Betting big on brands

Marico is shopping for brands in countries overseas in a bid to grow its business.

We have been wanting to enter Egypt for two years now, but things somehow didn't work out," says Harsh Mariwala, Chairman and Managing Director of the Rs 1,144 crore Marico.

But the wait was probably worth it, because in less three months, the hair care player has picked up two mass market brands in that country : in mid-September, it bought Fiancee, a hair creams and gels brand from the Ready Group and less than a fortnight ago, it snapped up Haircode, a brand in the same space.

With this, Marico commands a strong 50 per cent plus share, in the Rs 175 crore pre and post wash hair care segment, estimated to be growing at 6.5 per cent annually.

In 2005, Marico had picked up three soap brands in Bangladesh--- Camellia, Aromatic and Magnolia. Here too, Marico is the clear leader, with a 50 per cent market share in the coconut hair oil market and a strong distribution network to boot.

The five brand acquisitions in just twenty months indicate what the company's growth mantra is. In the September 2006 quarter, Marico posted a sales growth of 37 per cent, y-o-y to Rs 378 crore, of which 16 per cent came through acquisitions.

Mariwala will not disclose how much the brands cost, but says he's in no hurry to tap the newly acquired distribution network (through Haircode) to launch Marico brands like Parachute and its variants in Egypt.

"We need to learn more about the new geography and try and increase the customer base," he says, adding that the company may however start tapping nearby markets like Yemen, Sudan and Libya.

Analysts believe that Marico's strategy of consolidating its position in a few international markets is a sensible one. "As the market leader, Marico should look at gaining share by growing the consumer base," they point out.

Mariwala also makes it clear that Marico isn't too keen on entering the more developed markets like the US or the UK. He's also steering clear of very small countries or countries where import duties are high.

"Right now we are aiming for the low hanging fruit and the targets would remain the developing economies," he says.

In fact, cultural factors seem to be an important criterion for Marico when it comes to zeroing in on acquisition opportunities, apart from the usual financial aspects of the potential for sales growth, economic value add (EVA) or the return on capital invested.

Mariwala points out that in Egypt for instance, the distribution network is very similar to India's, in the sense that modern trade is not very well established.

Explains Milind Sarwate, CFO, "If we are going to be in a market, India's brand equity in that new country matters, especially if we are looking at selling its own brands there. In Egypt, for instance, people consider Indian hair the benchmark of beautiful hair. So it is naturally easier for an Indian hair care brand to establish itself there."

Marico has also been careful to see that it does not buy useless fixed assets. "Brands are what matter. Production can be outsourced," observes Mariwala. Sarwate adds that companies tend to come with a lot of unwanted baggage like litigation which are best avoided. But Marico will not also buy very small brands.

"In Egypt we acquired the first brand to enter the market and the second to consolidate our position. If we're looking to consolidate, we are fine with a smaller brand, but otherwise it should be among the leaders," observes Mariwala.

So far, all the brands bought, have been mass market brands, but Marico's is also open to premium brands. "One can't be too choosy," says Mariwala. But he's pretty sure that there won't be more hair care acquisitions in Egypt.

"We may look at other segments," he says, hinting that the purchases could be in the beauty and wellness spaces. A well thought out strategy, you could say.