With the Indian government giving the green signal to 100% FDI (Foreign Direct Investment) in both single brand and multi brand retail, the contract manufacturing industry in the FMCG (fast moving consumer goods) sector is all set to be the biggest gainer from this policy.
Among the largest markets in the FMCG sector today that is attracting European and American companies is that of perfumes and deodorants. Both are growing at breakneck speed. A recent study by Assocham stated that the Indian deodorant and roll-on market is currently estimated at Rs 1,800 crore and is growing at about 55 percent every year. The perfume market is also growing at a scorching pace of 30 percent. The current market size is estimated at Rs 1,500 crore and the roll on market’s current size is Rs 400 crore with only a handful of brands operating in this domain. By 2015, the fragrance industry is poised to reach the Rs 10,000 crore-mark according to Assocahm.
One of the chief concerns among the companies that come to India is of locating contract manufacturers who adhere to globally accepted quality norms. While price will play a factor, quality conscious companies wanting to protect their brand image will veer towards companies that are known for better quality control and timely delivery. Many cosmetic companies have had a presence in India for long including L’Oreal, Nivea, Amway etc. Of these Nivea, a German company, indicated earlier this year that it would begin outsourcing their production. So far Nivea has been importing their products from Germany.
Capacities in this industry are limited and there will be large orders coming in. Among the listed companies Amar Remedies, JHS Svendgaard and Ador Multiproducts are into contract manufacturing. Of this, only Ador multiproducts is into perfumes and deodorants. Ador Multiproducts, of the Ador group of companies has been struggling for many years, with poor capacity utilization while producing for the likes of Wipro, Unilever and Scottish Fine Soaps company. AMPL also produces ayurvedic products for Himalaya Drug Company. Capacities at Ador Multiproducts are very large and some believe a revival in the company’s fortunes is imminent.
With 100% FDI now permitted, some Indian companies in the cosmetics industry may also choose to sell out completely. While there have been no announcements, local brands continue to have their own share of the market. A buoyant stock market will also help companies exit at attractive valuations.