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FMCG
make more, for sure.
14 July 2012
BSE Sensex
BSE FMGC
73%
60%
56%
42%
40%
47%
47%
17%
20%
40%
35%
20%
0%
81%
80%
32%
13%
10%
4%
2002-12%
2003
-5%
2004
-20%
22%
17%
2005
2006
2007
2008-14%
2009
2010
2011
11%
2012
-25%
-40%
-52%
-60%
Sector Update
FMCG
PEST ANALYSIS
To explore the FMCG sector we are following the PEST analysis tool to find out the current scenario and future growth driving factors in near term.
POLITICAL
The current political condition of the India is not so pleasing enough to keep the confidence among domestic and international investors as well. Govt is gearing
up to build accord on 51% FDI in multi-brand retail, Commerce & Industry Minister, Anand Sharma has written to the Punjab, Uttar Pradesh and Odisha Chief
Ministers, seeking their support also to employ this policy move. Though, the Union Cabinet on November 24, 2011 approved 51% FDI in multi-brand retail and
100% FDI in single brand, the government has kept the move in abeyance following strong opposition from the main UPA ally, Trinamool Congress, and the BJPruled States.
Sector Update
FMCG
ECONOMICAL
Earlier this season the India Meteorological Department (IMD) had predicted a
normal monsoon at 98% of the long period average with a 5% error. However, El
Nino conditions may emerge in August and September, which can parch
Australia, Southeast Asia and India while flooding South America. With a cycle of
3-7 years, the chance of El Nino emerging this year has been assessed at 50:50.
Right now as per the latest data from the weather office the June-September
rains were 49% below average in the week to July 4, widening the 18 percent
shortfall in the previous week. Between June 1 and July 4, rains were 30 percent
below average. However IMD has also the rains revived over cane, oilseeds and
cotton areas of India's western region and there had been increased rainfall over
states such as Maharashtra, Gujarat and Madhya Pradesh in the past few days. A
source in the weather office also said monsoon rains had moved north, halting in
central India. The rains would now move to the northwestern region, bringing
showers to parched almost all over the country.
9.3
8.4
9
8
8.4
7
6.7
7
6
5
4
3
2
1
0
2008
2009
2010
2011
2012
Sector Update
FMCG
SOCIAL
India - Major Rural Population, A favorable market for FMCG
In India, the major population is mainly accounted by the rural population, rural population accounts for more than 740 Million consumers or 62% of the Indian
population and accounts for 50% of the total FMCG market. In which, working rural population is approximately 400 Million and an average citizen in rural India
has less than half of the purchasing power as compared to his urban counterpart. So FMCG Companies have the scope to capture this untapped market and most
of the FMCG Companies are taking different steps to garner rural market share. The market for FMCG products in rural India is estimated about 52% and is
projected to touch about 60% within a year.
FMCG Growth - Rural vs Urban Sector
20%
15%
10%
5%
0%
2003
2005
2007
2009
2011
-5%
-10%
Rura l Sector
Urba n Sector
Sector Update
FMCG
TECHNOLOGICAL
Advanced technologies in businesses of varying industries have impacted households, society and economy at large. So far FMCG companies have survived over
their basic characteristics like low contribution margins, short shelf life, high stock turnover to remain profitable, but with ever increasing competition and
advancing era, the sector is provoked to foray in an era of social media and digital marketing.
Sector Update
FMCG
INDUSTRY PERFORMANCE
In the quarter-ended March 2012, FMCG companies' sustained sales momentum even at a time when inflationary pressures were high. A study of the aggregate
financial performance of the leading 10 FMCG companies over the past eight quarters shows that the industry has grown at an average 16-21% in the past two
years with average operating margins being 22%. The quarter to March performance of FMCG companies like HUL, Dabur, Godrej Consumer Products, Marico,
Asian Paints, GSK Consumer Healthcare, Procter & Gamble Hygiene and Healthcare and Jubilant Foodworks is a reflection of consumption-driven growth. Except
Nestle and P&G hygiene and healthcare, majority of the players in the industry have registered double-digit top line growth, barring Nest Nestle and P&G hygiene
and healthcare both rose 13% AND 39% respectively.
Quarterly CAGR Growth (%)
35
Sa l es
Opera ti ng Profi t
PAT
33.0
30
25
20
15
13.1
13.0
10.3
13.4 13.2
11.7
10.4
10
6.1
5
4.2
3.5
2.0 1.6
3.7
2.3 2.4
4.0
2.8 2.7
1.5
3.9
3.7 4.1
5.6
4.8
3.3
4.6
5.7
3.3
2.1
Britannia
ColgatePalmolive.
Dabur
Emami
GSK Consumer
Godrej
Consumer
Hind Unilever
ITC
Jubilant Food
Marico
Nestle
Procter &
Gamble
Sector Update
FMCG
46.14
39.17
19.88
19.23
17.91
17.56
16.75
15.67
15.23
14.51
13.12
9.39
58.86
23.01
28.24
-7.68
20.63
19.29
15.41
29.78
20.94
13.74
18.27
0.64
51.76
33.67
43.51
2.69
14.65
25.98
22.61
20.64
27.07
19.30
7.83
-33.46
148
-135
135
-490
61
121
-9
153
117
-24
92
-124
38
14
328
-217
-47
172
18
45
162
57
-68
-829
1243.2
2288.6
579.2
115.6
1128.3
251.8
524.4
442.9
490.8
2622.2
4500.2
182.7
27.03
9.95
7.81
16.81
35.24
10.51
12.04
27.54
10.65
8.64
28.00
7.25
76.7
40.9
32.6
43.5
34.4
32.0
33.5
35.6
28.9
29.3
44.2
35.0
25.42 20000
34.14
34.14
34.14 15000
34.14
31.31 10000
25.42
34.14
34.14 5000
25.42
25.42
0
34.14
Rs. Crore
Company Name
Q1FY11
Q1FY12
Q2FY11
Q2FY12
Q3FY11
Q3FY12
Q4FY11
Q4FY12
Sector Update
FMCG
The chart below shows that FMCG sector registered lower drop in 2008 that is during slowdown in the economy. The performance of FMCG sector suffered in
2009 when economy was recovering and major sectors started performing well contributing to growth in SENSEX. However, performance of BSE FMCG index in
2010 was outstanding on back of fiscal stimulus but got hit again in 2011 due to European debt crisis and domestic reasons. In 2011, SENSEX was volatile and gave
negative returns of -25% by end of the year whereas; FMCG was the only sector which gave strong returns of 9% in 2011.
100%
80%
BSE FMGC
BSE Sens ex
Return (YoY)
60%
40%
40%
20%
31%
17%
14%
17%
9%
12%
0%
-20%
FY08
FY09
FY10
FY11
-25%
FY12
-40%
-60%
-53%
Sector Update
FMCG
Meteorological department announced that monsoon rains in 2012 would be 96% of the long-term average overall, down from its April forecast of 99%. It has
raised the concerns over farm output in the major producer and consumer of food stuffs triggered by sparse rainfall in the last few weeks. A good monsoon helps
FMCG companies in many ways, as it facilitates increase farm output, which in turn increases the income of the farmers, impacting sales. About 30-40% of FMCG
sales come from rural areas. Most of the FMCG players aim to take this number up, as rural market has wide opportunities. Good rainfall also affects consumers in
general, since food price inflation can be under control, as food constitutes over 50% of the monthly household expenditure of a family in urban as well as rural
areas. While headline inflation stood at 7.23%, consumer price inflation, which measures product prices to the end-consumer, was over eight per cent last
month. Less rainfall has a cascading effect in the consumer's ability to pay, especially in rural areas, as well as supply-side bottlenecks in procurement of
commodities by FMCG companies.
Outlook
FMCGs companies have always been considered a defensive bets as investor's select them in a downturn of the market or the economy. Even as financial year
2011-12 (FY12) started with terrific cost pressures, FMCG companies have delivered growth through volumes and value. Commodity prices for most FMCG
companies rose at the start of FY12, forcing them to undertake calibrate price hikes to offset the pressures. The price rises are beginning to impact volumes of
some players in the FMCG segment, but it is expected that FMCG stocks will continue to fare well in FY13.
The sector's future growth is expected to be similar with the December quarter that is more prices and less volume dependent. However, commodity prices are
cooling down, but it's doubtful whether companies will pass on the benefits to consumers. FMCG companies are expected to increase advertising and promotion
(A&P) spends, to avoid erosion in their brands. HUL, for instance, is likely to increase ad spends in the personal care space but may cut back in the soaps segment.
Competitive intensity is expected to play a role in the A&P strategy of companies.
Hence, during 2012-13 FMCG sector is expected to maintain the volume and sales growth momentum. Managing cost will be a concern for the sector because of
inflation, monsoon delays and global economic scenario, but companies are expected to pass on that pressure to consumer, to maintain their margins.
Sector Update
FMCG
NAME
DESIGNATION
Varun Gupta
Head - Research
varungupta@moneysukh.com
Research Analyst
pashupatinathjha@moneysukh.com
Vikram Singh
Research Analyst
vikram_research@moneysukh.com
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