CON­SUMP­TION STORY LIVES ON, MNCs LINE UP IN­VEST­MENTS

Multi­na­tion­als like HUL, Coca-Cola, Pep­siCo & GSK Con­sumer are in­vest­ing more in In­dia as they re­main bullish on a grow­ing and pros­per­ous mid­dle class

The Financial Express - - FRONT PAGE - RISHI RAJ

THE YEAR 2013 may go down as prob­a­bly one of the worst in terms of per­for­mance of the macro-econ­omy, cor­po­rate prof­itabil­ity and spend­ing slow­down in the in­fra­struc­ture sec­tor. How­ever, multi­na­tional com­pa­nies, mostly in the FMCG sec­tor, con­tinue to re­main bullish on In­dia and have not shied from com­mit­ting fresh in­vest­ments. Big­wigs like Hin­dus­tan Unilever, Coca-Cola and Pep­siCo were the prom­i­nent play­ers who com­mit­ted big in­vest­ments in the coun­try. To­wards the end, pharma ma­jor Glax­oSmithK­line Phar­ma­ceu­ti­cals an­nounced a R6,400 - crore buy­back pro­gramme (GSK’s health­care arm had ear­lier in the year come out with a buy­back and spent R4,804.64 crore), thus, pro­vid­ing strength to the story that though the econ­omy may have slowed down with the growth rate fall­ing to around 5%, the con­sump­tion story in the coun­try re­mained alive.

It was not only by way of fresh in­vest­ments com­mit­ted by Coke and Pepsi who have been in the coun­try now for over two decades; or big buy­back pro­grammes by HUL and Glaxo that made head­lines dur­ing the year. The re­tail sec­tor, where the multi-brand seg­ment was thrown open a year ago to for­eign in­vest­ments and in sin­gle-brand where the for­eign in­vest­ment limit was hiked to 100%, also drew in­vest­ments. While Swedish fur­ni­ture maker Ikea firmed up its plans for an In­dia en­try with around R10,500 crore of in­vest­ments in the sin­gle-brand seg­ment, the last days saw UK re­tail ma­jor Tesco com­mit­ting in­vest­ments of $110 mil­lion in the multi-brand seg­ment by ty­ing up with Tata Group’s Trent.

In June, HUL an­nounced its sec­ond buy­back pro­gramme in less than three years. The FMCG ma­jor had an­nounced a buy­back pro­gramme in July 2007, even­tu­ally buy­ing 30.2 mil­lion shares for R626.27 crore. This time, the com­pany pumped in R19,182.14 crore to raise its stake in the com­pany to 67.25% from the ear­lier 62.48%.

Move to Pep­siCo. The com­pany an­nounced plans to in­vest R33,000 crore in In­dian op­er­a­tions along with part­ners. As a part of the plan, the com­pany would set up its big­gest bev­er­age plant in Andhra Pradesh at an es­ti­mated cost of R1,200 crore, it said. Un­der­ly­ing the sig­nif­i­cance of the mar­ket, Pep­siCo chair­per­son and CEO In­dra Nooyi said the com­pany was mak­ing in­vest­ments to dou­ble the ca­pac­ity of busi­ness in the coun­try by 2020.

Ri­val Coca-Cola had said in 2012 that along with part­ners, it would in­vest $5 bil­lion in In­dia by 2020. Its global ex­ec­u­tives vis­it­ing the coun­try dur­ing the year said the in­vest­ments were on track. In fact, the com­pany said it ex­pected In­dia to be in its top five global mar­kets in the next seven years.

While the FMCG or re­tail firm ex­ec­u­tives ac­knowl­edge the slow­down in the econ­omy, they also say the con­sump­tion story would be least af­fected. The con­fi­dence stems from the grow­ing as­pi­ra­tion of a ris­ing mid­dle class and a ro­bust ru­ral mar­ket, which is fast tak­ing to branded prod­ucts. The point was well sum­marised by Unilever CEO Paul Pol­man on his visit to In­dia in Oc­to­ber. He said though his team fo­cused on both ru­ral and ur­ban mar­kets, it would be the ru­ral mar­kets that would de­liver.

“We are con­fi­dent about In­dia. Our in­vest­ments of over $3 bil­lion here is the largest among all coun­tries. So, we put out dol­lars where our mouth is. So, you know what we think about In­dia,” Pol­man had said.

Move to the au­to­mo­bile sec­tor, which is also fac­ing a slow­down. Ru­ral sales have come as a ray of hope. Post­ing nearly 18% growth this year, mar­ket leader Maruti Suzuki re­cently said the ru­ral mar­ket had emerged as a saviour.

Be­tween April and Novem­ber, Maruti sold about 2 lakh units or 30% of its to­tal cars in ru­ral mar­kets com­pared with 26% last year. The com­pany, which cov­ered about 49,000 vil­lages till last year, has spread to 60,000 this year and hopes to touch 1 lakh by March. “This shows the chang­ing econ­omy of In­dia. The ru­ral mar­kets are our main growth tar­get,” chair­man RC Bhar­gava noted.

Make no mis­take, the worry is there but along­side goes the con­stant strate­gis­ing of how to over­come it and the be­lief in the long-ter m story, best cap­tured by what Unilever’s Pol­man had to say on the slow­down in emerg­ing mar­kets re­flected in the com­pany’s turnover. The com­pany re­ported a 5.9% growth in sales from emerg­ing mar­kets in the Ju­lySeptem­ber quar­ter, down from 10.3% in the pre­vi­ous quar­ter. “Emerg­ing mar­kets are show­ing signs of slow­down. There is no doubt about that. We have al­ways been able to grow ahead of the mar­ket,” Pol­man said, adding Unilever con­tin­ued to find ways to de­velop the mar­ket in cat­e­gories it is in.

The op­ti­mism can best be un­der­stood from the fact that the con­sump­tion of for­eignowned brands is ris­ing with grow­ing per capita in­come and ris­ing pop­u­la­tion. Fur­ther, the prod­ucts range from run of the mill to high-end lux­ury prod­ucts. YC Devesh­war, chair­man of home­grown FMCG con­glom­er­ate ITC, said, al­beit in another con­text, at the com­pany’s 102nd an­nual gen­eral meet­ing in July: “Be it baby food, baby care prod­ucts, home care and per­sonal care prod­ucts, tooth­paste, tooth­brushes, shav­ing cream, ra­zors, break­fast ce­real, snacks, tea, cof­fee, cos­met­ics, soap, sham­poo, de­ter­gents, dish clean­ers, bev­er­ages, ice cream, choco­lates, con­fec­tionery, non-generic phar­ma­ceu­ti­cals, wash­ing ma­chines, mu­sic sys­tems, per­sonal com­put­ers, lap­tops, re­frig­er­a­tors, mo­bile phones, tele­vi­sions, cam­eras, air con­di­tion­ers, ap­parel and fash­ion ac­ces­sories, sta­tionery prod­ucts, toys, sports and fit­ness equip­ment, lug­gage, di­a­pers, san­i­tary nap­kins, burg­ers and piz­zas, au­to­mo­biles and many oth­ers, in­clud­ing pack­aged drink­ing wa­ter, the lead­ing brands in the In­dian mar­ket are the prop­erty of for­eign en­ter­prises.”

ILLUSTRATION: SHYAM

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