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INDUSTRY STRUCTURE AND DEVELOPMENTS
FMCG OVERVIEW 2012
The FMCG sector in India is at present, the fourth largest sector with a total market size in excess of USD 13 billion as of 2012. This sector is expected to grow to a USD 33 billion industry by 2015. Indian FMCG industry constitutes the largest segment in India with considerable contribution to the GDP. It can be categorized into primarily personal care, health care, home care and food and beverage.
In India, Personal Care products traditionally only comprised of toothpaste, soaps and shampoos. However, cosmetics such as beauty creams and lotions or even Oral Care products such as mouthwash are fast gaining popularity in the Personal Care market. Expenditure on these emerging products has shown exponential growth. Media penetration and rising consciousness to global fashion and trends have sculpted the course of consumer spending. Acted upon by the availability of international products and aided with rising disposable income, the sector is poised for further growth.
Some of the challenges this sector is likely to face are:
> Increasing rate of inflation, which is likely to lead to higher cost of raw materials.
> The standardization of packaging norms that is likely to be implemented by the Government by Jan 2013 is expected to increase cost of beverages, cereals, edible oil, detergent, flour, salt, aerated drinks and mineral water.
> Steadily rising fuel costs, leading to increased distribution costs.
> The present slow-down in the economy may lower demand of FMCG products, particularly in the premium sector, leading to reduced volumes.
> The declining value of rupee against other currencies may reduce margins of many Companies.
According to a sector specific analysis of The Associated Chambers of Commerce and Industry of India (ASSOCHAM) a sharp depreciation in the value of rupee and new packaging norms from July 1 are going to have a drastic effect on the FMCG industry which is likely to increase cost of regular products like biscuits, coffee, tea, toiletries and personal care items by about 10 per cent and more by first quarter of the next financial year.
"All of these factors might pinch the FMCG industry which will go for a fresh round of price hikes as we usher in the New Year," said Mr Rawat. "The sector might take a hit of about 10 to 15 per cent in sales including the semi-urban and rural market as the burden might be shifted to the price-conscious end consumers or else companies will have to opt for down trading."
Many industry experts said that the consumption pattern will be moderate as price sensitive Indian consumers will tighten their budget and keep a close watch on their expenses and might even switch over to cheaper variants, regional or local brands to save money. While nearly 35 out of 100 respondents agreed that soaring inflation and rising interest rates have been adversely impacting the margins of FMCG companies. About 30 per cent said that interest rates and inflation will abate gradually and the growth will continue despite certain hiccups.
FMCG categories, with low per capita and low penetration level i.e. skin care, shampoo, oral care, deodorant and packaged juices are the opportunities for FMCG companies. While categories like soaps and detergents which have high penetration level can also show healthy growth due to their low per capita consumption. Rise in urban population couple with improvement in urban income mix is positive for FMCG companies. Urban market has higher appetite for premiumisation. Apart from the better value growth in the urban market, FMCG companies also enjoy launching innovative premium growth. However, second half of FY13 is likely to be hit by drought impacting rural incomes and demand.
Fitch, the global ratings agency, has recently opined that Indian consumer spending is at its weakest in seven years, we at FICCI, believe that Indias retail sector will become a USD 1.3 trillion opportunity by 2020. By that time, there will be close to 200 cities with population of over 0.5 million that will fuel retail growth. The estimated value of the Indian retail sector is about USD 500 billion presently. Further, modern retail, which currently stands at 5 percent, will grow about six times from the current USD 27 billion to USD 220 Billion in the next 8 years. Fast moving consumer goods (FMCG) majors, have on the other hand, have tried to enhance distribution reach. FMCG firms have a lot to gain with the advent of multi-channel retailing. However, the depth of retail FMCG collaboration will be one of the key success factors for multi-channel retailing. It is imperative for retailers and FMCG majors to collaborate for assortment planning, replenishment, space planning and promotion as they have a lot to gain.
Fast moving consumer goods (FMCG) companies reported a strong 15-20 per cent growth in revenue for the June quarter, as the demand for daily-use items remained buoyant despite inflationary pressure. Companies aided the process by pushing offers and promotions aggressively, resulting in their advertising and sales promotion expenditure remaining steady at 12-13 per cent of sales. Offers could be found in categories such as soaps & detergents, hair oils and shampoos, among other segments, as firms tried to keep the momentum going.
Analysts attribute the single-digit growth in hair color to the fall in discretionary spending, the first casualty in an inflationary scenario. "Consumers tend to keep out items that are not pressing in nature.
The FMCG sector has traditionally grown at a very fast rate and has generally out-performed the rest of the industry. Over the last one year, however the rate of growth has slowed down and the sector has recorded sales growth of just five per cent in the last four quarters.
Still, companies are beginning to sound a note of caution as the dry spell continues into the second half of the monsoon season. The weather office has declared 2012 a drought year, meaning an impact on crop output and, hence, rural income and demand. Analysts and companies alike expect the second half of 2012-13 to be tough, as slowdown pangs begin to bother. "There is always a lag effect in FMCG and that will begin to show in the second half," says Kaustubh Pawaskar, FMCG analyst, Sharekhan.)
However, Slowdown blues arent plaguing fast-moving consumer goods companies. Sales and profits for FMCG companies clocked yet another quarter of strong growth. This spurt was not driven by product price increases alone; sales volumes showed that FMCG products continued to fly off the shelves. Segment-wise, soaps and detergents were robust. However, companies arent gung-ho about the next few quarters, following the uncertain monsoon. Poor rains deliver a double whammy - squeezing consumer demand while rendering agri-commodity inputs costlier. A weak rupee is also playing spoilsport with key raw materials such as palm oil imported. Many companies noted both future cost pressures and scepticism over near-term consumer demand)
Growth of FMCG
The estimated value of the Indian retail sector is about USD 500 billion presently. Further, modern retail, which currently stands at 5 percent, will grow about six times from the current USD 27 billion to USD 220 Billion in the next 8 years. It is believed that integrated multi-channel retailing will drive consumption in India. A.T. Kearney has estimated Indias total retail market at $202.6 billion, is expected to grow at a compounded 30 per cent over the next five years. The share of modern retail is likely to grow from its current 2 per cent to 15-20 percent over the next decade, analysts feel.
Modern retailers have in the past tried to capitalize on this opportunity by increasing their store presence across major cities. Fast moving consumer goods (FMCG) majors, have on the other hand, have tried to enhance distribution reach.
However, achieving these robust growth projections requires the industry to look beyond the conventional brick-and-mortar stores, and consider other avenues like digital and mobile sales. This is because expensive real estate costs are already playing spoilsport for retailers. Real estate costs, especially, high rentals that are in range of 10 - 15% of revenue, render breaking even a daunting task. Retailers need to rethink their business plans and shift a chunk of their sales from stores to alternate low-cost channels. Digital sales points are increasingly becoming a preferred option for retailers. Sales through digital channels, notably websites and mobile applications, which at present are miniscule, will increase to 6-8 % of the total modern retail, by amounting to about USD 13.3-17.6 Billion by 2020.
Time has also come for a more robust and symbiotic relationship between retailers and FMCG companies. FMCG firms have a lot to gain with the advent of multi-channel retailing. However, the depth of retail FMCG collaboration will be one of the key success factors for multi-channel retailing. It is imperative for retailers and FMCG majors to collaborate for assortment planning, replenishment, space planning and promotion as they have a lot to gain. However, The growth potential for FMCG companies looks promising over the long-term horizon, as the per-capita consumption of almost all products in the country is amongst the lowest in the world. As per the Consumer Survey by KSA Technopak, of the total consumption expenditure, almost 40% and 8% was accounted by groceries and personal care products respectively. Around 45% of the population in India is below 20 years of age and the proportion of the young population is expected to increase in the next five years. Aspiration levels in this age group have been fuelled by greater media exposure, unleashing a latent demand with more money and a new mindset. In this backdrop, industry estimates suggest that the industry could triple in value by 2015.
Testing times for the FMCG sector are over and driving rural penetration will be the key going forward as earlier, due to infrastructure constraints (this influences the cost-effectiveness of the supply chain), companies were unable to grow faster.
The bottlenecks of the conventional distribution system are likely to be removed once organized retailing gains in scale. Currently, organized retailing accounts for just 3% of total retail sales and is likely to touch 10% over the next 3-5 years. In our view, organized retailing results in discounted prices, forced-buying by offering many choices and also opens up new avenues for growth for the FMCG sector.
India is rated as the fifth most attractive emerging retail market. It has been ranked second in a Global Retail Development Index of 30 developing countries drawn up by A T Kearney.
India is one of the worlds largest producers for a number of FMCG products but its FMCG exports are languishing at around Rs 1,000 crore only. There is significant potential for increasing exports but there are certain factors inhibiting this -
Export - "Leveraging the Cost Advantage"
Cheap labor and quality product & services have helped India to represent as a cost ad-vantage over other Countries. Even the Government has offered zero import duty on capital goods and raw material for 100% export oriented units. Multi National Companies out-source its product requirements from its Indian company to have a cost advantage.
India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew apart from being the second largest producer of rice, wheat, fruits & vegetables. It adds a cost advantage as well as easily available raw materials.
Major Key Sectoral opportunities for Indian FMCG Sector are mentioned below:
Dairy Based Products
India is the largest milk producer in the world, yet only around 15 per cent of the milk is processed. The organized liquid milk business is in its infancy and also has large long-term growth potential. Even investment opportunities exist in value-added products like desserts, puddings etc.
Only about 10-12 per cent of output is processed and consumed in packaged form, thus highlighting the huge potential for expansion of this industry.
The oral care industry, especially toothpastes, remains under penetrated in India with penetration rates around 50 per cent. With rise in per capita incomes and awareness of oral hygiene, the growth potential is huge. Lower price and smaller packs are also likely to drive potential up trading
Ayurvedic and Wellness Care
Ayurvedic treatments are 5,000 years old in India with the bulk of the ayurvedic treatment market concentrated in South India, mostly in Kerala. PE firms are also investing in this space while mergers with ayurveda pharmacies are also taking place. Ayurvedic market (which is a part of the Beauty and Rejuvenation market) is estimated at INR 40 Billion in 2009. India is a popular destination for ayurvedic therapies leading to a large number of foreign tourists visiting local spas and ayurvedic treatment centres. Inbound medical tourism in India is therefore growing at a 12 percent CAGR.
The State government of Kerala also has taken certain initiatives to encourage Ayurvedic spas and resorts as a tourist destination. Spas in Kerala receive government approval when they are set up. Ayurveda centres which are approved/ certified by the State Department of Tourism are eligible for claiming 10 percent state investment subsidy or electric tariff concession are considered during publicity and promotional activities through print and electronic media by the Department Kerala Government and has even collaborated with large private players in order to develop resort spas. In order to attract tourists into India, the Government has introduced various schemes and to implement them it has also tied up with leading wellness centres. Tourism ministry launched a promotional scheme offering one night free stay at a spa centre in India if a tourist books three nights at a certain wellness centres
The following factors make India a competitive player in FMCG sector:
Availability of raw materials
Because of the diverse agro-climatic conditions in India, there is a large raw material base suitable for food processing industries. India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew and is the second largest producer of rice, wheat and fruits & vegetables. India also produces caustic soda and soda ash, which are required for the production of soaps and detergents. The availability of these raw materials gives India the location advantage.
Presence across value chain
Indian companies have their presence across the value chain of FMCG sector, right from the supply of raw materials to packaged goods in the food-processing sector. This brings India a more cost competitive advantage. For example, Amul supplies milk as well as dairy products like cheese, butter, etc.
> Untapped rural market
> Rising income levels, i.e. increase in purchasing power of consumers
> Large domestic market- a population of over one billion.
> Export potential
> High consumer goods spending
The Indian economy, Asias third-largest, has been growing briskly at above 8 percent for the last couple of years. Indian cities dominate a new catalog of the worlds fastest-growing 100 cities in terms of urbanization, with three cities in the top 10. Globally, despite the worldwide economic slump, the personal care market in India has been growing at 13 percent per annum. The personal care product market is valued at USD 5.7 billion; its wellness service market was assessed at USD 2.9 billion in 2010. The personal care industry is directly aligned to the demographics of the region that it serves. With the median age at 25 years, India is among the worlds youngest nations, as compared to 43 years in Japan and 36 years in the US. In addition, the countrys population base of 1.2 billion is estimated to rise to 1.5 billion by the end of 2030.
Urbanization will also increase by 45 percent in the next 30 years. In recent times, Indian consumers have been looking for newer shopping experiences and products. Consumer concentration has shifted from traditional offerings to new generational ones; for instance, demand for soap cakes has shifted to liquid soaps, and shaving creams to foams and gels. It is quite evident that the cosmetics and toiletries industry in the developed markets is close to saturation and growth has slowed down. Meanwhile, countries such as India, with its growing economy, offer a lucrative market for large multinationals.
According to some researchers the Indian personal care industry will witness 25 percent growth rate in the next few years. The Emerging Market Forum declared that the per capita income of India is expected to increase about 18 times by 2039, while disposable income for households is estimated to grow three times by 2025. Globalization, rise in incomes, greater awareness about self needs and a change in consumption patterns of households are the accelerating factors behind this rapid growth. However, even with double-digit growth rates, penetration of cosmetics and toiletries products is very low. Current per capita expenditure on cosmetics is about USD 1, compared to USD 36.65 in the other Asian countries. This low market penetration for cosmetics and personal care products offers an immense opportunity. Indias B and C class towns have mass-market product users and are yet to see much focused approach from vendors. This is a segment that presents a big opportunity for brands both national and international. Further, there is a huge scope for international and national Spa chains as most of the spas are concentrated in the Southern part of the country.
The sizable Indian population base with rising disposable income offers the personal care industry a burgeoning middle class to market a large variety of consumer products. As compared to China, India has a fairly similar personal disposable income per household and a growing population of women in the 25-44 age group, the key consumer segment. However, China spends almost 10 times as much on skin care, 6 times as much on cosmetics and more than 2 times on hair care on a per capita basis.
From soaps and shampoos in the morning to overnight repair face creams, from sunscreen products in summers to moisturizing lotions in winters; personal care products literally touch our daily lives. The personal care products we use are in some measure the signature of our lifestyles and standards of living.
Personal Care Packaging Market
The personal care packaging market is composed of three segments - plastic, glass and aluminum. Many consumers spend their time in evaluating the packaging and brand name of personal care products. They are highly attracted towards these products because of its packaging or brand name. The packaging of products differentiates the brand from other brands. This market has six main sectors - flexible tubes, plastic bottles, aerosol cans, glass containers, plastic jars and other metal and plastic.
Personal care packaging market has registered revenue of USD 6.6 billion with a CAGR of 6.05% in 2011 and is expected to reach USD 9 billion in 2016 with a CAGR of 6.62%. Consumers are looking for hygienic and attractive packaging options. Demand has increased in the end user product market since consumers are spending more on personal care products.
Increasing demand in the personal care market, increasing consumer spending, increasing demand for new products in the market, stable economic conditions, robust growth in the gross domestic product rate and government subsidies are the factors that drive the growth and market demand of the personal care packaging market.
Some of the key players dominating the market are Loreal, Este Lauder, Shiseido, Beiersdorf, Johnson & Johnson, Alberto-Culver, Henkel, Kao, Limited, LVMH, Kanebo, Coty, Yves Rocher, Mary Kay, Kos, Alticor, HUL, Dabur India, Godrej consumer, Marico, Colgate, Godrej India, Emami, Gillette India, Procter and Gamble, Jyothy labs, Amar Remedies
GLOBAL PERSONAL CARE
Reports estimate Global Personal Care industry to reach C 487 billion by 2017. The health of these sectors is closely correlated to GDP, consumer spending, consumer sentiment, disposable personal income, unemployment, household net worth and inflation," said Standard & Poors credit analyst Diane Shand. "Though we expect economic growth to pick up, we believe the U.S. recovery will remain modest and sluggish.
Standard & Poors base-case forecast for continued slow growth in consumer confidence and spending. This, together with worsening economic conditions in Europe and continued deceleration in emerging market growth, will moderate the global demand for consumer products, according to the report. Also, participants in these sectors will likely face headwinds from foreign currency translation and still-high costs of some commodities (such as fuel and oil based resins), though some will begin to benefit from lower commodity costs (such as cotton and natural gas) during the second half of 2012.
The deteriorating macroeconomic conditions in Europe have led to a shift in consumer spending trends in the continent. Consumer goods companies have seen an unfavorable change in the mix of products sold, with a larger proportion of customers going for products priced in the lower range. As consumers transform their shopping habits amid the financial crisis that has left Greece stalled in recession for the past five years, Revenue from European countries grew by just 0.2% in Q2 compared to a growth of close to 16% in Asia and other emerging economies. We believe that this modified strategy could help prevent a steep decline in the companys European revenues going forward.
0The global personal care products industry is concentrated in nature, with the top 50 companies holding a combined market share of around 85%, reports Hoovers. In the US alone, there are as many as 800 firms operating on the market.
The US, EU, UK, Brazil and Russia dominate the global personal care products industry.
The personal care industry encompasses a variety of products, including fragrances, makeup, hair care and coloring products, sunscreen, toothpaste, and products for bathing, nail care, and shaving. The industry overlaps with other markets like chemical, health care, and petroleum. The latter is important as personal care product raw materials, such as propylene glycol, come from petroleum products.
Given the risks associated with toxic materials in personal care products, companies have to invest in research and development to render products safe or to explore alternative raw materials like natural and herbal products.
Demand for womens beauty products grows at about 7 times the rate of the global cosmetics market, according to industry data. Factors fuelling the personal care products market include higher consumer spending power, new products, better consumer awareness, advertising and lifestyle changes.-
Fragrance Market -
Global deodorant demand will push the market to break the $12.5 billion mark by 2015, according to Global Industry Analysts. Factors driving market expansion include new product formats, gender-specific products and technological developments. Companies are focusing on new products and extending established product lines, with innovative offerings for product applications and formulations. The US and the EU are both mature markets, with the EU accounting for the largest share of the global deodorant market.
Market-Line predicts the world fragrances market will be worth almost $46 billion in 2015, representing an increase of more than 25% in five years. Market volume exceeded 1.3 billion units in 2010, and is expected to reach 1.64 billion units in 2015. Fragrances for women represent almost 64% of the market, and the EU has more than a 45% market share. Coty Inc is the top company operating in the global market, with over 10% of overall market value.
Skin Care Market -
The world suncare market is expected to reach almost $9 billion in 2015, reports Market-Line, representing almost 24% expansion in five years. Market volume reached close to 815 million units in 2010, and is expected to exceed 1 billion units in 2015. Sun protection represents the largest market segment, with 66% of the overall market. The EU has a near 42% share of the global market. LOreal S.A. is the top company operating in the global market, with almost 15% of the markets overall value. The market is moderately fragmented, with the three leading companies holding a combined share of 73%. TechNavio expects the world skincare market to exceed $90 billion by 2014, fuelled by consumer affluence and demand for organic and natural products.
Bath and Shower Product Market -
The global bath and shower product market is expected to exceed $12.85 billion in 2015, reports Market-Line, representing a near 19% increase in five years. Shower products represent over 70% of the market. The EU holds a 54% share in the global market, and Unilever is the leading company with more than 17% of overall market value.
Hair Care Market -
Market-Line predicts the global hair care market will record slowing growth of less than 3.5% yearly through 2015 to reach almost $58 billion. Shampoo represents the leading product on the market, registering yearly sales of $19 billion.
Toiletries Market -
The world male toiletries market is expected to reach almost $24.75 billion by 2015, reports Market-Line. Shaving blades and razors account for almost 77% of the market. The EU holds a 45% share in the global market.
Indian FMCG industry constitutes the largest segment in India with considerable contribution to the GDP. It can be categorized into primarily personal care, health care, home care and food and beverage. In India, personal care products traditionally only comprised of toothpaste, soaps and shampoos. However, cosmetics such as beauty creams and lotions or even oral care products such as mouthwash are fast gaining popularity in the personal care market. Expenditure on these emerging products has shown exponential growth. Media penetration and rising consciousness to global fashion and trends have sculpted the course of consumer spending. Acted upon by the availability of international products and aided with rising disposable income, the sector is poised for further growth.
Another reason for growth is the emergence of the male grooming sector. Women category has always been a driving force, but the added percentage in terms of male segment has only furthered growth in this sector. As men pay more attention to their appearance and image, this category has attracted a host of products delineated strictly for their needs.
Media penetration acts a chief stimulant in this aspect as it results in heightened awareness among the masses. Players continue to advertise and look to provide promotional offers in order to create visibility and awareness regarding products to further off-takes.
The rural segment has also played an imperative role in the markets growth story. Majority of Indias population resides in rural areas and the means to tap this segment spells higher margins. Indian Government has enforced certain regulations that contribute to growth in rural income. Growth in rural income, affecting this market, has been noticed in the usage of toothpaste from that of toothpowders. Rise in agricultural outputs aided with non-agricultural income is only to sculpt success for personal care sector.
Further, organized retail poses as a chief driver especially in the urban segment. An organized retail presents with it an opportunity to showcase products, both domestic and international, on a larger platform. Availability and penetration of products determine a brands success which is aptly sourced through retail outlets. However, the sector is also facing certain challenges. Factors such as harmful effects of chemicals, depreciation of rupee and rise in packaging cost pose as impediments for this sector.
Government participation in this sector covers Drugs and Cosmetics Act 1940, Bureau of Indian Standards and Drugs and Cosmetics Rules 2010. The major trends identified include innovation, personal care appliance, improved marketing strategies, products with dual benefits, rise in organic products and teens market.
Just as consumer awareness leads to a trend towards organic and herbal products, greater corporate awareness means companies are committing to environmental protection by reducing packaging, conserving water, reducing carbon emissions and stressing recycling. Companies have built eco-smart facilities, and research and distribution buildings approved by Leadership in Energy and Environmental Design (LEED).
Over the coming years companies are likely to continue investing in eco-friendly practices. Manufacturers will also respond to demand for more natural products, widening their natural and herbal product lines. Marketing efforts will likely be increasingly geared to stress environmental protection and respect for hair and skin through non-toxic ingredients.
The Oral Care Market in India Accounts for about 16% of the Overall Personal Care Market. The global oral care market is presently estimated at US$12.6 billion. Currently nearly 97% of the population in developed countries uses at least one variety of toothpaste and 87% of this population, brushes twice daily. This gives marketers virtually no space to expand the market with new users in this region. In stark contrast, only 55% of the Indian population uses toothpaste and less than 15 percent of the Indian toothpaste users brush twice a day, only indicating that the market here remains largely untapped. As per data provided by FDI World Dental Federation, the dental care reported per capita in India is about twice of that reported in Scandinavian countries, whereas the annual consumption of sugar by a person in India is half of that of someone in Sweden. This can be attributed to the fact that the per capita consumption of oral care products like toothpaste in India is a meagre 127 grams as compared to Europe, where it is over 300 grams. With steady growth of Indian Economy, the per capita income of India has increased from Rs 18,885 in 2002-03 to Rs 54,527 in FY11, hence purchasing power of the Indian consumers is constantly increasing. After factoring in all these points, one cant help but conclude that a tremendous opportunity lies in the oral care market of India. Competition is tightening between local and global players in the Rs 4500 crore branded oral care sector.
For Urban Market
For a market that is already loyal to its brands, innovation and value addition are required to win new customers. Also "brushing twice a day" as a habit, needs to be endorsed for increasing the consumption of toothpaste.
Consumers cant resist the word FREE. So many a times, marketers give something FREE with a product to increase or push its sales. Oral care brands could hand out a free oral care health booklet with certain products, which could be used for spreading awareness about various oral problems and how products in their offering could help cure/prevent these problems.
Oral products specifically targeting special needs like for gum problems, bad breath, or segmenting customers into specific age bands might also find many takers. Coupling oral care products like toothpaste and mouth wash, that complement each other well, can also be sold as a "combo" pack to push sales.
Smart endorsements targeting the young urban consumer should be devised as its no longer possible to mislead urban consumers with tall claims. In India, oral care segment holds a substantial share in the overall cosmetic market. On back of increasing awareness about oral hygiene, improving income, and high advertising expenditure by players, the Indian oral care market has shown stupendous growth.
According to our latest research report, tooth paste and tooth powders hold the majority share of the market, and this is expected to remain the major sub-segment in future. It is estimated that the Indian oral care market will register a strong CAGR of around 14% during 2011-2015.
As per the report, "Indian Oral Care Market Forecast to 2015", there exists an immense potential for tooth brush market in rural areas. During our study, we also observed that dental health camps and free dental checkups have raised awareness about dental infections and diseases, especially in sub-urban and rural parts. The Indian Oral Care market is derived by analyzing and studying its sub-segments including: tooth paste, tooth powder, tooth brush, and mouth wash.
The Oral, Personal and Home Care segment continued its robust performance with y-o-y organic sales growth of 5% driven by volume growth and price increases of 2.5% each. A strong dollar had an unfavorable impact of 6% though leading to a net sales decline of 1%.
The worst performing region for the segment was Europe/South Pacific where a combination of volume and price declines along with unfavorable currency movements resulted in net sales declining by 11%. Volume gains in Australia were not enough to prevent a net decline due to volume declines in Western Europe. However, this was more than offset by growth in other regions with Greater Asia/Africa being the strongest performer. The region saw an impressive 7.5% growth in volumes and a 4% increase in prices. Sales in the region increased by 5% despite an unfavorable currency impact of 6.5%. Growth in the region was driven by countries including India, China and Russia.
The Per capita consumption appears to be rising, leading to high penetration levels for the toothpaste category in India. As the trend is expected to continue, industry analysts expect more marketing battles in the oral care market with advertising spends rising on this count, going forward.
The British pharmaceutical and consumer healthcare major is said to be weighing the option of introducing more oral care products from its international portfolio following the success of Sensodyne in India.
The healthcare sector remains one of the fastest growing parts of the global economy and one of the biggest challenges facing policy makers and the private sector. The cost of healthcare continues to outpace inflation in virtually every country in the world, and efforts at reform and cost containment make operating a commercial venture in the sector a continually dynamic enterprise. Despite the challenges, though, the sector holds great opportunities driven by the aging population in developed countries, increasing demand for sophisticated therapies and care systems in developing countries, rapidly advancing health technologies.
According to a report by an industry body, The Indian health care sector is reckoned to be the engine of the economy in the coming years. Health care industry in India is predicted to reach US $150 billion by 2017 and approx. US $ 250 billion by 2020, contributing an expected Gross Domestic Product spend of 8 % by 2012 from 5.5 % in 2009.
The large population growth of 15-20 million a year and rising living standards are two important indicators that lead to an increasing demand for more and better healthcare facilities in India.
The healthcare category covers the array of market products and services that form the environment in which clinical care is provided, including the financial side of medical markets from private healthcare financing (insurance, managed care, and reimbursement schemes) to public regulation and policy (government programs and subsidies). It also covers issues in care delivery and settings (hospitals, clinics, long-term care facilities, personnel, improvement initiatives, and prevention/ wellness programs) and technological product categories that will impact the entire system (hospital information systems, telemedicine, and electronic medical records [EMR]).
Health care industry in India has seen a phenomenal growth in the last decade. The market comprises healthcare organizations (hospitals, nursing homes, diagnostic centers, dental hospitals, clinics, Ayurveda, hospitals, etc.), persons (doctors, dentists, nurses, and other caregivers), and health insurance providers. Private companies play a greater role than the public sector in providing healthcare services as this sector is expected to be financially stronger and well managed. With the growth of the Indian middle class segment, shift toward private healthcare services to obtain more value and service is expected. Indian healthcare industry is at growing stage and is thereby not subjected to strict regulations by the government. There is a general liberalization of trade and investment owing to which most devices do not need import license.
Health care industry plays an important part in the economy of a country. The health care industry determines the GDP or the Gross Domestic Product of any country. It also determines exports status, employment, capital investment etc. Health care segment provides employment openings to many individuals directly associated with the health care sector or other associated sectors, related to the healthcare industry in some way or the other. Efforts are usually made to keep the dollars rolling within the countrys economic set up. Businesses dealing in health care add to the already existing economy by buying utility programs, by paying taxes for property etc.
Facts about the health care industry trends:
> The cost related to health care was seen to rise in the 90s. Americans not possessing any health care coverage or any kind of health insurance attained the 42 million mark.
> It has been anticipated that the elderly sick people will impose considerable stress on the health care sector of US.
> The total number of different health care programs and different health care insurance coverages are likely to increase in the coming years. There has been an escalation in the medical plans from 42.5million in the year 2006. The health care industry trends also show that it is likely to attain 70.2 million in the year 2025.
> The health care industry trends also indicate that the expenses for preventive measures is negligible as compared to the amount spent on treating chronic diseases which accounts for 70% of the fund used for health care.
World health care industry is catching up with the other leading industries of the world. World health care industry is one of the largest industries catering to the medical needs of innumerable people around the globe. Statistics show that in the year 2004, employment provided by the health care industry accounted for 13.5 million job opportunities. Out of the 13.5 million jobs, some of the people opted for self employment while others remained salaried workers related to the health care. It has been predicted that between 2004 through 2014, increase in the healthcare jobs would be by approximately 19% or as many as 3.6 million job opening would be produced. The statistics provided above reflect the health care scenario in the USA.
Health care industry in India is moving ahead neck to neck with the pharmaceutical industry and the software industry of the country. Much has been said and done in the health care sector for bringing about improvement. Till date, approximately 12% of the scope offered by the health care industry in India has been tapped. The health care industry in India is reckoned to be the engine of the economy in the years to come. Health care industry in India is worth $17 billion and is anticipated to grow by 13% every year.
Health care industry in India and the GDP or Gross Domestic Product:
Expenses incurred by the Indian Government on health care are the highest amongst developing countries. Indias expenses on health care sector comprise 5.25% of the GDP. Chances are that the health care market could experience a hike and attain a figure ranging between $53 to $73 billion five years from now. This in turn will reflect an increase in the Gross Domestic Product to 6.2% GDP. The health care industry in India earns revenues accounting for 5.2% of Gross Domestic Product. Employment opportunities are provided to as many as 4 million people in the health care segment or other related sectors catering to the health care industry in India in some way or the other. Owing to the vast differences in medical expenses in western countries and that of India, India has become one of the favorites for health care treatments. Due to the progressive nature of the health care sector in India, several foreign companies are intending to invest in the country.
The rural healthcare sector has added around 15,000 health sub-centers and 28,000 nurses and midwives during the last 5 years. The number of primary health centers has increased by 84%, taking the number to 20,107.
Globally, the industry is amongst fastest growing sectors, with approximate revenues of USD 5.5 trillion in 2010. Within this context, India is viewed as one of the most promising markets among the developing countries and is projected to reach USD 140 billion by 2017. The market for healthcare in India has a significant and large potential in the coming years. The healthcare industry is growing at a rapid pace and is expected to become a US $280 billion industry by 2020. As stated earlier, the Indian Healthcare Industry is currently estimated at USD 40 Billion. The industry is expected to grow to ~USD 79 Billion by 2012 and ~ USD 280 Billion by 2023. The average CAGR for the next 10 years, therefore, has been estimated at ~ 21 percent. Indias economic growth and rapid urbanization is bringing with it an expected health transition in terms of shifting demographics, increasing ability to afford quality healthcare, changes in morbidity pattern with growing degenerative and lifestyle diseases, and increasing penetration of health insurance.
By 2021, over 143 million population in the country will be above 60 years of age; close to 16 million households will fall in the category of high-income (annual income more than Rs 5,00,000); towns with million plus population will increase from 35 to 65; heart diseases, diabetes, and cancer will show a combined average decadal growth of 47 per cent; health insurance market will grow at an average 42 per cent CAGR. Such factors have caught the interest and attention of investors, big and small; and have necessitated our healthcare landscape to constantly evolve and mature. Another area which needs the governments urgent attention is R&D which should include areas like diagnostics, therapeutics, vaccines, medical devices, regenerative medicine, public engagement, education and the application of research in improving patient care. For significant breakthroughs to emerge in this field, it is essential that the government provide researchers, the resources and freedom they need to pursue their studies, and also suitably reward institutes like ICMR for promoting research activities. Such encouragement will pave the way for development of innovative, low-cost, high quality technology and models of delivery that are specifically suitable to Indias needs. In order to effectively address the issues of poor access, high cost it is imperative that the government pay due attention to the above measures.
Baby care products market has passed through cosmic changes over the years. Earlier the baby care market featured selected products such as baby powders and diaper rash creams with select brands. However, today variety of baby products are made available to choose from such as scented massage oils, calming lotions and cradle cap treatments to go with the earlier existing products.
Of late, manufacturers of baby care products modified their approach to develop innovative and novel products and more importantly, realized the necessity and importance of producing traditional powders and creams. The trend is to extend the existing range of products and develop baby care products other than simple baby soaps, creams.
Rural India accounts for more than 700 Million consumers, or 70 per cent of the Indian population and accounts for 50 per cent of the total FMCG market. The working rural population is approximately 400 Millions. There is an untapped market and most of the FMCG Companies are taking different steps to capture rural market share. The market for FMCG products in rural India is estimated to be 52 per cent and is projected to touch ~ 60 per cent within a year. To build a strong rural distribution network, local distributers who know the community, villages, understand public sentiments need to be involved and given some extra perks to make efforts to create a market where it does not exist.
As a part of brand promotion, road-shows, street theatres, sports events for youths, and oral health care camps in schools can be organised or sponsored where locals can be educated about Oral care and their products.
The brands need to rethink about the products for rural consumer and come out with cheaper options, for example by spending less on packaging, by selling smaller quantity i.e. sachets in larger numbers.
Retailers and medical practitioners can be talked to, and given compensation for pushing and a particular product as their opinion might influence consumer choice.
A concerted effort to penetrate the fragmented and untapped huge rural market, which houses 2/3rd of the total population, is must for the growth of FMCG sector as a whole.
Various FMCG companies to come together and tie up in targeting the fragmented and broken rural market to reduce their marketing costs and raise efficiency through "Van sales" or creating "Rural supermarkets".
Companies that are innovative, agile and responsive to the needs of consumers would stand out. The consumer goods sector had benefited in the past few years from a rise in disposable income in rural areas, where nearly 70 per cent of the country resides. FMCG firms net half their sales from rural markets now and continue to pursue expansion in rural areas. The Budget proposal to increase the allocation to the Bharat Nirman programme could further drive rural growth and boost sales, he noted.
The FMCG sector is divided into two distinct segments - the premium segment catering mostly to the urban upper middle class and the popular segment with prices as low as 40% of the premium segment, catering to mass segments in urban and rural markets. The premium segment is less price-sensitive and more brand conscious.
The industry is volume driven and is characterized by low margins. The products are branded and backed by marketing, heavy advertising, slick packaging and strong distribution networks. Also, raw material prices play an important role in determining the pricing of the final product. In most categories, the unorganized sector is almost as big if not bigger as the organized sector. Unorganized players offer higher margins to stockiest in order to gain market share.
At present, urban India accounts for 66% of total FMCG consumption, with rural India accounting for the remaining 34%. However, rural India accounts for more than 40% consumption in major FMCG categories such as personal care, fabric care and hot beverages. In urban areas, home and personal care category, including skin care, household care and feminine hygiene will keep growing at relatively attractive rates. Rural penetration, sustainability and infrastructure development are keys to the FMCG sectors growth.
Growth Prospects of FMCG in Rural India
With the presence of 12.2% of the world population in the villages of India, the Indian rural FMCG market is something no one can overlook. Increased focus on farm sector will boost rural incomes, hence providing better growth prospects to the FMCG companies. Better infrastructure facilities will improve their supply chain.
FMCG sector is also likely to benefit from growing demand in the market. Because of the low per capita consumption for almost all the products in the country, FMCG companies have immense possibilities for growth. And if the companies are able to change the mindset of the consumers, i.e. if they are able to take the consumers to branded products and offer new generation products, they would be able to generate higher growth in the near future.
The demand in urban areas would be the key growth driver over the long term. Also, increase in the urban population, along with increase in income levels and the availability of new categories, would help the urban areas maintain their position in terms of consumption. Within the foods segment, it is estimated that processed foods, bakery, and dairy are long-term growth categories in both rural and urban areas.
Companies leverage the deep-rooted FMCG firms network in rural India
As corporate partnerships to push rural growth are on an upswing, the recent Reserve Bank of India (RBI) decision to allow "for profit" companies to be business correspondents of banks has encouraged such tie-ups. Creating a distribution network from scratch is a costly affair and hence arrangements with FMCG players are a win-win for both parties as network costs are shared. However, companies leveraging the FMCGs network will be successful only if they come up with a differential pricing mechanism, keeping in mind the sensitivity of the market.
Nonetheless, such tie-ups will induce further consumer brand engagements giving further exposure to the rural folks and also make them aware of various products and services available in the market.
(Courtesy- http://info.shine.com, http://www.assocham.org, http://www.business-standard.com, http://www.thehindubusinessline.com, gyan 2012, http://www.sbwire.com, cosmetic-designseurope.com,http://www.trefis.com,http://www.reuters.com,https://www.researchonindia.com,http://www.reportlinker.com,https://www.researchonindia.com,http:// www.researchandmarkets.com, www.ideasmakemarket.com, www.financialexpress.com, http://www.rncos.com, http://timesofindia.indiatimes.com, http://www.marketresearch.com, http://www.scribd.com, http://www.expresshealthcare.in,www.indiainfoline.com,articles.economictimes.indiatimes.com)
OUTLOOK ON THREATS OF THE INDUSTRY
FMCG Industry does not have any measures which can control the entry of new firms. The resistance is very low and the structure of the industry is so complex that new firms can easily enter and also offer tough competition due to cost effectiveness. Hence potential entry of new firms is highly viable.
FMCG packaging market undergoes regional shifts and demographic changes and the industry is likely to experience several challenges. Sluggish growth in mature North American and Western Europe markets pose challenges to FMCG brands. FMCG packaging manufacturers will have to adapt sizes and target both the lower income segment of the population in emerging market and its growing middle class. The economic downturn has impacted consumers way of spending in developed markets. With price focused consumers and increasing raw materials price, FMCG packaging companies are forced to lower margins. In the mean time, innovation continues to drive growth in these margins pushing up cost in research and development.
At the same time, fall of rupee against major currencies, new norms of standard-size packaging, increase in raw material costs due to upward spiraling interest rates and inflation together might dent the performance of the fast moving consumer goods (FMCG) sector which ruled the bourses in the current calendar year.
SEGMENT WISE PERFORMANCE
|Particulars||Audited 30.06.2011 (Rs. in Lacs)||Audited 30.06.2012 (Rs. in Lacs)||% change in growth as compared to previous year 2010-11|
|Oral Care||34,696.81||38,445.18||10.80 %|
|Health Care||14,303.55||17,307.04||21.00 %|
INTERNAL CONTROL SYSTEMS AND ADEQUACY
There are well established internal control systems in the Company for the purchase of inventory and fixed assets and for the sale of goods and services. The company always follows the documented operating procedures at each and every step of the transaction to the largest extent. The Internal Audit function, is headed by Mr. Gaurav Doshi, and he reports directly to the MD and the Audit committee. The department consists of a team of well qualified and experienced professionals that conduct regular audit covering the global operations of the company. The internal control system in the company is adequate and effectively in operation.
FINANCIAL ANALYSIS AS ON JUNE 2012
(Rs. in Lacs)
|Particulars||Audited 30th June, 2011||Audited 30th June, 2012||% change in growth for the Financial Year Ended 30th June, 2012|
|Profit Before Depreciation , Interest & Tax||8331.07||11496.16||37.99|
|Profit Before Tax||4484.07||5735.47||27.91|
|Profit After Tax||3805.44||4524.07||18.88|
|Earnings Per Share||14.54||17.29||18.91|
|Net Profit Margin||6.58%||6.71%||0.13%|
Human Resource is an integral part of any organization and the term Human Resource Development has two parts namely "Human Resource" and "Development". The Company takes various efforts to improve and enhance the total knowledge, skills, creative abilities, talents and aptitudes of the entire work force also it nurtures the values, attitudes and beliefs of the employees so as to motivate and encourage them for better performances. The Company conducts various "Performance Appraisal Programmes" at regular intervals to make the subordinates aware of their strengths and weaknesses in addition to their positive contributions to the Company.
In addition to this, the Company also conducts "Quality-of-work-life Programmes" to provide a feasible working environment to the employees and also continuously examines the needs of the employees and tries to fulfill them in-order to improve the quality of work of the employees. Also the top management of the Company has continued the legacy of rewarding the employees by certifying them every month - "Best Employee of the Month", "Best Salesman of the month and so on. These motivational activities encourage the employees to work efficiently and effectively.
Statements in this " Management Discussion and Analysis " describing the companys objectives, estimates, expectations or projections may be " forward looking statements " within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. The Important factors that can make difference to the Companys performance include- Government Regulations, Tax regimes, economic development within India and countries in which the company conducts business, litigations, competitions and other allied factors.