Global companies may buy more Indian FMCG firms in '11

MUMBAI: As a crop of homegrown FMCG companies went shopping abroad for acquisitions in 2010, multinational firms warmed up to domestic buys. While globalization as a theme for Indian FMCG players would continue in 2011, another factor that will mark the year ahead is global consumer product groups eyeing inorganic growth opportunities in emerging markets like India.

When groups like Godrej, Marico and Dabur were busy sealing deals in markets like Africa, South America and Indonesia, it was British consumer product group, Reckitt Benckiser, which walked away with the prized catch, Paras Pharma.

With India becoming the largest and most lucrative consumer destinations in the world, the economic and consumption power shift is veering towards India. A clear indicator is the high valuation commanded by Paras (Rs 3,260 crore).

“In view of the slowdown in developed markets, it is imperative for global players to focus on growths in emerging markets and increased investment dosage in these markets,” said Saugata Gupta , CEO (consumer products ), Marico.
And why not? The Indian FMCG sector is the fourthlargest sector in the economy with a total market size in excess of $13.1 billion (Rs 58,950 crore).

Indian FMCG companies , too, went for the kill to satiate their inorganic growth appetite with global buys. While Dabur India opened its account with two overseas acquisition—Hobi Kozmetik group of Turkey and the US-based Namasti Laboratories—during the year, Godrej acquired Issue and Argencos in Latin America , Tura in Africa and Megasari in Indonesia.

“We will see many more Indian companies spreading their wings abroad seeking faster growth. But the key to success would be to tailormake products and solutions for the local audience and consumers in the overseas markets,” said Sunil Duggal, CEO, Dabur India.

On the global landscape too, iconic chocolate company Cadbury was gobbled up by Kraft Foods, leading to consolidation in operations of the two companies in other markets as well.

Peeping into 2011, Tanya Godrej, executive director & president (marketing), Godrej Industries, said that innovative brands from emerging markets in particular will shine in 2011. “India will increasingly look beyond its borders, especially to smaller, highgrowth economies in Africa, rest of Asia and Latin America for accelerated growth.

I expect a lot more inorganic growth coming from acquisitions in these geographies. Addressing the needs and desires of billions of overlooked consumers and tapping the vast pool of talent and skills is the global opportunity in 2011,” Godrej said. According to Gupta, Africa and certain parts of Asia, like Indonesia and Vietnam, would be the next theatres of action.

While acquisitions were the dominant feature for the FMCG industry during 2010, organic growth through a mix of pricing and volume drove categories like soaps, detergents, shampoos, skincare products, among others. Organic growth cannot be overlooked given high GDP growth, increased rural growths, accelerating urbanization and evolving consumer lifestyles.

The food inflation did threaten to play spoilsport, but a surge in rural demand more than made up for loss from urban markets, which had softened a bit. “The year 2011 is likely to be a very positive year for the FMCG industry as a whole. Despite rising commodity prices, which will continue to put pressure on performance, I expect demand to continue to be robust especially from rural India which is seeing rising income levels and greater propensity to spend,” said Godrej.

Gupta of Marico expects some inflationary pressure in the first half of the new year. What could possibly buttress this growth is the smooth implementation of the much-delayed Goods and Services Tax (GST) — something the industry is looking forward to.