Contract Manufacturers Prepping For Consumer Demand Surge
Rin, Wheel and Surf Excel are popular detergents sold by Hindustan Unilever Ltd. But the fine print on the back of some packs reveals that these are also made by Hindustan Foods Ltd. for India’s largest consumer goods maker.
The contract manufacturer has a facility in Hyderabad, Telangana that can produce 75,000 tonnes of detergent powder a year. It now plans to invest Rs 100 crore to expand capacity.
Hindustan Foods is not just scaling up in detergents. Betting on growing consumption, it’s setting up a plant in Coimbatore, Tamil Nadu to manufacture nearly 20,000 tonnes of tea every year for HUL. The company also acquired a pest-control product unit in Jammu from Reckitt Benckiser to widen its portfolio. The facility started production this year.
Rising incomes and a swelling middle-class in Asia’s third-largest economy is driving demand. More so when over half of India’s population is less than 25 years old, according to the 2011 census. Companies are prepping for the expected boost, outsourcing manufacturing besides increasing capacity themselves.
There is a structural growth in demand as far as the FMCG sector is concerned. This is due to the demographics and increasing consumption pattern.Sameer Kothari, Managing Director of Hindustan Foods.
The effects of GST and demonetisation are behind us, he said, adding that increasing rural incomes should provide a good tailwind.
Like HUL, Patanjali Ayurved Ltd. also relies on a contract manufacturer to meet the demand for its Dantkanti toothpaste. It’s among the biggest revenue-generating products for the Yoga guru Ramdev-backed company.
JHS Svendgaard Ltd. makes the herbal toothpaste on contract for Patanjali. The company, which also counts Dabur Ltd. and Amway among clients, recently doubled its capacity to 40,000 tonnes of oral care products a year.
“We expect the demand to rise,” Nikhil Nanda, the company’s managing director, told BloombergQuint. “We have also seen traction in our international business.”
India’s consumer goods industry is expected to more than double in size to $103.7 billion by 2020, India Brand Equity Foundation, a government-backed think tank, said in a September report citing research by Crisil and Nielsen. The sector is expected to grow at an annualised rate of 27.86 percent.
Contract manufacturers expect that to aid revenue growth. Hindustan Foods’ Kothari said the company expects its sales to jump from Rs 140 crore in the year through March to Rs 1,000 crore by financial year 2020, aided by capacity expansion and buyouts.
Mrs Bector, a supplier to quick-service restaurants such as McDonald’s and Burger King and a contract manufacturer for consumer goods maker Britannia Industries Ltd., is also betting on growing demand. It recently commissioned a new facility at Rajpura, Punjab to make biscuits. The company, according to its draft red-herring prospectus, is setting up another unit in Dhar, Madhya Pradesh, to serve the north Indian market.
Mrs Bector has yet to respond to BloombergQuint’s queries. In its prospectus, the bakery products maker said it also seeks to increase capacity utilisation at its unit in Greater Noida, Uttar Pradesh for breads and buns. Mrs Bector introduced a new manufacturing line at the facility for croissants, panini, potato puffs and patties.