The big bite: Nestle, Pepsi, Coke line up Rs 4,275 cr for India

Despite the global meltdown in financial and stock markets, food and beverages multinationals remain bullish on India. Nestle, PepsiCo and Coca-Cola have announced a combined investment of about Rs 4,275 crore over the next one to three years. The domestic market in FMCG is estimated at Rs 75,000 crore.

Even as many industries appear to be reeling, the FMCG market in India is not. The Bombay Stock Exchange’s FMCG index has outperformed the market since the start of the year, falling just 8 per cent compared with the 38 per cent drop in the Sensex. Since August, the index has risen 3 per cent while the Sensex has lost 14 per cent.

The pricing power in this sector remains strong, say analysts. The Nielsen Company’s July-August 2008 FMCG retail sales audit indicates 19.3 per cent sales growth over last year — higher than the 15 per cent in 2007-08.

“As a tangible sign of our continued confidence in India, I am delighted to announce a further investment of $500 million in the next three years with the goal of tripling our business here,” PepsiCo Chairman and CEO Indra Nooyi said on her recent visit to India. PepsiCo has already invested $700 million since its entry into the country in 1989.

Nestlé has decided to double its investment in India to Rs 600 crore next year, encouraged by the strong growth it witnessed here in 2007. It grew 25 per cent in the first half of this year. Coca-Cola, on the other hand, has announced an investment of $250 million over the next three years.

“The investment will go in new research and development, advertising and capacity building,” Nestle India Chairman and Managing Director Martial Rolland said recently. For PepsiCo, on the other hand, the investment will be spread over manufacturing capacity, market infrastructure, environment sustainability initiatives, R&D and agriculture.

“Companies like Nestle have registered strong growth across categories. By doubling and trebling their investments in the country, they have shown faith in the long-term growth that India has to offer,” says Anand Shah, an analyst with Angel Broking.
 

COURAGE UNDER FIRE
Company	Investment	Purpose	Time frame (in years)
PepsiCo	Rs 2,450 cr	Capacity-building, market infrastructure, R&D and agriculture	3
Coca-Cola	Rs 1,225 cr	Infrastructure	3
Nestle	Rs 600 cr	R&D, advertising, capacity-building	1

Mature markets globally have either become saturated or have slowed down. The emerging markets have therefore become strategically important for these companies. The contribution of Indian operations to the global sales of these multinational behemoths is still small -- 1.5 to 3 per cent – but this share is bound to grow given the buoyancy in the Indian market.

“These investment numbers will only become bigger, so much so that the current investments will seem very small,” says Technopak Advisors Managing Director Harminder Sahni.

Most FMCG companies, according to Edelweiss analysts, are expected to continue reporting strong growth in their turnovers on the back of price increases across product portfolios -- either directly or through a combination of innovative ways such as subtle reductions in the weight of the packaging.