The Hindu Business Line : Godrej gets going

The new Managing Director of Godrej Consumer Products Ltd (GCPL), Dalip Sehgal, is just back from a series of tours across the country, during which he acquainted himself with many of the 22,000 employees of the group.

Since he joined on April 1 this year, the former Hindustan Unilever veteran has met up with almost 80-85 per cent of Godrej Consumer’s employees spread across centres from Punjab to Guwahati.

The new MD of the Rs 1,460-crore GCPL brings with him a wealth of experience, having been the chief of the Rs 600-crore Godrej Hershey, not to mention the daunting responsibility of scaling up new businesses like HUL’s direct selling network, which he was handling earlier.

In fact, working for an FMCG company with a smaller base as compared to an MNC like HUL, has its advantages. As Sehgal says, “Unlike an MNC where the regional contribution forms a larger part of strategic decision-making, here the ability to decide locally is a huge positive.”

Besides, in a company with a smaller base, there is huge scope for growth. However, the challenge to grow brands as well as the topline and bottomline has not changed; something that Sehgal is well-versed with, given his 25 years with HUL.

GCPL, with its relatively less penetrated categories in personal care and hair colours, in fact, presents an opportunity for Sehgal to leverage his vast experience in the FMCG space.

“There is opportunity to grow in these categories and in spite of being the market leader in a category like hair colours, there is a lot we can do with what we have,” says Sehgal. He will be representing the second largest soap manufacturer in the country and pitting his flagship soap brands such as Cinthol and Godrej No. 1 against blockbuster brands such as Lifebuoy and Lux from his erstwhile company.

Expanding product portfolio

Today, GCPL is on the threshold of widening its product portfolio following the recent merger between itself and Godrej Hygiene whereby the latter’s brands, including Goodknight and Hit, would be added to its existing portfolio.

The recent restructuring within the Godrej group approved the proposed merger of Godrej Consumer Biz Pvt Ltd (GCBPL) and Godrej Hygiene Care Pvt Ltd (GHCPL) into GCPL.

GHCPL is a 100 per cent subsidiary of Godrej Industries Ltd (GIL) and GCBPL is a 100 per cent subsidiary company of Godrej & Boyce Manufacturing Co Ltd (G&B). GCBPL and GHCPL will be transferred to GCPL. The main purpose of merging these two entities is to acquire the 49 per cent stake in Godrej Sara Lee (GSL). Godrej Sara Lee is currently a 49:51 JV between Godrej Industries and Sara Lee with brands such as Goodknight, Hit, Jet, Ambipur, Brylcreem and Kiwi.

“This merger addresses the biggest issue of GCPL, namely, that of being a ‘limited product range’ company. Its portfolio now extends to soaps, hair colour, toiletries, hair care, interior perfume, shoe polish and mosquito repellent and thereby serves a case for business ‘re-rating’ in line with other consumer peers.

“With this merger, the Godrej Group brings one of its largest consumer portfolios under GCPL, which would help strengthen the distribution bandwidth of GCPL and bring about attractive valuations as Godrej Sara Lee has a slightly better margins profile and a similar growth profile to GCPL.

“In fact, we see this as a first step towards merging all the consumer businesses under GCPL and could be a precursor to the Godrej Group also bringing in its foods and beverages businesses — fruit juice, tea and the JV with Hershey — into the same entity,” says Nikhil Vora, Managing Director, IDFC SSKI Securities, in a report on the company.

Other FMCG analyst reports also indicate similar advantages from the merger. “We believe the merger of both these entities into GCPL will address the key issue of sustainable growth drivers as it will widen the company’s FMCG portfolio and give it better bargaining power in terms of distribution. Moreover, the merger will put the Godrej group on a stronger footing to buy out Sara Lee’s 51 per cent stake in Godrej Sara Lee, if the situation arises,” says a report from Angel Broking.

In fact, the process of streamlining FMCG operations within the Godrej group began with the formation of the leadership team when the three companies — Godrej Sara Lee, Godrej Consumer Products and Godrej Hershey — started sharing their resources.

“We would be deriving advantages of scale and synergies rather than merely existing as individual companies. The synergistic areas have already been tapped as part of the newly-formed FMCG leadership team whereby the three companies have been sharing resources such as the supply chain and warehousing facilities. Even while selling in the rural markets, a common distributor would run the van operations to sell the products from these three companies,” explains Sehgal.

Tie up with Future Group

Dalip Sehgal, Managing Director, Godrej Consumer Products Ltd

Meanwhile, the Godrej group has also struck a deal with the Future Group to sell its less successful FMCG brands such as Ganga, Evita, Banish and Godrej Tea through a licensing deal. “We have decided to sell these brands through a different channel which would be the modern trade. There is licensing deal with the Future Group’s Big Bazaar outlets to sell soap brands such as Evita and Ganga as we no longer sell these brands,” adds Sehgal.

Indeed, resorting to the modern trade has helped languishing brands like Godrej Tea which has got a new lease of life, garnering significant market share after being sold through the Big Bazaar outlets. Household insecticide brands such as Banish also did not find a market as it had to compete with established brands such as Goodknight and Hit from its own company’s portfolio. So did soap brands like Evita and Ganga which failed to find any customer franchise and had to be discontinued from the company’s portfolio.

“We already have two big soap brands to support and having experimented with these brands it was a portfolio choice which was taken when brands like Evita and Ganga were discontinued,” claims Sehgal.

Soaps contribute 65 per cent of turnover, and its brands such as Cinthol, Godrej FairGlow and Godrej No. 1 saw the category grow by 46 per cent with sales increasing from Rs 124 crore to Rs 182 crore during the quarter ending in March.

Re-launches, new fragrances and big budget advertising by brand ambassadors like Hrithik Roshan (for Cinthol) have ensured growth for its soap brands which have a market share of 9.9 per cent.

Hair colours, with brands such as Godrej Expert and Renew, grew by 20 per cent from Rs 57.8 crore to Rs 69.3 during the quarter with market share at 32.6 per cent.

Sales of its toiletries including shaving creams, talcum powder and deos stood at Rs 14.6 crore, while liquid detergents, including brands like Ezee, recorded sales at Rs 5.5 crore.

Ending its fourth quarter with profits up 44 per cent at Rs 58.7 crore (Rs 40.8 crore), GCPL is looking forward to a good year ahead. “Higher commodity prices in the beginning of the year did strain our margins but now there is clearly no margin pressure. It should be a good year as far as profits are concerned,” says Sehgal, who has been entrusted with the mission of providing the ‘best’ value and proposition for the Godrej brands.

Related Stories:
Godrej launches Cinthol with dehydration feature
Godrej Consumer targets barbers for rural push

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