 "Sumit Malhotra")
Sumit Malhotra, the managing director of Bajaj Corp, makes his reason for its latest acquisition clear. "It is our prelim before we can play the final," he says. He means that as a single-category (hair oils) fast-moving consumer goods company with no history of acquisition, Bajaj, listed in 2010, wants to learn from mistakes before going for a larger target. But go it will.
Nomarks, the anti-blemish skincare brand it has acquired from the New Delhi-based pharmaceutical company Ozone Ayurvedics, has a range of offerings but it still can't be considered a huge buy for the company, part of the Shishir Bajaj Group. The gross revenue was Rs 651 crore in 2012-13 (growing at 25 per cent annually), and earned Rs 167 crore in net profit (margin of 28 per cent).
Financial marksmanship
While Malhotra declines to comment on the amount paid for the brand, owing to a confidentiality clause, Nomarks is more profitable than even the flagship Bajaj Almond Drops. "It has a gross margin of 65 per cent, more than Bajaj Almond. It made sound sense for us to acquire the brand," adds Malhotra. The company already has a cash reserve close to Rs 425 crore and the acquisition of the intellectual property rights for Nomarks, estimated to cost Rs 80-100 crore, according to analysts, is not expected to strain Bajaj's financials.
Bajaj's diversification had been in the offing for two years. Skincare, soaps and shampoos were seen as adjacent categories for the hair oils-led company, with Bajaj Almond Drops being the third-largest hair oil brand in the country, after Marico's Parachute and Dabur Amla. With nine per cent of the total hair oil market (it leads in the fragrant hair oils that has Marico's Hair&Care and Keo Karpin from Dey's Medical), Malhotra believes Almond Drops has a good five to seven years before needing a rethink.
But Bajaj assessed that Almond Drops might not double as a strong mother brand for product extensions, making way for an inorganic addition. Bajaj will bank on Nomarks' residual brand value.
Once a trendsetter
Nomarks is the second largest in the anti-blemish category, as defined by Nielsen. Himalaya's Neem facewash remains the bestseller in the category but Nomarks is close behind with around 12 per cent of the Rs 340-crore market.
Launched in 2000 as a cream, it was extended to lotions, facewashes, soaps and face packs by Subhash Chandra Sehgal, the group chairman of Ozone Ayurvedics. It carved out a segment of anti-blemish, and led major skincare companies to launch their own takes on it. HUL came in with its version under Fair & Lovely, for example.
However, being a pharma-led firm, without the necessary distribution or advertising bandwidth for the FMCG battlefield, Sehgal had been looking to sell the brand for a few years, and Bajaj entered talks in October, 2012. Malhotra says, "It is a small brand in the entire skincare market but we are happy being a big fish in the small pond of anti-blemish. We will learn how to turn around acquisitions before we consider acquiring, say, a Rs 200-crore brand, which is a much big risk right now."
Sehgal from Ozone says, "Nomarks has the potential to become a Rs 90-crore brand in the next couple of years. Despite a correction last year, it still brought in Rs 55 crore including revenue from exports. With Bajaj's strength in distribution, all its categories will generate good volumes." It made just under Rs 40 crore in the domestic market in 2012-13.
Work in sync
While Ozone sold the brand through 500 distributors in 150,000 outlets, under Bajaj the brand can access 2.3 million outlets through 6,700 distributors. Malhotra says increasing the yearly sales to Rs 150 crore for Nomarks, as a result of increased distribution might be a speck in the Rs 8,000-crore skincare market but would still mean an increase of over three times its current sale.
Nomarks fits with its existing reach for better profitability through synergies. "We would be saving up to five to seven per cent distribution costs that way," Malhotra had said earlier. Both are the strongest in the north, followed by east and west and not so dominant in the south of India, with Bajaj Corp getting 40 per cent of revenue from the north.
To-do list
The company, however, will have to work hard. While Bajaj had 17 SKUs (or the number of different product packages sold), Nomarks had no less than 60 SKUs for its many products. "There will have to be some rationalisation. For a small brand, it does not make sense to sell multiple products because the real challenge in FMCG lies in supporting the different extensions with an advertising budget," says Malhotra, though he is yet to chalk out spends for Nomarks.
Nomarks gets 45 per cent of its revenue from cream, 26 per cent from facewash, 17 per cent from soap and the rest from lotions, face packs etc. Malhotra will focus on speciality creams and facewashes for the brand in the next five years.
A tight ship
For Bajaj, Nomarks will be its entry into other categories. Bajaj is yet to break even with its previous launch in 2011, the cooling oil, Kailash Parbat. But Malhotra says, "It has made Rs 20 crore in two years, which is three per cent of the cooling oil market. We have not broken even but for the long term, this category will work well as in a hot country like India, there is still scope to broad-base it beyond the UP-Bihar belt."
Bajaj insists Nomarks won't sway the tight ship it runs. Bajaj has not acquired any assets. It has a lean supply chain with just nine days of finished stocks. It still banks on sales teams on the payrolls of its distributors. Its employee cost increased from Rs 22.9 crore in 2011-2012 to Rs 29.16 crore in 2012-13, commensurate with a 25 per cent increase in revenue. Malhotra has put in place a second line of command with a few senior-level hires in the past couple of years.
