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.
Have foreign brands really helped FMCG companies? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 27, 2012

    Have foreign brands really helped FMCG companies?

    The domestic FMCG industry valued at Rs 1.6 trillion (Source: Nielsen) is characterized by the large presence of multinationals through subsidiaries. Hindustan Unilever (HUL), Nestle, Colgate and GlaxoSmithKline Consumer Healthcare (GSKCH) are among the top companies that define the consumer goods landscape in India. While these companies have the advantage of access to their parent companies' established global brands, they are required to pay royalty charges for selling the overseas brands in the domestic market.

    A look at the chart above clearly shows that FMCG behemoth HUL pays the lowest royalty among the multinational companies in the country. The reason for the same can partly be attributed to Indian brands that contribute a sizeable share of 47% to overall revenues (industry estimates). HUL's well known Indian brands include Wheel, Fair & Lovely, Lakme, Hamam, Breeze, Annapurna, Kissan and Pureit. Among its global brand offerings are Lux, Lifebuoy, Ponds, Vaseline, Dove, Surf, Close-Up, Sunsilk, Brew, Axe, Knorr and Clinic.

    But does ownership of a large portfolio comprising of Indian and global brands really help?

    The answer to this question lies in studying the brand performance over a period of time.

    HUL's brand performance remains tepid
      PAT (Rs bn)   Networth (Rs bn)   Brand (Rs bn)  
      FY02/CY01 FY12/CY11 *(%) FY02/CY01 FY12/CY11 *(%) FY02/CY01 FY12/CY11 *(%)
    HUL 15.8 28.0 6% 31.4 36.8 2% 73.7 149.9 7%
    Colgate 0.7 4.5 20% 2.5 4.4 6% 2.2 25.4 28%
    Nestle 1.7 9.6 19% 2.7 12.7 17% 8.9 51.4 19%
    GSKCH 1.3 3.6 11% 4.4 11.4 10% 4.0 12.2 12%

    * 10-yr Compounded Annual Growth Rate
    Note: Brand value has been estimated as the difference between the visible networth sitting on the books of the company and the total networth required by a company to earn 15% ROE at the same net profit level. In other words, whatever profit growth the companies have been achieving over and above what is required to earn more than 15% ROE is being attributed to its brand value

    The study clearly shows that brand success is not guaranteed by number of brands alone. In fact, HUL with its huge brand portfolio has been a laggard as far as brand performance is concerned. In the past decade, the company's brands grew by a measly 7% as compared to robust double-digit growth clocked by Nestle and Colgate. Even a relatively small company, GSKCH with presence only in malted beverages has performed much better on the brand front.


    While addition of a brand certainly adds to the company's brand equity, but it starts contributing towards shareholder's returns only through a concerted and focused brand strategy. Therefore HUL has been sharpening its brand focus in the past two years. The company has expanded existing power brands such as Vaseline, Ponds, Fair & Lovely and Dove to adjacent product categories. At the same time, the company recently launched premium personal care brands Sure (anti-prespirant) and TRESemme (hair care) from its global portfolio. Going forward, HUL should benefit from its revamped brand strategy.

      Madhu Gupta (Research Analyst), Managing Editor, ResearchPro has a post graduate degree in both physics and finance. Having worked with India's leading economic research agency, she has a natural flair for numbers and analytics. She brings with her a near-decade long rich experience in the field of finance. A firm believer of the principles of value investing, she looks for robust businesses with durable competitive advantages. Madhu contributes towards our small cap service Hidden Treasure.



    Equitymaster requests your view! Post a comment on "Have foreign brands really helped FMCG companies?". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    The Key Factor Pushing Gold Up These Days (Outside View)

    Aug 21, 2017

    PersonalFN explains the chief factor pushing gold prices up of late.

    How Unique Are the Companies You Invest In? (The 5 Minute Wrapup)

    Aug 21, 2017

    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    More Views on News

    Most Popular

    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.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    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.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    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


    Aug 21, 2017 (Close)