Beyond borders

From: The Business Standard

Beyond borders

Preeti Khicha / Mumbai June 6, 2011, 0:48 IST

For Marico, going global is more than a means of opening up new avenues of growth
In roughly 13 months, between January 2010 and February 2011, fast moving consumer goods company Marico has snapped up four international acquisitions — which include brand Code 10 (Malaysia), Derma Rx (in Singapore via wholly-owned subsidiary Kaya Ltd), Ingwe in South Africa, and an 85 per cent stake in International Consumer Products Corporation (ICP) of Vietnam. That’s one new addition every three months or so.

For Marico — which started its journey as Bombay Oil Industries in a traditional commodity-driven business — going global is not just a means of opening up new avenues of growth but also an opportunity for cross-border learning. That, in part, explains the shopping spree, and the amazing growth of its International Business Group (IBG). With a footprint in West Asia, North Africa, South Africa, Bangladesh, Malaysia and now Vietnam, the division has grown from Rs 96 crore in 2004-05 to Rs 734 crore in 2010-11.
Today, Marico’s international business fetches almost a quarter of the group’s revenues estimated at Rs 3,300 crore for 2010-11, thanks to a judicious mix of organic (two-thirds of the IBG’s revenues) and inorganic growth. The Mumbai-headquartered company started off by exporting its flagship coconut oil Parachute brand across the subcontinent and in West Asia in the early 1990s, though its real foray as a serious investor overseas happened more recently, in 2000 in Bangladesh, when it set up a manufacturing facility for Parachute oil just outside capital Dhaka. Bangladesh brings in the lion’s share of IBG’s revenues at over 50 per cent, with West Asia (currently present in the Gulf Cooperation Council countries, Yemen, Sudan and the Levant region) bringing in another 30 per cent. The balance is contributed by the other geographies where Marico has a footprint, namely, Egypt, South Africa, Malaysia and Vietnam.
These acquisitions have also brought more than six new brands under the Marico umbrella, significantly adding to the company’s international offerings that comprised only one brand (Parachute) till about 2005. However, the company’s revenue mix is still extremely dependent on Parachute (hair care) and Saffola (edible oil), its top grossers, which together bring in close to 60 per cent of Marico’s overall revenues, points out Swati Gupta, senior research analyst (institutional clients), AC Choksi Share Brokers.
Marico has 14 production units overseas, seven owned and seven based on the contract manufacturing model. Last month, the company announced that it will set its eighth plant in Bangladesh at an investment of Rs 35 crore.
Marico is well aware that to take the next step towards being a global conglomerate, it will have to leverage its acquisitions well. “Going forward, we want to grow both in width and in depth,” says Vijay Subramanium, CEO (international business), Marico. “In terms of depth, the company wants to consolidate in the current geographies, introduce value-added offerings and gain scale. In terms of width, the company will continue to expand through organic and inorganic routes,” he adds.

In sum, Marico’s international expansion rests on three pivots — one, capitalising on the strengths of its acquisitions in categories such as hair care, healthcare (termed as nourishment franchise) and male grooming. Two, concentrating on emerging markets of Asia and Africa. Three, cross-pollinating products across geographies. Brajesh Bajpai, vice-president (sales and marketing), Vodafone who once spearheaded Marico’s Egypt and West Asia operations, adds, “The Marico stock is less affected now by factors like lack of demand and supply chain pressures in India.”

From the looks of it, Marico is looking at segments growing quickly and where penetration is low. In India, Parachute and Saffola have tried many brand extensions; not all have been successful. Says Shirish Pardeshi, co-head, research, Anand Rathi Financial Services, “There is a limit to how much more these brands can grow. It is wise that Marico is building a strong product pipeline abroad. In the future, the company could explore the possibility of bringing back these brands to India.”

Likewise, other FMCG majors such as Dabur, Godrej and Emami have also tried to de-risk their domestic operations by following the Indian diaspora to markets of West Asia, South East Asia, and parts of Africa. Dabur, for instance, has manufacturing units in Bangladesh, Nepal, Egypt, Nigeria and the UAE. The company recently announced its decision to bring to India its Hobby brand, which came under its fold during the Turkish acquisition of Hobi Kozmetik. On its part, Godrej is estimated to have spent $600 million on acquisitions over the years and owns brands such as Cuticura, Erasmic, Adorn, Nulon, Apri, thanks to the buy-out of Keyline Brands of the UK in 2005, and the home care, personal wash and hair care portfolio of Megasari (Indonesia) following its acquisition last year.