FMCG

Size:The fast moving consumer goods (FMCG) segment is the fourth largest sector in the Indian economy. The market size of FMCG in India is expected to grow from US$ 30 billion in 2011 to US$ 74 billion in 2018. The FMCG sector in India generated revenues worth US$ 34.8 billion in 2011, a growth of 15.2 per cent as compared to the previous year. Over 2006-11, the sector's revenues posted a compound annual growth rate (CAGR) of 17.3 per cent. Food products are the leading segment, accounting for 43 per cent of the overall market. Personal care (22 per cent) and fabric care (12 per cent) are the other leading segments. Growing awareness, easier access, and changing lifestyles have been the key growth drivers for the sector. Rural demand is set to rise with rising incomes and greater awareness of  brands. EXHIBIT 1

S.No.

Company Name

Turnover(in Rs. Crores) For the period April 1,2010 to March 31, 2011

1

Hindustan Unilever Ltd.

Rs.19,401 crores

2

ITC(Indian Tobacco Company)

Rs. 3,629 crores

3

Nestle India

Rs. 5,204 crores

4

GCCMF(Amul)

Rs. 7,977 crores

5

Dabur

Rs. 2,864 crores

The companies mentioned in Exhibit I, are the leaders in their respective sectors. The  personal care category cate gory has h as the largest number of brands, brand s, i.e., 21, inclusive in clusive of Lux, Lifebuoy, Lifebuo y, Fair and Lovely, Vicks, and Ponds. There are 11 HLL brands in the 21, aggregating Rs. 3,799 crore or 54% of the personal care category. Cigarettes account for 17% of the top 100 FMCG sales, and just below the personal care category. ITC alone accounts for 60% volume market share and 70% by value of all filter cigarettes in India. The foods category in FMCG is gaining popularity with a swing of launches by HLL, ITC, Godrej, and others. This category has 18 major brands, aggregating Rs. 4,637 crore. Nestle and Amul slug it out in the powders segment. The food category has also seen innovations

like softies in ice creams, chapattis by HLL, ready to eat rice by HLL and pizzas by both GCMMF and Godrej Pillsbury. This category seems to have faster development than the stagnating personal care category. Amul, India's largest foods company, has a good presence in the food category with its ice-creams, curd, milk, butter, cheese, and so on. Britannia also ranks in the top 100 FMCG brands, dominates the biscuits category and has launched a series of products at various prices. In the household care category (like mosquito repellents), Godrej and Reckitt are two players. Goodknight from Godrej, is worth above Rs 217 crore, followed by Reckitt's Mortein at Rs 149 crore. In the shampoo category, HLL's Clinic and Sunsilk make it to the top 100, although P&G's Head and Shoulders and Pantene are also trying hard to be positioned on top. Clinic is nearly double the size of Sunsilk. Dabur is among the top five FMCG companies in India and is a herbal specialist. With a turnover of Rs. 19 billion (approx. US$ 420 million) in 2005-2006, Dabur has brands like Dabur Amla, Dabur Chyawanprash, Vatika, Hajmola and Real. Asian Paints is enjoying a formidable presence in the Indian sub-continent, Southeast Asia, Far East, Middle East, South Pacific, Caribbean, Africa and Europe. Asian Paints is India's largest paint company, with a turnover of Rs.22.6 billion (around USD 513 million). Forbes Global magazine, USA, ranked Asian Paints among the 200 Best Small Companies in the World. Cadbury India is the market leader in the chocolate confectionery market with a 70% market share and is ranked number two in the total food drinks market. Its popular brands include Cadbury's Dairy Milk, 5 Star, Eclairs, and Gems. The Rs.15.6 billion (USD 380 Million) Marico is a leading Indian group in consumer products and services in the Global Beauty and Wellness space.

History:India has always been a country with a big chunk of world population, be it the 1950’s or the 21st century. In that sense, the FMCG market potential has always been very big. However, from the 1950’s to the 80’s investments in the FMCG industries were very limited due to low  purchasing power and the government’s favouring of the small-scale sector. Hindustan Lever

Limited (HLL) was probably the only MNC Company that stuck around and had its manufacturing base in India. Post liberalization not only saw higher number of domestic choices, but also imported  products. The lowering of the trade barriers encouraged MNC’s to come and invest in India to cater to 1bn Indians’ needs. Rising standards of living urban areas coupled with the

 purchasing power of rural India saw companies introduce everything from a low-end detergent to a high-end sanitary napkin. Their strategy has become two-pronged in the last decade. One, invest in expanding the distribution reach far and wide across India to enable market expansion of FMCG products. Secondly, upgrade existing consumers to value added  premium products and increase usage of existing product ranges. One of the biggest changes to hit the FMCG industry was the ‘sachet’ bug. In the last 3 years,

detergent companies, shampoo companies, hair oil companies, biscuit companies, chocolate companies and a host of others, have introduced products in smaller package sizes, at lower  price points. This is the single big innovation to reach new users and expand market share for value added products in urban India, and for general FMCG products like detergents, soaps and oral care in rural India. To conclude we can say that there was never a dull moment in FMCG. From the pace at which goods leave the shelves to the rate of product innovation and career progression, things move quickly. Also the brands themselves are changing just as quickly. 40% of brands on the top 100 list twenty years ago have already been replaced by new names today.

Growth Rate of the FMCG Sector The fast moving consumer goods (FMCG) segment is the fourth largest sector in the Indian economy. The market size of FMCG in India is expected to grow from US$ 34.8 billion in 2011 to US$ 74 billion in 2018. 

The FMCG sector in India generated revenues worth USD34.8 billion in 2011, a 15.2 per cent rise compared to the previous year.

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The strong growth in 2011 should come as no surprise given the impressive performance of the sector over the years.

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Over 2006-11, the sector’s revenues posted a CAGR of 17.3 per cent.

Trends in FMCG Revenues 40 35 30

CAGR- 17.3%

25 20

Revenues in Billions (USD)

15 10 5 0 2006

2007

2008

2009

2010

2011

Source: Dabur, AC Nielsen, Aranca Research

Food products are the leading segment, accounting for 43 per cent of the overall market. Personal care (22 per cent) and fabric care (12 per cent) are the other leading segments. Growing awareness, easier access, and changing lifestyles have been the key growth drivers for the sector. Rural demand is set to rise with rising incomes and greater awareness of  brands.

The Government of India has been supporting the rural population with higher minimum support prices (MSPs), loan waivers, and disbursements through the National Rural Employment Guarantee Act (NREGA) program. These measures have helped in reducing  poverty in rural India and have thus propped up rural purchasing power. With rise in disposable incomes, mid- and high-income consumers in urban areas have shifted their purchasing trend from essential to premium products. In response, firms have started enhancing their premium products portfolio. Indian and multinational FMCG players are leveraging India as a strategic sourcing hub for cost-competitive product development and manufacturing to cater to international markets. Food products and personal care together make up two-thirds of the sector’s revenues →‘Food products’ is the leading segment, accounting for 43.0 per cent of the overall market →Personal care (22.0 per cent) and fabric care (12.0 per cent) are the other leading segments

Market break-up by revenues (2009) OTC Products Others Baby Care 4% 5% 2% Households 4% Hair Care 8%

Food Products 43%

Fabric Care 12%

Personal Care 22% Source: Dabur, Aranca Research

The urban market accounts for a major chunk of revenues: →The

urban segment is the largest contributor to the sector, accounting for over two-thirds of total revenue →Semi-urban

and rural segments are growing at a rapid pace; they currently account for 33.5 per cent of revenues →FMCG

products account for 53.0 per cent of total rural spending

Urban-rural revenue break-up (2011) 3.2

URBAN RURAL 66.5

Source: Dabur, AC Nielsen, Aranca Research

The rural segment is fast catching up: →The urban FMCG market in India has been growing at a fairly stead y and healthy rate o ver the years; encouragingly, the growth in rural markets has been more fast-paced →During FY11, more than 80 per cent of FMCG products posted faster growth in rural markets as compared to urban ones →Notable high growth sectors include salty snacks, ref ined edible oil, healthcare products, iodised salt, etc →Hair oils, toothpastes and shampoos have significantly high penetration in both urban and rural markets →Instant noodles, floor cleaners and hair dyes are pic king up in the rural areas due to increased awareness. →A total of 7.8 million retail outlets sell FMCG in India →Grocers are the dominant retail format, accounting for 59.0 per cent

Growth in urban and rural FMCG markets (FY11)

70 60 50 40 30 20 10 0

URBAN

RURAL

Source: AC Nielson, Aranca Research

The burgeoning middle class Indian population, as well as the rural sector, presents a huge  potential for this sector. 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 and to a whooping USD 100 billion by the year 2025. This sector is characterized by strong MNC presence and a well established distribution network. In India the easy availability of raw materials as well as cheap labour makes it an ideal destination for this sector. There is also intense competition between the organized and unorganized segments and the fight to keep operational costs low.

Market share of companies in a few FMCG categories Market Leader

Others

Hair Oil

42 %

15%

8%

5%

Shampoo

46%

Oral Care

24%

10% 6%

50% 23%

13%

Skin Care 59% 7%

7%

6%

Fruit Juice 35%

52%

Source: Industry estimates

THE TOP 10 COMPANIES IN FMCG SECTOR: 1. Hindustan Unilever Ltd. 2. ITC (Indian Tobacco Company) 3. Nestlé India 4. GCMMF (AMUL) 5. Dabur India

Company HUL

Sales* in MN $ 3921.5

6. Asian Paints (India) 7. Cadbury India 8. Britannia Industries 9. Procter & Gamble Hygiene and Health Care 10. Marico Industries

Segments Personal care, Food Products, Household,

Baby Care, Fabric Care Amul India

1771.1

Food and Beverage Products

Nestle India

1155.4

Food and Beverage Products

ITC**

305.7

Personal Care, Food Products

Britannia

759.9

Food Products

Dabur

635.9

Personal Care, Food Products, Household

Marico Industries GSK Consumers Cadbury Industry Colgate Palmolive P&G

449.3

Personal Care, Food Products, Household

447.9

Personal Care, Food Products

430.1

Food Products

391.8

Personal Care, Oral Care

388.5

Godrej

280.5

Personal care, Food Products, Household, Baby Care, Fabric Care Personal Care, Fabric Care

Mergers and Acquisitions:-

Despite of global economic slowdown, it is expected that the Indian FMCG industry will continue to witness merger and acquisitions (M&A), as well as private equity investment. As the M&A deals provide the Indian FMCG players the platform to gain market share and footprint in other fast growing countries/regions through acquisitions and also access to an established and well invested distribution infrastructure capable of leveraging existing  products that will be adaptable to the new geography, the Indian firms are keen on focusing on higher growth markets such as South-East Asia, Africa, Latin America. With Godrej and Wipro taking the lead, the domestic companies have been quite active in M&A activities in order to gain significantly from an inorganic growth route. The 2013 fiscal witnessed a number of M&A deals in India. The major player in the Indian FMCG market, with leading Household and Personal Care Products, Godrej Consumer  products Ltd (GCPL) made a series of acquisitions across various geographies. The FMCG

major has successfully completed the acquisition of 60% stake in CosmeticaNacional, a leading hair colorant and cosmetics Company in Chile, through its subsidiary Godrej  Netherlands B.V and 51% stake in Darling Group operations in Kenya through its subsidiary Godrej East Africa Holdings Ltd. Further, Hindustan Unilever's (HUL) $5.4 billion deal, announced on May 1 2013, with parent, Unilever Plc was the largest Asia-Pacific cross  border inbound merger and acquisition (M&A) deal so far in FY’14.

Key M&A Deals in the Industry

Target name (segment)

Acquirer name (segment)

Merger/Acquisition

United Spirits

Diageo Plc.

Acquisition

HobiKozmetik, Turkey

Dabur

Acquisition

L.D. Waxson, Singapore

Wipro Consumer

Acquisition

ParasPharma (Personal Care)

Marico Ltd (Food and Personal Care)

 Acquisition

CosmeticaNacional (Cosmetics)

Godrej Consumer Products Ltd

 Acquisition

CC Health Care Products Pvt Ltd (Cosmetics)

Colgate-Palmolive India Ltd (Cosmetics and Toiletries)

 Acquisition

Noble Hygiene Pvt Ltd (Household and Personal Products)

Bennett Coleman & Co Ltd (Publishing)

 Acquisition

 Argencos, Argentina (Hair Care Products)

Godrej Consumer Products Ltd (Home and Personal Care)

 Acquisition

Godrej Hygiene Care Pvt Ltd (home care)

Godrej Consumer Products Ltd (home care)

Merger