Consumption story lives on, MNCs line up investments

Written by Rishi Raj | Updated: Dec 31 2013, 17:55pm hrs
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 (GSKs 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 Groups 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-term story, best captured by what Unilevers Polman had to say on the slowdown in emerging markets reflected in the companys turnover. The company reported a 5.9% growth in sales from emerging markets in the July-September 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 foreign-owned 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 companys 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.

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