Mr. Harsh Mariwala is the Chairman and Managing Director of Marico Industries. Since transition from the FMCG division of Bombay Oil Industries Limited to Marico, the company has grown leaps and bounds under the leadership of Mr. Mariwala. Besides managing Marico and representing various industry organisations, Mr. Mariwala is an active golf player and likes Indian classical music.
In an interview with Equitymaster, Mr. Mariwala spoke about the growth prospects of the FMCG sector in the medium and long term. He also shared his vision for the company and strategies that he believes would enable the company to achieve that vision.
EQTM: The Indian FMCG sector is facing tremendous pressure, both economic and competitive. In your view, what are the ground realities for the FMCG players in India currently? What can the industry look forward to in the coming years?
Mr. Mariwala: Overall, while the FMCG sector is going through difficult times due to the slowdown and intense competition, to some extent, the overall picture is vitiated due to the travails of some of the higher profile players.
In the last two years the FMCG companies have been facing pressure due to intense competition, the economic slowdown and the drought. The consumers have also become more discerning and value conscious. As a result, companies have been forced to improve the value for money provided to consumers. Companies’ that have brought in innovative products at the right price point have done well.
In the short term, the difficult environmental conditions are likely to continue. In the medium term however, the sector would see good growth since the basic consumer needs of these products would continue. However companies’ would be required to upgrade their product portfolio by introducing innovative products and providing good value for money equations to the consumers. For this, they would need to enhance focus on R&D, innovation and getting consumer insight and explore new models of distribution, especially to rural consumers.
EQTM: Marico has done reasonably well in the recent past. What is the reason of this performance despite increased competition in your key categories of coconut oils and edible oils?
Mr. Mariwala: Marico has focussed on its core sources of competitive advantage viz. – innovation, branding, distribution and cost management. It has also changed its brand building strategy, which now comprises -
Creating a slew of new ideas through continuos innovation and identifying a few “big bets” out of these ideas through prototyping, a process, wherein the new ideas are tested comprehensively but on a smaller scale, with an objective of improving their success potential when scaled up. This helps de-risk the company since only the successful products are launched on a large scale.
Focusing and supporting the “big bets” with commensurate share of mind, scale of resources and appropriate demand creation campaigns for new products.
Continuous innovation in the areas of product formulation and packaging to further enhance the value added to the consumer.
This has helped Marico maintain leadership in coconut oils and edible oils while moving up from the fifth position to the number two position in hair oils.
EQTM: The share of new products in your folio has risen consistently in the last few years. Will this trend continue? If yes, then what areas will Marico look at to provide stimulus for growth?
Mr. Mariwala: During the last couple of years, Marico launched many new products, namely Parachute Jasmine, Shanti Amla, Saffola Tasty Blend (Kardi-Corn), Saffola Nutri Blend (Kardi-Rice) and Saffola Olive oil, which have been successful. With the success of these new products, the share of new products in the total turnover has moved up to 15% of total sales. On a 4 quarterly moving total basis, the annualised turnover of new products as of September 30, 2002 was Rs 1,030 m (Previous year – Rs 590 m).
Marico has targeted doubling of the share of new products in its turnover over the next two years and has identified the following strategies for this purpose –
Grow market shares in hair oils by being present in all hair oil categories and enhancing value propositions to the consumer including new “value for money” equations.
Grow the healthcare business, through profitable expansion of the ROCP franchise (refined oil in consumer packs thus offering value adding blends straddling all price points) and new products in the healthy foods category.
Maintain rapid growth in international business through focus on existing markets, while identifying new markets.
In line with the above, Marico is currently prototyping a few new products. Of these, Mediker Anti-lice Oil, which was being prototyped for the last three quarters, has now been successful in meeting the targeted action standards and has been cleared for a national launch. The national rollout is expected by December 2002. Marico is also evaluating products in the healthy foods area under the Saffola brand.
EQTM: What was the objective of setting up the Bangladesh subsidiary? Please shed some light on the performance of this subsidiary and strategy for growth going forward. Are you looking at enhancing your presence outside India and Bangladesh?
Mr. Mariwala: Marico’s international presence has been predominantly in SAARC and Middle East. Bangladesh is an important market catered to by the company. Marico Bangladesh Limited (MBL) was set up as a wholly owned subsidiary three years back to strengthen Marico’s presence in the SAARC region, especially Bangladesh by improving the end-to-end value add.
Over the last two years, Marico’s business in Bangladesh has increased substantially. The focused marketing and sales & distribution initiatives have yielded positive results in terms of growing market standing, with market leadership for Parachute in the Coconut Oil segment. This has been reflected in the growth in turnover and profits of MBL.
Consolidating its presence in Bangladesh, the company has also established manufacturing operations in Bangladesh. With this, the operations in Bangladesh would be largely self-sufficient for catering to the domestic requirements.
As stated earlier, Marico has identified growth in international business as a key growth driver. Consequently, Marico would explore new markets to maintain rapid growth of its international business.
EQTM: What is the rationale to entering the food segment given the fact that experience of other player’s has not been heartwarming? What are the opportunities you see in this business? Do you see a significant change in the sales-mix in favour of foods going forward?
Mr. Mariwala: While the general food category is crowded, we believe that healthy Indian food, as a category, would offer good growth potential. Accordingly, Marico is considering products in the healthy foods area under the Saffola umbrella.
EQTM: What is your 5-year vision for Marico Industries? What will be the management’s strategy for growth going forward? Any targets?
Mr. Mariwala: We have not assigned any specific numbers to our vision and have in fact consciously stayed away from creating new slogans within our business direction, as outlined below, which describes what we want to be.
Marico is committed to improving the quality of people’s lives, in as many parts of the world, through fast moving branded consumer goods - primarily in nature care and health care.
In the nature care business: Marico will offer brands that enhance the appeal and nourishment of hair and skin through distinctive products, largely based on the goodness of coconut and other natural substances.
In the health care business: Marico would make available a variety of branded products needed for healthy living, drawn from agriculture and offered both in natural and processed forms.
In the international business, Marico would develop a franchise for its brands, in parts of the world beyond the sub-continent.
Marico will aim to be a leader in each of the businesses; by heightened sensitivity to consumer needs, setting new standards in the delivery and quality of products and through processes of continuous learning and improvement.
Marico will share its prosperity amongst members, shareholders and associates who contribute in improving Marico’s equity and market value. Marico will acquire the stature of a friendly corporate citizen, contributing to the betterment of neighbourhood communities, where it is significantly present.
We have moved reasonably on the path to our vision. However there is a lot to be done yet.
EQTM: What was the management’s rationale for the preference share decision on the enhanced capital?
Mr. Mariwala: Marico’s endeavour has been to continuously share its prosperity and enhance shareholder value through innovation in the quantum, range and versatility of the instruments of distribution to shareholders.
Consequently, Marico wanted to have an increased payout that optimized tax for the shareholders, optimized liquidity for both, the company and the shareholders, and also maintained the frequent distribution track record built over the past few quarters. At the same time, an increased payout had to fit in with the cautious optimism on the business outlook front.
A special distribution, 8% bonus redeemable preference shares, to shareholders was therefore an ideal choice – which would balance the payout commitment with the likely need for funds in the future.
The RePS are beneficial to the company as they provide flexibility through a committed but deferred payout through a quasi-debt instrument, which would improve the RoE (return on equity shareholders’ net worth). In addition, to capitalise on any investment/acquisition opportunities that may present themselves, Marico continues to hold an unutilized debt capacity.
EQTM: On the personal front, what are your other interests besides managing Marico?
Mr. Mariwala: I am an active golf player. My other hobbies include swimming and listening to Indian classical music.