Zandu Pharmaceuticals New Prescription

Updated: Jan 25 2003, 05:30am hrs
Drooling over everything that is natural is perhaps the latest mantra for the hip and the happening young generation. But for Zandu Pharmaceutical Works Limited, a company that manufactures a range of ayurvedic products specialised in rheumatology, gynaecology and the central nervous system, it is a way of life. The company has been providing ayurvedic healthcare remedies to the Indian populace for over 92 years. Operating in a fragmented industry with several unorganised players, Zandu has been able to create a brand equity and take a few harsh decisions. This has perhaps been the key to its survival in a highly cut-throat market.

Bhaskar Parikh, VP (Sales, Marketing, HR), Zandu Pharma
Today, Zandu armed with recommendations from A F Ferguson, is singing the same tune as most of its peers in the industry and talking of core competency and shareholder value creation. The company, which was till recently toying with the idea of launching several new products and getting to herbal cosmetics in a big way, is however now talking about concentrating on the existing product range. We have taken a conscious decision to not add any new products for the next two or three years, says Mr Bhaskar Parikh, Vice President (Sales, Marketing and HR).

What has perhaps prompted such a move is not just the escalating advertising costs but also a desperate attempt to outshout their way amongst the other hoarse-crying competitors who have even deeper pockets. Zandu competes with players like Dabur, Baidyanath, Emami and Himalaya for its Chawanprash range of products and with players like Procter & Gamble and Amrutanjan for its pain balms.

Cost Management
With nearly 90 per cent of its current Rs 113.63 crore turnover coming from the OTC (over the counter) segment, Zandu has little choice but to heavily invest in advertising and promotions. The advertising budget which has already zoomed dramatically from Rs 9.86 crore in 2000-01 to Rs 13.52 crore in 2001-02 is expected to move up further and hover around Rs 20 crore this fiscal. We have to consider that the overall spends for a particular segment is increasing substantially and maintain our share of voice, says Mr Parikh.

With little control on shooting sales and marketing promotion budgets, the company embarked upon attacking costs on other fronts. The personnel department was replaced with a much more sophisticated human resource (HR) department armed with modern toolkits. The company has downsized its manpower strength by 250 over the past two years and brought down employee costs from Rs 11.84 crore in 2000-01 to Rs 10.77 crore in 2001-02. We are yet to reach an optimum level and further rationalisation is on the anvil, says Mr Parikh. The company has therefore, freezed recruitment and extensions and done away with employees retained on a temporary basis. What is it also focussing on performance management programmes.

Costs have been attacked from other corners as well. There has been a continuous effort to streamline operational costs. The inventory of finished goods have been brought down by 20 per cent over the past one year and outstandings from sundry debts have been brought down from 36 days to 15 days. These have resulted in squeezing working capital requirements by nearly 20 per cent. Further reduction in working capital is on the anvil, as the company has now embarked upon an exercise to control its raw material inventory.

Market Dynamics
ORG figures reveal that Zandu is a leader in the pain balm segment with 24 per cent of the overall market, even ahead of Procter & Gambles Vicks Vapour Rub. The company is strong player in the southern markets with nearly 60 per cent of the market in Andhra Pradesh.

The other major segment where Zandu is a strong player is Chawanprash. Zandus products: Zandu Special Chawanprash, Zandu Kesri Jeevan, Tisun and Zandu Pancharishta are all pegged at the premium end of the market. These products contribute to nearly 60 per cent of the companys sales. In this Rs 400 crore market, players like Dabur, Baidyanath, Emami are ahead of Zandu.

While, Zandu along with Dabur, Baidyanath have been traditionally strong players in the Chawanprash market, there has been a large number of companies entering this market. Players like the Himalaya Drug Company etc are aggressively tapping this market with huge advertising budgets. The latest competition in the Chawanprash segment will come from taste segmentation, when players will undertake flavour segmentation, says Mr Parikh. Despite stiff competition, Mr Parikh believes, the company will continue to post 10 per cent growth in this segment. While Zandu balm is strong in the southern states of Andhra Pradesh and Tamil Nadu, the northern markets are substantially stronger for its Chawanprash products.

What has also contributed significantly to this growth is its wide distribution network. Once the company decided to venture out of Maharashtra and Gujarat, it spread its wings rapidly. From just 70 odd distributors in 1976, Zandu has 1500 distributors across India currently supplying its products to over one million retail outlets.

The ethical division that was started in 1978, contributes around 10 per cent to the turnover. The company has a wide range of ethical ayurvedic formulations for malaria, diabetes, skin problems, arthritis, liver problems and diabetes.

Zandu has also received a USFDA approval for conducting investigative clinical trials for a potential cure for Parkinsons disease, for which it has a patent in India. Once approved in the US, the company will explore options of assigning the marketing rights to an overseas company.

Despite a long product portfolio and a relatively smaller contribution to the turnover, Zandu has no plans to trim its product portfolio because a large number of these products have strong regional presence. The fact that Zandu has modern manufacturing facilities spread across the country in Mumbai, Vapi in Gujarat, Unnao in Uttar Pradesh, Dongari in Maharashtra, Piparia in Dadra and Nagar Haveli, helps the company to manage streamline its supply chain better and tackle the regional demand of various products. The company has research and development facilities that are comparable to global standards. Using over 200 medicinal plants and their extracts, Zandu produces a range of over 300 health promoting products.

Rich History
Zandu started operations in 1910 and went public in 1919. However, till about the 1970s the company was a very small outfit, catering largely to the needs of the western region, especially in Maharashtra and Gujarat. The company grew rather slowly with a turnover touching the Rs 1.5 crore mark during the mid-seventies. Pressured by dwindling bottomlines, it was only in 1976 that the company decided to prune its product portfolio substantially. The first to receive the blow was the non-profitable allopathic division. Since we were into generics, it did not make sense for us to continue with it, says Mr Parikh.

This step was crucial as it not only got rid of the non-profitable business, but also because it supply-chain management much easier as the product list trimmed from 700 to 300 products.

Secondly, the company selected 30 products out of the existing 300 and decided to concentrate on them. This essentially allowed the company to channelise its resources better to the faster moving products. Till 1980, the company was largely restricted to the western region as lack of a marketing thrust hindered further reach. It was only in the eighties that the company revamped its division that was handling sales into a sales and marketing division.

Today, of course, the company is talking about reaching out to markets beyond India. While exports are still miniscule with only 2 per cent coming from overseas markets, the company is tapping markets in south east Asia, Middle East, Africa to increase its presence. However, Mr Parikh believes that the export market for ayurvedic products is still nascent and below the threshold level. With products like Sevenseas accounting for 28 per cent of the demand of ayurvedic products in UK, it is still very vague as to what is considered an ayurvedic medicine, says Mr Parikh.

With the overall ayurvedic segment growing at 10 to 15 per cent, Zandu expects its growth to be at par. Efforts are thus streamlined to give the bottomline a healthier look.