Pharma Sector Financial Analysis

SAMPLE REPORT: Pharmaceuticals Sector Analysis Report

 Fast moving consumer goods (FMCG) is the 4th largest sector in the
Indian economy. There are three main segments in the sector – food and
beverages which accounts for 19% of the sector, healthcare which accounts for
31% and household and personal care which accounts for the remaining 50%.

 Growing awareness, easier access and changing lifestyles have been the
key growth drivers for the sector. The urban segment (accounts for a revenue
share of around 55%) is the largest contributor to the overall revenue
generated by the FMCG sector in India. These initiatives are expected to
increase the disposable income in the hands of the common people, especially
in the rural area, which will be beneficial for the sector.

 Accounting for a revenue share of around 45%, rural segment is a large

contributor to the overall revenue generated by the FMCG sector in India.
Demand for quality goods and services have been going up in rural areas of
India, on the back of improved distribution channels of manufacturing and
FMCG companies.

 Urban segment accounted for a revenue share of 55% in the overall

revenues recorded by FMCG sector in India. The Government of India has
approved 100% Foreign Direct Investment (FDI) in the cash and carry segment
and in single-brand retail along with 51% FDI in multi-brand retail.

 The Goods and Services Tax (GST) is beneficial for the FMCG industry as
many of the FMCG products such as Soap, Toothpaste and Hair oil now come
under 18% tax bracket against the previous 23-24% rate. Also, rates on food
products and hygiene products have been reduced to 0-5% and 12-18%,
respectively.

How to Research the Consumer Products Sector (Key

Points)
 Supply

Abundant supply through a distribution network of over 8 m stores across the

country. Distribution networks are being strengthened in the rural areas.

 Demand

With food and consumer products being items of frequent consumption,

demand is less impacted by slowdown. Processed food and personal products
are segments growing at a robust pace. Rising contribution of women to the
working force and growing nuclear families led to higher demand for
convenience foods, especially in urban areas. Tobacco demand being habit-
forming is largely inelastic.

 Barriers to entry

Huge investments in establishing brand identity and setting up distribution

networks.

 Bargaining power of suppliers

Suppliers being small and fragmented have limited bargaining power. Most
tobacco companies have integrated backwards and have their own supply
chains. Therefore, the bargaining power of suppliers is not high.

 Bargaining power of buyers

Rising competition and the onslaught of the e-commerce boom does provide
good bargain opportunities for customers. Tobacco consumption is more or
less a habit, and thus the bargaining power of consumers is only to the extent
of choice of the brand.

 Competition

Domestic unorganized players pose competition. Domestic players also feel

the competitive pressures from large well established MNCs. In case of
tobacco, branded cigarettes, bidis and contraband compete with each other.
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Financial Year '19

 The Retail market in India is estimated to reach US$ 1.1 trillion by 2020
from US$ 840 billion in 2017, with modern trade expected to grow at 20%-
25% per annum, which is likely to boost revenues of FMCG companies.

 Revenues of FMCG sector reached Rs 3.4 lakh crore (US$ 52.8 billion) in
FY18 and are estimated to reach US$ 103.7 billion in 2020.

 The sector witnessed healthy FDI inflows of US$ 14.7 billion, during April
2000 to March 2019.

 Revenue growth continued to decline from 11% in the third quarter of

2018-19 to 7% in the first quarter of current fiscal.

 FMCG companies have been increasingly relying on rural India, home to

nearly 800 million, to fuel growth. While the Indian economy grew at its
slowest pace in over six years at 5% during April-June, the agriculture sector
expanded a meagre 2% during the period.

 One major factor driving the demand for food services in India is the
growing youth population, primarily in the country’s urban regions. India has a
large base of young consumers who form most the workforce and, due to
time constraints, barely get time for cooking.

Prospects
 Leading players of consumer products have a strong distribution
network in rural India; they also stand to gain from the contribution of
technological advances like internet and e-commerce to better logistics. Rural
FMCG market size is expected to touch US$ 220 billion by 2025.
 Online portals are expected to play a key role for companies trying to
enter the hinterlands. The Internet has contributed in a big way, facilitating a
cheaper and more convenient means to increase a company’s reach.

 The sector is further expected to grow at a Compound Annual Growth

Rate (CAGR) of 27.9% to reach US$ 103.7 billion by 2020.

 The initiatives for the growth of sector are expected to increase the
disposable income in the hands of the common people, especially in the rural
area, which will be beneficial for the sector.

 Going forward, FMCG companies are likely to post the worst revenue
growth in the last 15 years as the slowdown in the sector intensifies due to
lower farm incomes, liquidity crunch, and rising unemployment

Source: Equity Master, Sector Report, 22nd Jan 2020

 https://www.equitymaster.com/research-it/sector-
info/pharma/Pharmaceuticals-Sector-Analysis-Report.asp
 https://www.moneycontrol.com/stocks/marketstats/sector-
scan/bse/today.html