m as margins expanded by 60bp. The seasonal hotels business gets most of its revenue in the second half of a year: we expect profit margins to expand significantly. ITC plans to add 1,500 rooms in 3-4 years. The current room inventory is 2,600 (it commissioned 292 rooms ITC Royal Gardenia in Bangalore in October 2009). ITC will commission a 600-room hotel at Chennai and work on its Kolkata property is underway. Gurgaon and Ahmedabad will follow and land has been acquired in Amritsar and Bhuvneshwar for more hotels. We expect the hotel business to post 19.4% sales growth and 45% EBIT growth in FY11 due to a lower base and a buoyant business and consumer environment.
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INCOME STATEMENT AND BALANCE SHEET
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RATIOS AND CASH FLOWS
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ANALYSIS OF ITC LTD 1) ITC ltd has a strong pricing power due to a dominant market share in the cigarette market. 2) Paperboard businesses have achieved self sustenance. 3) It has excellent long term potential in its rural initiative of EChoupal and Choupal Sagar. 4) However, Increase in VAT from 12.5% to 20% by states and an increase in excise duty could impact ITCs cigarette volume growth, which in turn would reflect in its share prices as well. 5) ITC Hotels plans to add 1,500 rooms in 3-4 years; the current room inventory is 2,600 (commissioned 292 rooms ITC Royal Gardenia in Bangalore in October 2009). 6) There has been good upsurge in top line which has increased almost 17% from 2009 to 2010, which can be seen in the income statement. ITC have seen a good increase in volumes of Cigarettes which have favoured the increase in revenues. 7) Also, this has supported the bottom line growth i.e. the Profit after deducting all expenses and taxes have seen a growth of 24% from 2009 to 2010. This has supported the sharp increases in share prices of ITC Ltd. 8) The Earning per share have increased from 8.3 to 8.6, which is increasing every fiscal year as the companys growth have been increasing. 9) With a Price/Earnings Ratio of 26, the stock looks attractive at present levels and we can see upsurge in stock price from present levels of 170 Rs, as the FMCG industry P/E is around 31.
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10) Also, Company recently gave bonus to its shareholders in a ratio 1:1, due to outstanding performance in the last few fiscal years. 11) The present price of ITC Ltd is around 170 levels, and 184 Rs is the 52 week high for this stock. Hence, one can enter this stock for investment at around 160-163 levels which looks a good support at present chartings. Hence, if the stock crosses its resistance of 184 Rs, it would go on with further increase to make new high and reward investors with good capital gains.
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CHAPTER 12. CONCLUSION

FMCG companies are fighting to stand out amid the clutter of a massively vigorous and strengthening consumer market. To keep consumers interested India's brands are diversifying well-loved favourites by entering new FMCG territory. It is quite common for emerging market companies to want to sell their share of the business to their global partners. In case the global company is willing to acquire the local partner, the latter would improve its negotiating power and strengthen its position. FMCG sector is long established and over the years, sustaining ups and downs of the Indian economy. Thus the Critical operating rules in Indian FMCG sector can be summarized as follows: Heavy launch costs on new products on launch advertisements, free samples and product promotions. Majority of the product classes require very low investment in fixed assets Existence of contract manufacturing. Marketing assumes a significant place in the brand building process Extensive distribution networks and logistics are key to achieving a high level of penetration in both the urban and rural markets Factors like low entry barriers in terms of low capital investment, fiscal incentives from government and low brand awareness in rural areas have led to the mushrooming of the unorganized sector providing good price points is the key to success. FMCG company stocks are relatively stable and are not affected by global variation. In most of the Stock exchanges, FMCG companies are the key players. With the market in a bearish phase, the FMCG sector has found flavour among investors. The sector's defensiveness is demonstrated by the stability in returns generated even
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during times of slow economic growth. While the Sensex is down by 29% since the beginning of this year, the ET FMCG index comprising the top 20 stocks in the sector has fallen only by 12.5%. Nevertheless, the FMCG growth story is here to stay. According to a survey on fast moving consumer goods (FMCG) industry undertaken by Federation of Indian Chambers of Commerce and Industry (FICCI), the growth momentum is likely to continue in the current fiscal as well, spurred by lifestyle category goods. It includes products categories like skin care, Shampoos, deodorants, anti-aging solutions, fairness products and various men's products. Most are counting on two factors as driving forces:-
Increased Market Penetration in Rural areas & A Shift in Urban Outlook Regarding Expenditure
These two things would probably drive the Indian FMCG industry in coming years, as the FMCG players have started with large plans to drive the unexplored rural areas in to one of the main access to growth, and this would probably provide higher earning and growth potential for FMCG industry.
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CHAPTER 13. ANNEXURE

INTERVIEW WITH MR. KIRAN BADDERRU, EQUITY RESEARCH, D.P INVESTO LTD, 9773568124 Q.1) Whats your view on the FMCG Industry in India? Ans. FMCG industry is a very large industry in India. It is really one of the core industries which cater to the day to day needs of billions of people in India. Some of the major players who have made their niche in India are HUL Ltd, ITC, Marico, Nestle, P & G, etc; However, there is intense competition in this industry as well, which is affecting the profit margins of these companies big time. Q.2) Do you invest in FMCG stocks? Ans. No. I do not have any personal holdings in any FMCG stocks. Q. 3) So what are the changes you see in FMCG industry in the past two decades? Ans. In the past, there was less competition in this industry and so the profit margins were good but the sales was not that high. However, in recent years, there are lot of new players who entered in to markets, with high advertising spends, increase in innovation in various segments of FMCG industry, and also increase in per capita income of individuals
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have led to higher sales. The only concern is the rising raw material costs, and decrease in top line growth due to pressure on profit margins. Q.4) Do you suggest your clients investing in FMCG stocks? Ans. FMCG stocks are very defensive in nature. It means when you see the past history or trends in the price movements of FMCG stocks, it is visible that whenever the markets are bearish, the least affected or less volatile stocks are those of FMCG sector. This stocks are not much volatile and can be considered a safe bet, especially when you are not sure of the market movements. However, the capital appreciation on the stocks may take some time as these are low beta stocks. Q.5) Finally, what do you think of the FMCG industry in coming times? Ans. The FMCG industry may witness higher competition in coming times as well. Firms would probably try to lower their advertising spends as this have affected their bottom line to large extent, and we can see more innovative products in the streamline. There would be more focus on Rural sector, no doubt as it has large potential and markets are yet to splurged. So companies would focus more on generating their revenues from the rural and semi rural sides where still unorganized markets prevail.
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CHAPTER 15. BIBLIOGRAPHY

WEBSITES
1) 2) 3) 4) 5) 6)
www.gallabhansali.com www.itcportal.com www.hul.co.in www.google.com www.sre.co.in www.bseindia.com
RESEARCH REPORTS 1) Share khan quarterly reports 2) Galla bhansali research reports 3) IBEF research reports on FMCG sector NEWSPAPER THE ECONOMIC TIMES
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BLOGS 1) http://fmcg-marketing.blogspot.com/ 2) http://stock-report.blogspot.com/2009/06/india-fmcg-hsbc.html
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FMCG SECTOR IN INDIA

CHAPTER 1. INTRODUCTION TO FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

CHAPTER 2. OBJECTIVE OF THE STUDY

FMCG SECTOR IN INDIA

CHAPTER 3. HISTORY AND PRESENT SCENARIO OF FMCG COMPANIES IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

Sources: Naukri Hub, IBEF, Chennai Online

CHAPTER 4. STRUCTURE OF FMCG INDUSTRY IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

2) Food and Beverages

FMCG SECTOR IN INDIA

CHAPTER 5. SWOT ANALYSIS OF FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

VAST MARKET OPPORTUNITIES

LOW OPERATIONAL COSTS

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

DEMAND IS SEASONAL SOMETIMES

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

CHAPTER 6. MARKET AND SECTORAL OPPORTUNITIES FOR INVESTMENT

Source: HH Panel data

FMCG SECTOR IN INDIA

Boosting Rural Income - Novel Experiments by Indian Corporates

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

SECTORAL OPPURTUNITIES IN FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

CHAPTER 7. GROWTH PROSPECTS OF FMCG SECTOR IN INDIA

Source: UN Population Division: Medium variant

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

Sour ce- www.ghallabhansali.com

Vast Rural Market

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA

CHAPTER 8. CHALLENGES BEFORE THE INDIAN FMCG SECTOR

FMCG SECTOR IN INDIA

FMCG SECTOR IN INDIA