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DC* Updates DC* Updates
Vol.14 September 2012Vol.14 September 2012
• Rural India – Scaling the final frontier ……...……….…… 3
• Monthly Updates
– SEBI…...…………………………….……………….12
– RBI…………………………………..………….…... 12
• Deal Watch………………..………………………………...13
• Global Business and Finance Scenario……..…………. 14
DISCLAIMER
This Newsletter has been developed and compiled by the
editorial team of Dandeker Capital Consulting Pvt. Ltd.
This publication has been prepared for general guidance on
matters of interest only, and does not constitute professional
advice. You should not act upon the information contained in
this publication without obtaining specific professional advice.
No representation or warranty (express or implied) is given as
to the accuracy or completeness of the information contained
in this publication, and, to the extent permitted by law,
Dandeker Capital Consulting Pvt. Ltd, its associates, its
members, employees and agents accept no liability, and
disclaim all responsibility, for the consequences of you or
anyone else acting, or refraining to act, in reliance on the
information contained in this publication or for any decision
based on it.
This publication (and any extract from it) may not be copied,
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within another document or otherwise, without the prior written
permission of Dandeker Capital Consulting Pvt. Ltd.
Further, any quotation, citation, or attribution of this
publication, or any extract from it, is strictly prohibited without
Dandeker Capital Consulting Pvt. Ltd’s prior written
permission.
Contents
DC Updates Vol. 14 September 2012
Rural India – Scaling the Final Frontier
Rural India – Current Scenario
Rural India contributes close to 50% of India’s GDP and has close to
60% of India’s population.
Multinational and domestic companies are going back to their drawing
boards and are redrawing their plans for rural India. A decade back
rural India was seen as an ultimate platform for MNC’s to showcase
their Corporate Social Responsibility(CSR) but never as a market that
they would target. Though rural market was huge, even at that time the
infrastructure for a efficient supply chain such as distribution,
warehouses and communication facilities were unavailable. Telecom
has been a big enabler in bringing such facilities to even small villages
and towns.
However the times have changed and now rural India is seen as the
next growth engine. The rural per capita income increased by 21.5%
from Rs.40,465 – Rs. 60,972 during 2011-12 (latest available data).
The increase in per capita income and expenses in rural areas can be
attributed to two things – Job guarantee schemes and Inward
remittances made by people who have left their villages to cities in
search of better employment.
Decline of Dependence on Agriculture
Agriculture which provided jobs to close to 70% of rural population is
now providing jobs close to 50% of the rural population suggesting a
trend that people in rural areas are moving away from agriculture and
are moving towards urban areas in search of better paying jobs.
Nationwide developments in infrastructure projects have also helped
the migration to a greater extent as new jobs have been created by
them
Pharmaceuticals Growth projections on rural India
Indian rural markets are poised to grow ten-fold by 2025 to become
a US$ 100 billion proposition for retailer, according to the Chairman
of HUL.
Boston Consulting Group (BCG) and the CII project that consumers
from small and medium towns would be single largest market
segment – close to 36%
The GoI has increased its budgetary allocation from Rs. 10,000
Crores (US $1.8 Billion) to Rs,58,000 (US $ 10 Billion). This would
be spent on existing rural job guarantee schemes as well as other
rural development schemes.
Rural Urban
375,000
299,400
Additional Spending Rural Vs Urban between 2010-2012 (in Rs. Crores)
Between 2009-10 and 2011-12, rural consumption per person grew annually at 19 per cent — two percentage
points higher than its urban counterpart, according to preliminary data National Sample Survey Organization.
DC Updates Vol. 14 September 2012
Rural India – Scaling the Final Frontier
Making a Beeline
Recent growth has surely caught the eyes of many sectors and they
have started to make a beeline to get a share of the next fastest
growing market. India has a huge population at the bottom of the social
pyramid and even capturing a small piece of this pie will bring in huge
growth in sales volumes
Target – Rural India
In this article we will look at the strategies that are used by the
companies in these sectors to penetrate the rural market
FMCG
FMCG
Telecom
Telecom
E-commerce
E-commerce
Automobile
Automobile
CSR as a Tool
Companies have been rapidly expanding rural presence as well as their
strategy. CSR has become a important part of many companies as they
focus on triple bottom line – People, Planet and Profit than just profits
alone. Many multinationals have had presence in rural areas through
their CSR programs supporting various programs such as
environmental conservation or rural development. They have also used
this presence as a means to identify the taste of rural consumers and
have brought out products on those lines. Most of the CSR programs
have focused on community empowerment through education, health
and water conservation.
Few companies active in their CSR
DC Updates Vol. 14 September 2012
Rural India – Scaling the Final Frontier
FMCG in Rural India
“According to a recently published repot ‘India's huge
consumption market is expected to grow two-and-a-half times by
2025, from current Rs 43 trillion (US$ 777.85 billion) to Rs 110
trillion (US$ 2 trillion) ”
Companies in the FMCG space have been the one of the early movers
into rural India. Marketing in rural areas provides excellent value for
money as compared to urban areas as customers in rural areas can be
reached through non conventional ways which are inexpensive and
have more reach in rural areas.
Marketing and Distribution
Marketing and distribution in rural areas remain a key challenge and
success in rural India is not possible without an efficient distribution
network. FMCG’s have been wooing more distributors by offering
discounts sometime close to 5% (in addition to regular discount) on
bulk purchases as well sponsoring foreign trips for best performing
distributors.
HUL especially has used the village fairs, stage plays, mobile vans and
wall paintings to reach out to the clients and it has been able to reach
out to close to 10 million rural customers through this.
Emami, half of whose revenues are generated from rural India only,
has widened its distribution network from 0.5 million outlets in March
2012 to 0.6 million outlets
Preference
Rural area consumption differs from urban areas in certain ways. Small
packs sell a lot in rural areas. Taking stock of this fact all major FMCG
brands have introduced smaller packs for their talcum powders, soaps,
soft drinks etc .These small packs appeal to the taste of rural
customers as people in rural areas prefer to buy their supplies on a
daily or weekly need basis.
Price points
Pricing forms an important part of making your products to sell in rural
India. Almost all of them introduced products at key price points such
as Rs.2,5 and 10.
Rural India Contribution towards FMCG
40%
16%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Contribution to Revenues Growth in Sales
DC Updates Vol. 14 September 2012
Rural India – Scaling the Final Frontier
DC Updates Vol. 14 September 2012
Case in Point
Pepsi Co India introduced its Rs.5 “Nimbooz” soft drink in order to
shore up volumes in rural areas
Coke introduced a small sachet of “Fanta” - a ready to make drink
mix for Rs. 5
Brittania has 7 products that cater to the lower segment of the market
such – Tiger biscuits, 50:50 , Cream treat all of which retail at Rs.5
Tata global beverages is pushing its tea products in economical
packs to cater to the need of rural markets.
Telecom
“India's rural telecom sector is poised for explosive growth in the
next five to 10 years, grabbing a 40 per cent share of the new
market, according to a new study by FICCI and EY”
Rural areas account for close to 341 Million subscribers (roughly 36%
of the total subscribers) in India. Telecom companies can be attributed
to bringing significant developments to rural areas through their vast
expansion of mobile networks and they have been handsomely
rewarded for their efforts.
Teledensity in rural areas
Positives for Telecom Growth in rural areas
The next big wave of mobile growth will come from rural areas –
FICCI & Ernst & Young in their research report.
India’s urban teledensity stands at 164% as compared to 36% in
rural areas leaving a huge gap to be filled in
Tapping the rural market….. Rupee by rupee…..
Rural India – Scaling the Final Frontier
Call Pricing
Call rates have been one of the lowest in the world and this has
improved consumption of mobile minutes in the rural areas. Telecom
network operators depend on volume of calls to maintain their
profitability.
Taking cognizance of this fact telecom operators have introduced
pricing plans that specifically cater to the rural markets. All major
operators such as Airtel, Vodafone, Idea, Aircel follow a twin pricing
strategy and have special plans for rural areas where the demand is
growing and a more standardized plans for urban areas where the
growth has plateued mainly due to tremendous growth in subscribers
over the past few years.
Distribution
Mobile top-up and recharge cards are distributed in lower
denominations such as Rs.10,20 and sometimes in multiples of 5 and
10 to cater to the demands of rural customers. To effectively manage
distribution of recharge cards mobile phone operators have resorted to
non conventional business channels such as
Mobile vans
Self Help Groups (SHG’s)
Post Offices etc
DC Updates Vol. 14 September 2012
Mobile tariffs per minute in US$
Mobile Handset
Mobile handsets sales have soared due to the increased availability of
cell phone networks as well as cheaper call rates. Rural area currently
contributes close to 69% of new mobile phone handset sales and it is
expected to increase as even customers in the rural areas move on
from basic mobile phones to phones with higher features.
Mobile handset retailers have been benefitted immensely due to rural
expansion. Many of the have started to expand aggressively in rural
markets and have started branches even in small towns. Some of the
top players to expand their presence in rural areas include
Univercell
Sangeetha Mobile Phones
Hash 10
The Mobile Store
Rural India – Scaling the Final Frontier
Mobile handset distribution have also resorted to non-conventional
ways such as SHG”s and Post offices in areas where regular
connectivity is unavailable.
Rise of Low cost Handsets
Rural areas are expected to contribute the highest to the sales of
low cost handsets. To cater to that demand many homegrown and
multinational companies have introduced phones that cater
specifically to rural markets
Case in Point
Nokia offers a feature in its mobile phones which lets farmers
check the prices of their crop in the local market. Other
additional features include tips on agriculture as well as the
weather forecast.
Micromax an Indian mobile phone manufacturer introduced a
solar powered handset, 30 day battery backup phone as well
as low cost water proof mobiles to specifically cater the
demand of rural areas.
These features have been well received by the market and
excellent branding has helped recognized manufacturers regain
their market which was once lost to cheap Chinese phones.
DC Updates Vol. 14 September 2012
E-commerce
“According to eBay Census 2011, a study on the Indian e-
commerce landscape released last year, as many as 3,311
Indian cities shopped online between July 1, 2010, and June
30, 2011. Of this, over 1,267 were non-metro cities.”
E-commerce though at a very nascent stage in India has garnered
lots of interest in tier I and tier II towns. It might be surprising to
know that according to e-bay 1 out of every 10 sales that happens
on its website is from rural areas.
Tier I and Tier II towns seems to be generating lots of interest
online mainly as their local stores do not stock or sell a wide range
of products. Jewellery, Apparels and Electronic equipment account
for a majority of the demand indicating a change in way people in
spend – from necessity to discretionary.
E-commerce companies have also been helped immensely by
country’s ever growing courier network. Few e-commerce
companies have a delivery network of their own – a well known
example being Flipkart (They use private courier for Tier II and Tier
II towns and utilize their own for delivery within major cities)
Rural India – Scaling the Final Frontier
Growth Facts -Online Retail in Rural India
Government’s push for broadband access as well as spread of
mobile internet. India is expected to leapfrog the brick and mortar
retail revolution and embrace the online revolution.
GoI has come out with a Rs.20,000 crore National Optic Fibre
Cable to connect 2,50,000 villages and towns
Net banking and mobile banking facilities is slowly gaining
acceptance even among rural crowd however Cash-on-Delivery
schemes offered by various sites seem to have become a
favourite among rural crowd as it involves payment of cash only
on delivery of goods.
DC Updates Vol. 14 September 2012
Metro, 51%
Tier II & III, 41%
Rural, 8%
Demand Distribution - Online Retail
Marketing
E-commerce companies have predominantly used conventional
medium such as television and print ads as a medium of reaching to
people in rural areas. Facilties such as cash-on-delivery is very well-
advertised. In addition to it e-commerce companies connect with
customers through social networks and emails making the reach more
personal.
Pricing
Another reason why e-commerce have been a success in the rural
market is mainly due to its low price and a selection of wide variety of
products.
Discounts
Online retailers have been ready to throw away discounts and deals.
This strategy attracts customers both from rural and urban areas
however rural areas seem to be making the most of such deals and
discounts – a clear indication that rural buyers are still price value
conscious
Choices
Online retail offers more choice to rural buyers are they do not many
places to buy electronic goods of their choice. Buying such items
involve travelling or restricting your choice to what is available in the
local area.
Rural India – Scaling the Final Frontier
DC Updates Vol. 14 September 2012
Automobile
“Though India is the world’s second-fastest growing car market
after China, passenger vehicle ownership here is among the
lowest in the world, at 12 vehicles for every 1,000 people. While
nearly a third of people living in metros own personal transport,
the penetration in rural areas is half, at 15 percent”
Car makers now have sharply defined strategies for selling in rural and
semi-urban locations.
Key Factors of Growth in Rural Areas
Minimum Support Prices (MSP) have increased disposable incomes
with farmers
New factories and manufacturing plants have been setup and
farmers who have given up their land have been handsomely
rewarded. This trend is prevalent especially in states of Haryna, Punjab
and areas around Delhi.
Another important factor is the low ownership of vehicle in these
areas which leaves a huge market to be tapped
Marketing and Distribution
Hyundai, when it came out with Eon, asked its dealers to identify five
probable semi-urban and rural sites for selling the 800cc car around
their outlets. The company set up three kinds of touch points at these
locations. At some places, it engaged salespersons with mobile vans to
offer demonstrations and test drives. At other places, Hyundai either
put up small sales branches which could display up to two cars or two-
way sales and service workshops.
Maruti has followed a different strategy through ‘clustered marketing’-
Maruti identified nearly 270 small clusters – turmeric farmers in
Tiruchengode in Tamil Nadu, apple growers in Himachal Pradesh and
the like. It made concentrated efforts to sell to these groups and it has
been pretty successful. Sales from these account for close to 20-25
cars each month.
Hyundai had launched promotional scheme for rural areas titled “Ghar
Ghar ki Pehchan”, under which special schemes for government
employees in rural areas and members of gram panchayats on the
purchase of Hyundai Santro.
Two wheeler manufacturers not to be left behind have had rural
strategies of their own . Honda and Hero who parted ways last year
have started introducing mass market commuter bikes which has done
well in rural areas more than in cities
Rural India – Scaling the Final Frontier
DC Updates Vol. 14 September 2012
Affordable Pricing
Local Taste and
Preference
Efficient Distribution
Off beat Marketing
Preference
Traditionally rural areas have been the largest customer of LCV’s and
tractors as one would expect from an agriculture based economy. One
would often witness tractors attached to a trailer serve as a quick mode
of transport for a small group of people albeit a dangerous one. Such
facts have been taken into consideration and many companies have
introduced passenger vehicles which can carry a group of 8-10 people
TATA Motors introduced its “Magic “ lines of Light passenger vehicles
as well as Nano touted to be the world’s cheapest car and Mahindra too
has introduced its own line of light passenger vehicles to cater to this
market.
Pricing
Two wheelers and four wheelers have been priced aggressively in rural
areas and buyers have been showered with good discounts in order for
them to buy.
Two wheeler accounts for close to 70% of India’s automobile market
and manufacturers especially have been more focused on introducing
cost effective motor bikes which offer better mileage and a bit of
premium features such as stylish looks and color.
Selling in rural India is not without its challenges there are a fair share
of them which sometimes make a company think twice before entering
into the rural market – Poor road connectivity, adapting to local
preference, low margins etc. These challenges however are not
insurmountable – companies who braved all these have in fact been
rewarded with growing top lines and geographical diversification.
Telecom for example is one such example of how rural strategy might
pay off well in the long run.
4 success factors for rural India
Updates – SEBI and RBI
SEBI Updates
Manner of Dealing with Audit Reports filed by Listed companies
SEBI simplifies DMA facility for institutional investors
SEBI – Activation of ISIN in case of additional issue of shares/
securities
RBI Updates
Documentation for Foreign Direct Investment (FDI) Reporting
Banks to pay compensation for delay in Clearance of Local Cheques
Banks to allow saving account without requirement of minimum
balance
Revised guideline on Priority Sector Lending
DC Updates Vol. 14 September 2012
MCA Updates
Different Dimensions of Mergers & Demergers
Overview of Annual eFiling under the Companies Act, 1956
Penalties for Non Compliance with Appointment of Cost Auditor
Companies need Central Govt approval to pay over 10% of net profit
to directors
Company employee holding upto 0.50% shareholding in company
covered under the category of persons not having any interest in the
capital of the company
Clarification on Applicability of AS-11 & AS-16 to Companies
No statutory compulsion on companies to declare and pay dividends
every year
Deal Watch
Automobile
• Honda acquires Usha International's stake In JV
• Hero MotoCorp invests in Erik Buell Racing of U.S
Defence
• SAAB - Pipavav enter into a strategic investment partnership
• Piramal Enterprises acquires stake in Bluebird Aero Systems
Education
• Everonn acquires Centum Learning
Engineering
• Elgi Equipments Acquires Rotair S.p.a
• L&T Divests plastic machinery business to Toshiba
Food and Beverages
• Tata Global acquires Russian Firm - SuntyCo Holding
Hospitality
• Club Mahindra acquires Royal Courts Jaisalmer
IT/ Technology
• HCL Infosystems acquires NTS stake in Dubai Entity
• Aurionpro acquires communication solution provider SEEinfobiz
• Japanese Nippon Magnetic invests in Ecoreco
Media
• Altruist Technologies acquires Teligent Telecom -
• Dentsu acquires majority stake in Taproot
• Pole To Win acquires India and UK's interactive entertainment business of e4e
• Aegis Media acquires search marketing firm - Communicate2
Pharmaceuticals
• Hospira Acquires Orchid's API Facility
• Sun Pharma completes buyout of Taro Pharma
Retail
• FashionAndYou acquires online fashion accessories provider – UrbanTouch
Ashoka Buildcon's arm
raises funds from SBI
Macquarie
Star Deals
DC Updates Vol. 14 September 2012
Global Business and Finance Scenario
Europe
•Too central a banker
• In Victory for Merkel, German Court Backs Euro Rescue Fund
•One firm economy – the Nokia effect
•Powering Down – Euro Economy
ME and Africa
•U.S., too, wants to Bolster Investment in Africa’s economic promise
•With slow growth, jobs elusive for many in South Africa, Report Says
•With $20 Billion Loan Pledge, China Strengthens Its Ties to African Nations
International
•Goodbye Doha!!! Hello Bali!!!
•The fog of LIBOR
•More Soot Than Sparks From This Fire
•Zuckerberg Acknowledges 'Disappointing' I.P.O. Performance
•Some websites require registration to read articles. All the articles are owned by the respective owners.
Asia and Oceania
•Indian patent rules infuriate big Pharmaceuticals
•RBI’s lonely fight against Inflation
•China’s Capital Controls
•Asian welfare states
•PE in China
Americas and Canada
•My Dollars My Rules
•Dimon Defends Big Banks
•Too Much Protection for Derivatives in Bankruptcy
•HSBC’s grilling
•Economic Stimulus as the Election Nears? It’s Been Done Before
•Morgan Stanley to Take Over Smith Barney, With Citigroup's Blessing
DC Updates Vol. 14 September 2012
Thank you
Vignesh Shankar Director and Principal Consultant
Hand phone : +91 94455 66386
K.J.Dandeker Executive Director
Phone : +91 4425220721
DC Updates Vol. 14 September 2012