ITC to acquire Savlon, Shower to Shower brands from Johnson and Johnson4 min read . Updated: 13 Feb 2015, 11:19 PM IST
The agreement with Johnson and Johnson will be ITC's first purchase in the personal care segment
Kolkata: In a rare break from its tradition of building brands on its own, ITC Ltd said on Friday that it had agreed to buy Johnson and Johnson’s Savlon antiseptic and Shower to Shower body talc brands, as the company seeks to reinforce its range of personal care products.
In a statement, ITC said it had entered into agreements with Johnson and Johnson Ltd and Johnson and Johnson Pte Ltd for buying the Savlon and Shower to Shower trademarks and related intellectual property for use primarily in India, subject to regulatory approvals.
ITC, India’s biggest cigarette maker, is seeking to expand its personal and home care products range by using its vast distribution reach and to reduce its dependence on its tobacco business. These are its first acquisitions in the personal care products range.
“It takes several years to develop brands in a fiercely competitive personal care segment, and by buying existing brands ITC is now trying to simplify its task at least in some categories," said Aashish Upganlawar, an analyst at the Indian arm of Elara Capital Plc, a financial services firm.
Investors welcomed the acquisitions. ITC shares rose 2% to end at ₹ 378.05 apiece on BSE on a day the benchmark Sensex gained 1% to 29,094.93 points.
The company didn’t disclose the value of the brand purchases, but experts estimated that it may have paid up to four-five times the two brands’ combined annual revenue of nearly ₹ 100 crore.
The two brands together clocked revenue of ₹ 90 crore in 2013-14, according to an estimate by brokerage firm Religare Capital Markets Ltd. Of this, Savlon with its products including antiseptic soaps and handwash, earned ₹ 65 crore, while the balance came from Shower to Shower prickly heat powders.
The two brands made up a mere 1% of ITC’s sales from non-cigarette consumer goods in 2013-14 at ₹ 8,099.21 crore.
“We have maintained that we would take every road possible to reach our goal of achieving ₹ 1 trillion sales in the new consumer goods segment in the next 15 years (ending 2030) and today’s announcement is in line with that strategy," said a spokesperson for ITC.
Cigarettes contributed 85% to the company’s profit and 41% to its sales in the first nine months of the year to March. ITC also has a presence in hotels.
“The deal is expected to increase ITC’s focus and presence in personal care, where it has been facing growth issues," said Abneesh Roy, associate director (institutional equities research) at Edelweiss Securities Ltd, another brokerage firm.
Still, it will face tough competition from Reckitt Benckiser (India) Ltd’s Dettol, which dominates the antiseptic category and is also among the top five soap brands in the country. Savlon is a distant second to Dettol, which clocked sales of ₹ 700-800 crore in 2013-14, according to industry estimates.
Savlon and Shower to Shower were not central to Johnson and Johnson’s portfolio that focuses on baby care and skin care products, oral care and over-the-counter products, such as cough syrup Benadryl, in India, said Roy of Edelweiss.
“While the deal looks relatively cheap and the two brands are largely undersold in India so far, ITC can make money from them if it invests wisely and boosts their sales in the next two years," said Upganlawar of Elara Capital.
ITC’s move of buying consumer brands is in contrast with its strategy so far of building its own brands. Company chairman Y.C. Deveshwar said in several recent public speeches that ITC would take on competitors by launching more and more new brands.
Friday’s deal with Johnson and Johnson will be ITC’s first purchase in the personal care segment. Last year, it had bought Bengaluru-based Balan Natural Food Pvt. Ltd’s B Natural brand to enter the beverages market. It had also purchased confectionery brand mint-o from Delhi based Candico in 2002.
ITC’s non-cigarette business has been expanding rapidly.
In the first nine months of the current fiscal year, revenue from other consumer goods at ₹ 6,444.74 crore was 21% of its total revenue. The category is yet to make a net profit on a regular basis and often slips into the red, depending on cyclical investments.
ITC’s acquisitions in the consumer goods segment comes at a time when its cigarette sales are sliding because of higher taxes and consequent price hikes.
The company’s fiscal third quarter results were dragged down by falling cigarette sales and disappointed many analysts. According to their estimates, cigarette sales contracted 13% by volume year-on-year in the December quarter due to steep hikes in value-added taxes in several states.
ITC’s net profit grew by an annual rate of 10.4% in the December quarter to ₹ 2,635 crore and it looks impossible, at least for now, for the company to return to its earlier net profit growth rate of 18-20%, analysts said.
Suneera Tandon in New Delhi contributed to this story.