Godrej Consumer may hit bullseye with new product

New mosquito repellent expected to add Rs 700 crore over five years

Markets love companies that offer disruptive products because these create new markets. Godrej Consumer Products (GCPL) seems set to do this with its latest paper-based mosquito repellent. The new product, Good Knight Fast Card, still being piloted in some markets, is nothing more than a slip of paper that burns for three minutes but is considered effective against mosquitoes for nearly four hours. It consumes no electricity and is smoke-free, which makes it different from all other repellents in the market. The product has been priced at Rs 10 for a booklet of 10 strips.

Mosquito coils from Godrej Consumer are priced at Rs 2.50 apiece. Given the company’s aggressive pricing strategy, analysts believe the product can be margin-dilutive in the initial periods. Once the product is tested in the market, gross margins are expected to settle around twice that for mosquito coils. PhillipCapital estimates the market size of this product to be Rs 700 crore over the next five years. The brokerage expects an addition of Rs 25-40 a share to the current market value, as the paper product has significantly better gross margins profile than the coil format. Analysts are very bullish on the company, as this product will lead to the creation of a new category and also because the product is better than existing ones.

While some believe this product will cannibalise  products of GCPL, there seems a consensus that it will attract new consumers, too. Currently, 56 per cent of Indians don’t use mosquito repellents, which means a huge untapped potential. Plus, with the rising incidence of dengue, this could be a game-changer. In rural markets, 72 per cent of the population does not use any such product. Therefore, the product would be able to tap new users.

GCPL’s research and development team in India and Indonesia has jointly developed this product. This is an interesting strategy, as the company is bringing together its global team to co-create products relevant for emerging markets. Kotak Institutional Securities says: “Good Knight Fast Card has been in the works for 18-24 months (awaiting approvals/registration) and has been jointly developed by the Indian and Indonesian research and development team. It enjoys higher gross margins than coils (nearly 2x) in Indonesia.” The product has already been launched in Indonesia under the brand name Hit Paper Magic. Analysts are excited by the product because GCPL is targeting 56 per cent of non-users (especially in rural markets).