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SECTOR: FMCG
Getting Back, Getting Even
From a Time when they were Playing for Survival Against MNCS, a select few Indian FMCG firms are Quickly Turning The Tables. Still, The Head-to-Head Score goes in Favour of MNCs
Issue Date - 23/06/2011
 
Even though some Indian FMCG players like Godrej and Dabur have a legacy of more than 100 years, yet they have traditionally been players with modest ambitions till the 1980s. But like other industries, the big churn came in post-liberalisation era. Over time, and especially post liberalisation, foreign players like Nestle, HUL, P&G and Reckitt Benckiser significantly grew in size and stature in the Indian market, and left the Indian firms behind by miles.

The domestic FMCG majors had to desperately play the survival game. Local companies like Dabur, Marico, Emami, Himalaya, Amul, understood that the market was changing and that they had to change with it. They shed their regional ambitions and started investing into distribution, packaging, product innovation & marketing. Players like Godrej went for a complete brand repositioning, and brought in a more professional management structure that emphasised on youth and looked to go global. But to what extent has their radical transformation helped Indian companies move up the steep learning curve that they largely stayed away from earlier? Are Indian firms taking the score back from the MNCs?

A Booz & Company and Confederation of Indian Industry (CII) report pegs the Indian FMCG industry at around Rs.1.3 trillion. The sector witnessed a CAGR of about 11% from 2001 to 2010. The last five years have shown a CAGR of approximately 17%. If the industry could continue to grow with a CAGR of 12-17%, it will become a Rs.4-6 trillion industry by 2020.

The real inflexion point for Indian players was 2001. According to the report, large Indian players grew sales by 12% from 2001-2005 and by 19% from 2006-2010. MNCs, in turn, saw sales growth of just around 2% in 2001-2005 before recovering to see growth of around 16% from 2006-2010. This has reflected in key market share gains as well. Godrej No. 1 is the leading soap brand in Northern India and third largest overall. Wipro’s Santoor holds sway in South India; ahead of the likes of Lux, Lifebuoy or Dove. ITC (well, if you were to consider it an ‘Indian’ company) is giving sleepless nights to HUL with innovations in personal care and food categories. The USP of Indian FMCGs – natural and herbal-based products – is attracting Indian customers, for whom ‘foreign’ ostensibly doesn’t carry the same attraction as before. In fact, differentiated products like Chyawanprash, Navaratna oil and Parachute have been immensely beneficial, as MNCs have consciously not invested in these products.

Consider the situation in personal care and home categories. According to Euromonitor International, Indian companies have been either holding steady or steadily gaining market share since 2005 in these segments. Even as Hindustan Unilever’s market share dropped marginally from 36.6% in 2005 to 33.3% in 2010 in the personal care segment, Dabur marginally upped its market share from 4.7% to 4.9%; while Godrej raising its share to 4.5% from 3.9%. ITC has doubled its market share to 1.4% in 2010 from 0.7% in 2008. But other international players have been gaining ground as well. Colgate-Palmolive’s market share rose from 6.4% in 2005 to 6.8% in 2010. P&G India’s share has also risen from 4.2% to around 5.4%. In these rapidly growing segments, MNCs have a clear edge over Indian players.

 
In the home care space, Jyothy Laboratories, Ghari Industries and Nirma are holding steady. Reckitt, Godrej and P&G have been clear winners; increasing their market share from 8.3% to 8.9%, 4.4% to 7.9% and 0.4% to 5.4% respectively from 2005 to 2010, though Dabur has lost share, dropping to 0.5% from 1%. However, as per industry analysts, the ratio between foreign and Indian MNCs in the market is still around 60:40.

When one analyses key financial figures, the results show that while Indian players may be relatively smaller in terms of revenues, they are managing their margins reasonably well. Earning Per Share (EPS) is Rs.12.46 for Dabur, Rs.23.87 for Marico, Rs.43.01 for Godrej. Correspondingly, it’s Rs.32.3 for Nestle, Rs.12.43 for HUL and Rs.21.81 for Colgate Palmolive. When it comes to Return on Assets over a 5 year period, Dabur offers 28.47%, Nestle offers 32.7%, Colgate Palmolive offers 34.63% and Marico offers 17.08%.

Domestic FMCG majors including Wipro, ITC foods, Dabur India and Emami are expanding their manufacturing capacities and strengthening their distribution. All this is being done as they are aggressively entering new product portfolios, and strengthening existing ones. Yet, irrespective of all the praise, they have a long way to go to match the coverage of giants like HUL or Nestle though, which reach between 5 to 10 million outlets. Even ITC has its presence across some 2 million retail outlets with its traditional tobacco business, which it has leveraged for FMCG.

The one trait Indian firms seem to have imbibed is the drive to attain the industry benchmarks that MNCs have set in their own right. Grant Thornton reports that a total of 35 FMCG M&As, both inbound and outbound, happened in 2010. The total value of these deals was $947 million. Reckitt Benckiser’s $726 million buyout of Paras Pharmaceuticals was the largest. The interesting part was the incidence of 21 outbound deals with active Indian players being Emami, Dabur, Godrej, Marico & Tata Global Beverages.

Godrej Consumer recently acquired 51% stake in Senegal-based Darling Group for Rs.9 billion, the leader in the Rs.45 billion unorganised hair extension market with a 25% share in 14 sub-Saharan countries. In May 2010, it bought two Argentinian hair care companies – Issue Group and Argencos – for $49 million to gain an entry into Latin America. Godrej also acquired Indonesian Megasari brand for Rs.12 billion, Sara Lee’s stake in India for Rs.10.55 billion and Nigeria’s Tura Group for Rs.4 billion. In early 2011, Dabur acquired US-based haircare brand Namaste for Rs.4.51 billion and Turkish hair care brand Hoby Cozmetik for Rs.3.24 billion, which is expected to give a strong footing in West Asia & North Africa. Similarly, Marico snapped up Malaysian hair care brand Code 10, Derma Rx in Singapore, Ingwe in South Africa and International Consumer Products Corp. in Vietnam.

          

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