The owner of several best-selling brands has identified the gaps in key segments well ahead of others.
Paras Pharmaceuticals, makers of over-the-counter brands like Moov, Dermicool, D’Cold, Krack, RingGuard and Setwet, reported revenues of Rs 400 crore in FY 09 (the latest numbers are not available). Yet, a mix of suitors, which includes some of the world’s biggest pharmaceutical and India’s homegrown FMCG companies, are willing to pay a blow-away premium and looking at a valuation eight times Paras’ revenue.
So what makes Paras and its clutch of brands so special? Analysts and brand experts say that the valuation is in line with at least two of the recent deals in the pharmaceutical space: Ranbaxy, and Piramal Healthcare’s branded prescription pharma business. Also, Paras makes for an attractive buy because there are not many FMCG companies on sale with as strong a set of brands at a time when global pharma giants are keen on hedging their portfolios against the impending expiry of patents.
To top it all, there are several things that Paras has done right. Kiran Khalap, Managing Director of Chlorophyll Brand Consultancy, says the company has followed a pattern of identifying the gaps left by large brands or categories where the leader had not been too vibrant.
Looking back
Paras’ run with popular personal care products began with its OTC rubefacient, Moov in 1986. It has seen many shifts in positioning since then but its growth underlines Paras’ ability to identify need gaps and create niche segments that larger players had not tapped. Moov as a specialist pain reliever was able to rattle the likes of Iodex (Glaxosmithkline) and Zandu (now an Emami product) which were general pain balms. Since its launch, it has seen its positioning change but has remained a specialist. Dentsu India Chairman Sandeep Goyal who had worked on the brand in the early nineties, recalls, “To shore up volumes, we repositioned Moov from being a joint-pain balm to being a back-pain reliever targeted at the woman of the house.”
Paras cracked open another need gap with its footcream, Krack. “Who would have thought there was a market powered by the sole of the consumers’ feet?” remarks Samsika Marketing Managing Director Jagdeep Kapoor. Researching ointments for burns, the Paras team found out that it was a market on the decline. Instead, there was a market for a product to heal cracked heels.
Dermicool, the prickly-heat talc, displaced Nycil with its stress on mentholated cooling. The brain behind Paras’ brands till 2006, Darshan Patel recalls, “Our insight was to relive the sensation of itchy and burning skin immediately with the talc, not just heal prickly heat over time.”
Paras was also aware of the role of packaging and distribution. Paras’ ploys would make distributors even chuckle at the smart strategies, recalls Goyal. When it launched D’Cold cold-relief balm, it launched two variants — a green pack for kids, at par with its arch rival, P&G’s Vicks Vaporub, and a red pack for adults, insinuating that Vicks would be a weaker equivalent. It came in a metal jacket shaped in a half circle (as opposed to Vick’s full circle pack) which drove home its message adhe mein dugna.
This struck a chord with smaller towns. The balm has now given way for a cough syrup.
While Emami has spent heavily on advertising, roping in the star endorsers, Paras has gone in for smart media buying. Goyal says, “It pioneered the last minute inventory. Rather than target pre-planned GRPs and buy in advance, Paras would get last minute ad slots for half the quoted price.”
Moov is said to have clocked Rs 100 crore, while D’Cold, its cold relieving brand, saw Rs 30 crore of sale last fiscal. Its cooling prickly heat powder, Dermicool has a share of over 30 per cent. Livon, the hair serum brand, still dominates the serum category despite Marico and Procter and Gamble’s entry. SetWet, its male grooming brand, is the second largest, though HUL’s Axe still is the leader.
The present
However, it is not alone in identifying profitable niches that are too small for MNCs to miss. Emami has grown four of its brand to more than Rs 100 crore by doing just that; for example, in cooling oils and men’s fairness cream.
Angel Broking Analyst (FMCG) Anand Shah points out, “The categories that Emami operates in are much larger than the ones of Paras’ brands, hence absolute brand earnings would be more. Also, a lot depends on the management focus. Emami has been growing through acquisitions as well.”
Observers point out growth at Paras now is defined by the PE firms’ eyes on growing the topline and bottomline. Growing the brands in volume is playing second fiddle to price increases that effect value growth. Since 2006, Paras brands have witnessed as much as 40 per cent increase in prices. Brand extensions such as Dermicool non-prickly heat powder or Moov Neck and Shoulder have sent out mixed signals. “How would one prove these are more effective than their parent brands? In fact, non-prickly heat Dermicool might confuse the user into thinking it would heal prickly heat. Why launch Livon conditioners when your stand is not to be a conditioner? These tend to diffuse the brands further,” says a brand expert who refused to be named.
Neither are all of Paras’ brands safe in the niche they created. Livon has been buffeted by conditioners in the market, while its own set of conditioners fails to recreate the serum success. Recova, its anti-ageing cream is fighting a lone battle amidst a phalanx of anti-ageing products from Garnier and Ponds. Set-Wet deodorants is one among a slew of deodorant brands.
Yet, not all is lost. Jagdish Acharya, the founder and creative head of ‘Cut the Crap’ who won two of Paras’ accounts this year from incumbents, Mudra, says rejuvenating Livon is what clinched the pitch for him. “Livon created the market for after-shampoo conditioning when there was none. However, conditioners have challenged its stance over the last couple of years. We are now finding a gap that won’t take on conditioners but would create another niche.” Worldwide serums like Livon are used for styling. Recova too is being pepped up with more products under the age-defying umbrella that would be priced at a premium. “It would ensure that Recova’s relevance increases with different products,” adds Acharya.
