FMCG sector buys abroad to gain pace

OUTLOOK 2006

Assocham report says industry set to grow at 4% in the next year.

The FMCG sector kept a low profile this year with things a bit quiet on the brand launch front, but the results showed a fast turnaround for many companies in the sector.

An Assocham report on the sector says that the industry is slated to grow at 4 per cent in the next year, a big step-up from the 3.8 per cent fall in the topline growth between 2000 and 2004.

"The economic upturn and increase in disposable incomes are driving growth in the sector and the momentum is expected to continue," feels Ravi Sardana, vice-president, ICICI Securities.

If 2005 was marked by Indian companies picking up brands overseas, expect 2006 to be no different. All the companies ranging from Marico to Tata Tea have made it clear that they are scouting the market for acquisition opportunities to expand or enhance their range of offerings.

"There won't be too much M&A activity happening within the country as there are practically no sellers," says Adi Godrej , chairman, Godrej Consumer. 

FMCG M&A DEALS IN 2005
Company	Brand acquired	Country	Deal Value
Marico	Camelia	Bangladesh	not known
Marico	Aromatic	Bangladesh	not known
Godrej Cons	Keyline Brands	UK	£17-18 mn*
Tata Tea	Good Earth Teas	US	Rs 144 cr
Apeejay	Premier Foods	UK	Rs 60 cr
*estimated "� not disclosed by company

However, the smaller global brands can be an ideal buy for Indian companies who apart from an expanded portfolio also get to expand their presence internationally.

Things are likely to be a bit different for the bigger guys though. Hindustan Lever for one is in the process of selling off its non-power brands and focussing on its core brands in the home and personal care sector.

Harish Manwani, chairman, HLL, says that there will be innovations happening around these brands in the near future as well.

Local brands will continue to gain prominence as the national players focus on consolidation and one could see a couple of these suddenly achieve national status through improved distribution tie ups.

The increase in the number of retail outlets too will result in increased partnerships between FMCG companies and the retailers. These could range from marketing tieups to exclusive stocking agreements.

This growth in organised retail is likely to spur the overall growth of the sector, more so with a large number of these outlets coming up in semi-urban areas.

Simultaneously companies are going ahead with their plans to step up rural operations as well be it HLL's Project Shakti or ITC's e-chaupal.

At the same time, companies have woken up to the potential of the urban affluent and so while there will be a slew of initiatives targetting the rural market, expect the same for the absolute upper end of the market as well.

Additionally, the growing services sector has resulted in more people earning much earlier, another factor which will continue to drive growth.

"The boom in the services industry has created a new market segment for the FMCG companies to cater to, both in terms of demand from the offices as well as the individual consumer who is now starting to earn earlier," points out Sardana.

This in turn could result in more innovations in the foods businesses of various companies and ITC is one such company to watch out for.

In a not so welcome change for consumers, the price wars came to an end with detergent and cola makers upping prices in 2005. But companies are confident that once VAT is rolled out across the country, it would in turn lead to lower prices.

Also if the move to a national GST is made, consumers would benefit from lower prices since at present indirect taxes are as high as 27 per cent in the country which results in higher prices for the customer.