FMCG SECTOR

Size of The Sector: In terms of Money. The FMCG sector is the fourth largest sector in the Indian economy with a total market size of around Rs 45,000 crore. According CII figures for 2005, the size of the fabric wash market is estimated to be Rs 4,500 crore; of household cleaners to be Rs 1,100 crore; of personal wash products to be Rs 4,000 crore; of hair care and oral care products to be Rs 2,600 crore each; of health beverages to be Rs 1,100 crore; of bread and biscuits to be Rs 8,000 crore; of chocolates to be Rs 350 crore and of ice cream to be Rs 900 crore. Contribution to GDP. The sector accounts for barely 2% of India's GD . Growth Trends: According to a Economic Times report, the pace of growth recorded by the FMCG industry in the fiscal year 2004-05 is expected to be the highest at 5%-6% in the last five years, following a sharp rebound in rural demand. A number of large and medium FMCG companies like HLL, Colgate, Dabur, Marico, and Godrej Consumer Products have or are in the process of setting up manufacturing units in tax havens like Uttaranchal, Himachal Pradesh, Jammu and Assam. Most companies have shifted from outsourcing to manufacturing in a desperate bid to protect profit margins in the absence of price increases. According to figures of the National Council for Applied Economic Research, the ratio of the consuming class to total households will touch 46% by FY-07. With per capita consumption low in most categories and expectations of the consuming class growing in significant numbers, the FMCG sector in India has immense growth potential in the long term. The government's idea of making India an agri-processing hub will also boost the sector's growth. Private sector initiatives like ITC's e-choupal and HLL's Shakti will shape the dynamics of what farmers produce going forward, with improved efficiency.

Factors affecting the growth: Over the years, demand for consumer durables has increased with rising income levels, double-income families, changing lifestyles, availability of credit, increasing consumer awareness and introduction of new models. Products like air conditioners are no longer perceived as luxury products. The biggest attraction for MNCs is the growing Indian middle class. This market is characterized with low penetration levels. MNCs hold an edge over their Indian counterparts in terms of superior technology combined with a steady flow of capital, while domestic companies compete on the basis of their well-acknowledged brands, an extensive distribution network and an insight in local market conditions. With companies opting for information technology a reduction in inventory levels and an improvement in the working capital cycle are likely. This will benefit companies by controlling costs and improving margins.

Major Government Policies/Changes in the past three years: Budget 2005-06: FMCG
Budget Impact The removal of surcharge on tea and duty on vanaspati and refined edible oils will have a marginally positive impact on companies like Tata Tea, HLL and Marico. The focus on replantation and rejuvenation of tea plantations will benefit the sector over the long term, but there is nothing material in it for companies immediately. Implementation of VAT is a positive move over the long term. This is likely to pave the way for a singular tax going forward, which will help companies cut costs ands become more competitive in the long run. Reduction in duty on refrigerated vans will give a boost to the processed food industry. A positive for players like Amul, Nestle, HLL and Britannia. Area specific excise exemptions for North East, J&K, Himachal Pradesh will continue to encourage FMCG companies to relocate to these areas.

The corporate tax rate change is unlikely to benefit the FMCG companies much, as most pay an effective tax rate of less than 30% anyway. The push to agriculture and rural India is likely to aid rural India's development in the long run. It has the potential to induce increased usage of FMCG products going forward. Individual tax benefits too are a positive for the sector.

Outlook Of Investors(list major investors,FII etc.) In the context of the positives and the negatives, investing in FMCG stocks is a tricky prospect. Given this, one has to be active with FMCG stocks and should book profits as soon as the targetted returns are reached. Unlike earlier times, nowadays, one cannot afford to buy an FMCG stock and forget about it for a long time. It is unlikely that the government's initiatives will boost the sector overnight. The ongoing price wars mean that company earnings will continue to be volatile. Hence, in the short term, one should look at individual companies' prospects rather than the overall sector's prospects. This means that it is better to leave mutual funds that concentrate on FMCG companies and instead buy shares depending upon the company. It is not necessary that an MNC will be better than an Indian company. One should look at a company's profile and analyse its prospects before investing in its shares. It is not that you will lose out by buying FMCG stocks. But, in buying an FMCG stock, it will be ideal to cash in during short bursts of activity. Major Merger and Acquisitions in the past two years: Vijay Mallya's United Breweries Group (through Group entities Mc Dowell & Co, Phipson Distillery, United Spirits and United Breweries Holdings) acquired a controlling stake in the Jumbo Group's Shaw Wallace & Company for a total deal value of Rs 16.2 billion ($371.6 million). The deal is made up of an acquisition of a 50 per cent stake from the promoters (including a non-compete premium) a tender offer for an additional 25 per cent from other shareholders, and the acquisition of two distribution subsidiaries. The other Jumbo Group company to be sold was Shaw Wallace Breweries. SAB Miller increased its stake by 50 percentage points to 99 per cent in the company through its Indian subsidiary, Mysore Breweries. The stake was held by Shaw Wallace & Company and, hence, had SAB Miller not undertaken this acquisition, Shaw Wallace Breweries would effectively have been an joint venture between two rivals UB and SAB Miller. McLeod Russell India (part of the B. M. Khaitan Group) acquired a 90 per cent stake in Williamson Tea Assam for Rs 2.1 billion ($48.2 million). Of this, a 70 per cent stake came through the acquisition of holding company Borelli Tea Holdings from Williamson Tea of UK, while the rest is to be acquired by a tender offer to other shareholders. The P&G-Gillette merger - With the acquisition of Gillette's operations, P&G becomes the second largest consumer goods company in the world Expected Future Trends:

Huge investments in promoting brands, setting up distribution networks and intense competition are what FMCG companies face. Creating strong brands is important for FMCG companies and they will have to devote considerable money and effort in developing brands. Given the fragmented nature of the Indian retailing industry and the problems of infrastructure, FMCG companies also need to develop extensive distribution networks to achieve a high level of penetration in both the urban and rural markets. This will require a lot of resources. The unorganised sector has a presence in most product categories of the FMCG sector. Small companies from this sector have used their locational advantages and regional presence to reach out to remote areas where large consumer products have only limited presence. Their low cost structure also gives them an advantage. And this will only lead to price wars, which, though good for consumers, will affect the bottomlines of companies. According to Adi Godrej, the problem of counterfeiting and globalisation are two of the biggest challenges facing the industry today. Godrej is all for the Indian FMCG sector internationalising brands in a serious manner, rather than treating it like shooting an arrow in the dark. New players Planned to venture: Mangalore-based CAMPCO has announced plans to enter the FMCG sector by marketing, and promoting Effermint toothpaste. For CAMPCO this marks its maiden entry into the FMCG sector, while for Thrissur-based Effermint India, this is the second time that it is entering in to a marketing tie-up with a large player. It had on an earlier occasion partnered with TOMCO, the FMCG arm in the Tata thanx Godrej Consumer Products Ltd (GCPL) has launched a new brand of soap, Nimin, on the germicide platform. Pegged on a par with Lifebuoy's variant in the sub-popular category, Nimin is priced at Rs 8 for 75 gm and Rs 13 for 125 gm. GCPL has also decided to enter the hair oil market with a brand under its company name. The company is already test marketing a thanda tel under the Godrej brand in UP. Now, players such as Marico have entered the category with Shanti Thanda Tel.

HUL is the market leader in Indian consumer products with presence in over 20 consumer categories such as soaps, tea, detergents and shampoos amongst others with over 700 million Indian consumers using its products. Sixteen of HULs brands featured in the ACNielsen Brand Equity list of 100 Most Trusted Brands Annual Survey (2008).[3]

According to Brand Equity, HUL has the largest number of brands in the Most Trusted Brands List. It has consistently had the largest number of brands in the Top 50, and in the Top 10 (with 4 brands). The company has a distribution channel of 6.3 million outlets and owns 35 major Indian brands.[4] Its brands include Kwality Wall's ice cream, Knorr soups & meal makers, Lifebuoy, Lux, Pears, Breeze, Liril, Rexona, Hamam and Moti soaps, Pureit water purifier, Lipton tea, Brooke Bond (3 Roses, Taj Mahal, Taaza, Red Label) tea, Bru coffee, Pepsodent and Close Up toothpaste and brushes, and Surf, Rin and Wheel laundry detergents, Kissan squashes and jams, Annapurna salt and atta, Pond's talcs and creams, Vaseline lotions, Fair and Lovely creams, Lakm beauty products, Clear, Clinic Plus, Clinic All Clear, Sunsilk and Dove shampoos, Vim dishwash, Ala bleach, Domex disinfectant, Modern Bread, Axe deosprays and Comfort fabric softeners.

[edit] Leadership
HUL has produced many business leaders for corporate India; one of these, Harish Manwani[5], has become a member of Unilever's Executive (UEx). HUL's leadership-building potential was recognized when it was ranked 4th in the Hewitt Global Leadership Survey 2007 with only GE, P&G and Nokia ranking ahead of HUL in the ability to produce leaders with such regularity.[6][7][8]

[edit] Other awards

HUL is one of the country's largest exporters; it has been recognised as a Golden Super Star Trading House by the Government of India.[2] In 2007, Hindustan Unilever was rated as the most respected company in India for the past 25 years by Businessworld, one of Indias leading business magazines.[9] The rating was based on a compilation of the magazine's annual survey of Indias most reputed companies over the past 25 years. HUL was one of the eight Indian companies to be featured on the Forbes list of Worlds Most Reputed companies in 2007.[10] HUL is the most innovative company in India by Forbes list and 6th in the top 10 list of most innovative companies in the world. [11] HUL was ranked 39th in The Brand Trust Report (2011) published by Trust Research Advisory. Fair and Lovely creams also was listed in the same report.

[edit] Research facilities

The Hindustan Unilever Research Centre (HURC) was set up in 1967 in Mumbai, and Unilever Research India in Bangalore in 1997. Staff at these centres developed many

innovations in products and manufacturing processes. In 2006, the company's research facilities were brought together at a single site in Bangalore.[12]

[edit] Community services

HUL also renders services to the community, focusing on health & hygiene education, empowerment of women, and water management. It is also involved in education and rehabilitation of underprivileged children, care for the destitute and HIV-positive, and rural development. HUL has also responded to national calamities, for instance with relief and rehabilitation after the 2004 tsunami caused devastation in South India.[2] Project Shakti - A Social Initiative[13] In 2001, the company embarked on a programme called Shakti, through which it creates micro-enterprises for rural women. The major objective of this initiave as a whole remains to create livelihood opportunities for underprivileged rural women. The programme is broadly divided into three components:

Shakti Vani Programme

This model recruites village women as sales persons called shakti amma and trains them to communicate and sell HUL products in villages. The idea is to be able to reach those villages which do not have good road connectivity and where the penetration of media is also poor. Shakti Vani also includes awareness programmes on health and hygiene, education, etc.Shakti Vani now covers 15 states in India with over 45,000 women entrepreneurs in 135,000 villages.

Shakti Entreprenuer IShakti

[edit] Direct Selling Division

HUL also runs Hindustan Unilever Network (HULN), a direct selling business arm. Under HULN, health products are marketed by Ayush Therapy in collaboration with Arya Vaidya Pharmacy, Coimbatore; beauty products by Aviance; home products by Lever Home; and male grooming by D.I.Y. There are also premium products for beauty salons and others.

[edit] Controversy
[edit] Mercury pollution

In 2001 a thermometer factory in Kodaikanal run by Hindustan Unilever was accused of dumping glass contaminated with mercury in municipal dumps, or selling it on to scrap merchants unable to deal with it appropriately.[14][15][16]

[edit] Skin lightening creams

Hindustan Unilever's "Fair and Lovely" is the leading skin-lightening cream for women in India.[17] The company was forced to withdraw television advertisements for the product in 2007. Advertisements depicted depressed, dark-complexioned women, who had been ignored by employers and men, suddenly finding new boyfriends and glamorous careers after the cream had lightened their skin.[18] In 2008 Hindustan Unilever made former Miss World Priyanka Chopra a brand ambassador for Pond's,[19] and she then appeared in a mini-series of television commercials for another skin lightening product, White Beauty, alongside Saif Ali Khan and Neha Dhupia; these advertisements were widely criticized for perpetuating racism.[20]
[edit] Triclosan

Several academic papers have pointed out the firm's continued use of the antibacterial agent Triclosan ('Active B') in India because it is under review by the American Food and Drug Administration (FDA).[21]