Mirc plans new ventures, renewed focus on R&D

Mirc plans new ventures, renewed focus on R&D

Mumbai: After spending almost three years to win an ownership fight with his brother, which saw growth plunge at Mirc Electronics Ltd, the maker of Onida TV, chairman and managing director Gulu Mirchandani is now focusing on trebling turnover to $1 billion (4,430 crore) in a market dominated by consumer electronics firms from South Korea and China.

Out of 520 firms licensed to make TV sets in 1983, only two Indian firms have survived. Mirc is one of them; the other’s Venugopal Dhoot’s Videocon Industries Ltd.

The only Indian consumer electronics firm to have more than $1 billion in revenue is Videocon Industries, but it is not strictly comparable with Mirc as Videocon is more diversified, with interests in oil and gas and telecom services.

The ownership issues and fierce competition from South Korean and Chinese firms took its toll on the company, Mirchandani admitted in an interview last week, but said Mirc has now put these behind and is on a recovery path.

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“After acquiring my brother’s stake, we are now completely focused on our business," Mirchandani said.

The Mirchandani brothers were fighting a family feud for the transfer of Sonu Mirchandani’s 33.3% stake to Gulu. The duo, along with Gulu Mirchandani’s brother-in-law Vijay Mansukhani, held equal stakes in holding company Guviso Holdings Pvt. Ltd.

The 1,568.35 crore firm has revived its focus on research and development (R&D). Mirc’s seriousness is seen by its hire in China. Andrew (Ing-Shry) Kuo, a Taiwanese national and a veteran at MediaTek Inc. (MTK), a Taiwanese chip maker, will head its 12-member team to design mobile phones in China. The R&D handset unit is based in Shenzhen.

“It took us two to three months to convince him to get on board," said Mirchandani. The time was taken to convince Kuo that Mirc was a serious long-term player and not a trader. “It is like a treasure hunt," Mirchandani said. “Design is not available readymade in a book."

Mirc is also planning to enter new businesses, including LED (light-emitting diodes) lightings business, a relatively nascent market in India. It will start operations in three months. “We will add one product in a new segment every year or year and a half," said Mirchandani.

He doesn’t want to be a “new category junkie" and create a large portfolio of products with just 1-2% market share. Instead, his plan is to get at least a 10% market share in each category it is focusing on, even as it rolls out products in new segments every 12 to 18 months.

In December 2008, the company entered the mobile handset market, and prior to that, in the LCD (liquid crystal display) TV space.

In the 30,000 crore mobile handset market that has seen many new firms’ entry in recent times, Mirc has garnered 1% market share. In LCD and LED TVs, it has a 4% market share and hopes to end the fiscal by doubling its market share in all categories, said Sriram Krishnamurthy, vice-president, sales, marketing and services.

The firm is rolling out LED TVs, and in next three months, will enter LED lighting, said Kaval Mirchandani, vice-president, corporate affairs, and Mirchandani’s son.

The strategy of concentrating on a few categories has worked well for Whirlpool of India Ltd, which is focused on refrigerators and washing machines.

The strategy is also working for Godrej Appliances, the appliances and consumer durables unit of Godrej Industries Ltd. Even among multi-category firms such as LG Electronics India Pvt. Ltd and Samsung Electronics India Pvt. Ltd, the latter is the category leader in LCDs, and LG is just about maintaining shares, said Abheek Singhi, partner and director, Boston Consulting Group.

“The concept of category killers is gaining importance. Three to five years back, the view was of having a large portfolio as it gave advantage. But that has not gained acceptance," said Singhi.

According to him, being multi-branded doesn’t help with trade as resellers would not stock goods that are not category leaders.

For the quarter ended 30 June, Mirc’s revenue stood at 488.15 crore, an increase of 28.8% over the same period a year ago. Its net profit last year rose 128% to 5.87 crore on a very small base.

It was a different story even a year ago, when the firm was stagnating. From fiscal 2006 to 2009, its revenue grew at a compounded annual growth rate of 5.52% and net profit fell 35.13%. “That was a bit of a lull," said Mirchandani, who was then feuding and eventually bought his brother’s 33.3% share in mid-2008, taking his holding to 66.6%.

With a brand with high recall in the colour TV market with its Neighbour’s Envy, Owners Pride campaign, the company lost out to the consumer shift to the high-end of the market to LCDs and LEDs as it stopped investing in marketing in the wake of the family dispute. “We have corrected that in products and need to correct that in market share," said Krishnamurthy.

It plans to invest 100 crore to set up a factory for air conditioners and spend 10-15 crore for research and development, said Mirchandani.

But it needs to fight a hard battle as the advantage enjoyed by multinational firms over domestic firms is hard to miss.

“We have economies of scale, and with globalisation and rapid technological advances, are able to being products out faster in global markets," said V. Ramachandran, director, marketing at LG.

For Ramchandran, competition is not the specialist firms in the categories as they are able to replicate features, but firms with different business models. For instance, in mobile phones, Indian firms making handsets in China have made considerable inroads.

To be sure, Onida has a strong base in television with 12-13% market share, accounting for 800 crore of revenues. In air-conditioners, it has a 15% market share for split models and 8-10% share for window ACs, accounting for 500 crore of revenues.

The road to recovery would require Mirchandani to improve business efficiencies.

Mirc’s operating profit margin at 3.29% for the quarter ended June is far lower than its peers—Videocon’ 18.27% and Whirlpool’s 12.25%.

Operating profit margin is profit before interest, taxes, depreciation and amortization, expressed as a proportion of total revenue.Mirc’s shares dropped 0.72% to close at 27.45 apiece on Monday while the Bombay Stock Exchange’s benchmark Sensex index rose 0.22%.

In past one year, Mirc’s share price has grown 51.24% against the 66.46% growth of the exchange’s consumer durables index and Sensex’s 15.48% growth. Its peer Whirlpool has done much better with a 123.57% growth while Videocon’s shares have risen only 10.28%.


Ashwin Ramarathinam contributed to this story