Back‘We will separate ownership from management’
‘We will separate ownership from management’
PremiumRiding high: Mariwala says the company will have products for the consumer from the time he wakes up till he goes to sleep. Ashesh Shah / Mint
Mumbai: The chairman and managing director of Marico Ltd, Harsh Mariwala, believes in the power of brands. In the early 1990s when he carved Marico out of the family-run Bombay Oil Industries that was largely into edible oil business, its turnover was just around Rs80 crore. Riding high on brands such as Parachute and Saffola, Marico has now grown into a Rs2,000 crore company. In an interview last week, he discussed his passion for brand building, succession plan and takeover strategy, among other business plans. Edited excerpts:
I had to instil the right culture for Marico to succeed in the FMCG (fast moving consumer goods) space. If one looks at major players such as Levers (Hindustan Unilever Ltd), my task was clearly laid out. I had to attract good talent. FMCG is not an investment but a business that creates a brand out of nothing and a cutting edge distribution through value addition.
I wrote a vision statement and ensured an open office concept where anybody could walk in with their ideas or problems. The authorization statements were self-authorized and there was no need for higher official signing the document. These were small steps to built trust.
Your strategy to stay on the fringe areas of the FMCG segment seems to have paid off.
We want to be the market leaders because if you are a market leader then the financial returns are higher. Our starting point is whether we can be a market leader in a certain segment.
Instead of eyeing the fringe segment, we identify a certain category where we can be a market leader. One has to be conscious of this fact and enter segments that can be big. For instance, in skin care (Kaya Clinics) we created a business. It’s a matter of identifying the right areas.
What’s your plan for Marico?
We want to grow upwards of 25% annually. The whole organization has shifted focus from an Indian company to a player having presence in the Asian and African continent. We have moved away from basic oils to value-added oils; India to global; oils to FMCG products; and from products to solutions such as Kaya (clinics), Saffola oils, Saffola rice, Saffola zest snacks, Saffola salt.
We’ll have a product for the consumer from the time he wakes up till he goes to sleep.
Would you continue to look at acquisitions for growth?
We are a focused company in beauty and wellness and also have products for consumers with ailments such as diabetes and keen on weight reduction. We are testing prototypes such as Saffola zest in Mumbai and Saffola rice in Andhra Pradesh.
Will these new products be the growth drivers?
We have to drive new initiatives to drive growth. Ultimately, the consumer will judge whether it will be a success or not. We will have some big-ticket items as well as a few others that will support the overall journey of our brands.
Is Saffola rice a big-ticket item?
Well, rice is a big category. We have to ensure we get the right traction.
Some edible players have started branding and even acquiring plantations. Do you see them as a threat?
I don’t think a business can make money by buying plantations.
Some of them are also eyeing the concept of branding mustard oil.
We are not interested in this because the margin in mustard oil is not attractive enough. We have to differentiate. The overall margins of the edible oil business in those segments are very low; the gross margins are about 5%. We want to be in value-added business. That’s why Saffola caters to the health aspect and heart aspect.
Indeed the brands give the pricing power but ultimately it depends on commodity prices—kardi and saff oil seeds.
I have the brands and most of them are market leaders. So, we have some pricing power. While other brands enjoy gross margins of 5%, we have margins in multiples of 5%. That gives us an absorption capacity. We also have a sourcing strategy. We have teams that visit the crop growing areas. We do a lot of work with farmers to ensure that the crops that are sown and harvested come to us.
How’s the harvest season for kardi and saff oil seeds?
The crop is better this year than last year. We also imported some kardi oil this year. We compete with exporters for kardi seeds. So the price has gone up to some extent. But we are getting our raw material.
How have Mediker and Nihar brands fared after you acquired them?
Both have done well. Mediker was a brand we acquired from Procter and Gamble (Ltd). It’s positioned for kids as anti-lice and is available in the form of shampoo. We also introduced a oil variant. We doubled our sales after we introduced the variant.
You paid a bomb for Nihar as you wanted to keep others away from acquiring it.
We paid Rs230 crore for Nihar. It’s in a business (that) we know inside out in terms of raw material sourcing and managing the cost structure. After the acquisition, we wrested a lot of benefit from the cost structure. Nihar is a strong brand in the east and it has consistently grown since the time we bought it. Moreover, we were able to consolidate our market share. It has given us fantastic returns.
What about Oil of Malabar?
That was just a tactical buy. It was not as good as Mediker and Nihar, but it has paid back.
Did you approach Hindustan Unilever for Nihar?
I was working with Lever officials for some time on that. I also played some role in convincing them to divest the brand. When it came to selling, they were clear that they would sound out other prospective buyers also.
Indian companies find it difficult to enter Bangladesh. What has been your experience?
We are the largest Indian company in terms of turnover in Bangladesh. Our brand from a zero market share now commands a 70-73% market share.
You made a calculated entry into Egypt.
We were looking at Egypt for two-three years. We realized that if we had to set up business through the organic route then it would be a long journey and it would be much faster through the inorganic route. That’s when we briefed our bankers to look for brands in South Africa and Egypt.
How has your experience been in Egypt so far?
It’s a very difficult market. Our key challenge was to maintain our company’s culture and ensure that everything was done as per law. Earlier, the products were distributed directly to the wholesalers. We have now introduced a distributor. We will be back on our feet next year. It now has a turnover of about Rs90-100 crore. We are viewing this region as one of our growth drivers of the future.
Do you have any plans to take Parachute and Saffola to Egypt?
May be Parachute but not Saffola. We haven’t taken it out of the country because we need a range and the range in Saffola is getting created over a period of time.
You don’t seem to be aggressive on expanding Kaya outlets.
We already have about 75 Kaya Clinics in India and 11 or 12 outside India. We had to create a demand and test it. The building blocks had to be put in place and the service levels are not the same as other modern retail businesses. Now, that we have gone through the learning curve we are stepping up our pace.
How do you zero in on an acquisition?
We identify a target and the country then hire a local banker. Our methodology is a combination of targeted and reactive acquisition. We decide the areas we want to be present in and then identify the brands.
We don’t want to be in a country where there is a very high import duty or a small population. We always explore whether we can be a market leader in those countries (where we want to be present) and get a business of certain size. Besides, the exchange rate should be stable and not very volatile like Zimbabwe.
What’s your succession plan?
I want to create a company that’s managed by the board. Physically, I am in good shape and there is no dire need to appoint a successor immediately. But we have started working on that plan. The journey has already begun.
We will separate the ownership from the management. Ultimately, the best person should drive the company. I want to create a company that can continue over a period of time even if I am not there and it should not be sold. Procter and Gamble was started by Mr. Procter and Mr. Gamble and now they are not there on the scene any more. So is the case with Cadburys, Levers. On a similar line, I want to create a board managed company on a sustainable basis.
So the owners won’t be able to sell their shares anytime they want?
I have to decide to what extent the lock is required. While the family will be in control, Marico will become a board-managed company.
Since the valuations are low now, would you look at more acquisitions?
Valuations are low but expectations are very high. The market cap is very low but price multiples they ask are astronomical.
Did you look at Zandu?
Zandu was controversial and so we didn’t.
Are you open to any acquisition opportunities?
If we have growth agenda, we will always look out for opportunities to buy.
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