The last three years have seen them rewriting their strategies, whether it is to introduce products at lower price points,take hefty price cuts or offer freebies.
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| Life has been particularly difficult for market leader Hindustan Lever Ltd (HLL) as it struggled to defend its market share. Indeed, HLL has dropped in the pecking order of market capitalisation, making way for ITC.
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| Of late, though, there have been signs of a revival. While some of it could be attributed to a buoyant economy and higher disposable incomes, FMCGs now appear to be getting a bigger share of the consumer's wallet.
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| After spending more of the monthly budget on durables and home loan EMIs, consumers now seem to be willing to spend more on FMCGs. Is this resurgence for real?
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| The Smart Investor spoke to Lalit Nambiar of SBI Caps, Amnish Agarwal of Refco Sify, Hemant Patel of Enam, Atul Rastogi of Motilal Oswal and Yasmin Shah of Anand Rathi to figure out whether things are really looking up.
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| What has the Budget done for the FMCG sector?
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| Agarwal: The thrust on employment, the schemes to boost rural incomes and the tax breaks for consumer are positives. Most important: with VAT coming in, the advantage that unorganised players enjoyed will be gone.
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| Rastogi: The Budget has helped indirectly, by increasing disposable incomes. If VAT is implemented properly, the larger FMCG players will gain. The cut in import duties for LAB (linear alkyl benzene, a detergent input) should lower input prices.
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| Nambiar: VAT will help in the long run because the logistics would be aligned to the most optimal distribution structure and tax -wise it won't matter which route you take. That should knock off a chunk of any FMCG company's working cap requirements. Whether VAT implementation will happen on schedule is to be seen.
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| Patel: The reduction in peak customs duties for some key inputs from 20 to 15 per cent should help. We believe that customers should accept the 10 per cent hike in excise duties for cigarettes.
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| Shah: The focus on rural India should help, given that it is a major target market for FMCG companies. Most of the excise rationalisation has happened - the average is now 16 per cent. The reduction in the peak duties would lower input costs for manufactures.
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| Has anything else changed in the last three to six months to improve the outlook?
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| Agarwal: Some categories such as shampoos are showing growth in volume terms after the price cuts. Demand seems to showing signs of a pick-up and the growth is clearly better for most segments. If the economy continues to do well, growth should sustain.
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| Rastogi: Volumes are on the upswing due to price corrections over the last three years and we think this growth should accelerate going forward.
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| Nambiar: The sector has gone through a lot of pain, given the competition and higher costs. However, it appears to be holding its own now and is going to see the benefits of a resurgent economy, the impact of which has not (yet) been seen.
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Also, the last two years saw a sizeable share of the consumer
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