Thursday, March 13, 2008
After fruit juices, it's milk-time baby!!
With the domestic dairy sector slated to cross Rs 500,000 crore in revenues by 2011, milk seems to have found favour with FMCG majors. These companies are trying to develop niche categories to milk in the money. Here are some brief and interesting operating highlights:
. The domestic dairy sector slated to cross Rs 500,000 crore in revenues by 2011
. FMCG companies are trying to develop niche categories to milk in the money
. Coca-Cola and PepsiCo have already announced plans to enter the milk-based beverage segment in India
. FMCG companies are trying to develop niche categories to milk in the money
. Coca-Cola and PepsiCo have already announced plans to enter the milk-based beverage segment in India
Coca-Cola and PepsiCo have already announced plans to enter the milk-based beverages segment in the country. Reliance Retail, which has entered the diary segment with Dairy Pure, its milk brand, may also expand into niche categories. Industry observers believe that Bharti Retail may also be working its way towards marking an entry into the dairy space.
"Going by the changing preference of consumers for healthier options, this category is likely to grow bigger in the coming years," says Anand Shah, the retail and FMCG analyst at Angel Broking. According to Dairy India 2007 estimates, the current size of the Indian dairy sector is Rs 250,000 crore and has been growing at a rate of 5 per cent a year.
At present, the Rs 500 crore ready-to-drink flavoured milk category makes up for the largest chunk of the milk beverages market. The main players in the category include Indian dairy majors Gujarat Cooperative Milk Marketing Federation (GCMMF) and Mother Dairy, along with Hershey, Nestle India and Amrit Food.
GCMMF has a wide range of flavoured milk options under the Amul brand, which includes Amul Cool, Kool Koko and Cool Cafe, while Mother Dairy has Chillz on the shelf in the category. Nestle also introduced Milkmaid Funshakes last year.
"The liquid milk and allied products category continues to be our main focus since milk consumption is very high in the country," R Sodhi, chief general manager, GCMMF, said.
While Amul, with its health drink Stamina, is the only player in the whey-based drink category, lassi has caught the fancy of many, leading to innovations like probiotic lassi. "Lassi is a very important category in our overall dairy portfolio. We have been growing at a rate of 40 per cent in this category over the last few years," Paul Thachil, CEO, Mother Dairy Fruits & Vegetable, said.
While Amul, with its health drink Stamina, is the only player in the whey-based drink category, lassi has caught the fancy of many, leading to innovations like probiotic lassi. "Lassi is a very important category in our overall dairy portfolio. We have been growing at a rate of 40 per cent in this category over the last few years," Paul Thachil, CEO, Mother Dairy Fruits & Vegetable, said.
When sales of carbonated soft drinks began to lose their fizz around the world, soft drink companies entered the milk-based drink domain. Pepsi launched chocolate milk under the SoBe brand and Pepsi's joint venture with Starbucks rolled out Frapuccino, a refrigerated milk coffee beverage. Coca-Cola, on the other hand, partnered Nestle USA's beverages division to develop Choglit, a skim milk-based chocolate-flavoured drink.
However, starting the milk beverage business may not be simple. "For a new dairy set-up, backward integration would be the biggest challenge. Setting up procurement, processing and production lines are time-consuming activities and a new company would need to invest significantly to achieve these ends. A stable set-up can only be achieved over a period of 10 to 20 years," Sodhi adds.
Wednesday, March 12, 2008
Fed's move moves the world markets!!
The latest booster dose by the US Federal Reserve, which increased liquidity in the system by lending $200 billion to financial institutions, is likely to energise the battered equity markets around the world, including India. The US markets were the first to respond, with the Dow Jones Industrial Average gaining 416 points, or nearly 4%. This represents the single biggest gain in the last 5 years!!
The Federal Reserve on Tuesday offered to lend up to $200 billion to cash-strapped financial institutions in exchange of mortgage-backed securities (MBS), as it struggles to stifle the ongoing crisis in credit markets. The Fed move comes against the backdrop of a deepening crisis in the US housing market, and a looming recession. Back home, analysts say the step is likely to soothe investor sentiment for the time being, but an uncertain global market outlook and weak technical indicators raise doubts about the sustainability of any rally.
On Tuesday, BSE’s 30-share Sensex ended at 16,123.15, up 199.43 points, or 1.25%, while the 50-share Nifty, of the NSE, closed at 4865.90, up 65.50 points, or 1.36%. The broader market also participated in the rally, with gainers outnumbering losers 2,110:605 on the BSE. All broad-market indices rose 2-4 %.
“Any rise should be considered as an opportunity to book profits for short-term traders, unless the Nifty closes above 5250 on a weekly closing basis,” said Viral Doshi, a technical and derivatives strategist. Analysts said unless any move by US Fed triggers fresh money flow into emerging market equities, including those in India, short-term investors could contemplate booking profits on further upside hereon. The US Fed is expected to cut benchmark interest rates by 75 basis points on March 18, a move that investors are hoping would trigger fresh flows into most emerging market equities.
Foreign funds extended their selling spree in Indian equities to Tuesday. According to provisional data on institutional trades, foreign funds were net sellers of Indian equities at Rs 539.24 crore, while domestic institutions were net buyers of Rs 303.36 crore of shares.
Elsewhere in Asia, markets ended higher with Japan’s Nikkei and Topix gaining roughly 1% each. Hong Kong’s Hang Seng rose 1.3% and Singapore’s Straits Index rose close to 1%. In India, shares of capital goods and real estate stocks, which were battered in recent sessions, rebounded on technical reasons and some value purchasing. “The rally in capital goods and real estate is more of a retracement after the fall. It is too early to say whether investors may flock back to these stocks,” Mr Doshi said. D
Deutsche Bank has maintained an underweight rating on the real estate sector, excluding DLF, citing slowdown in demand for residential property in proportion to the supply. The investment bank expects DLF to buck the gloomy trend in the sector because of the company’s lower exposure to residential properties. “A slowdown in residential demand in select markets due to poor affordability is evident from the decline in property registrations and mortgages. Given the supply ramp-up , this glut is expected to spread,” Deutsche Bank said in a strategy note.
The Federal Reserve on Tuesday offered to lend up to $200 billion to cash-strapped financial institutions in exchange of mortgage-backed securities (MBS), as it struggles to stifle the ongoing crisis in credit markets. The Fed move comes against the backdrop of a deepening crisis in the US housing market, and a looming recession. Back home, analysts say the step is likely to soothe investor sentiment for the time being, but an uncertain global market outlook and weak technical indicators raise doubts about the sustainability of any rally.
On Tuesday, BSE’s 30-share Sensex ended at 16,123.15, up 199.43 points, or 1.25%, while the 50-share Nifty, of the NSE, closed at 4865.90, up 65.50 points, or 1.36%. The broader market also participated in the rally, with gainers outnumbering losers 2,110:605 on the BSE. All broad-market indices rose 2-4 %.
“Any rise should be considered as an opportunity to book profits for short-term traders, unless the Nifty closes above 5250 on a weekly closing basis,” said Viral Doshi, a technical and derivatives strategist. Analysts said unless any move by US Fed triggers fresh money flow into emerging market equities, including those in India, short-term investors could contemplate booking profits on further upside hereon. The US Fed is expected to cut benchmark interest rates by 75 basis points on March 18, a move that investors are hoping would trigger fresh flows into most emerging market equities.
Foreign funds extended their selling spree in Indian equities to Tuesday. According to provisional data on institutional trades, foreign funds were net sellers of Indian equities at Rs 539.24 crore, while domestic institutions were net buyers of Rs 303.36 crore of shares.
Elsewhere in Asia, markets ended higher with Japan’s Nikkei and Topix gaining roughly 1% each. Hong Kong’s Hang Seng rose 1.3% and Singapore’s Straits Index rose close to 1%. In India, shares of capital goods and real estate stocks, which were battered in recent sessions, rebounded on technical reasons and some value purchasing. “The rally in capital goods and real estate is more of a retracement after the fall. It is too early to say whether investors may flock back to these stocks,” Mr Doshi said. D
Deutsche Bank has maintained an underweight rating on the real estate sector, excluding DLF, citing slowdown in demand for residential property in proportion to the supply. The investment bank expects DLF to buck the gloomy trend in the sector because of the company’s lower exposure to residential properties. “A slowdown in residential demand in select markets due to poor affordability is evident from the decline in property registrations and mortgages. Given the supply ramp-up , this glut is expected to spread,” Deutsche Bank said in a strategy note.
Tuesday, March 11, 2008
Domestic Investments -- The latest Trends
With the economy growing consistently well over 9 per cent for the past two years and consumer spending touching new heights, many Indian firms have been busy lining up massive investment plans (to expand production capacities to meet the higher demand levels) for the next few years.
The massive demand for the products of Indian firms is reflected in the whopping 68.6 per cent rise in the order books of India Inc during the first ten months of 2007 compared to corresponding period last year. The total orders received by Indian firms was worth US$ 32.57 billion (January-October 2007) as against US$ 19.31 billion in the same period a year ago.
Simultaneously, the rising consumer demand has provided a further growth avenue for Indian firms. In fact, according to McKinsey, Indian consumer is likely to quadruple US$ 1.77 trillion by 2025, spurred by the ten fold increase in middle-class population and three-fold rise in household income.
Consequently, firms are making investments to ramp up production capacity to reap economies of scale. Also, this increase in investments is across varied industrial sectors like retail, real estate, steel, infrastructure, automobile, telecommunication among others.
The increase in the domestic investment levels can be gauged from the continuous rise in gross domestic capital formation (GDCF) as a percentage of GDP. GDCF (at constant prices) as a per cent of GDP has increased from 27.2 per cent in 2003-04 to 33.8 per cent in 2005-06 and further to 36.77 per cent in 2006-07.
Private Capital Investment
The continuous improvement in the investment scenario and business confidence of India Inc is also reflected in the increase in both the number of companies making/planning capital investments and the extent of such investment. The turnaround in corporate investment, which began in 2002-03 and peaked in 2004-05, is expected to be sustained in 2007-08.
A report prepared by RBI analyses the corporate investment scenario based on the companies covered by institutional finance. According to it, the total cost of projects sanctioned assistance by banks/financial institutions (FI) in 2006-07 amounted to US$. 71.12 billion, as against US$ 32.94 billion in 2005-06.
Significantly, there has been increase in the scale of projects taken up the by the corporate sector. While there were 49 projects amounting to US$ 18.81 billion in 2005-06 with a projected cost of over US$ 125.43 million, in 2006-07 there were 88 large projects amounting to US$ 50.51 billion (accounting for over two-thirds of the total project cost) in 2006-07.
In fact, if we include the proposed investment of companies contracting external commercial borrowings (ECBs) and those issuing domestic equity capital, then total investment proposals for 2006-07 works out to US$ 86.69 billion spread over 2004-05 to 2011-12.
In 2006-07 alone, the capital expenditure envisaged amounted to US$ 38.89 billion, as against US$ 24.27 billion envisaged in 2005-06. Significantly, the 60.2 per cent rise in capital expenditure comes on the back of 23.1 per cent increase in 2005-06.
Industry-wise, infrastructure has the highest share of 35.9 per cent of total cost of projects, followed by coke and petroleum products (15.5 per cent), metal and metal products (14.1 per cent) and textiles (9.2 per cent).
State-wise, Gujarat ranks first with the proposed investment of US$ 18.6 billion in 86 projects accounting for 25.8 per cent of total investment in the country followed by Andhra Pradesh (8.9 per cent), Maharashtra (8.6 per cent) and Tamil Nadu (8.6 per cent).
Corporate Performance
The impressive performance of the domestic companies has also been playing a major role in the steady rise in the investment plans of these companies. For example, the sales of non-governmental non-financial companies rose by 26.2 per cent in 2006-07. Similarly, gross and net profits increased by 41.5 per cent and 45.2 per cent, respectively.
In fact, the top 500 companies (including public sector) aggregate total income grew by 28.4 per cent to US$ 485.07 billion in 2006-07, says a report by leading global business information provider Dun & Bradstreet.
In the current fiscal too, the performance of the corporate sector has been quite encouraging. While sales grew by 17.4 per cent in the first half of 2007-08, gross and net profits rose by 28.1 per cent and 31.1 per cent, respectively. Similarly, other income from non-core activities registered a 63.6 per cent.
Another factor reflecting the confidence of the Indian Inc on the prospects of the domestic economy is the massive increase in the number of companies being incorporated. About 55,000 companies have been incorporated annually in the last two years, taking the total number of incorporated companies to 865,000 from 712,000 companies at the end of 2005.
Some Investment Highlights
Some of major investments that have been lined up for the next few years include:
NTPC plans to invest US$ 40 billion in the next five years to transform itself into an integrated player.
The Anil Dhirubhai Ambani Group (ADAG) plans to invest US$ 37.63 billion in power and transport sectors in five years.
Real estate major, Parsvnath Developers, plans to invest US$ 15.05 billion to diversify their business.
Vedanta Resources will invest US$ 6.02 billion to set up a 5 million tone steel plant.
Infrastructure major GMR Group has planned to invest more than US$ 15.05 billion over the next five-six years to enhance its power generation capacity.
Indian Oil Corporation (IOC) plans to spend US$ 10.99 billion over the next five years to carry out its expansion programmes.
Special Economic Zones
Special Economic Zones (SEZs) are being developed to attract huge inflow of domestic (and foreign) investment in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.
To achieve this government has announced many fiscal incentives like: duty free import of capital goods; income tax exemptions; exemption from Central Sales Tax, Minimum Alternate Tax, State Sales Taxes and other levies; simplified compliance procedure among others.
Consequently, many producers and developers have evinced a keen interest in setting up SEZs. Ever since SEZ Act has come into force, the number of SEZs notified has already reached 195 (as on January 24, 2008). In addition, formal and in-principle approvals have been given to 439 and 138 SEZs, respectively. These are in addition to the 19 functional SEZs that have been set up prior to SEZ Act, 2005.
The rapid pace of activity in these zones can be gauged from the fact that, in the two years since the SEZ Act 2005 has come into force, they have facilitated a rise of 200 per cent in exports from these zones. They have also been instrumental in an incremental investment of US$ 17.66 billion.
The massive demand for the products of Indian firms is reflected in the whopping 68.6 per cent rise in the order books of India Inc during the first ten months of 2007 compared to corresponding period last year. The total orders received by Indian firms was worth US$ 32.57 billion (January-October 2007) as against US$ 19.31 billion in the same period a year ago.
Simultaneously, the rising consumer demand has provided a further growth avenue for Indian firms. In fact, according to McKinsey, Indian consumer is likely to quadruple US$ 1.77 trillion by 2025, spurred by the ten fold increase in middle-class population and three-fold rise in household income.
Consequently, firms are making investments to ramp up production capacity to reap economies of scale. Also, this increase in investments is across varied industrial sectors like retail, real estate, steel, infrastructure, automobile, telecommunication among others.
The increase in the domestic investment levels can be gauged from the continuous rise in gross domestic capital formation (GDCF) as a percentage of GDP. GDCF (at constant prices) as a per cent of GDP has increased from 27.2 per cent in 2003-04 to 33.8 per cent in 2005-06 and further to 36.77 per cent in 2006-07.
Private Capital Investment
The continuous improvement in the investment scenario and business confidence of India Inc is also reflected in the increase in both the number of companies making/planning capital investments and the extent of such investment. The turnaround in corporate investment, which began in 2002-03 and peaked in 2004-05, is expected to be sustained in 2007-08.
A report prepared by RBI analyses the corporate investment scenario based on the companies covered by institutional finance. According to it, the total cost of projects sanctioned assistance by banks/financial institutions (FI) in 2006-07 amounted to US$. 71.12 billion, as against US$ 32.94 billion in 2005-06.
Significantly, there has been increase in the scale of projects taken up the by the corporate sector. While there were 49 projects amounting to US$ 18.81 billion in 2005-06 with a projected cost of over US$ 125.43 million, in 2006-07 there were 88 large projects amounting to US$ 50.51 billion (accounting for over two-thirds of the total project cost) in 2006-07.
In fact, if we include the proposed investment of companies contracting external commercial borrowings (ECBs) and those issuing domestic equity capital, then total investment proposals for 2006-07 works out to US$ 86.69 billion spread over 2004-05 to 2011-12.
In 2006-07 alone, the capital expenditure envisaged amounted to US$ 38.89 billion, as against US$ 24.27 billion envisaged in 2005-06. Significantly, the 60.2 per cent rise in capital expenditure comes on the back of 23.1 per cent increase in 2005-06.
Industry-wise, infrastructure has the highest share of 35.9 per cent of total cost of projects, followed by coke and petroleum products (15.5 per cent), metal and metal products (14.1 per cent) and textiles (9.2 per cent).
State-wise, Gujarat ranks first with the proposed investment of US$ 18.6 billion in 86 projects accounting for 25.8 per cent of total investment in the country followed by Andhra Pradesh (8.9 per cent), Maharashtra (8.6 per cent) and Tamil Nadu (8.6 per cent).
Corporate Performance
The impressive performance of the domestic companies has also been playing a major role in the steady rise in the investment plans of these companies. For example, the sales of non-governmental non-financial companies rose by 26.2 per cent in 2006-07. Similarly, gross and net profits increased by 41.5 per cent and 45.2 per cent, respectively.
In fact, the top 500 companies (including public sector) aggregate total income grew by 28.4 per cent to US$ 485.07 billion in 2006-07, says a report by leading global business information provider Dun & Bradstreet.
In the current fiscal too, the performance of the corporate sector has been quite encouraging. While sales grew by 17.4 per cent in the first half of 2007-08, gross and net profits rose by 28.1 per cent and 31.1 per cent, respectively. Similarly, other income from non-core activities registered a 63.6 per cent.
Another factor reflecting the confidence of the Indian Inc on the prospects of the domestic economy is the massive increase in the number of companies being incorporated. About 55,000 companies have been incorporated annually in the last two years, taking the total number of incorporated companies to 865,000 from 712,000 companies at the end of 2005.
Some Investment Highlights
Some of major investments that have been lined up for the next few years include:
NTPC plans to invest US$ 40 billion in the next five years to transform itself into an integrated player.
The Anil Dhirubhai Ambani Group (ADAG) plans to invest US$ 37.63 billion in power and transport sectors in five years.
Real estate major, Parsvnath Developers, plans to invest US$ 15.05 billion to diversify their business.
Vedanta Resources will invest US$ 6.02 billion to set up a 5 million tone steel plant.
Infrastructure major GMR Group has planned to invest more than US$ 15.05 billion over the next five-six years to enhance its power generation capacity.
Indian Oil Corporation (IOC) plans to spend US$ 10.99 billion over the next five years to carry out its expansion programmes.
Special Economic Zones
Special Economic Zones (SEZs) are being developed to attract huge inflow of domestic (and foreign) investment in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.
To achieve this government has announced many fiscal incentives like: duty free import of capital goods; income tax exemptions; exemption from Central Sales Tax, Minimum Alternate Tax, State Sales Taxes and other levies; simplified compliance procedure among others.
Consequently, many producers and developers have evinced a keen interest in setting up SEZs. Ever since SEZ Act has come into force, the number of SEZs notified has already reached 195 (as on January 24, 2008). In addition, formal and in-principle approvals have been given to 439 and 138 SEZs, respectively. These are in addition to the 19 functional SEZs that have been set up prior to SEZ Act, 2005.
The rapid pace of activity in these zones can be gauged from the fact that, in the two years since the SEZ Act 2005 has come into force, they have facilitated a rise of 200 per cent in exports from these zones. They have also been instrumental in an incremental investment of US$ 17.66 billion.
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