Henkel SPIC adds weight

The Rs 143 crore Henkel SPIC Ltd is finally talking about an all-India presence. For a long time, with just one product in its basket and that too in the fiercely competitive detergent category, the company found it difficult to expand its reach beyond the southern market. Hampered by finances, mounting interest payouts, this joint venture between Henkel (Germany) and Tamil Nadu Petroproducts Ltd., went through tough times. The balance sheet showed red. "At one stage, the promoters decided to write off their investment in this company," says A. Satishkumar, managing director.

But that's all in the past, he is confident. A spate of acquisitions has got the company's hopes up. Henkel SPIC took the industry by surprise when it bought the consumer products division of Shaw Wallace and two of its subsidiaries, Calcutta Chemicals and Detergents India Ltd.  The whole deal, costing the company Rs 62.33 crore, fetched it a number of brands including Margo and Aramusk (toilet soaps), Regal and Check (detergent bars), Maha Bhringol  (hair oil), and Neem (toothpaste).

Explaining the reasons for going in for acquisitions, Satishkumar says, "There were only two options before us for growth. The first was to push for organic growth by expanding the product portfolio and distribution network slowly." However, given the competitive nature of the detergent market and the might of Hindustan Lever, it would have taken Henkel SPIC at least 10 years to manage a national presence, provided it survived till such time.

The second option was to scout for acquisitions. The company zeroed in on the Shaw Wallace group. "Their product basket and distribution network were good.  And these were the two major issues that dogged us from the beginning." Margo is present in 10 lakh outlets and Check sells about 30,000 tons per annum. Neem, a niche product, also has good brand equity, says Satishkumar.

Interestingly, Henkel SPIC signed an MOU with Shaw Wallace for buying out its subsidiaries way back in 1996. However, the agreement was scrapped with Shaw Wallace getting embroiled in problems. Henkel SPIC preferred to wait to take up the brands though, rather than give them up totally. As the company had already done the due diligence studies, it knew the values of the brands owned by Shaw Wallace. It had quoted the best possible price in response to Shaw Wallace's tender.

"We were just a Rs 20 crore company when we first started dialogue with Shaw Wallace in 1996. And at the time of actual acquisition, we were equals," says Satishkumar. In fact, the company's financials have started to reflect the recent changes that have taken place. For the quarter ended March 1999, the company posted a sales of Rs 70.93 crore and a net loss of Rs 4.17 crore after an operating profit of Rs.0.62 crore. According Satishkumar, the company would close this year with sales of Rs 250 crore and is targeting a turnover of Rs 300 crore next year.

The promoter's who once decided to forgo their initial investment, are now ready to up their stakes in the company further.  Henkel SPIC's recent Rs 166.12 crore, 1:2 premium rights issue was oversubscribed, frusturating Henkel's plans of taking the unsubscribed portion. Interestingly, Henkel has got FIPB sanction to up its stakes in the company to 70 per cent, from the current level of 47 per cent.

So what is Satishkumar going to do with the proceeds of  rights issue?  "I want the company to be debt free," he answers.  Apart from using the proceeds to pay for the acquisitions and investing on its brands, Henkel SPIC will also settle its IDBI loan and a Rs 29 crore short-term loan from its promoters.  The loan repayments are expected to reduce the interest burden, which currently stands at Rs 10.16 crore.

Henkel is now keen to introduce its Faa range of body care products -- shower gel, toilet soaps -- through its Indian venture. Globally, the Faa brand clocks a turnover of $400 million. With the introduction of Faa, the company hopes, its presence in the body care category will be felt.

Today, the company's brand basket includes Henkomatic, Henko Stain Champion, Mr. White (detergent powders), Check, Henkobar and Regal (detergent bars), Margo and Aramusk (toilet soaps), Pril, Limeshot and Brisk (cleansers), Maha Bhringol, and Neem. Pril leads the dishwasher cleanser market, while Satishkumar says that Limeshot, pitted against Hindustan Lever's Vim, is  notching up good sales.

The detergent market is registering an annual volume growth rate of just four per cent. However, growth in value terms is 10 per cent. This variance is partly attributable to the stiff price hikes administered by manufacturers consequent to the rise in LAB prices, the critical input for synthetic detergents. "The small percentage growth on a large base (20 lakh tpa) is quite good for companies like us. Moreover, when compared to other countries, the growth rate is quite comfortable," says Satishkumar.
According to him, the market trend is now towards LAB-based premium brands, though 70 per cent of the detergent market is monopolised by oil-based popular brands, that fall into the laundry soaps segment.

While Hindustan Lever leads the premium segment, Nirma leads the popular detergent market. Nirma, the company, has made massive investments in backward integration, putting up facilities to manufacture LAB and N Paraffin, thereby becoming one of the cheapest detergent manufacturer in the world. The prospects of Nirma entering the premium segment at moderate prices cannot be overruled easily.

In the meantime, a rural push is on, as rural India takes to branded products. Henkel SPIC has also joined the bandwagon since, "we don't want to be the last entrant in rural areas as today, we are much more visible with a better product basket," says Satishkumar. To his aid comes the distribution network of the bought-out companies. That, coupled with a doubling of the ad spend to Rs 60 crore, Henkel SPIC hopes, will reap it good dividends in the coming years.