Wisdom from News श्रुtiप्रgya Consumer Sector Investment Banking Newsletter A Namkeen Crunch - Glocal Journey “We bring you an exclusive interview with Mr. Avin Agrawal, Director who has notched up his efforts in transforming Haldiram’s International Pvt. Ltd. from a promoter driven company to a promoter – led and professionally managed company” BOB CAPITAL MARKETS is a wholly owned subsidiary of Bank of Baroda March 2019 President’s Note Inside this Edition Foreword 3 FMCG Market Overview Dear Reader, It gives me immense pleasure to share the inaugural edition of BOBCAPS श्रुti प्रgya, Investment Banking Newsletter covering Consumer segment. श्रुti प्रgya 5 Industry Speak is an attempt at understanding what has transpired in industry during FY18-19. Our endeavour is to publish श्रुti प्रgya as a quarterly newsletter covering the industry deal dynamics, trends that could shape the future of the industry. 9 Company News This newsletter covers the following sub-segments – FMCG, Agri, Food Processing, Beverages, Consumer Durables and Home Decor. Trends such as increasing urbanization, rising rural income and a greater 15 Current Trends penetration of technology are driving consumption and fuelling the growth of consumer sector in India. While traditionally this sector has been dominated by unorganized players; however, the entry of foreign and organized players in the past few years has helped in faster evolution and expansion of the entire 20 Key Deals 2018 industry. The competition seems to be increasing with new companies, many of it being start-ups coming out with niche products in the sector challenging bigger companies to expand its product portfolio or risk losing its market share. The sector is garnering interest from Private Equity, Institutional Funds and 22 Case Studies International companies. The Interim Budget 2018-19 initiatives are expected to increase the disposable income in the hands of the common people, especially in the rural area, which 25 Transactions will be beneficial for the sector. We hope that this newsletter is informative and adds value to your business and we look forward to receiving your feedback to help us improvise on our future editions. 32 Capital Expenditure Happy Reading... Warm Regards, 33 Public Market Data Avdhoot Deshpande President, Investment Banking – Equity 39 About BOBCAPS FMCG Market Overview Trends and Growth Drivers FMCG Revenue Trends (US$ bn) Urban – Rural industry breakup (FY 17) FMCG is the fourth largest sector in the Indian economy 103.7 The online market was US$ 20bn in 2017 and is forecasted to reach 83.3 US$ 45bn in 2020 68.4 49.0 52.8 45% Total 43.1 35.7 38.8 US$ 52.8bn 31.6 33.3 55% Rural area Urban area 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F Growth Drivers Shift to organized market Increase in penetration ▪ Organised sector growth is expected to grow as the share of ▪ Low penetration levels of branded products in categories like unorganised market in the FMCG sector fell with increased level instant foods indicating a scope for volume growth of brand consciousness among customers ▪ Increasing internet penetration, rising digital maturity along with ▪ Modern retail will augment the growth of organised FMCG sector developing infrastructure has helped boost online transactions ▪ Post GST and demonetisation, modern trade share grew to 10% of overall FMCG revenue Easy access Rural consumption ▪ Availability of products has become way more easier as internet and ▪ Total rural income, which is currently at around US$ 572bn, is different channels of sales has made the accessibility of desired projected to reach US$ 1.8tn by FY 21. India’s rural per capita product to customers more convenient at required time and place disposable income is estimated to increase at a CAGR of 4.4% to US$ 631 by 2020 ▪ Online grocery stores and online retail stores like Grofers, ▪ Demand for quality goods and services has been going up in rural Flipkart, Amazon making the FMCG products more readily areas of India, on the back of improved distribution channels of available manufacturing and FMCG companies 3 FMCG Market Overview Policy and Regulation Framework ▪ The standard deduction of ₹ 40,000 for transport allowance and reimbursement of miscellaneous Union Budget medical expenses, will increase the disposable income in the hands of the common people 2018-19 ▪ The customs duty on import of products such as shaving and after-shave preparations, fruit juices and vegetable juices, edible oils of vegetable origin are expected to boost the sector ▪ The rate of GST on services lies between 0-18% and on goods lies between 0-28% ▪ Prices of commodities in the FMCG sector, like soaps, shampoo, detergents, biscuits, savoury snacks etc. decreased after the implementation of GST, leading to a 3-8% decrease in prices of goods at modern retail stores Goods and Service ▪ The GST is expected to transform logistics in the FMCG sector into a modern and efficient model as Tax (GST) all major corporations are re-modelling their operations into larger logistics and warehousing ▪ Warehousing cost for FMCG companies is estimated to fall by 25-30% backed by the implementation of the GST. The number of warehouses will decrease from ~50 to ~35 for FMCG companies, ~30 to ~12 for Consumer durable companies and the size of warehouses will become larger ▪ FSB would reduce prices of food grains for Below Poverty Line (BPL) households, allowing them to spend resources on other goods and services, including FMCG products Food Security Bill ▪ This is expected to trigger higher consumption spends, particularly in rural India, which is an important (FSB) and SETU market for most FMCG companies Scheme ▪ Government has initiated Self Employment and Talent Utilisation (SETU) Scheme with an investment of US$ 163.7mn, to boost young entrepreneurs ▪ 51% FDI is approved by government in multi-brand retail to boost the nascent organised retail market FDI and License ▪ 100% FDI in the cash and carry segment and in single-brand retail Rules ▪ Industrial license is not required for almost all food and agro-processing industries, barring certain items such as beer, potable alcohol and wines, cane sugar and hydrogenated animal fats and oils as well as items reserved for exclusive manufacture in the small-scale sector 4 Industry Speak Haldiram’s Foods International Pvt. Ltd. Namkeen, Sweets, Drinks and more.... in conversation with Avin Agrawal, Director taking us through their journey from Local to Global brand, the fact that their local actions are inextricably linked to a broader global context. Looking at globalized consumerism as a root cause of the acceleration in savoury snacks market, his optimism is underpinned by: ▪ New product mix ▪ Growth in untapped rural India with right distribution channel ▪ Sustainable earnings potential in international business ▪ Potent margin boosters in multiple cost rationalisation initiatives across divisions & geographies A Namkeen Crunch - Glocal Journey Facing the Future ▪ Haldiram’s story began seven decades ago in Bikaner, Rajasthan, where it started from a modest namkeen and sweets shop ▪ Shifted its base to Nagpur in 1970s, promoted by 2nd generation of Shri Shiv Kisan Agrawal’s descendants ▪ Offers its products through retail outlets and own restaurants in India (central, southern and western regions) and International markets ▪ The company is headquartered in Nagpur, Maharashtra with additional offices in Mumbai, Bangalore and Chennai 5 Industry Speak A Namkeen Crunch What is your outlook on Indian savory snacks market and how is Haldiram’s has ample options for snacking; ranging from namkeens, Haldiram’s addressing the changing landscape? confectioneries, biscuits and chocolates to bakery items, western snacks and flavoured beverages. Also, the traditional Indian street food at It has undergone significant change over last two decades, with the entry ‘Haldiram’s Planet Food’ satisfies the craving of snacking for consumers in of numerous international and domestic players with their distinctive between their meals. With increasing consumer awareness about quality brands and flavours. By 2021 the snacks market size is expected to reach and nutrition our focus is on: ~INR 729,875mn. Indians are known for their taste buds due to the varied ▪ Product improvement in terms of variety, taste and ingredients in culture and region-specific flavours, so is the case with snacking. There existing SKUs. We plan to add new products and SKUs shortly has been increasing democratization of preferences and many hitherto ▪ Changing product mix by expanding in western, health food and regional snack items have found nationwide acceptance. The savoury beverages category (Aata cookies, Roasted jowar mix, Multi grain snacks market has been gaining momentum due to penetration of branded chips, Chaas, Jaljira, Aam Panna) snacks in the semi-urban and rural areas where as, branded health snacks ▪ Customer education we do lot of research to develop our unique has witnessed increasing demand from urban areas, which has been recipes, “No Preservations are Added” in all our products, offering traditionally dominated by unbranded or home-made products. The recent high shelf life of 4-9 months. One of our oldest product ‘Moong Dal’ has GST implementation created considerable short-term hiccup, but our always been manufactured keeping ‘Nutrition Fact’ under check with priority was to get in place with GST compliance and also assist the low oil content and rich in proteins. business associates to be compliant. The challenge for us is to achieve the right balance of taste, quality and price. It is the love and trust of our Namkeens contribute ~80% of our revenue. To address new age customer consumers that has got us where we are today. preferences, we are shifting to baked from fried snacks while maintaining the taste and in process of building health foods category. Increase in The business mix for Haldiram’s seems to be changing. You are consumption of snacks is also directly related to different festivals and present in savoury snacks - namkeens category - value market, but that occasions.