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Low-cost warrior CavinKare reboots for better profits

Plans to become a Rs 3,000-cr company in three years from Rs 1,200 cr now

TE Narasimhan  |  Chennai 

Three years ago when Chennai-based consumer products maker CavinKare decided to shift its focus from low-priced goods to premium products, it was clear the company had embarked on a journey to reinvent itself.

CavinKare was known for catering to the bottom of the pyramid. Started as a small partnership firm from a village near Chennai in 1983, it pioneered the concept of selling shampoos in sachets at a time when shampoos were available only in bottles. In no time, it swept through the rural market, forcing others such as market leader Hindustan Unilever to follow suit. As of last year, 87 per cent of shampoos sold in the country were in sachets, of which CavinKare had 25-30 per cent share. Also, until three years ago, nearly 80 per cent of CavinKare's revenue came from low-priced goods.

However, now the company is in the midst of redesigning itself, changing its growth strategy and rejigging the top management as it plans to become a Rs 3,000-crore company in three years. It had a turnover of Rs 1,200 crore in 2012-13. To fuel this growth, the company has raised Rs 250 crore from ChrysCapital, the private equity fund. Besides, it has also changed its value proposition from offering low-end products for the rural market to premium products that offer the promise of higher margins (CavinKare is a closely held company, so its financials are not in the public domain).

What's prompting the rethink? It all started in June 2010 when Chairman and Managing Director C K Ranganathan, then 50, suffered a drug allergy which affected his immune system, forcing him to take a long medical leave. Ranganathan used the six-month break to reflect on the business and came up with insights that are now being implemented in the company.

CavinKare had changed drastically in the last ten years. From being a purely personal care company, it had started diversifying by early 2000. It entered the food business by buying out Andhra Pradesh-based Ruchi Agro Foods' Ruchi brand in 2003 for Rs 15.5 crore. It followed it up with Mumbai-based Garden Namkeens, a snack maker, in 2009, and Salem-based soft drinks maker, Maa Fruits India, for Rs 27.6 crore in 2008. It also entered the dairy business through acquisition. In 2009, it bought a small dairy farm in Kanchipuram. The idea was to scale up the dairy business by buying small units.

The flip side
However, the strategy had its drawback. CavinKare's competency level was not keeping pace with its whirlwind diversification plans. "Competency grows at a certain level and speed," says Ranganathan. Many of its new forays did not yield the desired result. Its restaurant business was particularly a non-starter as the company did not have the skills to make it work and had to eventually shut it down. By 2009, the company had entered into homecare, food, salons, restaurants and dairy businesses. But in the din of new businesses, say analysts, its core business got neglected. Also, while the market was moving towards premium brands, CavinKare was steadfast in its focus on the bottom of the pyramid, a strategy that wasn't helping anymore.

Ranganathan realised that having too many things on his plate was a drain on the company's talent and cash reserves. Generating cash to build a brand was also proving to be difficult. CavinKare realised that while the low-end segment was behind its initial success, making up about 80 per cent of its revenues, the premium segment was the way of the future.

"We have decided to focus on products which will not be affected by inflation. Not that we have vacated the low-price segment altogether; we've only reduced the dependency drastically," says Ranganathan. Barring its shampoo brands Chik and Karthika, the company has moved up all other products-shampoo brand Nyle and skin cream Fairever-to the premium category by raising their prices by nearly 60 per cent. The revenue contribution of the low-priced segment too has fallen from 80 per cent in 2008-09 to 20 per cent. Surprisingly, the move came at a time when consumers were cutting back on spending amid the slowdown and most were moving to smaller pack sizes to boost demand."We took our birth on 50-paise and Rs -1 shampoo sachets and we are not ashamed of it; in fact, we are proud of it, it was very good for us," says Ranganathan. However, the company could not increase the price when inflation rose as the scope for raising prices for low-end products is limited. Having understood that chasing turnover has its limitations, CavinKare has now turned its focus to chasing margins instead.

Fixing the gaps
It has plugged two of its biggest handicaps: lack of cash and shortage of talent. In April this year, it roped in two senior people from Heinz India. Nellaiappan Thiruambalam, the chairman and managing director, was appointed as director and chief executive for the personal care and foods division, while Rahul Shankar was brought in to head sales. In addition, the funding from ChrysCapital has boosted its cash reserves. Ranganathan says with the infusion of capital and strengthening of manpower, the company is set for faster growth.

"Three sectors-personal care (which will be fundamental), dairy segment and food and beverages-will be the growth drivers in both national and international markets," he says. In the personal care segment, besides launching new products in the premium segment such as the Raaga range of skin care, massage oil and hair colour products, the company also plans to set up a new factory in north India.

CavinKare is also aspiring to become the leader in the Rs 7,000-crore salon market. It plans to launch a new brand of salons for women, a new brand of spa, and expand the brand overseas, particularly to the US, Europe and West Asia. As of now CavinKare has two brands in the salon segment-Green Trends, which caters to the middle-class, and Limelite, positioned as a premium brand. In the next two years, it plans to increase the number of outlets from 120 at present to 350. The company will invest over Rs 80 crore in the expansion. At present costs, it takes about Rs 40 lakh to set up a Green Trends saloon and Rs 65-70 lakh to set up a Limelite outlet, says the company. After the expansion, revenue from the salon business is expected to increase from Rs 70 crore now to Rs 250 crore by 2013-14. Part of the revenue (7-8 per cent) will be invested in building the brand.

As regards its dairy business, CavinKare plans to take its products to markets beyond south India in the next 18 months. It has roped in cricketer Ravichandran Ashwin as the brand ambassador. To add a local twist to its brands, it also plans to get some local celebrities on board to endorse its products. The dairy business is expected to generate Rs 1,000 crore in revenue in the next 2-3 years, a huge jump from Rs 250 crore at present. To grow the business further, Rs 250-300 crore will be invested in expansion, which includes setting up a plant in northern India. In addition, CavinKare also plans to raise the contribution of value-added products to the revenue from 40 per cent at present to 60 per cent. At present, its dairy offerings include milk, curd, yoghurt, paneer and lassi.

ROAD AHEAD


* Plans to become a Rs 3,000-crore company in three years from Rs 1,200 crore now

* Has moved all low-priced products except Chik shampoo and Karthika to the premium segment

* Launhed Raaga range of premium skin care, hair colour and massage oil

* Wants to become the number one player in salon industry; to increase total outlets from 120 to 350

* Wants to expand market for its dairy products to north India in the next 18 months.

* Intends to raise share of value-added products like yoghurt, paneer to 60 per cent of revenue from 40 per cent at present

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First Published: Mon, June 10 2013. 23:38 IST
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