Toys Market

Toy market on a growth trajectory

The industry is growing at 30 per cent every year; more than 55 per cent of the Rs 6,000-crore Indian toy industry is still accounted for by imports, as projected by Toy Association of India, TAI.

Drivers

The burgeoning growth in organised retailing has helped domestic and international toys and games manufactures to target tier two and tier three cities and expand their market base deeper into India. The health hazards that cheap Chinese toys can pose has also made people aware and grow even more conscious. Both these factors helped domestic organised toy suppliers to grow in prominence in the Indian market through their innovative and quality toys and games. Also, the perception towards toys as a necessity for all round development of child will help in further driving this market. Growth in preschool, large population of children, increasing awareness of quality issues are other factors that is leading to the growth.

In 2010, the toys and games market was valued at INR 40 bn. The market is likely to grow with increased per capita income of Indians and the increased availability of world class toys. Health concerns associated with cheap materials are likely to reduce the popularity of cheaper imports and this is likely to help local toys manufacturers further.

Toy makers go green

Toy manufacturers in India have embarked on a green drive by initiating a recycling process and the use of non-toxic raw materials. In line with this green commitment TAI has recently launched its ‘We Care’ campaign. The campaign is designed to spread awareness among small toy manufacturers about the health hazards associated with using toxic materials in toys and also encouraging them to initiate recycling process.

A study by Delhi-based Centre for Science and Environment showed that 45 per cent of the toys made in India contain dangerous phthalates, a group of chemicals. Regular exposure to phthalates can cause asthma, skeletal defects, damage the male reproductive system and impair the lungs in children. Raw materials like high-density polyethylene (HDPE), styrene acrylonitrile (SAN) and acrylonitrile butadiene styrene (ABS) can be used instead which are less harmful.

The department of industrial policy and promotion (DIPP) is also coming up with guidelines for the industry in a month or two. “We are trying to create awareness among small manufacturers of this unorganised sector now. We have already urged all our 600-odd members to adopt non-toxic materials only and if possible, to recycle toys too,” said Raj Kumar, president of the Toy Association of India (TAI).

Looking ahead...

Growth in demand from relatively new sectors of toys and games such as video games, infant games and pre-school games is expected to steer the toy market in the years to come. Local manufacturers have to find out new means to tackle the Chinese challenge and build up more innovative products that will help grow this market. To do this, they are to do away with obsolete designs and old technologies.

Indian Insurance Industry: An Outlook

Insurance industry in India - Brief Introduction

The Indian insurance sector has witnessed significant growth - the number of life policies in force has increased nearly 12-fold over 2000-2010, and health insurance policies nearly 25-fold. Factors like better terms, availability of a wide variety of products (like unit-linked insurance products, whole life, maximum net asset value (NAV) guarantee etc), and government incentives have boosted the growth of the industry.

Data released by the Insurance Regulatory and Development Authority (IRDA) indicates that 23 life insurers registered Rs 18,282.86 crore (US$ 4.1 billion) by writing new policies during April-June 2011. State-owned Life Insurance Corporation (LIC) of India, collected premiums worth about Rs 13,341.97 crore (US$ 3 billion), while its private peers collected 4,940.89 crore (US$ 1.1 billion) as new first-year premium during the period.

In June 2011, industry collection stood at Rs 6,022.98 crore (US$ 1.35 billion). Revenue earned by selling new policies increased by 15.13 per cent in FY11, amounting to Rs 1,25,826.03 crore (US$ 28.24 billion) against 1,09,290.38 crore (US$ 24.53 billion) in FY10.

Insurance in India - Market Dynamics

Currently, the insurance industry, including life and non-life companies, has deployed a capital of about Rs 35,000 crore (US$ 7.8 billion) out of which Rs 26,000 crore (US$ 5.8 billion) comes from the life insurance segment. Foreign players have contributed about Rs 9,000 crore (US$ 2 billion).

General Insurance

The General insurance industry registered 22.35 per cent growth during the first quarter (April-June) of FY12 in terms of gross written premium.

Public sector player New India Assurance Ltd. grew 15.97 per cent during the first quarter of FY12 by collecting US$ 520 million through new policies.

Health Insurance

The second largest vertical under non-life insurance umbrella, health insurance is witnessing significant growth from the last two fiscals. The growth in premium is expected to continue at a compound annual growth rate (CAGR) of around 28.5 per cent during FY12-FY14. Rising healthcare costs and awareness, along with government support and incentives have attracted many private players in the sector. The huge demand supply gap in the industry provides large scope of growth and progress in the coming years.

Private and public players witnessed an increase of 33 per cent in terms of gross health insurance premium collected for FY11. Increase of insurance premium rates (in both retail and group insurance segments) by almost 30 per cent in last couple of years has boosted the industry growth, according to Sanjay Datta, Head of customer service for health and accidents, ICICI Lombard. Further, government-endorsed insurance schemes like Rashtriya Swasthya Bima Yojana and support from state governments have strengthened premium collections in the sector, as per Virendra Kumar, General Manager, health insurance, New India Assurance.

Indian Insurance Sector - Key Investments

• Hewlett-Packard (HP) owned IT services company Mphasis has acquired US-based software vendor Wyde Corporation. With this acquisition, Mphasis intends to align its applications and business process outsourcing (BPO) operations with Wyde’s insurance software platform Wynsure. The acquisition is the second one in insurance segment by Mphasis, which bought AIG’s captive unit in India in 2009.
• The Competition Commission of India (CCI) has given its nod to Reliance Industries Ltd. (RIL) to buy Bharti Group’s 74 per cent stake in each of Bharti AXA life and general insurance companies. Bharti Enterprises and French insurer AXA Group were in 74:26 joint venture (JV). While RIL will acquire 57 per cent of the pie, Reliance Industrial Infrastructure Ltd (RIIL) will buy the remaining 17 per cent held by Bharti in the two companies.
• India’s second largest public sector lender Punjab National Bank (PNB) is set to form a strategic alliance with insurance firm Metlife for its proposed life insurance business, wherein the bank would buy 30 per cent stake for an undisclosed amount. PNB also agreed to enter into a 10-year distribution tie-up with Metlife India. The deal is expected to close by the end of 2011.
• Cigna Corporation, American health insurance major, is planning to form a Joint Venture (JV) with an Indian company by August 2011 to mark its presence in the country's fast-growing health insurance sector.

Government Initiatives

IRDA has recently hinted at mandatory listing of insurance companies. Though the insurance Act doesn’t stipulate companies to go public, the regulator might make amendments to it to facilitate capital raising by the players. Initial Public Offer (IPO) guidelines for the insurance sector are also being worked upon. According to the draft guidelines released, only those players that have 10 years of operational experience and strong financial performance would be allowed access to the capital markets.

IRDA has also announced the release of much-awaited health insurance portability scheme across non-life insurance companies to be done on October 1, 2011. The proposed scheme would give policyholders discretion of moving to other insurer of their choice, whom they think is providing better product and service, while continuing with their policies. The launch of the scheme has been postponed from July 1 to October 1 so that the insurers are completely prepared to adopt the new concept.

Paving way for consolidation in general insurance sector, IRDA has notified merger & acquisition (M&A) guidelines for the players. The IRDA Scheme of Amalgamation and Transfer of General Insurance Business Regulations-2011 would apply with immediate effect to all private general insurance companies. Along with IRDA, the buyer would be mandated to receive nods from the Reserve Bank of India (RBI) and finance ministry, in case foreign direct investment (FDI) is involved. It would also require having approvals from the Securities and Exchange Board of India (SEBI) and CCI.

To improve the level of penetration in Indian markets, the sector regulator is contemplating allowing banks to sell products of two insurance companies each in life and non-life categories. The recommendation over bancassurance for such a move was made by a committee set up by IRDA itself. As per the current practice, a bank is allowed to sell products of one each in a life insurance company, a general and a health insurance firm.

Insurance in India - Road Ahead

India’s insurance industry is anticipated to reach US$ 350-400 billion in terms of premium income by 2020, making it among the top three life insurance markets, according to a report by a leading industry body and US-based Boston Consulting Group (BCG). India is expected to be one of the top 15 non-life insurance markets by 2020. The report further stated that penetration of the insurance industry, premium as percentage of the country's gross domestic product (GDP), has improved from 2.3 per cent in 2001 to 5.2 per cent in 2011.

(Exchange Rate Used: INR 1 = US$ 0.02244165 as on August 4, 2011)

References: IRDA publications, IBEF,press reports, media releases