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Cococare joins HLL stable - Views on News from Equitymaster
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  • Sep 28, 1999

    Cococare joins HLL stable

    According to newspaper reports, FMCG major Hindustan Lever Limited (HLL) has acquired 'Cococare' a coconut oil brand from Recon Oil Limited.

    HLL (FY99 turnover: Rs 102 bn) India's largest consumer products company, has a business portfolio that comprises soaps, detergents, personal products (oral care, perfumes), food products and frozen deserts. HLL has tied up with Kimberly Clarke for baby care and feminine hygiene, and with S C Johnson for household cleaning products and insecticides. The company's distribution muscle exceeds 1 m outlets throughout India. It derives almost 55% of its revenues from sales to rural India. HLL is gearing to further its rural thrust by planning to increase its direct distribution in rural India by 50% every year.

    HLL's strong cash flow position has enabled it buy over competition. Its acquisitions include Brooke Bond, TOMCO, Milkfood, Cadbury's Dollops and Lakme. It has been the company's strategy to dominate every segment it operates in. Since getting into the Rs 5 bn branded coconut oil segment with Nihar (acquired from TOMCO), HLL has been consistently trying to outdo market leader Parachute. But Marico Industries (Parachute's owners) strong distribution muscle (over 0.6 m outlets) have helped it retain 54% market share.

    It is this inability to wrest market share that must have prompted the buy out of the Cococare brand, which is the fourth largest brand in the country with 8% market share. With this acquisition HLL's share in the organised coconut segment has gone up to 22%. Though it is expected that the HLL will go in for a massive advertising blitz to promote Cococare and increase its share, it will not find the going very easy.

    For one, it will have to promote two brands, Nihar and Cococare if it hopes to gain market share. Also, it has been noted that when HLL was trying to promote Nihar, it could not eat into Parachute's share. Instead shares of other smaller players like Cococare were adversely affected. Secondly, Marico's marketing and distribution muscle is by no means small, and it has the resources to meet up with HLL in any ad warfare.

    The acquisition will give HLL the much-needed boost in the coconut oil segment and will consolidate its position in the market. However, the success of its strategy cannot be taken for granted.

    Market View:
    Analysts have rated the stock as a 'BUY', based on its dominance in the consumer products market and its distribution strengths. The company's rural focus has widened its consumer base and enabled it to achieve its goal of becoming a volume driven company.



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