Philips back in the grind with Preethi

At the Irungattukottai racetrack, Amsterdam resident Chris Worp lurked unnoticed as one of the jacket- and boot-wearing enthusiasts. Besides taking detailed notes between speed training, Worp backslapped and bantered with T.T. Varadarajan, chairman of Maya Appliances, and not without good reason.

Worp, who oversees the kitchen appliances category for the Netherlands-based Royal Philips Electronics NV, was on a low-profile ice-breaking jaunt that involved speeding on the racetrack with the head of its latest acquisition, Maya Appliances.

“We are sharing the pleasures of being on the track together and this is how we will do business as well," said Worp, who arrived in the southern state capital at the end of January within a week of the acquisition’s announcement.

Worp’s gushing optimism may actually be a fervent prayer. The Maya Appliances acquisition is key to reviving the €23.2 billion (Rs 1.43 trillion today) Philips’ sagging sales in not just emerging markets, but also what it calls the consumer lifestyle segment—the company’s traditional stronghold comprising blenders, electric razors, telephones and televisions. In India, this segment is second only to the lighting business that is prone to follow the lows and highs of the property market.

An analyst and a rival estimated the deal to be worth ₹ 350-600 crore, which, in a segment averaging 15% gains, works out to 7-12 times Maya Appliances’ profits.

But, as with all acquisitions, questions persist on whether the Chennai company’s efficient, brand-building repair service and innovations ranging from the introduction of powerful motors to grind-and-store containers will continue in Philips’ vast structure and whether it will merge well with Philips premium but slow-selling brands.

“There is danger of the Preethi brand fizzling out as just one of the products of Philips’ range, and it may not be able to sustain its leadership position," said Rajendra Gandhi, managing director of rival Stovekraft Pvt. Ltd that received ₹ 50 crore funding last year from venture investors Sequoia Capital.

The decade-old, Bangalore-based maker of gas and electrical induction stoves, mixer-grinders and modular kitchens claims a 70-80% sales growth and that it will touch ₹ 400 crore in revenue this year.

Unlike the television and washing machine market dominated by South Korean giants such as Samsung Electronics Co. Ltd and LG Electronics Inc., the eight million units or ₹ 1,600 crore food-processing market, according to Francis Kanoi research group, is the domain of Indian manufacturers. While Sumeet ruled the roost a decade ago, today Preethi takes top spot, with Mumbai-based Bajaj Electricals Ltd at No. 2 and Delhi-based Maharaja coming third. Preethi garnered this spot without a presence in North India and lacking juicers and food processors in its product basket.

Despite entering India in the 1930s, Philips India Electronics Ltd has lost ground in both the television set and the mixer-grinder markets in recent years. Its financial statements show just a 15% sales growth between 2005 and 2009 in India, with contributions from mixer-grinders, television sets, music systems, electrical shavers and other such products slipping from 43% to 28% over the same period even as demand boomed.

“As economies grow, consumers who previously didn’t peer at kitchen appliance labels aspire for branded goods," said Sequoia’s Sandeep Singhal of the market’s potential. “But smaller companies glued to local habits in, say, the mixer-grinder segment, are dislodging traditional winners including multinationals who want to sell in India the same product they sell, say, in Taiwan."

So, while 2005 signalled a downtrend for Philips, it turned to be a turning point for Maya Appliances that was started in 1978 by Varadarajan. A new look from Bangalore-based designer Neil Foley, known for his dramatic overhaul of Titan watches, turned the company’s trot to a sprint. Foley, ironically, has also designed products for LG Electronics and Sony International, Philips’ successful rivals in the television category.

The cosmetic changes were backed by an internal overhaul with a 750W motor replacing the 600W one that was then the most powerful in the industry. Subsequently, there were other innovations such as a mug-like grinder lid that allowed the pulverized contents to be tipped into it. The mug could then be removed, sealed with its own lid and used as a container.

“The 750W motor allowed the wife to grind more and grind faster, and this became a big seller," said Vijay Srinivasan, Maya Appliances’ marketing director and Varadarajan’s son-in-law, who has previously worked at Coca-Cola India and automobile maker Mahindra and Mahindra Ltd. The company’s owners include Varadarajan, wife Maya, and their son and daughter.

Meanwhile, Philips stuck to a 600W motor and ignored more nuanced consumer preferences for three-pin plugs (equated with better protection against electric shocks) instead of the two-pin connection it offered. In 2010, the Dutch durables maker witnessed a further setback in South India with appliances retailer Vivek Ltd not stocking the brand for the entire year citing inadequate service and stock refills.

Even globally, consumer electronics and domestic appliances took the biggest beating within Philips in 2008-09, and the parent company set a target of 8-10% growth for the combined consumer lifestyle business. As Philips India started reworking its presence in this segment, its sluggish television business was hived off. In April 2010, Philips licensed its brand for five years to Indian competitor Videocon Industries Ltd, which now makes and markets the brand.

“I assumed it was probably a similar arrangement (like Videocon’s), only to realize it was nearly the opposite," said Varadarajan, recollecting a call from Philips’ Murali Sivaraman seven months ago that followed overtures from private equity companies. Sivaraman, who then headed Philips’ India operations, now oversees its global domestic appliances business out of Shanghai.

Although the deal has made Varadarajan a wealthy man, the keen biker is looking forward to running the show for a bit and also helping Philips localize its global innovations in appliances.

Philips’ Worp sees the deal as a gateway for Philips into south India—the biggest market for mixer-grinders, given that the cuisine includes idlis and dosas, besides featuring ingredients such as grated coconuts as well as coconut milk. It also gives Philips a manufacturing base in a country where it historically outsourced production.

“Demand for durables is indeed rising like never before due to a rural revolution sparked by rising foodgrain prices that has made farmers wealthy," said Francis Xavier of Chennai-based Francis Kanoi Research. “Philips must have made an offer that must have been difficult for Varadarajan to refuse."

anupama.c@livemint.com