Emami set to enter Iran, scouting for partners amid US sanction worries

The company is planning to enter Iran by the end of this year, and from the first quarter of the coming fiscal year it expects to start selling products

Emami is set to enter Iran and is scouting for partners there to begin operations at a time when the country may come under stress on account of impending US sanctions.

The company is in talks with five enterprises in Iran and may set up a manufacturing plant to cater to the local market. Products rolled out of this plant will be regionalised. Initially, it will focus primarily on the skin and haircare segment and entry into other categories will be based on the performance of these two segments.

“We are planning to enter Iran by the end of this year, and from the first quarter of the coming fiscal year we intend to start selling our products,” Prashant Goenka, director at Emami, told Business Standard.

This country doesn’t allow foreign direct investment and entry into this market necessitates partnership.

However, the company is yet to narrow down on the modus operandi or the nature of the partnership. Goenka said options including setting up a joint venture or a plant or opt for third-party manufacturing, like its Sri Lanka operations, was being considered.

The equity holding in the case of a partnership is also being discussed.

“They have very stringent norms and we need to keep in mind this factor while narrowing down on a partner and how we will operate there,” he said, adding Emami was in the process of getting its products registered in Iran and African countries.

The decision to set up a facility in Iran follows from the company’s move, which evolved over the past two years, to target the local populace and offer regionally customised products for specific markets rather than merely export homogeneous products from its plants in Bangladesh and Assam.

When it ventured into Russia and other countries, Emami had primarily targeted the Indian diaspora and had chiefly exported.

According to Iran-based management consultancy firm Aryan Experts, working women in Iran of more than 15 years of age spend 30 per cent of income on cosmetics, toiletries and body care products. Besides, almost 4.5 per cent of the annual income of an Iranian household is spent on cosmetics and skincare products.

The beauty products market in Iran is estimated to be more than $2 billion — the second-largest in the West Asian region.

On the other hand, Iran’s indigenous cosmetics industry can produce around 20 per cent of the country’s annual needs while products are imported primarily from Turkey and the United Arab Emirates (UAE). This opens up huge potential for cosmetics companies to enter this market. The limitations for foreign companies range from high duty, stringent health certification policy, and a prohibition on any foreign direct investment.

Goenka expects an entry into Iran will open up a huge consumer segment despite US sanctions.

Aryan Experts says while Iranian women have traditionally preferred European brands, their falling purchasing power has compelled them to now consider Asian brands, mainly from South Korea and India.

Besides, more than 98 per cent of the products sold in this country are through traditional kirana stores, leveraging on wholesale channels, while modern retail takes the backseat. 

Last fiscal year, despite a poor showing in the first half in its key foreign markets in West Asia, Russia and others, Emami’s international business grew 14 per cent. Goenka expects a similar momentum in this fiscal year.

Emami has nine foreign subsidiary companies operating in Australia, the UK, Bangladesh, the UAE, Egypt, and Sri Lanka.

At a glance

• Firm is in talks with 5 enterprises and may set up a manufacturing unit 
• Products to be localised as per Iranian needs
• Will initially focus on skin care and hair care markets
• Iranian women increasingly using Indian and South Korean products due to fall in purchasing power