Posts Tagged ‘Market’
Cement players continue to face tough times in South India. Reduced state government spending on infrastructure projects, surplus capacity, rising input costs, and early monsoon this year have all made life tough for the Cement players.
India Cements and Madras Cements, the largest and the fifth largest producers in the south have had a tough time this year so far. India Cements net sales slumped by 8 percent as prices declined in Andhra Pradesh, the biggest market in the South and which contributes to 45 percent of India Cements. Madras Cements too has posted a 9 percent decline this quarter. These were largely due to 10 percent decline in realisations and 23 percent increase in power and fuel costs.
India Cements is looking to reduce its exposure to Southern markets, particularly Andhra Pradesh. The company is planning to foray into the northern regions by commissioning a 1.5 mtpa greenfield plant in Rajasthan. Also, the company is setting up two captive power plants each in Tamil Nadu and Andhra Pradesh. On the other hand, Madras Cements derives 50 percent of its revenue from Tamil Nadu and only 18 percent from Andhra Pradesh. Madras Cements is expected to enjoy better realisations than some of its competitors with greater exposure to the Andhra market.
The last few years were a golden period for the FMCG industry. The economy was growing at a faster rate, imput prices were low, and inflation was low. This year the food inflation is very high around 12%, and the raw material cost has increased upto 15 to 20 percent compared to last year. The operating margins which are typically about 20 percent in the last few years have seen a drop to almost 16 percent.
High food inflation has an adverse affect on the FMCG industry. People will spend less money on discretionary items which will hit he FMCG industry. They say the fate of HUL is dependent on the monsoons. A good monsoon will not give any inflation worries and also increases the consumption power creating demand for hair oil, biscuits, soaps, shampoos, laundry, and toilet soaps.
High input costs
High input costs are another worry for existing woes. The cost of milk powder and sugar has gone up by 35 percent and 19 percent YOY and Nestle India is really struggling on its margins. The wheat used in ITC’s biscuits is up 10-15 percent thi year, the Copra used by Marico cost 10 percent more, the coconut and palm kernel oil used by Godrej Consumer has risen by 15-20 percent, and the menthol used by Emami has gone up by 20 percent. The heavy rains in Kerala might have caused the cost of Copra to increase and it doesn’t seem to be temporal. So, maintaining the margins this year is a tough task. Some of the FMCG players say that they will not increase the price of Low Unit Packs (LUPs) but may increase the prices of higher priced stock-keeping units (SKUs). The packaging cost which is very important in the FMCG sector has shot up by around 10 percent this year. They are expected to stay that way caused by the strong crude prices at $80 per barrel.
Rural Market is the way
Urban Markets are showing lower growth as compared to the rural hinterland. It is estimated that the big daddy Hindustan Unilever (HUL) gets almost 50 percent of their revenue from rural India , and Dabur gets almost 55 percent, and Marico gets 25 percent of their revenue from rural India. The Urban Markets are saturated with more and more competitors and less margins for the companies. For example, Toothpaste has a rural penetration of 40 percent as against 72 percent in the Urban areas. The underpenetrated categories such as toothpaste can be taken advantage of by companies like Colgate and HUL. Colgate started an initiative to educate people about the advantages of toothpaste and influence conversions from toothpowder and others. The volume growth in such categories will be fast.Shampoos showed a growth of 8.9 percent (Jan to May’10) compared with an urban volume growth of 2.5 percent.
The government schemes which have been launched over the past few years had helped in increasing the disposable income, in turn the purchasing power of rural India. Schemes such as Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) which aim to put around Rs. 40,000 crores in the hands of the rural poor, leaves a large population with higher disposable incomes. This leads to some basic changes in the consumption patterns of greater consumption of personal care and above basic food requirements.
The second car of the Urban
The Tata Nano may well turn out to be the second car of the Urban Consumer. Working couples who own a single car, face difficulty to commute to different offices daily as the husband drops his wife and then goes to his office. These people will not mind to own a Tata Nano as their second car because they have already established their status symbol with a more reliable first car.
Activities of eve-teasing and Ram-Sena activities have beaten women into insecurity. So young girls in college, and women may contemplate to buy a more secure personal transport even at thrice the price of a two-wheeler. Also, a car is much safer than a scooter. Rich Dad will be happy as he spends less money on his son’s or daughter’s car. Though this is not a big market, students in urban cities are a potential niche segment.
First time buyers are more cautious and look at a car as a long term investment. For most of the Urban population, buying a car is not a problem, but maintaining a car is a problem. So, they will never buy a Tata Nano against much better cars, especially when there are good models in the 3 lakh segment like the Maruti Alto. Most of my friends say they will buy a Maruti against a Nano.
As already said, Tata Nano may well be the second car of the Urban but I doubt if it can make a dent to the first time buyer’s segment in Urban areas. Most of the people in India will be first time buyers for whom a car is a status symbol, a symbol of their progress into the rich community. They wouldn’t like to buy a car branded as Aam Aadmi’s Car, because they don’t like to see themselves as an Aam Aadmi anymore.
Rural and lower middle-class in India
Rural markets constitute around 8 percent of the Maruti’s overall domestic sales. With the urban markets looking for luxury cars, the rural market is the segment where Nano completely fits in and its competitive price is just what the doctor ordered. Efficient distribution channels, and providing financial support through bank loans are some of the key initiatives where the automobile giants concentrate on to tap the Indian rural markets.
With Maruti’s strong presence in the rural markets, things may not be easy for the Tatas and Hyundais. With Tata’s water filter ‘Swach’ entering the rural market, if it can create trust in the brand ‘Tata’ then it brings the rural consumer closer to Tata Nano. The Tata Group seems to have a double strategy addressing the ‘Bottom of the pyramid’ market.
Autorickshaws and Taxis – A simple ‘No’
There is no disagreement that Tata Nano with its fiber body, 624 cc, and small space cannot play the role of a taxi and is simply not the vehicle for the highways. But Nano replacing the Autorickshaws is debatable. I spoke to a few auto-drivers around in Hyderabad and they seem to be excited at Nano but not without some concerns.
- Nano cannot move into slum areas as easily as an Autorickshaw.
- Mileage is an issue for the auto-driver.
- Cost of repair and maintenance
- Transition in the image from an auto-driver to a car-driver
- Return on Investment doesn’t seem to be promising.
India exports more cars than world’s biggest car manufacturer China and exports are growing faster than domestic sales, e.g. Hyundai plans to export 300,000 cars from India in 2009, more than its sales in the Indian local market. In 2008, Hyundai Motors alone exported 240,000 cars made in India. Nissan Motors plans to export 250,000 vehicles manufactured in its India plant by 2011. Similarly, General Motors announced its plans to export about 50,000 cars manufactured in India by 2011.
Asia Pacific and Africa
Tata Motors is looking forward to launch in South Africa, Kenya, Uganda, Nepal and other markets with weak public transport system. “Tata Motors will make the Nano available in Nigeria in the next one year to one and a half years,” a senior official of Tata Africa Nigeria, Sudeep Ray, said.
Also Tata Motors is planning to launch in European markets, Italian car maker Fiat SpA and Tata Motors Ltd intend to sell Tata’s ultra-low-cost Nano model jointly in Latin America.
Will this ‘Nano’ revolution last long?
Tata Nano is a revolution in car making, and buying a car will never be the same again. The question is: How long?