Morphing into a swan

A decade after the company went public, Marico Industries has grown into a global beauty and wellness company, a total make over from the oil manufacturer it was known to be. The journey from a commodity trader to a brand creator has been focussed and amidst cut-throat competition from multinational companies in the FMCG sector. In fact the management at Marico has itself been going the multinational way. It recently acquired the haircare and skincare businesses of the Egypt-based brand, Fiancee. This is Marico's fifth acquisition in 18 months across various product categories, including acquisition of Nihar Oil from Hindustan Lever. Currently, Marico derives 10% of its total revenues from the international market through its subsidiaries.

Not just oil

These moves have been a concerted effort by the management to move off from total dependence on Parachute for its revenues. A decade ago, Parachute accounted for more than half of the company's revenues. The share is now around 38% of total domestic revenues.

The management has extended the Parachute brand to the higher end of the Rs 7,500-crore branded oil market. With the acquisition of Nihar, the dominance in this market is total, with around 60% of the market share. The company has met with strong success on the test launch of Parachute Therapie, a hair-loss oil meant for the upmarket user. Analysts expect the hair oil market to grow by around 15% in the next three years and the company will be ready to make the most of the growth in this segment, backed by a strong blend of traditional strengths and innovative product offerings.

Tradition and innovation

The base for this blend is the distribution network that the company has painstakingly built over the years. Marico can boast of 1.6 million retail outlets and reaches out to 1.8 million households. This network covers almost every Indian town with a population of over 20,000. Its parallel rural sales and distribution network ranks among the top three in the industry. On the innovation front, Marico has been a consistent performer. This can be substantiated by the fact that new products have consistently contributed around 12-18% to its revenues in the last five years.

Aspects of product innovation can also be seen in the Rs 3,500-crore edible oils market, where it has created multiple extensions and blends. The Saffolla brand now has several blends apart from the traditional sunflower oil offering. Marico has also launched an additive Saffola Atta Mix that lowers cholesterol when added to normal dough.

Kaya, a speciality clinic that offers skin care solutions and personalised service, is another strong innovation that currently accounts for around 6% of the company's revenues. Analysts reckon that the Kaya clinics are all set to break even in the second half of this year.

Branding and beyond

The company has been backing its revenues by strong brand-building spending through advertisements and promotions. In FY2006, advertising spends accounted for around 13% of sales. This trend is expected to continue as the company focuses on sending out a strong brand message to the masses.

From an investors point of view there are exciting times ahead. They will however have to look at several factors that could dull this excitement. Analysts believe that the cost of acquisition of brands will have to be monitored carefully as the management could pay a high price. Kopra price rise, the key raw material, could also affect the bottomline. After a considerable run-up on the price, analysts expect Marico to keep enchanting the market with a steady performance.