Sunday, 10 June 2018

RBI Tightens its Monetary Policy; More in Offing


Effecting the first hike since the NDA government came to power at the Centre, the Reserve Bank of India (RBI) has raised its key policy rate, signalling the Monetary Policy Committee’s concern about inflation risks, mostly on account of higher input cost pressures.

The six-member Monetary Policy Committee (MPC) of the RBI in its first three-day bi-monthly policy meeting In June raised the key repo rate by 25 basis points (bps) for the first time since January 2014, in about four-and-a-half-years, to 6.25 per cent.

The last rate hike happened on January 28, 2014, when the repo rate was increased to 8 per cent. The last policy action was in August 2017, when the central bank had lowered the repo rate by 25 basis points.

Given underlying trends in inflation and financial markets, an interest rate increase this year was very much expected. RBI’s task is only going to get tougher in the months ahead. This is primarily on account of the need to support prospects for economic growth.

Further, the RBI once again has changed its inflation forecast, from 4.7-5.1 per cent for the first half and 4.4 per cent in the second half, to 4.8-4.9 per cent and 4.7 per cent, respectively. With MSP increases still not factored in, the acceleration of inflation in the second half can be more. According to the macro economic data, retail inflation rose sharply to 4.6 per cent in April from 4.3 per cent in March. Core inflation, which includes food and fuel, remained consistently high at 5.8 per cent in April, up from 5.23 per cent in March.

According to economists, the RBI might also have taken into account the fact that many other central banks in emerging markets too have raised rates in the face of rising inflation and weakening of their currencies with rising interest rates in the US and elsewhere, a strong US dollar and outflows.
The immediate fallout of RBI’s rate hike would be that interest rates might begin to firm up. Banks have already been hiking lending as well as deposit rates over the past few months. Some banks have already raised MCLR (marginal cost of funds-based lending rate). The cost of borrowing will go up. But banks will also hike deposit rates and it will be good for savers.

However, the RBI has exercised caution and has kept the stance neutral lest it signals a sharp interest rate increase that could run a risk of throttling the growing recovery process. The neutral stance also allows RBI to remain extremely data-driven and thus fine-tune its rate decisions given a large number of uncertainties – both domestic and global. Given the uncertainties, it becomes difficult to gauge the RBI’s next move.


Economists expect RBI to increase at least one more time in 2018, and a maximum of two times. In the event of oil and the rupee remaining more or less at the current levels and with monsoons not playing truant, the RBI would be willing to skip any rate decision in August and shift any further tightening to October.

Latin Manharlal Group

Monday, 4 June 2018

Changing Trends in Indian FMCG Industry

FMCG sector shifts focus to direct supply, aims to operate with zero-day inventory
FMCG companies plans to operate with a ‘zero-day inventory’ by ‘reducing distance between its distribution centres and retail stores that the company reaches directly.


The role of dealers and distributors is changing first. FMCG companies need them for local knowledge, logistics and credit collection. Plus, they would take the products to geographies where companies can’t reach direct in a commercially viable manner. This would further expand reach for FMCG sector.


The FMCG sector is adapting the “leanest possible” distribution model to directly “tailor-serve retail outlets” across the country in less than a day as part of the sector’s plan to multiply sales and expand retail reach. Currently, the process takes between one and three weeks.

At present, Britannia Industries directly reaches to 1.7 million retails stores of the 4.8 million outlets where Britannia products are sold. There are about 11 million retail outlets in India, of which around 8 million sell biscuits. In the new direct distribution model, the entire supply chain is controlled by Britannia. Every day, around 20,000 people who are on Britannia’s direct payroll, visit retail stores, analyse local demands, suggest required tweaks in product placements based on the company’s in-house analytics and take orders on their mobile phones through an app. The orders are then delivered directly by Britannia from the nearest distribution centre within a day.

Traditionally, Britannia stocks products at its distribution centres. Products first go to its exclusive wholesale dealers, then distributors and direct retailers. The entire process takes anything from one week to three weeks, depending on the distance between the retail outlet and the factory. Britannia wants to reduce this to less than a day. The new system is mapped real-time. It also reduces operational cost for dealers and distributors as they would not need to stock products.

According to a McKinsey and Co. report on the future of retail supply chains, companies can reduce costs by about 20% at the distribution centre level, while optimal deployment of inventory can reduce working capital by about 10%.

ITC has one of the most extensive distribution networks in India. Its products are available at 4.3 million of the estimated eight million retail stores in India. Of this, about 2 million are under ITC’s direct distribution network. ITC will replicate the new factory-to-retail point distribution in phases, and eventually bring all the 2 million retail points under the new structure.

Traditionally, ITC, like all packaged goods companies in India, stocks products at its distribution centres. Products first go to its exclusive wholesale dealers, then distributors and direct retailers. In some areas, mostly in rural India, the big retailers supply products to smaller retail outlets. The entire process takes anything from one week to three weeks, depending on the distance between the retail outlet and the factory.ITC wants to reduce that to a day.

ITC is also in the process of automating all its 62  warehouses and its 1,550 wholesale dealers.  The distribution network includes over 1,550  wholesale dealers and a force of 25,000-plus  sales people who are IT-enabled and  empowered with hand-held devices, which  ensure that every member of the sales team  has access to real-time actionable information  on business imperatives and performance. The  supply chain mechanism is determined by  analytics based on real-time feeds and insights  for over 1,000 stock keeping units (SKUs). This  enables informed decision-making and helps determine inputs, while ensuring an efficient distribution based on store-level demand.

Marico had an enterprise resource planning (ERP) system from SAP AG, which it upgraded to SAP HANA to consolidate data, partly on the cloud. But the company also had to deal with unstructured data. Hence, the data from portable document formats (PDFs) and raw tables were copied from the existing system’s database into SAP HANA. Now it is possible to pull all that data and store it on the cloud, resulting in lower storage costs.
Marico also uses Tableau, a product from business analytics firm Tableau Software, which helps it analyse a large amount of data on retail behaviour, sales and marketing, inventory movement and procurement of key inputs, and get detailed insights into the company’s performance in a visual format. The company also uses sharepoint-based collaboration portals, ETL (extract-transform-load) tools, and R software.
Business analytics, digital and automation is helping to transform the core operations, improve the consumer insights and innovation processes as well as help in taking better decisions. All  data, including the outlet format and pin code, is fed into the software. The model then runs an algorithm and presents a hypothesis that needs to be tested on the ground. One such test would be to match the sales forecast against actual sales.
Marico is also going beyond traditional trend series analysis of data by taking into account “all your sales marketing spends, maybe other events which are being held like promotions or maybe some other activities like certain specific festivals, or even certain price increases”. “All these can be inputted to get an output and a forecasting accuracy that will result in better service and faster movement of goods.
Automated Machines at Distributors
Technology is a large part of Asian Paints' distribution success. According to a distribution strategy case study of Asian Paints, the company provided automated machines that mixed paint colors at the distributors to allow customers and consumers more range in color and more options. These machines use technology to produce colors that otherwise are unavailable, resulting in a wider range of selection.

Re-tooling FMCG sales and distribution for viable coverage
Driving retail universe coverage remains a priority for FMCG firms. Several firms are driving aggressive outlet addition agendas across regions. Even firms considered the gold standard in direct distribution (Hindustan Unilever: 3.2 million, ITC: 2 million, Colgate: 1.5 million, Marico: 0.9 million) are driving coverage initiatives in their distribution system. Reaching outlets directly and reducing wholesale dependence has three critical benefits:

·         Improving outlet sell-in
·         Increasing outlet throughput by range expansion
·         Building a platform for growth – ability to succeed in new product/category entries

This becomes critical for firms with a modest direct distribution. Tata Strategic’s research shows that cost-to-serve viability is one of the biggest challenges faced by firms in driving retail expansion. The outlets added by any coverage expansion drive typically have throughputs much lower than existing outlets. Hiring additional salesmen to service these new outlets increases the distributor’s cost-to-serve. This will negatively impact their return on investment (RoI) leading to escalating pressure from distributors to provide subsidies.
Sales leadership of most FMCG firms interviewed during a recent Tata Strategic study said their salesmen cover an average of 40 outlets a day on a weekly coverage frequency, around 240 outlets a month. Over several decades, this coverage norm of 40 calls per day for a distributor-salesman has remained unchanged despite changes in the outlet density, information technology and means of transportation.
Decreasing the non-productive calls of a salesman: The average productive calls of an FMCG salesman are 55-60%. Not all outlets place an order every week. Analysing this order behaviour can be used to intelligently re-structure the outlet visit frequency without affecting sales. The ordering pattern of outlets across the four weeks in a month varies significantly depending on outlet type. For instance, at an outlet placing 3-4 orders in a month, these orders are not evenly distributed across weeks and a few orders are just top-up orders to replenish sold-off inventory from the outlet. An alternative order-taking mechanism can be deployed for such orders at select set of outlets. The bandwidth thus released can be used to cover up to 50% more outlets per salesman.
Using both these levers, firms can achieve a coverage increase of up to 120% without hiring additional salesmen. Since the new outlets added are likely to have throughputs lower than existing outlets, the retail sales upside would be up to 70%.
Thus, by re-structuring their current sales process, firms can break the pattern and utilise the same salesman to cover additional outlets. Reducing the non-productive activities of a salesman will enable him to cover up to 70% more outlets per day. Simultaneously, analysing outlets’ order pattern to change visit frequency to fortnightly for a select set of outlets will enable the salesman to cover up to 50% more outlets in the month. Tata Strategic’s research shows that firms can thus achieve up to 2.2 times of existing coverage without additional salesmen thus driving a retail sales upside of up to 70% viably.
Latin Manharlal Group

Thursday, 31 May 2018

A look back at 4 years of Modi raj

Four years ago, in the biggest election of India’s history, Narendra Modi the three-term chief minister of Gujarat stormed to power with a thumping majority for his vision for a developed India. Not for 30 years had a single party won an electoral majority. Modi's success, his rhetoric and his background all seemed like a decisive break with India's past -- one which many Indians were eager to embrace.
Modi government unleashed the biggest tax reform, revamped a century-old bankruptcy law, revived stalled projects and got the World Bank to say Asia’s third biggest economy is a much better place to do business.

During these four years, the Modi government introduced a number of reforms including Swachch Bharat project, Demonetisation, implementation of Goods and Services tax (GST), Ujjwala Yojna, among others. Even the rating agency Moody’s upgraded India’s sovereign rating after the gap of 14 years long years. Recently, the government has also said that is has connected all villages in the country with electricity. 

The key fact that has the government enthused is that India is one of the fastest growing economies of the world, and is likely to emerge as the fifth largest. The economy is likely to double in seven years. This is a good proposition for any government to work with, be it in its last year or the first. 

Here’s a look at how the economy has fared under Modi and other big changes that defined four years of Modi government.


According to reports India’s economy was growing at higher pace after Modi changed the way GDP was calculated. However, unexpected cash crack down in November 2016 eroded those. But now, growth is showing signs of revival, shrugging off the impact of demonetisation and GST. As Modi enters his final year in office, India is poised to replace China as the world’s fastest growing economy.

As far as fiscal deficit is concerned, the glide path on the fiscal deficit helped Modi bring it down to a 10-year low and win a rating upgrade from Moody’s Investors Service. Crude oil prices helped keep the government’s finances in check in the initial years. However, it could now play spoilsport. India’s budget deficit is still one of the widest in Asia and Modi’s challenge is to narrow it further amid pressures to boost spending ahead of national polls in 2019.

The big changes introduced during these four years included demonetisation. The government on November 8, 2018 announced that Rs 500 and Rs 1,000 currency notes in circulation would be withdrawn and new Rs 500 and Rs 2,000 notes were issued. The idea was to target black money, though that narrative did change over the course of the year. The move sent shockwaves across the economy. Economic growth was subdued and several small businesses were shut. However, the currency in circulation has now significantly improved, and the government is pumping in new currency notes.

The other major change was unified tax. India has been looking at a unified goods and services tax regime for almost two decades. The BJP-led NDA government took it upon itself to push through the indirect taxes reform. The GST has more tax slabs that envisioned and has been revised multiple times. Teething troubles are still being ironed out. 

The introduction of Real Estate (Regulation & Development) Act, or RERA, has been another great move, at the central government level. But state governments have been lackadaisical in implementing it. And implementation as usual remains the key.

One of the key parameters that the government wanted to improve was ease of doing business. The government had made it clear that India’s ranking on the World Bank chart should get better. After slipping briefly, India managed to go up 30 places in the 2018 rankings. 

To conclude, the performance of the Modi government has been above average on the economic front. According to Niti Aayog, all the macroeconomic parameters, including growth, inflation and fiscal deficit, have shown a considerable improvement in the last four years.

Monday, 14 May 2018

MSEs biz Sentiment Improves on Growth Prospects

India’s small businesses confidence continued to remain upbeat about their growth prospects buoyed by gains in the manufacturing sector in the January-March quarter.

According to a statement by the Press Information Bureau, the CriSidEx Index, which measures the business sentiment among micro and small enterprises, rose to 121 in the January-March quarter, reflecting a growing optimism among these firms over their business prospects. That compares with 107 in the three months ended December-its first reading that had indicated a mildly positive sentiment.

The CriSidEx index, developed jointly by Crisil and SIDBI, is based on a diffusion index of eight parameters -five manufacturing and three services -that have equal weights. It measures MSE business sentiment on a scale of 0 to 200.

India’s small businesses sentiment has started improving gradually after the jolt of demonetisation and then the implementation of Goods and Services Tax. Particularly the ones in the informal economy as the cash ban hurt consumption and then GST increased compliance burden.

Within manufacturing, chemicals, auto components, engineering and capital goods-related-small enterprises reported a better January-March period and are the most optimistic about the ongoing quarter. Segments with a significant presence in unorganised enterprises such as leather and leather goods, and gems and jewellery remained subdued.

Among commercial services and supplies providers, 21 per cent reported a subdued quarter, 48 per cent reported a satisfactory one, and 31 per cent reported a good quarter. The corresponding figures for the construction/real estate segments are 15 per cent, 62 per cent and 23 per cent, respectively.
Information technology and IT-enabled services, traders and healthcare providers had a healthy March quarter and are expected to continue doing well, but that is not so with logistics, construction and real estate-based businesses. The services sector remains optimistic, with most industries having only a single-digit share of respondents expecting a turn for the worse.

Unorganised MSEs also reported a slight improvement in performance. About 13 per cent of them, with less than 10 employees, reported a bad survey quarter compared with 22 per cent in October-December.
Meanwhile, lenders hold a neutral view for n​ext quarter, with 9 out of 10 saying the overall business situation will be satisfactory.
As many as 7 out of 10 lenders did not find any change in the situation of MSE non-performing assets (NPA) accounts in survey quarter and majority of lenders do not expect an increase in NPA accounts in next quarter. 
As far as new jobs are concerned, the services and manufacturing sectors are equally optimistic on employment with 15 per cent of respondents in each stating they added employees.

Latin Manharlal Group

Tuesday, 8 May 2018

Indian Packaged Snack and Savouries Market

Packaged foods include ready-to-eat / cook foods that are packed and sold to consumers. They are primarily aimed at convenience and usually undergo a certain degree of processing to increase shelf life, taste, stability, etc. It includes food items like bakery products, canned / dried processed food, frozen processed food, meal replacement products, dairy products, snacks, confectionaries,beverages, etc.

The Rs 500 billion Indian snacks market is characterised by a large number of unorganised players across all product segments. This stems from each type of snack being very specific to each region, and hence, many small companies used to cater to that market. These players have a slim portfolio of products, usually of a single category and in many cases only provide traditional snacks items. They also operate in a small geographic range confined to a single state or city. Apart from this, there is a large presence of players that supply fresh products in chips and traditional Indian snacks categories.

The organised snacks market has been witnessing high growth over the last few years. This is because of the overall growth in the processed foods segment, followed by the moving trend towards consolidation of markets. Some of the traditional Indian snacks have fared better than western snacks.

Competitive Landscape

In the organised snacks segment the market has been historically dominated by major FMCG companies such as PepsiCo, ITC, Parle Products, etc. PepsiCo, with its Lays’ and Kurkure brand has dominated the chips and extruded snacks market with close to 50% market share in each of the segments. A large portfolio of products, innovative flavours, regular new product launches, aggressive advertisements and promotions, celebrity endorsements, and large retailer margins have been instrumental in PepsiCo gaining dominance in these categories.

Analysis of Extruded Snacks Market in India


Extrusion technologies have an important role in the food industry as an efficient manufacturing process. The products developed by this process are known as extruded snacks and they differ in colour, shape, and aroma. Extruded food products are mainly corn flour and potato-based but a combination of flours can also be used. Fast-paced lifestyle, high disposable income, rising urbanisation, and transforming food culture have attributed to the growth and demand of the Indian snacks market, including extruded snacks.

North and West India are the largest markets for extruded snacks. Both these regions also witness the largest competition in both the organised and unorganised segments. Small pack size is imperative to push sales volumes, especially in the rural markets, where penetration is minimal. Even in extruded snacks, the products that are sold across the various regions vary depending on what is native to the region and the typical flavours enjoyed.

One of the key varieties of extruded snacks is rings. This includes corn rings and accounts for about 8%-10% of the total extruded snacks market. This segment is entirely targeted at children. Corn-based extruded snacks are of various types. But the most common one would be the puffed variety. Variants such as cheese balls, cheese puffs, and spicy corn puffs are popular. Fryums are also a popular category in the market, with a large presence of unorganised players.


The demand for extruded snacks is expected to increase at a CAGR of 15% over the next five years. The market size is expected to be app Rs 125 billion by 2020. An increasing young population, the demand for multiple snacking items and flavours, increasing disposable income and the influence of social media, are some of the major factors that are driving this growth.

Analysis of Chips Market in India


Chips are one of the largest segments in the Indian snacks market. There are a large number of players in the market operating at a national level as well as in the regional level. In addition to packaged chips, there is a notable market for fresh chips (not covered under this study). In addition to potato chips, tapioca chips and banana chips are the top varieties present in the market. Potato is the most popular variety and accounts for more than 90% of the total chips market.

Similar to the other snack segments, the market for chips is also highly unorganised and fragmented; the main difference being chips is already a mature market in India. Even in the organised market, many players are restricted to certain regions or cities, while big players have a larger reach. While the unorganised segment dominates the market, a move toward a more organised industry structure is expected in the future. With increasing urbanisation, exposure to various cultures and tastes, the consumer is becoming increasingly demanding and only companies that play in the organised segment will possess the capabilities to continuously innovate to satisfy consumer demands. Furthermore, companies that play in the organised segment are perceived as healthier and hygienic in comparison to the unorganised ones. Additionally, the colourful and multi-layer packaging seen in branded products is both attractive and retains freshness when compared to products sold by the unorganised players. Hence, a move toward a more organised market is inevitable.


Since chips make a fairly mature market, the demand is expected to grow at 11% over the next five years.The market size is expected to be Rs 130 billion by 2020. Growth in the organised segment is expected to be more than the growth in the unorganised segment

Analysis of Namkeen Market in India


Namkeen covers a broad range of products that are traditionally consumed in India. Most of these products were traditionally cooked at home and consumed. However, current lifestyles restrict the time available for such activities forcing consumers to purchase these products for consumption. This has resulted in the Indian market experiencing high growth over the last few years. The broad range of products, availability of raw materials and higher margins are some of the key factors that deem this segment attractive. In response, many companies are adding more namkeen in their product portfolio. Moong Dal and Aloo Bhujia are the most popular products in the segments. Due to the varied eating habits across India, the preference for traditional snacks varies across the country.


A high growth of nearly 20% over the next four to five years is forecasted. The growth is also supported by the large presence of the unorganised segment, catering to unique taste-requirements in each region and ensuring reach to even the most rural markets. In the long run consolidation of the unorganised sector is expected

Overview of the packaged sweets industry in India

The overall Indian traditional sweets market is estimated at over 350 billion in 2015 and is largely dominated by the unorganised players. Due to the integral role played by sweets in Indian culture and festivities, the market for traditional Indian sweets is expected to grow at about 10% over the next few years. The organized confectionary market in India is estimated at about Rs 25 billion in 2015. The market for confectionaries is estimated to grow at about 15%-18% over the next four to five years driven primarily by chocolate confectionaries.

Latin Manharlal Group            

Thursday, 26 April 2018

IMF backs India’s growth story; reforms bearing fruits

India has been declared the sixth largest economy in the world supported by major reforms undertaken in the recent past, including the implementation of the GST, which will help reduce internal barriers to trade, increase efficiency, and improve tax compliance. 

According to the database of the International Monetary Fund’s World Economic Outlook (WEO) for April 2018, India’s Gross Domestic Product (GDP), the worth of the economy, clocked in at $2.6 trillion for 2017, which is well over the $2.5 trillion milestone that separates big economies from pretenders.

India is now the world’s sixth largest economy, displacing France. The five economies ahead are the United States, China, Japan, Germany and United Kingdom.

The IMF in its report has projected India to grow at 7.4 per cent in 2018 and 7.8 per cent in 2019, lifted by strong private consumption as well as fading transitory effects of the currency exchange initiative and implementation of the national goods and services tax.

According to both the World Bank and IMF reports and projections, India has finally overcome the adverse impact of the both demonetisation and introduction of unified system of taxation for goods and services, no matter how disruptive they were.

Expressing that the Indian economy is on the right track toward recovery, the IMF said that India’s combined gross debt, both at the central and state level, is set to decline by roughly 9 per cent to 61.4 per cent of the GDP by 2023-24. The global organisation explained that this would not only support the scenario for lowering interest rates but can also lead towards a significant rating upgrade for the country.  

The IMF suggested that the fiscal target is more or less in line with the central government’s target of bringing down the debt-to-GDP ratio to 40 per cent by 2024-25. The committee on fiscal discipline had earlier called for a combined debt-to-GDP ratio of 60 per cent by 2022-23 (40 per cent for centre and 20 per cent for state governments). A mix of high nominal GDP growth and gradual reduction in the overall deficit would pave the way for a lower debt-to-GDP ratio.  


However, the IMF has warned India against the recent frauds and bad loans, which can lead to a higher fiscal deficit. India also faces a high risk of inflation from rising prices in several sectors but the IMF has still shown its faith in the Narendra Modi-led BJP government, considering the government’s focused spending in the all-important infrastructure sector, which had encountered a slowdown in past years.  

Monday, 16 April 2018

Healthy Economic Data Underpins India’s Revival

Broad-based economic recovery and lower inflation are helping in painting a bright outlook picture of the Indian economy that is retaining the fastest-growing Asian economy tag, on the back of GST and banking reforms.

According to the data released by the statistics office, consumer inflation, the benchmark price gauge of the RBI, cooled to 4.28 per cent in March from 4.44 per cent in February, easing to a five-month low. 
          
As per the latest data, this is the third consecutive month where inflation softened after hitting a 17-month high of 5.2 per cent in December. Asia’s third-largest economy is facing a decline in inflation amid cooling food prices as food inflation or CPFI numbers saw a negative growth of 0.44 per cent in March.

While inflation has stayed above the Reserve Bank's medium-term target of 4.0 per cent, March’s data is an indication that prices are at a safe distance from the apex bank’s upper tolerance level of inflation at 6 per cent India’s monetary policy committee, in its bi-monthly meeting last week has kept rates steady since a cut of 25 basis points in August, and it is widely expected to maintain rates at their current level in the next review due on June 6.

Last week, the RBI brought down its January-March (2017-18) inflation projection to 4.5 per cent from 5.1 per cent. It also slashed CPI inflation for 2018-19 to 4.7-5.1 per cent in April-September 2018-19 and 4.4 percent in the next half of the year, including the impact of house rent allowance.

However, economists expect that the inflationary pressure is likely to remain tilted to the upside and may hover around the 5 per cent mark in the current financial year. Expected risks may arise from fiscal slippage, higher input costs and MSP (minimum support price) hikes, while financial sector volatility with respect to the normalization policy in the US is expected to cause further tension.

Meanwhile, the CSO data revealed that the Index of Industrial Production (IIP) rose to 7.1 per cent in February 2018 from 7.5 per cent in January.

As per the IIP data, the sequential slowdown in factory output was mainly on account of lower production in the mining sector. On a year-on-year basis, the manufacturing sector expanded by a healthy 8.7 per cent, while the mining sector's output dipped by (-) 0.3 per cent and the sub-index of electricity generation increased by 4.5 per cent.

Economic indicators continue to reflect the Indian growth story. Going forward, improvement in private consumption, increase in capacity utilization and private capex cycle revival will be driving higher growth for the Asia’s third largest economy. Rising farm output, coupled with higher minimum support prices announced by government are likely to improve both farm incomes and rural consumption.

Latin Manharlal Group