New packaging norm to have adverse impact on Britannia, HUL

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New packaging norm to have adverse impact on Britannia, HUL

Angel Broking has come out with its report on FMCG space. The research believe Britannia and HUL will have an adverse impact of this regulation, whereas Dabur, Nestle and GSKCH will largely comply with the proposed regulation.

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Angel Broking has come out with its report on FMCG space. The research believe Britannia and HUL will have an adverse impact of this regulation, whereas Dabur , Nestle and GSKCH will largely comply with the proposed
regulation.

Recently the Ministry of Consumer Affairs, Food & Public Distribution issued a notification on 19 consumer product categories to be sold in standardized pack sizes with effect from July 1, 2012. In our view, this regulation by the Government of India will have a negative impact on the FMCG companies in our universe.

FMCG companies have always resorted to tinkering with the pack sizes to manage the slippage in operating margins during a high raw-material inflationary scenario. If this regulation is implemented, then these companies will have to stick to standard pack sizes. Also, some companies according to the notification might have to introduce new pack sizes in few product categories.

We believe the impact would be more on products that come in the following price points - `1, `2, `5, `10, because companies normally do not tinker with these price points but make changes in the pack sizes in order to protect the fall in margins when witnessing high raw-material prices. Product categories where this regulation will have an adverse impact are biscuits, tea and soaps and detergents.

If this regulation is implemented, FMCG companies might have to do away with these popular price points, as taking price hikes by reducing the grammage at these price points will no more be possible. These pack sizes have become very popular among rural markets, which for all FMCG companies have become a sizeable market. We believe Britannia and HUL will have an adverse impact of this regulation, whereas Dabur, Nestle and GSKCH will largely comply with the proposed regulation.

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To read the full report click on the attachment