Majority Equals Commitment

Henkel Spic has become more aggressive after the German collaborator increased its stake in the company. A report.

In April 1996, Spic Fine Chemicals was renamed as Henkel Spic India Ltd. (HSIL). This followed the German collaborator hiking its stake to 51 per cent. It brought in more funds and an aggressive approach to take on competition.

Unlike its main competitors Hindustan Lever (HLL) and Procter & Gamble (P&G), which have a national presence, HSIL chose to tackle the southern region first whereit is a player in the premium and mid-range segments. It has a capacity of 15,000 tonne per annum (tpa) each for detergent powder and bar and 10,000 tpa of zeolite.

 

In the premium segment, HSILs Henko Stain Champion detergent powder competes with HLLs Surf Wash Booster. In the mid-range category, the company has White Giant, a detergent which competes with HLLs Rinpower and P&Gs Ariel Super Soaker. Besides, in both segments, HSIL has introduced the bar soap.

A key strategy that gave a fillip to sales was restaging the products with better packaging and pitching its USP (unique selling proposition) as long lasting and better performance. While this was done in early 1997, market information is that the sales growth during the first quarter of 1997-98 is about 40-50 per cent over the previous corresponding period.

Although accurate market share figures are not available, in the south, HSIL is reckoned to have a 17-18 per cent share in the premium segment and about 23-25 per cent in the mid-range segment. HSIL is among the few companies to have introduced zeolite-based detergents which are environment friendly.

With a firm footing in the south, it has firmed up plans for a national launch. With a cash rich collaborator, Henkel KGaA, it is ready to invest in setting up its own distribution network. At present, it has about 260 distributors in the south. Although this may imply an upfront investment, it would translate into good returns once sales volumes are generated.

Meanwhile, plans are on to acquire other companies for faster growth. Earlier, an unsuccessful attempt was made to acquire two Shaw Wallace subsidiaries - Detergents India and Calcutta Chemical.

That these plans are a reflection of Henkels commitment cannot be debated upon. Analysts opine that with markets in the developed countries showing marginal or negative growth in the fast moving consumer goods segment, players are bullish on Indian and Chinese markets. Sources state that Henkel which posted a turnover of $10 billion for 1996, is willing to invest in India.

An FIPB approval has been secured for increasing Henkel KGaAs stake to 60 per cent and this option will be exercised before mid-1998. Incidentally, the 1995-96 annual report indicates a capital advance from the promoters of Rs 16.1 crore. The further increase in stake, when it already has a majority holding, is raising eyebrows of several analysts. Their question: does it plan to turn the Indian arm into a 100 per cent subsidiary as has happened in other cases?

No doubt, on the financial front, all has not been rosy. During 1995-96, the company did see better volumes and therefore higher revenues with the turnover jumping nearly four times from Rs 12.5 crore to Rs 46.7 crore. But, a loss of Rs 9.8 crore was reported during the year.

The company also has an accumulated loss of around Rs 30 crore. Besides, HSILs results were way below its own projections for 1995-96 which indicated a turnover of Rs 62.2 crore and a profit before tax of Rs 2.8 crore. Reason: cost escalations and delay in the nation wide launch.

The scrip is now changing hands at Rs 16 on the bourses. The results for first six months ended September 1996 (see chart) show a lower net loss.

While one cannot expect an immediate turnaround in the companys financials, a favourable change in Henkels commitment in the company could change the fortunes of the company.