Marico acquires key brands

Mr Harsh Mariwala, the ebullient chairman and managing director of FMCG major, Marico Industries has finally silenced his critics. His company has completed the process of acquiring brands, which it began a couple of years back, by acquiring two key brands, Parachute and Saffola, from Bombay Oil Industries.

Company sources placed the market value of these two brands at anywhere between Rs. 400-600 crore, given the fact that the two together contribute anything between Rs 65 per cent to 70 per cent to sales. With this acquisition, for which the company has paid Rs 30 crore to Bombay Oil Industries, Marico is now the proud owner of all nine prominent brands and their extensions, which are used by it to sell its products. These are Parachute, Saffola, Sweekar, Hair & Care, Revive, Sil, Oil of Malabar, Mediker and Shanti Amala.

The company will now save Rs 3 crore annually on royalty payments it was making to Bombay Oil, the original owner of the brands and the promoter of Marico Industries. Obviously, this was frowned upon by the analysts who felt that the company was losing value by not owning the brands. Good brands, over a period of time, become an integral part of the consumers’ lives and this goes a long way in adding to the brand equity of the product. Though intangible, this equity carries a lot of importance in any valuation process.

Stung by crititcism, the company decided to reverse the situation and began the process of acquiring all its main brands some years ago. This process has now been completed in fiscal 2001.

Speaking to domain-b Mr B Ramakrishna, corporate finance manager Marico Industries Ltd. said, " The situation was considered bad corporate governance, which has now been corrected."

Marico’s brands have, by and large, done well in fiscal 2001 managing to hold on to their market share. The company continues to work hard on its brand building exercise through higher advertisement and sales promotion (ASP) spends. In fiscal 2001 ASP to sales and services was 12.1 per cent as compared to 9.1 per cent in fiscal 2000. Out of this one-third of spending was on new products/markets. The year saw a 14 per cent volume growth in branded coconut oil business (Parachute and Oil of Malabar) and 27 per cent volume growth in branded refined oil business (Saffola). Its other brand building efforts included few but focussed product launches, product relaunches, product campaigns and innovative packaging propositions with a view to provide greater value to consumers, informed company sources.

During the year the company entered the Rs 270 crore Amla market, with the launch of its ninth brand, Shanti Amla. The product has been launched in the traditional markets of UP, Punjab and Madhya Pradesh to begin with before being rolled out to other states.

Overall fiscal 2001 was a good year for Marico, termed as recessionary for FMCG companies. Despite a 1.49 per cent rise in sales & service income at Rs 657.99 crore, net profit grew 27.71 per cent to Rs 45.63 crore. This was despite a stagnant fourth quarter, which saw the company reporting a 5.08 per cent growth in sales at Rs 178.66 crore and net profit rising by only 6.37 per cent at Rs 10.69 crore.

However the company points out that the growth in turnover value is marginal because of two reasons. One, retail prices of most Marico products were on an average lower than in the previous fiscal and two sales figures excluded those of Marico Bangladesh Ltd., a wholly owned subsidiary, unlike in the previous year. In the previous year sales effected in Bangladesh was recorded in Marico Industries Ltd right uptill December 1999. According to the company if sales volumes for fiscal 2001 are taken at fiscal 2000 value and the Bangladesh turnover included, Marico turnover would show a growth of 15 per cent.