Managing the tress shop

A medieval heroine from a Malayalam novel and a multinational suitor may make for a modern-day corporate fable someday, but HUL's purchase of Indulekha hair oil could turn out to be quite a case study in branding too.

The country's largest FMCG company, in 2006, sold its coconut hair oil brand Nihar to Marico even though coconut oil was and still is the largest component of hair oil consumption in India, which in turn accounts for over 60 per cent of India's hair care market. HUL also seemed to be losing interest in its ayurvedic brand, Lever Ayush that it had launched in 2002. But then just as one thought that the multinational was keen to steer away from the herbal-naturals-ayurvedic personal care category, it snapped up Indulekha from the Kerala-based Mosons group for Rs 330 crore. Recently HUL has also resurrected its ayurvedic line of products under the Ayush umbrella as an e-commerce property.

What changed HUL's mind? Is it because the hair oil market has been growing at 7.7 per cent, from 2006-07 to 2014-15, according to Nielsen? Or is it an attempt to counter the rise of homegrown brands such as Patanjali? Was it drawn by the promise of the market or forced to react to the threat of a rival brand?

Many multinational FMCG companies have reacted to the growing threat posed by companies such as Patanjali by reviving their herbal brands. But HUL is clear that it was drawn to Indulekha because of the huge potential presented by the brand in the South.

Sanjiv Mehta, CEO and managing director of HUL, said: "Indulekha brings to HUL a premium brand with strong credentials around ayurveda that will complement our existing portfolio and strengthen our presence in the hair care category. We are excited by the strong equity that the brand enjoys among consumers and see an opportunity in leveraging its 'naturals' and therapeutic positioning." HUL has bought over the trademarks 'Indulekha' and 'Vayodha' (intellectual property, design and knowhow) from the Mosons group.

Playing its natural game
According to its spokesperson, HUL has always had a strong play in the value-added segment of hair oils through its brands Clinic Plus and Dove in addition to Lever Ayush. Indulekha strengthens HUL's hand as it complements the existing portfolio very well. Besides, given that coconut-based hair oils comprise 43 per cent of the total hair oil market, it would have been shortsighted to stay away from the category.

According to the spokesperson, premium brands built on 'naturals' have a unique ability to transcend category barriers and exist across multiple businesses within personal care. The acquisition is in line with HUL's strategic intent to strengthen its leadership position in the category, he says.

Phillip Capital India Research believes the strategy to pursue an inorganic route for growth in the category is a strong positive. The acquisition will help HUL enter and develop the fast growing ayurvedic hair oil category it said. However, as a relatively small brand in the company's large portfolio, the deal will not significantly add to sales or earnings in the medium term, said the research firm.

HUL will start manufacturing the Indulekha brand of oils from 2017-18. As per the agreement, 10 per cent of the sales revenue would go to the Mosons Group for five years over and above the amount that the company has paid for the brand. Edelweiss Financial Securities said the deal (4.1x FY15 sales) appeared to be reasonable compared to 5.5x paid by Emami for Kesh King. Also the firm was hopeful that HUL's retail presence and substantive cash reserves (Rs 2,800 crore free cash flow) would help the Indulekha brand gain scale and visibility.

Position, package, market
Indulekha has, over the years, successfully been extended to three states in the South apart from Kerala, its home ground. "The brand clearly has a potential for scale-up. We will leverage the brand optimally in line with our personal care strategy," said a spokesperson from HUL.

To start with, the multinational will focus on Indulekha Bringha Oil, the flagship brand and push it harder in the states that it is already present. The full product portfolio of the Indulekha and Vayodha brands is present across the hair care category (hair oils and shampoos), skin care (face-pack, face-cream, skin-cream) and skin cleansing (soaps) products and will be introduced gradually, once the company gauges customer response. The brand had a turnover of Rs 100 crore for the year ending March 2015 of which Indulekha Bringha Oil accounted for around 70 per cent of the total amount.

Indulekha, according to the company, is available in about one lakh outlets. It sells at a considerable premium to other hair oil brands - the price for a 100ml bottle is Rs 432 (Rs 132 for Kesh King, Rs 33 for Parachute coconut oil). The Mosons group has also been innovative with its packaging and marketing initiatives and in 2014 it introduced the 'selfie bottle' which enabled application of oil directly to the scalp. The patented comb-shaped cap has increased sales by nearly 30 per cent the company says. Today, the size of the ayurvedic hair oil market in India is estimated to be around Rs 8,500 crore, of which the share of the South is pegged at Rs 2,500 crore. Apart from Indulekha, the other major players in this segment include Marico, Dabur, Emami, P&G and Bajaj.

The brand has however taken a beating in recent years as large players with deep distribution networks have managed to leverage the growing demand for natural-herbal personal care products. Under the HUL umbrella, Indulekha hopes to script a new story for itself.