TERM PAPER ON

EQUITY RESEARCH ON FAST MOVING CONSUMER GOODS SECTOR

PRESENTED BY: SWATI SAXENA 1212270145 Group:33

MANAGEMET OF BUSINESS ADMINISTRATION SHRI RAMSWAROOP GROUP OF PROFESSIONAL COLLEGES

Contents: 1. Executive summary 2. Introduction 3. Recent developments 4. Research Methodology 5. Structural Analysis of FMCG Industry 6. India - a large consumer goods spender 7. Distinguishing features of Indian FMCG Business 8. Conclusion 9. References 10.Bibliography

Executive summary The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.1 billion. FMCG market is expected to rise to 33.4 billion US$ till 2015. This report starts with a brief introduction of FMCG market along with Industry Overview. It further state that why FMCG sector is Analyzed and why India. In this report two FMCG Company HUL & Dabur India is analyzed there history their shareholding pattern along with their product is being discussed. The company Fundamental & Technical is shown in the report. An analysts evaluates the stocks based on different parameter like fundamentals of the company i.e earnings of the company, P/E dividend yield etc. And technical based on Chart of the company share price the chart i.e Moving Average Crossover Chart, MACD chart through which we come to know the future price whether it is going to come down or go up. The report also include the distinguish feature of FMCG as compared to other sector and a well defined conclusion.

As consumer behavior and lifestyles changed, people no longer buy the way they used to. Simply increasing width' and depth' of coverage no longer seems to produce the magical results it once used to." -' Business Line, April 2003.

Introduction The Indian FMCG sector is the fourth largest sector in the economy with a total market size in excess of US$ 13.1 billion. It has a strong MNC presence and is characterized by a well established distribution network, intense competition between the organized and unorganized segments and low operational cost. Availability of key raw materials, cheaper labour costs and presence across the entire value chain gives India a competitive advantage. The FMCG market is set to treble from US$ 11.6 billion in 2003 to US$ 33.4 billion in 2015. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. Burgeoning Indian population, particularly the middle class and the rural segments, presents an opportunity to makers of branded products to convert consumers to branded products. Growth is also likely to come from consumer 'upgrading' in the matured product categories. With 200 million people expected to shift to processed and packaged food by 2010, India needs around US$ 28 billion of investment in the foodprocessing industry. Automatic investment approval (including foreign technology agreements within specified norms), up to 100 per cent foreign equity or 100 per cent for NRI and Overseas Corporate Bodies (OCBs) investment, is allowed for most of the food processing sector. At the macro level, Indian economy is poised to remained buoyant and grow at more than 7%. The economic growth would impact large proportions of the population thus leading to more money in the hands of the consumer. Changes in demographic composition of the population and thus the market would also continue to impact the FMCG industry. Recent survey conducted by a leading business weekly, approximately 47 per cent of India's 1 + billion people were under the age of 20, and teenagers among them numbered about 160 million. Together, they wielded INR 14000 Cr worth of discretionary income, and their families spent an additional INR 18500 Cr on them every year. By 2015, Indians under 20 are estimated to make up 55% of the population - and wield proportionately higher spending power. Means, companies that are able to influence and excite such consumers would be those that win in the market place.

Recent Developments Finance Minister, Mr. P. Chidambaram declared several tax sops for the FMCG sector in India along with putting due emphasis on the infrastructure developments in the same. The usual growth drivers such as penetration, per capita consumption, population, and household income were quite strong in 2007 and also the consumption of the FMCG products has been increased outstandingly in 2007. Biscuits worth ` 50 per kilogram are fully exempted from excise duty, customs duty on food processing machineries were reduced from 7.5% to 5%, excise duties on food mixes were reduced from 16% to 8%, and taxes were reduced on edible oils. ITC, Dabur, HUL and Marico were directly benefited from these. The consumption of health and personal care products in FMCG sector has increased in the recent past with rise in disposable income especially among the youth group in India. Research Methodology The research is analytical and empirical in nature and makes use of secondary data. The data has been sourced from Prowess database of Centre for Monitoring Indian Economy (CMIE). The data used for achieving each objective was made suitable for analysis as per the methodology. Thus, the data collected from Prowess database has been complied and used with due care and caution as per the requirement of the study. The analysis has been carried out both on panel and pooled data depending on the requirements of the techniques used for analysis. FMCGs (Fast Moving Consumer Goods) are those goods and products, which are nondurable, mass consumption products, available off the shelf. FMCG industry has played a major role in the Indian economy during the last few years and it is registering an uptrend in growth. FMCG stocks are known as dividend yield stocks. FMCG companies are consistent dividend payers. According to CII-A T Kearney Report, FMCG industry will grow at a compounded growth rate of 9% to reach a size.

Structural Analysis of FMCG Industry Typically, a consumer buys these goods at least once a month. The sector covers a wide gamut of products such as detergents, toilet soaps, toothpaste, shampoos, creams, powders, food products, confectioneries, beverages, and cigarettes. Typical characteristics of FMCG products are: 1. The products often cater to 3 very distinct but usually wanted for aspects necessity, comfort, luxury. They meet the demands of the entire cross section of population. Price and income elasticity of demand varies across products and consumers. 2. Individual items are of small value (small SKU's) although all FMCG products put together account for a significant part of the consumer's budget. 3. The consumer spends little time on the purchase decision. He seldom ever looks at the technical specifications. Brand loyalties or recommendations of reliable retailer/ dealer drive purchase decisions. 4. Limited inventory of these products (many of which are perishable) are kept by consumer and prefers to purchase them frequently, as and when required. 5. Brand switching is often induced by heavy advertisement, recommendation of the retailer or word of mouth. India - a large consumer goods spender An average Indian spends around 40 per cent of his income on grocery and 8 per cent on personal care products. The large share of fast moving consumer goods (FMCG) in total individual spending along with the large population base is another factor that makes India one of the largest FMCG markets.

Distinguishing features of Indian FMCG Business FMCG companies sell their products directly to consumers. Major features that distinguish this sector from the others include the following: 1. Design and Manufacturing Low Capital Intensity Technology Third-party Manufacturing logistics 2. Marketing and Distribution Marketing function is sacrosanct in case of FMCG companies. Major features of the marketing function include the following: High Initial Launch Cost. Limited Mass Media Options.

 Huge Distribution Network 3. Competition Significant Presence of Unorganized Sector Basic technology for most products is fairly simple and easily available. The small-scale sector in India enjoys exemption/ lower rates of excise duty, sales tax etc. This makes them more price competitive vis--vis the organized sector. A 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 lookalike brands. Lower overheads due to limited geography, family management, focused product lines and minimal expenditure on marketing. Conclusion The FMCG sector has traditionally grown at a very fast rate and has generally outperformed 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. The outlook in the short term does not appear to be very positive for the sector. Rural demand is on the decline and the Centre for Monitoring Indian Economy (CMIE) has already downscaled its projection for agriculture growth in the current fiscal. Poor monsoon in some states, too, is unlikely to help matters. Moreover, the general slowdown in the economy is also likely to have an adverse impact on disposable income and purchasing power as a whole. The growth of imports constitutes another problem area and while so far imports in this sector have been confined to the premium segment, FMCG companies estimate they have already cornered a four to six per cent market share. The high burden of local taxes is another reason attributed for the slowdown in the industry

At the same time, the long term outlook for revenue growth is positive. Give the large market and the requirement for continuous repurchase of these products, FMCG companies should continue to do well in the long run. Moreover, most of the companies are concentrating on cost reduction and supply chain management. This should yield positive results for them.

References: http://www.chillibreeze.com/articles_various/fmcg-in-inindia.asp http://www.economictimes.timesofindia.com http://www.indiainfoline.com/MarketStatistics/Sector-Performance/NSE-FMCGSector http://www.ninemilliondollars.com/2012/05/why-you-should-invest-in-fmcgsector-funds/ Bibliography