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Mergers hold promise for FMCG sector, consumers

31-January-2005
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Mergers hold promise for FMCG sector, consumers

The flurry of activity in the fast moving consumer goods (FMCG) sector last week appears to augur well.

Whether it is the acquisition of Balsara businesses by Dabur India Ltd (DIL) or the global acquisition of Gillette Company by Procter & Gamble, industry experts feel that consolidation will catalyse growth and ultimately help the end consumer.

DIL's acquisition of the three Balsara group companies will give it access to seven well-entrenched brands — toothpastes Promise, Babool and Meswak, Odonil air freshener, Odopic utensil cleaner, Sanifresh toilet cleaner and Odomos insect repellent. P&G's acquisition will give it access to Gillette's portfolio comprising shaving products, Oral-B toothbrushes and Duracell batteries, among others.

Analysts feel that not only will both the acquirers — DIL and P&G — gain on account of a much larger scale of operations, the two companies will be compelled to make investments in product development as well. Mr Sunil Alagh, former Managing Director of Britannia Industries, said, "Consolidation and acquisitions should help the FMCG sector to grow faster in India. Such activity drives companies to invest in developing new products and generally augurs well for a market which is, at present, highly fragmented." He said if there are two, three large consolidated players in each product segment, the consumer is bound to benefit because of improved value equation and enhanced product research.

DIL has already indicated that it will be investing substantially in the acquired brands, to occupy all price points in the oral care market. Similarly, P&G is also expected to benefit from the larger scale of operations after the acquisition of Gillette is complete.

Mr Vineet Agarwal, President of Wipro Consumer Care and Lighting, does not foresee too much M&A activity in the FMCG sector with very few brands on the block. However, he still predicts growth, saying, "This sector has shaken off the earlier slowdown because it has begun providing consumers an improved price-value equation. If we continue to do so, growth should also continue."

Asked about the company's plans of making acquisitions as one of the ways to grow, Mr Agarwal said, "We are still open to acquisitions, but where are the deals?" The company completed the acquisition of soap brand Chandrika in June 2004 and has been keen to expand its toilet soap portfolio further.

Mr Amit Adarkar, Vice-President at market research agency Synovate, doubts whether sector consolidation will automatically lead to better pricing power for the consumer. "When multinationals take over Indian companies, for example, the consumer will see a more diversified product portfolio but may not retain power to dictate pricing." He cited the recent acquisition of Parrys Confectionery by Korean major Lotte to support his contention that the consumer's power to dictate pricing will remain so long as the market remains fragmented.

Mr Nikhil Vora, market analyst at SSKI Securities, feels that DIL can now look forward to new vehicles for growth and geographical expansion. But he cautioned that unless DIL is ready to make investments and grow the acquired brands, it may take longer than expected to show growth.

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