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Reckitt: Vision 2004

Oct 4, 2001

Reckitt Benckiser India Ltd. (formerly Reckitt & Colman India) is India's leading player in the mosquito coils, shoe care, fabric care, lavatory care and anti-septic liquid segments. With more international players eyeing the domestic household care market, the going might get tough for the company. The company recorded a decline of 3.2% in revenues in the second quarter of FY02. The downturn in the economy has taken a toll on its turnover growth, which stood at 16% in FY01. To counter the degrowth in sales, Reckitt has planned several new initiatives and restructuring during the year.

New initiatives
‘Mortein’ is expected to replace Dettol as a flagship brand. This is due to the fact that over the next 3-4 years while Mortein is estimated to grow at the rate of 20%-25% to Rs 3.9 bn, Dettol would record lower growth of 10%-15% to Rs 3.6 bn. The products under the Mortein brand include mosquito repellant coil, vaporizer and aerosol.

The lower growth projections for Dettol have resulted from the sluggish sales in the soap market (soap being the main product under the Dettol brand). During the period January – June 2001, the soap market witnessed a decline of 8%. As a result the company has extended this brand to floor cleaners. The product is being test-marketed in Chennai and Kolkatta. Reckitt already has a ‘Lizol’ brand in this segment. The brand is facing strong competition from Domex (HLL’s brand). The extension of Dettol brand could help Reckitt in countering Domex.

Reckitt also has a marginal presence in the OTC pharmaceutical market courtesy the Disprin brand. It is aiming to extend the Disprin portfolio by launching Disprin CV (a 100 mg aspirin dose), for the treatment of cardiovascular disorders. The company expects to corner a 20% share of the Rs 350 m low dosage aspirin market in the first year of launch.

Growth strategies
The company also aims to replicate the parent company’s portfolio and growth strategies. Currently, a large number of its brands contribute marginally to the topline. As a result, Reckitt will now focus on six core brands - Dettol, Disprin, Mortein, Airwick, Robin Blue and Harpic. It intends to expand market size for soldier brands like Cherry Blossom, Lizol and Colin. The company would concentrate on marketing efforts of these brands to improve their market share in the coming years.

Reckitt is also planning to launch mass-market products from its parent's stable. The products are likely to be in the home care category, a business that Reckitt acquired internationally after its merger with Benckiser. The company expects new products to contribute 20%-22% of its total business in the current year. It also intends to penetrate rural markets aggressively by increasing distribution network from the current 600,000 retailers.

Vision
The company has committed to double the turnover in the next three year from the current Rs 5.9 bn to around Rs 12 bn, a compounded annual growth rate (CAGR) of 26%. Its CAGR in turnover for the past four years was 18%. Looking at the past performance and sluggishness in the FMCG market the company’s targets sound a bit ambitious.

Past performance
Particulars 4 yrs CAGR
Sales 18.2%
Operating profits 51.9%
Net profits 66.9%

Apart from the restructuring on the products front, the company would also focus on improving its operational performance. In the first half of the current year, Reckitt’s operating margins increased to 9.5% from 8.5% in the corresponding period of the previous year. Its focus on pruning raw material and packaging costs, vendor rationalization and reduction in the number of brands is likely to fuel its operating growth in the next three years.

At the current market price of Rs 198, Reckitt is trading at a P/E of 9x and market cap to sales ratio of 0.6x December 2004 projected earnings. The company’s profits are expected to grow at a CAGR of 35% in the next three years, if everything goes according to Reckitt’s plans.


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