Emami on Tuesday said brands operating in the niche category with high margins and low multinational presence are a strong strategic fit for the company, and added that the Dermicool brand offers great synergy with its existing business.
During a conference call organised by IIFL Securities on Emami’s acquisition of Dermicool, the management said none of the largest players are investing in the prickly heat powder and cool talc category, and therefore, there is “ample room” for growth in the first five years. “At least a double-digit growth is what we expect for the first five years,” director Mohan Goenka said, replying to analysts.
The Kolkata-based FMCG major announced the Rs 432-crore acquisition of Dermicool, currently the No. 3 brand in the Rs 750-800 crore category, from consumer giant Reckitt on March 25. After this acquisition, the company will become market leader with around 45% market share in the niche category, replacing Zydus Wellness’ Nycil. Emami’s own Navratna Cool Talc is No. 2 brand in this category.
- I would like to mention that their (Dermicool) margins are higher because they have not advertised so much over the last two years. But at the same time just to give you the perspective, Navratna Cool Talc’s gross margin is almost in the range of 67-68%, whereas Dermicool’s gross margin is 55%. We see a headroom for growth in margins there, which we will put it in advertising. I don’t see much pressure on Ebitda margins going forward,” Goenka pointed out. He informed Navratna Cool Talc was growing fastest in the category.
- Right now, our strategy would be first to gain what we have lost over the last two-three years, what they (Dermicool) lost over the last two-three years. Then we will, of course, go for the (larger) penetration (of Dermicool brand) and launch different stock keeping units (SKU) variants in different geographies,” Goenka said.
- Once we settle with this acquisition and when it (Dermicool brand) comes into our fold, we will definitely start looking at further extensions into this category,” he added.
The company said it will leverage Dermicool’s distribution, thereby optimising trade, consumer and media spends. “It is not only present in a high growth and a low penetrated category, it is also a highly profitable brand, which will be EPS-accretive in the first year of operations. With increasing global warming and soaring summer temperature such problem solution niche products are poised for strong growth in the future,” Emami
At present, Dermicool commands 20% market share. Navratna currently has around 25% market share. Combining these two brands, the FMCG maker will have a total market share of around 45% in the prickly heat powder and cool talc category.
Dermicool’s net sales stood at around `113 crore in the calendar year 2021. It has gross margins at 55% and Ebidta margins at 38%.
Talking to FE, Naresh Bhansali, CEO-finance, strategy and business development and CFO, Emami, said gross margins in the prickly heat powder and cool talc category are high. The company would be investing behind the Dermicool brand in marketing. And despite investing behind the brand, it will command ‘good’ Ebitda margin.