EXPANDING IN THE INDIAN MARKET “STRATEGY TO LEVERAGE THE TIPPING POINT IN PAPER-BASED HYGIENE

PRODUCTS”

March 2015

AGENDA

INDIA AS AN ATTRACTIVE MARKET FOR PAPER BASED HYGIENE PRODUCTS

2

THE STUDY: BY VALCON

HOW CAN VALCON HELP FIRMS?

KEY QUESTIONS TO PONDER UPON

VALCON’S VIEW: TIPPING POINT IN THE INDIAN TISSUE PAPER MARKET

SUMMARY OF VALCON’S STUDY ON PAPER BASED HYGIENE PRODUCTS

The Study

Valcon conducted a study on the paper based hygiene products (tissue papers) to

understand the current market of paper based hygiene products in India, and evaluate the

industry’s potential

Approach

• The study was conducted pan-India over a 4 month period.

• The study included secondary as well as primary research, interviews with users (At-

Home and Away-from-Home), convertors of the tissue paper, wholesalers, retailers etc.

Valcon’s View

With changing lifestyles, growing exposure, disposable income and growth in

modern retail, there is a definite trend leading to increased usage

A number of international players are eyeing the Indian market and are wanting to set up a

manufacturing base in the country – clearly indicating that a tipping point is

approaching

There is a distinct lack of innovative tissue paper products (often found internationally) as

well as an absence of a truly pan India premium brand that customers recognize

3

INDIA AS AN ATTRACTIVE MARKET FOR PAPER BASED HYGIENE PRODUCTS

4

THE INDIAN TISSUE PAPER MARKET IS DIFFERENT FROM OTHER MARKETS DUE TO VARIOUS FACTORS SUCH AS CULTURE, DISPOSABLE INCOME, PERCEPTION OF TISSUE PAPER ETC.

Factor Global market Indian market

Use of tissue as a hygiene product Use of products such as facial tissue

and kitchen roll are a daily necessity

Use of tissue paper products is still

considered a luxury, tissue products

are often considered an unnecessary

expense

Cultural barrier towards usage of

tissues

Products such as toilet paper are a

part of the culture

There are cultural barriers towards

adoption of this product, water is the

preferred mode for cleaning

Hygiene awareness The awareness about hygienic

lifestyles is high

The awareness about hygienic

lifestyles is low

Globally, a majority of the end-users of the tissues are also the buyers (accounting for ~60% of tissue consumption); in

India, this figure stands at ~40% which shows that most of the consumption is at places outside home where the user is

not the actual buyer

Source: Valcon analysis 5

THE MARKET CAN BE CLASSIFIED INTO TWO BROAD SEGMENTS BY THE TYPE OF BUYER & CONSUMER, BOTH HAVING ENTIRELY DIFFERENT DYNAMICS

End consumer is also the Buyer (Product

costs the consumer)

All Tissues sold in the retail market can be

categorized as At-Home (AH)

AH segment also includes selling as private

labels to big supermarket chains such as

Big Bazaar etc.

The growth is mainly driven by the

development of modern retail trade and

changing lifestyle in urban and semi-urban

populations

End consumer is not the buyer of the product (Product is free for the end user).

The buyer is actually the institution where the usage is taking place

Away From Home (AFH) segment includes tissue consumption that happens at places

other than home such as office, hotel, hospitals etc.

AFH segment also involves institutional sales to restaurants and catering

businesses, medical institutions, government controlled environments such as

schools and the military

Institutional market is witnessing a slowdown in growth due to shift to more cost

effective products such as re-usable hand towels, cost-cutting by firms in general etc.

Indian tissue market

At Home (AH) Away From Home (AFH)

Hotels Corporates Hospitals Airlines

Source: Valcon analysis

Others

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THE INDIAN TISSUE MARKET IS ESTIMATED TO BE ~100,000 MT PA. BY VOLUME AND ~INR 2,200+ CR. BY VALUE

Source: RISI, Valcon analysis

* Market at the Final Selling Point (FSP includes MRP and Discounts) of products for At-home and the selling price of products to institutions for AFH segment

Indian Tissue market (consumption in ‘000 tons) Indian Tissue market* (INR cr)

1,100 1,000

1,100

0

500

1000

1500

2000

2500

2008 2013

AFH

AH

9%

0

20

40

60

80

100

120

1991 1996 2001 2006 2010 2011 2013

AFH

AH

11%

6%

9%

Phase 1

Adoption

Phase 2

Increased

Penetration

Phase 3

Stable growth

INR 2,200+

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TISSUE MARKET TYPICALLY CONSISTS OF FOUR MAIN PRODUCTS LINES – TOILET ROLLS, FACIAL TISSUES, NAPKINS, AND KITCHEN TOWELS

Tissue products

Toilet rolls Napkins Facial tissues Kitchen & hand towels

Toilet rolls made of

recycled and virgin pulp

are sold in India.

The major sales

channels are direct sales

to hotels, corporates etc.

(white label) and selling

through traditional /

modern retails (branded).

+ + +

This category contains

two sub-segments –

kitchen towels and hand

towels.

Kitchen towel is a

relatively new concept in

India with adoption being

low. Hand towels are

either C-Fold or N/M-Fold

and are mostly for

institutional usage.

Facial tissues are primarily

made from virgin paper,

and its usage is increasing

in India.

Sales is being driven by

factors such as more

hygienic lifestyles where

people replace

handkerchiefs with tissue,

increasing car ownership

Paper napkins are made

of both virgin and

recycled paper with the

virgin napkins priced at a

premium vis-à-vis the

recycled one’s.

8 Source: Valcon analysis

TOILET ROLLS AND NAPKINS ARE THE BIGGEST SEGMENT BY VOLUME AND BY VALUE; FACIAL TISSUES HAVE HIGHER VALUE SHARE

Market segmentation by value (2013, INR Cr.)

33%

5%

6% 20%

36%

Toilet roll Kitchen towel Hand towel

Facial tissues Napkins

Total: INR 1,400 Cr.

Market segmentation by volume (2013, MT.)

35%

5%

10% 15%

35%

Toilet roll Kitchen towel Hand towel

Facial tissues Napkins

Total: 100,000 MT

Source: Valcon analysis 9

VALCON’S VIEW: TIPPING POINT IN THE INDIAN TISSUE PAPER MARKET

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Source: Presentation - Diaper Market in India, Indian Nonwovens Outlook; Hindu business line (Transparency Market Research)

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GROWTH STORY OF BABY DIAPERS IN INDIA EMPHASIZES THE IMPORTANCE OF UNDERSTANDING THE ‘TIPPING POINT’ OF MARKET GROWTH AND AN EARLY-MOVER ADVANTAGE

57

150

310

0

50

100

150

200

250

300

350

2002 2007 2012

Baby Diapers (Production in million units in India)

~21%

~16%

The market for baby diapers has been growing by more

than 15% every year since 2002

Two brands Huggies (Kimberly Clark) and Pampers

(Procter and Gamble) dominate the Indian market today

Both the companies have invested significantly in the brand

creation since their entry in India

When Pampers was launched in December 2006, the

category was around INR 110cr. [It now stands at

~INR1300cr]

In the last eight years, Pampers (along with few other

brands) has grown the category to more than 10 times,

and continues to spearhead the category growth

Increase in disposable income, literacy rate, nuclear

families, and improving standard of living have contributed to

the growth of diapers in India

0

2

4

6

8

10

12

14

16

18

20

1991 1996 2001 2006 2011

Hong Kong

Singapore

Brazil

Malaysia

China

Thailand

Indonesia

Pakistan

Bangladesh

India

TISSUE CONSUMPTION IN INDIA HAS GROWN 4-FOLD IN THE LAST TWO DECADES TO 0.09KG/INHABITANT; HAS A LARGE UNTAPPED POTENTIAL

Source: RISI, Valcon analysis

Per Capita Tissue Consumption, 1991-2011 (kg/inhabitant) Total Tissue Consumption, 1991-2011 (‘000 tonnes)

0

200

400

600

800

1,000

1,200

1991 1996 2001 2006 2011

Brazil

Indonesia

Malaysia

Thailand

Hong Kong

India

Singapore

Pakistan

Bangladesh

India might have the lowest per capita tissue consumption amongst other similar nations, but not the lowest overall consumption –

and given it’s population, it presents the highest potential in Asian markets

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GROWTH IN THE MARKET IS BEING DRIVEN BY FACTORS SUCH AS MODERN RETAIL, LIFESTYLE CHANGES AND INCREASED NUMBER OF CORPORATE USERS

Higher penetration of

modern retail

Greater exposure, time

spent travelling

Lifestyle changes

Corporate usage

The penetration of modern retail is one of the major drivers for the At Home segment.

India currently has over 10,000 modern retail stores and product visibility in these stores

have contributed to product awareness and increased sales.

With changing lifestyle, nature of work and increased international exposure, the time

spent traveling outside home has drastically increased thereby leading to increased

tissue usage.

Increased hygiene consciousness, disposable income, literacy rate and standard of

living have contributed to awareness of tissue products resulting in the increased sale

of tissue products.

As India becomes a preferred outsourcing destination for IT/ ITES sector – the number of

people employed in these sectors have increased dramatically. This has resulted in

increased AFH and AH consumption.

Source: Valcon analysis 13

WE BELIEVE THAT GROWTH IN TOILET ROLLS WILL OUTPACE OTHER CATEGORIES

Market segmentation by volume (2022, MT.)

42%

34%

8%

5%

10%

Toilet roll Napkins Hand towel

Kitchen towel Facial tissues

Total: ~310,000 MT

Product-wise expected growth (future CAGR)

18%

15% 15%

12%

10%

TR Napkins KT HT FT

Source: Valcon analysis 14

THE VALUE-DRIVING SEGMENTS OF THE FUTURE WOULD BE TOILET ROLLS AND FACIAL TISSUES

Source: Valcon analysis

* Calculations based on the current average prices

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

In IN

R C

r.

2014 Toilet Roll Napkins Hand Towel Kitchen Towel Facial Tissues 2022

~2,200*

~6,500

Value growth in the tissue industry in India (INR cr.)

Cheap poster paper napkins will also

continue to drive sales in this category

15

16

BASED ON THESE OBSERVATIONS, WE

BELIEVE THAT, THE KEY CHALLENGE

FOR ANY FIRM IS TO EFFECTIVELY

LEVERAGE THE OPPORTUNITY

PROVIDED BY THE CHANGING INDIAN

LIFESTYLES, PURCHASE BEHAVIOUR &

GROWTH OF MODERN RETAIL TO TAKE

ADVANTAGE OF THE TIPPING POINT

KEY QUESTIONS FOR A TISSUE PLAYER IS THE FIRM DOING ENOUGH TO TAP THE OPPORTUNITY BEFORE

THE TIPPING POINT?

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DOES THE FIRM HAVE A READY STRATEGY THAT TARGETS THE GROWING INDIAN MARKET?

KEY QUESTIONS TO PONDER UPON:

What is the firm’s strategy for India?

Short term & long term

How is the firm currently targeting AH / AFH

etc. in India?

Does the firm have a clear differentiator / brand

of tissue product?

Is the firm letting go of a significant opportunity by

not aggressively tapping into the Indian market in

the next 3-5 years?

VALCON VIEW:

Consumption of tissue paper in India is at a

tipping point

The Indian tissue paper market offers attractive

growth potential to local and global players.

Distinct pockets of opportunities exist by forging

tie-ups with AFH players and offering a clear

differentiator for tissue products in the AH

space

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HOW CAN VALCON HELP FIRMS? CREATING AN END-TO-END GROWTH STRATEGY

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MANY DECISION PARAMETERS SUCH AS PRODUCTION SET UP, SALES REGION, CHANNEL PARTNERS, CUSTOMER SEGMENT ETC. COME INTO PLAY WHILE CREATING THE FIRM’S GROWTH STRATEGY

20

Decision

Tree

Regions

Products

Raw

material

Product

segments

Customer

AFH

AH

Channels

Production

set up

New

own unit

M&A

Contract

Mfg.

VALCON CAN HELP FIRMS TO SCALE UP BY CREATING AN END-TO-END GROWTH STRATEGY FOR THEIR OPERATIONS IN INDIA

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IDENTIFY

ATTRACTIVE MARKET

SEGMENTS

Who are my

customers?

Which parts of India are

witnessing high

demand?

Which market

segments provide

pockets of

opportunity?

1

DESIGN BUSINESS

MODEL

Do I have a brand / Can

I establish a brand?

What should be the

channel structure?

Who are my channel /

co-promotion partners?

What kind of products

do we promote

aggressively?

What should be my

sales model?

What should be my org.

structure?

2

DESIGN THE SCALE-

UP PLAN

How should I scale up

my local operations?

How should I phase my

sales and marketing?

3

ROLL -

OUT PLAN

4

ABOUT VALCON

22

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We are a management consultancy designed to create value in the evermore complex and dilemmatic

business reality.

Never have companies longed more for growth, while insisting on constantly optimising cost. Never

has the customer been more central in business strategies, much as focus increases on the processes

behind. Never has number and data crunching been more crucial to set the right direction, just as we

truly recognise that it is people and culture that will get us there.

We work for companies who respect this complexity and meet it with real ambition. Essentially, it is

about connecting strategy and operations – not only focusing on the “why” and the “what”, but also on

the “how”. That is where Valcon comes into play. We are the HOW consultancy.

It means we are of a different breed, with more experience, competences and confidence. We are

leaders who have done it before, facilitators who can hold the space, specialists not afraid of a road not

yet paved, consultants who can connect strategy and operations. People who go all the way.

And we are not satisfied until we are sure that we create long-lasting value together with our clients.

We call it leaving footprints.

We are some 300 people, grown out of the Nordic countries and we are also present in the India, UK,

China, the Czech Republic and Canada.

VALCON

Blank

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OUR PRESENCE

WHAT DO WE DO?

Partner with clients to:

Develop and implement programs for profitable

growth

Identify and penetrate new markets

Develop winning value propositions

Align the sales & marketing and the fulfilment

organisation to deliver to the value proposition

Manage their business portfolio

Establish customer strategy

Sales & marketing excellence

Develop organic & inorganic growth plans

Design and implement the target operating model

including the structure, processes, KPI’s and

identify the people required to deliver the plan

Create the innovation agenda

Partner with clients for:

Throughput improvement

Procurement excellence

Supply chain design and implementation

Quality improvement

Operations excellence

Productivity improvement

Design and implement NPD processes

Integrated planning

Product and service design (Valcon Design DK)

Valcon India

Strategy & Markets (S&M) Operations improvement (OI)

Source: Valcon analysis 25

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WE CALL IT

LEAVING FOOTPRINTS

WE HAVE AN

AMBITION TO

LEAVE A LASTING

IMPACT

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Division of Novo Nordisk

and Novozymes White-collar

offshoring

Transformational

change

Lean from production

to administration

Efficiency and citizen

management

Successful

turnaround

Paradigm change in

Robust Design

Paradigm change

in health care

Transparency and

profitability

HERE ARE SOME OF THEM (GLOBALLY)

IN INDIA, VALCON’S SELECT CLIENT LIST INCLUDES THE FOLLOWING

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2. Use Crop-Tool

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CONNECT WITH US

KRISHNAN NAGANATHAN

CEO, Valcon Management Consultants

Mobile: +91 97910 33967

krn@valcon.in

www.valcon.in

ABHIJEET RANADE

Executive Director, Valcon Management Consultants

Mobile: + 91 99232 03494

abra@valcon.in

www.valcon.in

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THANK YOU

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