FMCG SCTOR

INDUSTRY OVERVIEW

(1/3)
ABOUT THE SECTOR:
Fast Moving Consumer Goods (FMCG) also known as Consumer Packaged
Goods (CPG), it is the Fourth largest Sector in Indian Economy and an important
contributor of Indias GDP.
This sector is characterized by a well established distribution network, low
penetration levels, low operating costs, lower per capita consumption, and intense
competition between the organized and the unorganized segments.
The FMCG Industry primarily engages in the production, distribution and marketing
operations of CPG.
This industry has three main segments with Food and Beverage leading the
market segment and contributing 43% of overall revenues.
Household and Personal care being the second segment accounting for two-third
of the industrys revenue and the third being the Health Care segment.
The FMCG sector in India generated revenues worth $47.3 billion in 2015 and
over 2007-16F, the sector is expected to post a CAGR of 11.9% in revenues.
In 2016 the revenues for FMCG sector is expected to reach $49 billion.
This industry was valued at $37 billion in 2013 and is expected to grow
14.7%annually to reach $110.4 billion by 2020.
This sector creates employment for more than 3 million people in downstream activities.
INDUSTRY OVERVIEW
(2/3)

The industry was known to be an urban-centric industry, with most of its sales
focused in urban areas. However, currently the focus from the metropolitan and
Tier-I cities have shifted to the smaller towns.
Thus it is the Tier-II, Tier-III, Tier-IV cities that have become the large markets to
focus on and are expected to drive the growth over the next decade.
However, urban segment remains to be the largest contributor to the sector
accounting for around 65% of total revenue and a market size of around $20.74
billion in 2015.
Semi-urban and rural segments are growing at a rapid pace and currently account
for 35% of the revenues. REVENUE FMCG MARKET
In last few years, the FMCG 120 market has grown at a faster pace in rural India
compared with urban India 100 with rural India accounting for more than 40% of the
100

total FMCG market in 2015. 80

The rural market is anticipated to expand at CAGR of 17.41% to $100 billion

USD BILLION 60
during 2009-25. 40
18.92 20
20 12.3 12.1 14.8
9 10.4

0
2009 2010 2011 2012 2013 2015 2018E 2025E

YEARS
IN INDUSTRY OVERVIEW
(3/3)

FMCG sector in Semi-Urban and Rural India is estimated to cross $20 billion by
2018 and $100 billion by 2025.
More than 80% of FMCG products posted faster growth in rural markets as
compared to the urban markets with shampoos, skin creams, etc being the
products with maximum penetration.
To make its presence in the Rural India the top brands are resorting to aggressive
promotional activities to create awareness of their products.
HUL increase its advertising expenses by 7.3% to Rs 3944 crore from Rs 3675
crore in FY 2013-14 whereas Emami rose its expenses by 41%.
The rise in promotional expenses makes FMCG a dominant sector with 28% of the
advertising expenditure as compared to the other industries.
The sector also experiences increase in its import of goods against the Make in
India campaign. The top MNC companies in the segment such as HUL, P&G
Hygiene and Healthcare, Colgate Palmolive and Gillette India have consistently
seen higher imports from 2010-11 to 2014-15 which are much higher than their
exports.
TOP 10 COMPANIES IN FMCG

COMPANIES MARKET CAP dfc

BUSINESS
(million)
1. HUL 1903974 Food, Beverages and Personal
Care
2. COLGATE-PALMOLIVE 235608 Personal Care

3. ITC LIMITED 2854856 Tobacco, Hotels and Personal

Care
4. NESTLE 626210 Food, Diary Products and
Coffee
5. PARLE AGRO NOT LISTED Food Items and Beverages

6. BRITANNIA 322255 Food Items and Dairy Products

7. MARICO LIMITED 328994 Oil and Personal Care

8. P&G 202133 Food, Beverages and Personal

Care.
9. GODREJ GROUP 507021 Personal Care, Real Estate and
Engineering
10. AMUL NOT LISTED

Source: http://top10companiesinindia.co.in/top-10-fmcg-companies-in-india/
PORTERS FIVE FORCES ANALYSIS OF THE INDUSTRY
(1/3)

COMPETITIVE RIVALRY:
With many MNCs entering the sector has become highly fragmented. The
companies undertake many activities from intensive advertisement campaigns to
price wars, etc which increases the intensity of rivalry.
The private label brands by retailers priced at a discount to the branded products,
replica of the branded prodcuts and selling them at discounted prices further
intensify the competition in the market.
Thus the threat of competitive rivalry is high.

THREAT OF NEW ENTRANTS:

There are not many new firms establishing their business in the sector as this
industry is characterized by huge capital required to set up the business.
Huge investments required to set up the distribution network and promoting
brands.
Aggressive spending on advertisements is required by the new entrants as they
have to compete with the products already having a foot hold in the market.
Thus the threat of new entrants is medium.

SUBSTITUE PRODUCTS:
The wide array of choices give a sufficient room for product development that can
PORTERS FIVE FORCES ANALYSIS OF THE INDUSTRY
(2/3)

BARGAINING POWER OF CUSTOMERS:

The customers have changing needs and wide array of products to facilitate their
needs, with companies coming up with innovative and new products the
customer's have little loyalty towards the existing brands.
The low cost of switching form the products induces the customers product shift.
Thus the bargaining power of customers is high.

BARGAINING POWER OF SUPPLIERS:

A diverse supplier base limits the bargaining power of Suppliers.
Big FMCG companies are able to dictate the prices through local sourcing from a
fragmented group of key commodity suppliers.
Long term relationship with the suppliers can be used to negotiate the prices.
Thus the bargaining power of suppliers is low.
PORTERS FIVE FORCES ANALYSIS OF THE INDUSTRY
(3/3)

Source: http://www.ibef.org/industry/fmcg-presentation
INDUSTRIAL BREAKUP
(1/2)

FMCG

Household &
Food &
Health Care Personal
Beverages
Care

Accounts for 18% of Accounts for 32% of Accounts for 50%

the Market Share the Market Share of the Market Share
INDUSTRIAL BREAKUP
(2/2)

Household is the leading segment, accounting for 50% of the overall market,
followed by Heath Care that accounts for 32%, Food & Beverages accounting for
18%.
Food and Personal Care Products account for Two-Third of total Revenues in the
market.
Hair Care being the leading segment contributing 23% of the overall market in
terms of Revenue.
Market Breakup by Revenues
Food Products is the second leading segment accounting for 18% of the revenue.
Health Supplements and Oral Care being the third segment having a market share
of 16%. Hair Care
4% Foods
6%
7%
23% Health Supplements
Oral Care
10% OTC & Ethicals
Home Care
18% Digestives
16%
Skin Care
16%

Source: http://www.ibef.org/industry/fmcg-presentation
SEGMENTAL BREAKUP (1/5)

FOOD AND BEVERAGE:

The Indian Food Industry has emerged as a high-growth and a high-profit sector
and is increasing its contribution to the world food trade every year.
This sector is currently valued at US$ 39.71 billion and is expected to grow at
CAGR of 11%, US$ 65.4 billion by 2018.
Currently Food & Grocery accounts for more than 50% of the overall retail basket
& is expected to grow at a CAGR of 141% by 2020 & contributing $15 billion of
overall retail sales.
Indias Food and Beverage category constitutes of 40% of its CPG industry.
Under the food industry, Packaged Food Sector
Packaged food is the major contributor to the
CPG Industry. Industry

Convenience
Baked Food Dairy Confectionaries
Food
SEGMENTAL BREAKUP (2/5)

BAKED & CONVENIENCE FOOD:

BAKED FOOD:
In this Segment, Biscuits are the most popular baked Goods in India and account
for 72% of sales of the bakery segment.
Consumers are increasing their consumption of premium biscuit and cookies
offerings, a trend which is expected to continue.
India is the third largest producer of biscuits after U.S.A and China.
The Market Leaders in this category are: Britannia (28%), Parle.

CONVENIENCE FOOD:
The convenience Food Sector includes:
- Frozen Meals.
- Packaged Snacks
- Ready-to-cook foods.
The Market Leaders in this segment include:
- Frozen Meals:- Mother Diary (Safal Fruits and Vegetables)
- Ready-to-cook Meals:- MTR, Nestle.
- Packaged Snacks:- HUL (Kissan Condiments, Juices), Pepsi Co (Lays and
Kurkure Snacks).
SEGMENTAL BREAKUP (3/5)

DAIRY SEGMENT:
Milk is the largest dairy segment of the dairy segment in India accounting for
91.7% of the markets total value.
India is the second largest producer and consumer of milk in the world.
This industry is currently valued at $5414.5 million and grew by 8.2% in 2014 and
is expected to reach $6949.2 million by 2019 showing a growth of 28.3%
since 2014.

CONFECTIONARIES:
This segment includes desserts, sweets, etc.
The confectionary market in India stood at $1.3 billion in 2013 and is expected to
grow by 71% to reach $2.2 billion in 2018.
The Indian confectionary market is going through rapid changes in terms of trends
and consumer behavior pattern.
SEGMENTAL BREAKUP (4/5)

HOUSEHOLD & PERSONAL CARE:

Household Care segment of India is been currently valued at $3.4 billion and is
estimated to grow at 19% annually till 2019.
The sector comprises of categories like fabric care, dish soap, surface care, toilet
care, home insecticides and hair care.
Fabric care is the major category accounting for 68% of the household care
segment.
SEGMENTS MARKET LEADERS OTHERS

Fabric Care HUL- Wheel, Surf Excel, Sunlight Amway

Detergents, Comfort P&G Ariel & Tide
Fabric, Rin bar soap and bleach Nirma
Godrej

Dish Soap HUL Vim Reckitt Bencikers Finish

Nirma

Surface Care Reckitt Bencikers Dettol, Lizol, HUL Cif

Colin

Home Insecticide Godrej Good Knight, Hit Reckitt Bencikers Mortein

Air Care Dabur Odonil P&G Ambi Pur

Godrej - AER
SEGMENTAL BREAKUP (5/5)

PERSONAL CARE:
This sector accounts for 22% of the FMCG Industry of India.
Foreign Direct Investment in this sector was $961 million in 2014.
This sector is driven by rising income, rapid urbanization & celebrity promotions.
Indias Personal Care segment comprises of hair care, bath products, skin care
and cosmetics and oral care.
Hair care is the main category of this industry.

Source: :
http://money.livemint.com/news/sector/outlook/fmcg-industry-on-recovery-path-outl
ook-remains-positive-429525.aspx
KEY CHALLENGES
(1/2)

INFRASTRUCTURE:
An efficient FMCG operation depends on high-quality supporting infrastructure
such as good national highway network, interstate roads & congestion free city
roads.
However 70% of the villages are not connected with city roads making
transportation and distribution of goods difficult and 70% of the population of India
lives in rural area.
Besides the transportation problem, the marketers and farmers face the problem of
reaching out to the markets.

TAX STRUCTURE:
The complicated tax structure, high indirect tax, high entry and octroi tax and
changing tax policies are one of the key challenges for the FMCG Sector.
The VAT rates the procedure of imposition of the tax are not been uniformly
followed by all the states, each state continue to have a different approach to
taxation and thus moving goods across the states become difficult for the
companies.

WAREHOUSING:
Many rural areas lack proper warehousing facilities causing a problem for the
 KEY CHALLENGES
(2/2)

COUNTERFEIT PRODUCTS:
Counterfeit Products, which are fake replicas of the real product, are another issue
for the companies in this sector.
The small manufacturers take advantage of lack of awareness, literacy of the people
and churn out spurious products which they label similar to the big brand, causing a
problem majorly in the rural areas. Also these villages are scattered and gaining
access to all of them is a tedious task for the companies.
The local manufacturers are aware of the challenges and take advantage of it by
manufacturing cheap and duplicate products misleading the rural consumer's.
Its is estimated that the FMCG Industry loses around 2500 crores annually due to
counterfeit and pass-off products and the top brands in India are estimated to lose up
30% of their business to fake products.
On a whole the brands not only suffer in terms of revenue but also have to
compromise on the brand image which is a big cost to them than the revenue.

LOW PER CAPITA INCOME IN RURAL AREAS:

The per capita income in rural areas is too low as compared to urban areas.
In 2011-12 the per capita income for the urban areas was Rs 1,01,313 and for rural
areas it was 40,772 which is a huge gap.
Government has been taking up initiatives to help increase the rural incomes and
provide more purchasing power in the hands of rural people.
GROWTH DRIVERS
(1/4)

Rising Incomes:
Incomes have risen considerably over the last few years in India and will continue
to rise given the strong economic growth prospects.
With the rise in the working age population, the per capita income and the NDP are
expected to surge.
The per capita income is estimated to have recorded at a CAGR of 5.43% over
2010-19E.
It is expected to expand at a CAGR of 7.85% over the period 2015-19E.

Increase in Penetration:
The low penetration of branded products in categories such as instant foods
indicate a scope for the companies to introduce products in this sector.

Shift to organized market:

With increased level of brand consciousness the share of unorganized market in
the sector is expected to shift to the organized sector.
Growth in Modern Retail is expected to augment the growth of organized FMCG
Sector.
GROWTH DRIVERS
(2/4)

Strong distribution Channel:

With an intensive and widely spread distribution network helps the company to
cater to remote areas and establish their presence there.
Emami has wide spread distribution network with 2800 distributors and 6.4 lac
retailers which helps the company to have its presence in more than 1200 villages
resulting in sales of 112 units per second, globally.

Propensity to consume:
With rise in disposable incomes both in the urban and the rural market and rise in
demand for premium goods, the consumption levels tend to increase.

Growth of Indian middle class:

Indias middle income population is estimated to reach 267 million by 2016 from
160 million in 2011 recording a CAGR of 10.8%
Indias middle income class to be thrice the total population of Germany by 2016.
GROWTH DRIVERS
(3/4)

Increase in Rural Consumption:

The rural population represents 70% of the total population of India, which makes
the companies to focus more on the rural market.
Rural Indias disposable income is estimated to rise from US$516 in 2015 to
US$631 in 2020 recording CAGR of 4.11%
A huge untapped rural market, which proves to be a good opportunity for the
companies to explore the market and establish their presence.
In 2015 the overall rural Rise
FMCG consumption
in Rural stood at US $18.92 billion.
Disposable Income
700
631
600
516
500

400
USD
300

200

100

0
2015 2020F

YEARS
 POLICY AND REGULATORY FRAMEWORK
(1/2)

GOODS AND SERVICE TAX:

GST likely to be implemented soon, will replace multiple tax rates with a standardized
and a single point taxation system.
Implementation of it will enable all the FMCG players to play on an equal ground and
this will facilitate free movement of goods across all the states, rather than the tax
system determining the location and movement of goods.
Its implementation will help the companies to save on its major costs transportation,
logistics, warehousing & it is estimated that companies will save 1.5% of its sales in
warehousing expenses.
These benefits might be passed to the consumers as other taxes will be phased out
and companies would restructure their business operations.

FOREIGN DIRECT INVESTMENT:

The Government has approved 51% FDI in multi-brand retail, giving boost to the
nascent organized retail market.
FDI policy norms for Single Brand Retail Trading (SBRT) has been relaxed and 100%
Foreign Investment in in duty free shops has been permitted.
A single entity will be allowed to undertake activities of both SBRT and wholesale
subject to compliance of certain conditions.
The threshold limit of approval by Foreign Investment Promotion Board has been
raised from 3000 to 5000 crore, leading to faster approvals of the proposals.
POLICY AND REGULATORY FRAMEWORK
(2/2)

FOOD SECURITY BILL (FSB):

FSB has been passed in 2013, which would reduce the food prices for Below
Poverty Lines (BPL) households, helping them to spend on other FMCG products.
This has helped to increase rural consumption, that serves to be an important
market for the FMCG companies.

Self Employment and Talent Utilization (SETU):

Government has initiated SETU scheme to boost young entrepreneurs and to
support all aspects of start-up business and self-employment activities.
Government has invested $163.73 million for this scheme.

Source: http://www.ibef.org/industry/fmcg-presentation
http://
money.livemint.com/news/sector/outlook/fmcg-industry-on-recovery-path-outlook-rem
ains-positive- 429525.aspx
IMPORTANT MULTIPLES AND RATIOS
(1/3)

EV/EBITDA
35 RECEIVABLE DAYS
40
29.83 29.74
30 35.6
35
31.3 31
25 24.16 29.7
30
22.77 27.4
21.72
25
20

No. of days 20
15
15

10 10

5
5

0
2011 2012 2013 2014 2015
0
2012 2013 2014 2015 2016 Years

YEARS
IMPORTANT MULTIPLES AND RATIOS
(3/3)

PAYABLE DAYS INVENTORY DAYS

53 52.6 100.00 98.22
52.2
95.44
52 51.5 51.4 95.00
51
90.00 87.78 88.78
DAYS 50 DAYS 85.11
48.9 85.00
49
48 80.00
47 75.00
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

YEARS
YEARS

GROSS PROFIT RATIO

51 50.6

50
49.4
49

PERCENTAGE 48 47.5 47.3 47.4

47

46

45
2011 2012 2013 2014 2015

YEARS
FUTURE OUTLOOK
(1/3)

The year 2015 was a roller coaster ride for the FMCG sector. The sector witnessed
The Maggi Ban, increase tax on tobacco, heavy rains affecting the rural market.
The year also bought some relief to the sector after the lows like Decline in fuel
prices, stabilizing commodity prices and rising stock market helped the industry to
stabilize and grow to some extent.
The top few companies in the sector experienced a decline their sales and
revenue due to the volatile market conditions in the year.
However, with government taking initiatives to support the sector it is expected that
in the years to come the sector will benefit from these initiatives and market
leaders will regain their position in the market.
With the implementation of GST as a unified tax regime, would result in cash flow
improvements for the companies as the excise duty and all other taxes charged at
various points of supply chain will be removed and this would eventually result on
lower input costs and increase in the profitability of the companies.
The rate of GST on services is likely to be 16% and on goods to be 20%.
Distributors would also experience a benefit as they would be entitled to tax
refunds on goods purchased for resale and this would decrease their inventory
cost of distribution, this would give boost to the distribution of goods and facilitate
availability of it in the remote areas as well.
It is estimated that India will gain $15 billion a year by implementing GST.
FUTURE OUTLOOK
(2/3)

To further give boost to the competition in the industry and encourage the new
entrants further tax benefits are been provided, a deduction of 100% of profits for 3
out of 5 years for startups set up during April 2016 to March 2019 is proposed in
the current budget.
The indirect taxes such as Customs and Excise duty rates have been rationalized
on certain inputs to reduce costs and improve competitiveness of domestic
industry in various sectors such as textiles, electronic goods, paper, etc. Thus this
encourages increased production of goods in the industry at subsidized rates.
However tobacco and various tobacco products producing industries (except
beedi) have experienced a hike in the excise duties by 10% to 15%, this has
impacted certain companies in this industry like - ITC, VST Industries, Godfrey
Philips.
A budgetary allocation of Rs 360 billion for agriculture and farmers welfare is been
proposed in the current budget, this would help to improve the financial conditions
of the farmers and a system may be bought into effect that would help the farmers
to get right prices of their produce at right time, it is expected that with this, the
income of the farmers may double by 2022 which would crate a much required
transformation in the growth of Rural India.
A new cess Krishi Kalyan Cess at the rate of 0.5% of the value of taxable
services has been introduced from 1st June 2016 which makes the effective
FUTURE OUTLOOK
(3/3)

However in spite of these initiatives the rural demand is expected to remain

sluggish in the near term on account to weak agriculture income and inadequate
rainfalls.
The global economic market is expected to remain volatile, uncertain and prone to
geo-political risks. The marked slowdown in the global markets is expected to
continue in 2016 as well.
The sharp fall in the emerging markets, notably China, will continue to keep
commodity prices including oil, which is significantly lower than last year.
The divergence in developed market growths as a result of the US recovery is
expected to add volatility in the currency markets.
Under this global backdrop, India is expected to perform better, aided by
macroeconomic fundamentals.
The FMCG market penetration levels as well as the per capita consumption in
most product categories like toothpaste, skin care, etc is still low in India, which
indicates the untouched market potential.
Currently Heath and Wellness is shaping the consumer preferences and shopping
habits, thus this one area in which the global and the local FMCG brands have
been investing and likely to continue to invest.
The Global and Indian food and beverage brands have embraced this trend and
are focused on creating new emerging brands in Health and wellness.