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Nina Varghese

Mr A. Satishkumar

CHENNAI, Oct. 3

MOST of Henkel Spic products are in mature categories like detergents, toothpaste and soaps. Despite high penetration, these products have managed to grow faster than the market. Mr A. Satishkumar, Managing Director, Henkel Spic, spoke to Business Line on the revival of demand and hoped that the year would end with a decline of just one per cent in the product categories that the company is present in. Excerpts from the interview:

FMCG companies were talking about a revival in demand (after a good monsoon in 2001) in the initial months of 2002. But with nine months of 2002 behind us, what has been the trend in demand for FMCG products? How has the erratic monsoon impacted you?

The bad or good effects of the monsoon happen with a lag. It takes two quarters into a financial year before you can see the effects. Actually, we are in a revival mode and might finish the year with a decline of just one per cent in the toilet soap category while the year started with a decline of 8-9 per cent in this category.

The decline in the FMCG segment started in the third quarter of 2001. In the first two quarters of the year, FMCG products continued to decline. In the third quarter, the decline has been arrested. The third quarter also witnessed an increase in input costs as prices of neem oil, coconut oil and palm fatty acid distillate (PFAD) have gone up by more than 20 per cent. The growth has happened despite the increase in prices. There could not be a decline in volumes because the human activity around these products has not gone down; people have not stopped washing their clothes or themselves.

In the second quarter of 200,1 the industry registered a decline in volumes. The volume drop was mainly because there were a number of consumer promos with freebies thrown in which have not been reflected in the ORG data. These free volumes were not captured. But the decline was there in value growth.

What are the reasons for this recovery that the FMCG segment is witnessing?

I think the decline in several categories has been high and with reasonably good agricultural production last year, rural demand has started picking up. There has also been some modest recovery in some of the industrial sectors. In 1999-2000 consumers moved up the value chain from low end to premium categories of products. When there is slowdown in the economy, generally people downgrade or move down the value chain. So there will be value decline, not volume.

Henkel Spic competes with companies with deep pockets and large ad budgets like HLL, P&G and Nirma. Don't you find that small size is a handicap?

Of course. Being small in size, we do not have deep pockets. But advertising and promotions are the only way to gain brand equity. Instead of national campaign, advertising is more focussed on regional markets where the brands are stronger. The average marketing spend would be in the region of 20 per cent of the turnover.

Of late there has been intense competitive activity in the FMCG market with most brands handing out freebies and price cuts. As a relatively small player, how much have you been impacted by this? What will be your strategy on ad and promotional spends?

Everyone has been impacted by the slowdown and because of the freebies the top line growth has been impacted. How long can all of us do this without eroding the equity of the brand is the question. The strategy would be to spend in more focussed regional markets where the brand is perceived to have equity. Our strategy would be to consolidate our focus in certain key areas. Henkel brands are strong in the four southern States and in the East.

Henkel Spic operates in mainly mature product categories like soaps, detergents, toothpastes where the market is sluggish or shrinking. What are your growth strategies?

I agree that the penetration is very high in most of these categories. In soaps it is 98 per cent, detergents it is 93 per cent and in toothpastes it is 50 to 60 per cent. But the per capita usage is still way below most of the developing country averages. So there is still room to grow. Growth would also come when consumers upgrade and move up the value chain. The growth in volumes has remained stagnant in most of the categories this year while value growth has depended on the pressure by the brand. We are at the high end of the market and are clearly growing faster than the market.

You have announced a plan to write off accumulated losses from the share premium accounts. What is the progress on this front?

We are still making an evaluation on this. There is close to Rs 178 crore in the share premium account. This would set off the carry forward losses, then we could think of declaring a dividend. This requires court clearances and we are working on that. We will arrive at a decision shortly - in six months or before the end of the year.

How far have you debt-restructuring efforts progressed?

The company has no long-term debt. We have only short-term loans for working capital. We have arrangement with banks and have issued commercial papers guaranteed by a comfort letter given by Henkel, the parent company.

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