Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis – II - Question Paper

Features of FMCG Sector

The FMCG are generally defined as products, which are used regularly by the consumer. They are branded, non-durable products sold in packaged forms that are used by the consumer.

The industry includes products used by different categories of peoples. The products can be segmented in personal care, household care, packaged food and beverages, spirits, tobacco, etc. 1 or more players in the industry dominate every of the above product segments. Godrej Soaps, Colgate-Palmolive, Marico, Dabur and Procter & Gamble dominate personal care products. In household care segment major companies are Hindustan Lever, Nirma, Reckitt & Colman etc., Food and beverages segment includes Hindustan Lever, Nestle, Cadbury and Dabur as the major players. ITC, Godfrey Philips, UB and Shaw Wallace dominate the spirit and tobacco segment of the FMCG industry.

According to the opinion of the inhabitants, the perception of FMCG sector are as producer of luxury items targeted at the privileged, but in reality the sector meets the every day needs throughout the country. Lower income and lower-middle income groups’ explains around 60 per cent of the total FMCG sector’s sales. The majority of sales quantity comes from low-priced products. FMCG outlets had reached even in small villages where basic needs such as schools and transportation facility is not available. The rural market account for 56 per cent of total domestic FMCG demand.

The FMCG sector has several other salient features. The sector is strongly associated with the agro-based products. It is a significant value creator with market capitalization of 2nd only to the IT sector and is a key contributor to the exchequer. Its contribution to corporate tax, central excise and sales tax and state tax is also noteworthy.

Sectoral Snapshot

FMCG sector is under tremendous pressure from last 3 years, however due to renew market expectations and prospects things seem to have changed from last 4 quarters. In India, companies like HLL, ITC, Colgate, Nestle, Nirma and Cadbury dominated the FMCG sector, with every 1 having their own market niche. But gradually the outlook is changing; new players are entering with huge expectations and proving their point. In the last 4 quarters, things have changed and the FMCG sector is back on track towards the path for recovery. Growth is being witnessed in urban as well as rural areas. But this time around, small companies are making good profits, as they follow a simple strategy to provide more incentive to encourage the customers than their bigger brothers. The last year’s revenue and net profit growth for the companies in this sector are as under:

Earning:   Approval pending.