Big brand spells better luck for firms in insolvency court
4 min read 31 Jan 2019, 11:43 PM ISTDistressed companies with strong brands are witnessing better traction from investors than those withoutIn many cases, the new owner gets the firm, along with the brand, at a discount as it has lost edge in its category
PremiumMumbai: Creating a brand can lay the foundation for a great business and, in some cases, the brand can be so enduring that it retains value even when the company itself has gone bankrupt.
A good case in point is the now bankrupt Kolkata-based Kitply Industries Ltd, a plywood maker. In the late 1980s and 1990s, Kitply Industries created a series of television spots that said, “Sab kuch sahe, par tiki rahe (It endures all hardships)." The spots created an instant connect with consumers and Kitply soon gained an outsized mindshare in a commoditized market.
Kitply’s brand recall in the plywood segment is still very strong, although its rivals may have overtaken it in terms of marketing budgets by a mile.
This was one of the reasons several bidders, including plywood makers and private equity investors, evinced a strong interest in the company when its lenders dragged it to the National Company Law Tribunal (NCLT) for bankruptcy proceedings. In December, Srei Multiple Asset Investment Trust’s Vision India Fund received final approval from NCLT to acquire the brand for ₹175 crore.
Similarly, three bidders are currently vying to acquire Mumbai-based men’s fashion brand Provogue, which was once endorsed by Bollywood stars Fardeen Khan and Hrithik Roshan. Lenders have taken the company to insolvency courts.
As these examples illustrate, distressed companies with strong brands are witnessing better traction from investors than those without.
“Financial lenders, as well as the resolution professional (RP), takes the brand value into account since the brand helps a new owner jump-start the business or turn around the stressed assets in a relatively shorter time," says Nishit Dhruva, managing partner of law firm MDP and Partners. “In many cases, lenders are getting multiple resolution plans because a company is a going concern and it has a brand that can help turn around the company."
There is a huge difference between the resolution process of a manufacturing concern and that of a firm with a brand, according to Dhruva.
“In most cases, a manufacturing firm’s valuation depreciates as plant and machinery get older, but for companies with brands, the valuation metrics are different because the valuer also takes into account future expansion possibilities and brand recall, among other things," he adds.
MDP and Partners is representing financial creditors of Provogue in NCLT. MDP also advised Mumbai-based Rubberwala Housing, a little-known oil trader and real estate developer, in successfully bidding for Raj Oil Mills, a company that owns well-known brands such as Cocoraj Coconut Hair Oil and Guinea groundnut oil.
Aurangabad-based white goods maker Videocon Industries Ltd, its kitchen appliances brand Kenstar and basmati rice producer Dunar Foods are among those that have seen interest from bidders willing to acquire their assets. When contacted, Venugopal Dhoot, group chairman of Videocon, which owns brand Videocon as well as Kenstar, declined to comment on the story as the matter is sub judice.
According to Alpana Parida, managing director at brand design firm DY Works, “Unlike mature markets, in India, mostly it’s chartered accountants or financial firms who ascertain the value of brands on the basis of their sales and customer base projections."
“Some brands have stronger equity and when that brand is rejuvenated, it could grow at a faster pace than another with the same market share or customer base. There is an aspect of consumer affinity that needs to be taken into account," Parida says. “For example, a Sosyo or a Rim Zim, a cola-flavoured soft drink popular in the 1970s and 1980s, can attract buyers because of the nostalgia factor. Ghari Detergent, for example, can capitalize on its regional success far better than another brand. The value of the brand equity can sometimes exceed the value of physical assets. We need such experts who can look into the aspects of brand perception value as well. For consumers, it really doesn’t matter who owns the brand as long as they see value in it and, hence, despite the change of ownership it holds the same value."
Every brand has a certain value and its own life cycle. Many times, when a firm performs badly due to its brand peaking, it becomes very difficult to get a premium for that brand. In many cases, the new owner gets the company, along with the brand, at a discount as it is one among the many in its sector or category and has lost some edge. Guinea groundnut oil is one such example. Consumers have now moved to rice bran, sunflower and olive oils that are perceived to be healthier options than coconut and groundnut oils.
Sundaresh Bhat, partner and leader of the resolution process and advisory at audit and advisory firm BDO, says, “Every brand has value, but you have to evaluate how much it will fare in front of the competition, how is it unique and not a commodity." Bhat is also the RP for Sterling Biotech, ABG Shipyard and BSR Diagnostics.
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