Chennai: CavinKare Pvt. Ltd, which makes shampoos, deodorants, pickles and juices, welcomes reports that its two big rivals—Procter and Gamble Co. (P&G) and Unilever Plc—may merge into a single entity, after media reports that P&G has made a £38 billion (Rs 2.78 trillion) bid for Unilever. “They will have more marketing money than us, but culturally it will be easier for me to fight one company instead of two,” says C.K. Ranganathan, managing director of CavinKare.
In an interview, Ranganathan talks about the Chennai-based company’s growth plans and why it lost to Mumbai-based Jyothy Laboratories Ltd in the race to acquire Henkel India Ltd. Edited excerpts:
Is your source of growth going to be acquisitions or building new businesses from scratch?
We are looking at acquisitions only in our current businesses. We don’t want to get into a new category. If there are synergies seen with another company, we will definitely not be shy.
Would Henkel India have fitted in well with your options?
Jyothy planned a deal structure that made everybody back out. (On 5 May, Jyothy Laboratories bought Henkel AG and Co. KGaA’s 50.97% stake in its Indian unit for Rs 118.72 crore, a couple of months after it acquired Tamilnadu Petroproducts Ltd’s 14.9% stake in Henkel India for Rs 60.73 crore.) It said it would pick up Tamilnadu Petroproducts’ stake. After that, no other FMCG (fast-moving consumer goods) company wanted to pick up the remaining stake. And so everybody walked out. So, Jyothy bought Tamilnadu Petroproducts’ stake at a premium and Henkel, in my view, was forced to sell at a discounted price. It was a clever strategy. There’s nothing unethical about it. I think we should salute that kind of thinking.
How important are international markets for you?
We are betting big in Sri Lanka and building a factory close to Colombo at a cost of Rs 25 crore. West Asia is also an important market for us. About 60% of our international sales come from our South Asian and South-East Asian neighbours—Sri Lanka, Nepal, Bangladesh, Malaysia and Singapore—and West Asia contributes about 40%.
Is the political upheaval in West Asia putting the brakes on some of your plans for the region?
Yes, there is a slowdown in terms of sales as expatriates have left and people have lost jobs. We are making only marketing investments in this region and getting into contract manufacturing arrangements, like we have done in Egypt. Our Egypt plans did go into cold storage for some time because of the political environment, but we’ve revived our personal care and fruit drink plans for the country in recent months.
Is the plan to attract private equity by diluting 15-20% of your stake still on?
We are eyeing the end of the year to finalize private equity funding that will dilute 15-20% of our stake. We aren’t in a hurry. There’s a lot of interest.
Has private equity interest picked up with the news of P&G’s interest in acquiring Unilever?
What’s the latest news on that? I was pleasantly surprised to hear about it. And I’d be happy if P&G and Unilever get together.
Why is that?
They will have more marketing money than us, but culturally it will be easier for me to fight one company instead of two. I never imagined that these two strong rivals could be one company, but now I am wishing it happens. A merger makes our life easier. P&G and Unilever are culturally apart. In India, Unilever functions like a desi (local) company and P&G like a multinational firm. It is easier to fight an MNC and it will be easier to fight Unilever when it inherits P&G’s culture. It will be predictable.
Your sales last year were short of the Rs 1,400 crore target. Was it a disappointment?
It was a disappointment and there were internal reasons for it. To improve things this year, we shifted our sales and marketing to Mumbai because it was difficult to attract marketing talent in Chennai. Moreover, top advertising agencies and our competitors are also based in Mumbai. Our sales touched Rs 1,100 crore last year and we are hoping for a 30% growth to finally achieve Rs 1,400 crore in 2011-12. Last year was a tough year for us. When prices of shampoo raw materials, such as crude and vegetable oil, rose, we couldn’t raise prices on our brands as we risked losing market share.
But food inflation and fuel price rise continue to stoke input costs. How are you dealing with this? Interest rates are also on the rise.
Food prices could settle this year. No government can afford to sleep over it. The monsoon is also favourable. Still, the higher interest rates are slowing our capital investments. We are prudent on any expansion and are postponing long-term capital investments.
One of your oldest brands, Meera, is likely to get a makeover. Why is it needed?
Meera is going to be relaunched in 2012. The brand is growing well, but we should be growing at a higher rate. We want Meera’s sales to grow by 40%, higher than the 20% pace it is at currently.