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Reckitt: The householder - Views on News from Equitymaster
 
 
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  • Sep 11, 2000

    Reckitt: The householder

    Household care covers a wide gamut of products, which can broadly be categorized as dish/ utensil cleaners, floor cleaners, toilet cleaners, air fresheners, insecticides and mosquito repellents etc. The use of these products is not very widespread in India. The penetration at the all India level is a tiny 11.4%, represented predominantly by large metros, wherein the penetration is 47.2%. (In the rural areas the penetration is as lower at 4.3%). Most households use either low end products or ordinary detergents for their cleaning purposes.

    It is against this backdrop that Reckitt & Colman India (RCIL), the 51% subsidiary of Reckitt & Colman Plc commands the market leadership position in the household care products. Reckitt & Colman`s product portfolio includes ultramarine blue, antiseptics, polishes, cosmetics, insect repellants and pharmaceuticals. RCIL has strong brands in each product segment it operates in. Its key brands include Robin (liquid bleach), Cherry Blossom (shoe polish), Harpic (toilet cleaner), Mortein (insect repellent), Lizol (disinfectant), Colin (glass cleaner) and Woolite (fine-fabric washing liquid).

    Over the last few years RCIL has consciously focused on the household care business primarily because it sees a lot of growth in this segment. Reckitt’s strategy seems simple. Expand the household market and command a lion’s share of the segment. To lend focus to this strategy, in 1998 RCIL set up Reckitt Piramal - a 3-party joint venture (JV) between RCIL (20% stake), Nicholas Piramal (40%) and Reckitt & Colman, UK (40%) to lend marketing thrust to its over the counter (OTC) pharmaceutical products. It transferred the marketing and distribution of its most established brands, Dettol and Disprin range of products to this JV. The aim was higher volume growth, since the JV had access Nicholas Piramal's better doctor detailing and a distribution network.

    The strategy seems to be paying off. According to an A&M survey in 1999, Dettol was ranked 3rd among the most recognized brands in India (it was ranked 10th in 1998). On the other hand, the contribution of household care to its turnover inched up from 40.4% in 1997 to 53% in 1999. This contribution is likely to increase in the coming years. RCIL plans to launch as many as 20 products (in various segments it operates) in the next year leveraging on the huge brand equity of its leading brands.

    In its other product segments i.e. insect repellant, shoe polish and liquid bleach, the company’s brands are among the top 3. But the company’s second quarter performance was not too great. Turnover saw an 11% growth. A 130% percent jump in other income saw net profit clocking a 32% growth. But the good news is that the company’s employee and interest costs are likely go down in future. This is because, the company has repaid almost all its debts and has also initiated a voluntary retirement scheme (VRS).

    At the current market price of Rs 256, RCIL quotes at a P/E of 19 times its estimated FY01 annualised earnings with a market cap to sales ratio of 1.5 times. Considering the lower penetration in the household care market both in urban and rural areas, the growth opportunity for RCIL is huge.

    The company faces intense competition from HLL’s Domex, Sara Lee’s ‘Good Knight’ and Jyothi Laboratories’ ‘Ujala’. With more international players eyeing the household care market in India, the going will get tougher for this company. But Reckitt’s strategy of being present in a few segments, with dominance in household care should stand it in good stead in the times to come.

     

     

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