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ITC's next frontier
Business Standard - 05 Nov 2012

The personal care business, launched in 2008, has grown  steadily. But competitive activity and the presence of well-entrenched players  remain a challenge

The ads in national newspapers are hard to miss.  Kolkata-based consumer-products-to-hotels giant ITC has left no stone unturned  in pushing its estimated Rs. 700-800-crore personal-care division. The past one  year in particular has seen the company advertise its personal care products  aggressively going for nothing but the front page of national dailies in its  quest for visibility. By analyst estimates, after foods, personal care remains  one of ITC's stronger business units within its Rs. 5,500-crore non-cigarette  fast moving consumer goods (FMCG) portfolio.

While the company does not provide a break-up of individual  segments, analysts say that personal care has been growing at a clip of about  25 per cent per annum in terms of top line - in line with the growth that ITC's  non-cigarette FMCG portfolio (called FMCG- others in the company's financial  results) has seen in the last few years.

On the bottom line front, however, analysts estimate the  personal care division is likely to break even in about two to three years  only. "It will take at least two years for them to be profitable," says Varun  Lochab, co-head (research), Relegare Capital Markets. "This has partly to do  with the competition in the category," he says.

Despite this, factors that have contributed to its top line  growth so far have been product expansion and reach. Sandeep Kaul, chief  executive, personal care, ITC, admits as much, "The personal care business is a  recent entrant in the intensely competitive personal care category in India. In  a short span, it has built a portfolio of brands that cater to a wide spectrum  of consumer needs."

With four lines - Superia, Vivel, Fiama and Essenza - ITC  has segmented the market neatly, but the task hardly remains easy given that  rivals such as Hindustan Unilever (HUL) are also playing the same game. HUL's MD  & CEO Nitin Paranjpe says the company would continue to straddle the price  pyramid with products targeted at every segment. "The heart of this company's  strategy has been to have a portfolio of offerings. This means we have products  at the centre of the market, at the bottom of the pyramid and at the top-end of  the market," he said.

ITC, then, may not be doing something radically different  with a neatly segmented bunch of products right from Superia, which sit at the  lower end of the market to Vivel, a mid-tier product, Fiama, targeted at the  upper end, and Essenza, at the premium end of the market, but what it is  counting on is a basket of innovations backed by strong advertising to help it  stand out of the clutter.

ITC has also wasted no time in entering multiple categories  from skincare to hair care, lip care, fragrances and body care in the last few  years emerging as one of the few personal care companies whose run rate in  terms of new launches is fairly high.

To achieve this, Kaul says, the company has invested in a  state-of-the-art "Laboratoire Naturel" or R&D centre in Bangalore, which  comes up with new products at regular intervals using consumer insights backed  by psychometric evaluation. "India is a market with multiple consumer segments  and needs. We are committed to considering categories that will meet these  evolving needs," he says.

Analysts, however, believe ITC will have to be watchful that  it does not spread itself too thin in personal care. The focus instead should  be on existing categories, they say. "If they keep entering new categories, it  can take even longer to break-even," says an FMCG analyst on condition of  anonymity.

In core segments such as soaps and shampoos, for instance,  ITC has about 6-7 per cent and 3-4 per cent shares respectively, according to  market estimates. While it is reasonably good given the division has achieved  this in a span of four years only, taking it up from here can be challenging.  Thanks to the presence of strong incumbents such as HUL (in soaps and shampoos),  Godrej Consumer (in soaps) and Procter & Gamble (in shampoos). In a recent  report on ITC, IDFC Securities' Managing Director Nikhil Vora said he saw  limitations to where the company could take share gain in personal products.  "In soaps, ITC's share has remained stagnant for two years. The same has been  the case in shampoos despite having a strong distribution network and brand  presence across price points," he wrote.

Kaul, however, has a different point of view to offer. "We  are committed to being a serious player in the personal care industry. We seek  to address functional and emotional grooming needs, which we will continue  doing," he adds.

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