X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
FMCG: Outlook 2008 - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jan 9, 2008

    FMCG: Outlook 2008

    We believe that in a scenario of a buoyant economy and multiple growth triggers being in place, the FMCG sector should sustain robust growth momentum. We expect new product developments, better health and happier taste buds in the FMCG sector.

    Momentum to sustain: With India rising, the outlook of Indians is changing too. They are willing to experiment and try out new products. Capturing insights into their needs and synthesising these into strategies and final product formats presents a new opportunity for FMCG players. Having witnessed robust growth over the last couple of years, we believe the growth would continue being strong. Up gradation from unbranded to branded goods (packaged grocery, household cleaning products), demand of nascent categories (breakfast cereals, hair colours) and health and hygiene products (chyavanprash) would be the growth drivers.

    Going rural: As per Asschom, FMCG will be witnessing more than 50% of its growth in the rural and semi-urban segments by 2010. Currently, nearly 34% of the offtake of FMCG companies come form rural areas. As seen in the previous article , like last year, even in 2008, the rural areas would provide a huge potential. Companies like HUL, ITC and Colgate have already established good distribution networks in these regions. Other companies would start catering to these regions in near future.

    Health and wellness: With the growth prospects of the economy and sector in place, though most of the categories will continue their growth, processed foods and the Personal Care segment is likely be the fastest growing segments.

    • Foods: Food forms the largest component of the total consumption expenditure in India accounting for as much as 51%. This is highest compared to 9.7% for an average American person and 15% for both Japanese and British. Though with rising income, the share would go down, but would increase in absolute terms. Further, the companies are widening their health food portfolio to target the rich, health conscious urbans. Dabur, HUL and ITC have made investments in this segment.

    • Personal Care Products: Consumer spending India on personal care products is very less. Further, the penetration levels are low too. With growing urbanisation and higher disposable incomes, consumers are now spending higher on personal care products. Higher growth is seen in premium range of such products. While rural areas will drive the growth of mass consumption products, urban consumers will be targeted for the premium segments.

    Value growth: Along with volume growth we expect the value growth to be strong too. The companies would take selective hikes in price to meet the inflationary pressure. Also the consumers would upgrade from mass brands to premium brands, which would be a key driver in the value growth.

    Retail formats- boom or bane: India is witnessing a retailing revolution in recent times. While some retail chains are of large retail formats enabling huge volumes, some are focused on affordability and thereby squeezing the margins. The Indian stock market is dominated by more than 12 m small 'mom and pop' retail outlets. However only 4% is in the organised sector, thereby reducing the reach. With FDI expected to be allowed, the share from the retail formats by the FMCG players is expected to increase.

    Cut- throat competition: FMCG companies continue to face intense competition. Players from unorganised and organized sectors continue to grab each other's market shares. Highly scattered market and poor transport infrastructure limits the ability of MNCs and national players to reach out to remote rural areas and small towns. Low brand awareness enables local players to market their spurious look-alike brands. Also with entry of existing players in new segments like ITC's entry in personal care products, Dabur's plans to venture into health beverages would add to the already aggressive environment resulting in high pressure on margins.

    Commodity prices- a key risk: A worsening of the commodity price environment is a key risk. In 2007, most of the companies had faced pressure on its input prices. Crude, palm oil, wheat and packaging costs were on a rise. Though most of the companies had taken judicious price increases, however, a sustained inflationary environment could hurt growth or margins or both.

    Margin expansion to slow: While we expect the revenue growth to be strong, the overall margin expansion would slow down in the coming year. Though the price hike effected by the companies will partly camouflage inflationary pressures, we expect margin expansion to slow down. With increasing competition, the companies have to spend higher amounts on the promotion, distribution and advertising of the products. Further, the savings on account of tax holidays would decline going forward leading to pressure on margins.

    Going forward
    With the economy on a high growth flight, robust consumerism, greater rural penetration and rapidly growing organised retail, we remain bullish over the growth traction in the FMCG space. While rural regions would drive consumption due to higher penetration, organised retailing in urban markets would help increase value growth led by demand of premium products. The shift from unorganized to organized and from unbranded to branded will add further impetus to growth in this segment. India's immense population of one billion-plus people offers tremendous market potential. But its many languages, size and poor infrastructure can make it a difficult place to operate. The companies will have to align its strategies as per the changing environment, attitudes and preferences of the customers to be successful.

     

     

    Equitymaster requests your view! Post a comment on "FMCG: Outlook 2008". Click here!

      
     

    More Views on News

    Marico: Earnings Hit by Lower Volumes and Firming Input Prices (Quarterly Results Update - Detailed)

    Aug 9, 2017

    While GST implementation brought down volumes and profitability in the short run, Marico remains optimistic in the long run.

    P&G: Strong Core Growth (Quarterly Results Update - Detailed)

    Dec 9, 2016

    Procter & Gamble Hygiene and Health Care has announced the first quarter results of the financial year ended June 2017 (1QFY17). The company's sales rose by 12.5%YoY while net profit rose by 50.1% YoY during the quarter.

    Nestle India: Sales Traction From New Products (Quarterly Results Update - Detailed)

    Nov 30, 2016

    Nestle India declared results for the quarter ended September 2016. Here is our analysis of the result.

    GSK Consumer: Price Hike Hurts Volumes (Quarterly Results Update - Detailed)

    Nov 30, 2016

    GSK Consumer Healthcare declared results for the quarter ended September 2016. The revenues dropped by 1.3% during the quarter as compared to a year ago; while the profits declined by 16.6% YoY during the quarter.

    Marico: Margin Expansion Drives Profit Growth (Quarterly Results Update - Detailed)

    Nov 28, 2016

    Marico has reported a flat topline while the bottomline has grown by 18% YoY during the quarter.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE FMCG


    Aug 18, 2017 (Close)

    S&P BSE FMCG 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS