Soap Wars Two

JUST one man, in less than one generation, has become the homegrown business hero. A little over two decades after the birth of Nirma Washing Powder, handmade by Karsanbhai Patel, the Gujarat-based Nirma group is growing, and how. It's investing heavily in the latest technology, going in for massive backward integration (setting up ancillary units to produce the raw material for the final product), launching a slew of brand extensions. And turning transnational. Says Patel:

"TNCs have their own strategy. We have ours. Let the market choose the winner." While the market mulls over the choices, Patel has no doubt that Nirma is entering a new phase in its history. "We will be the only soaps and detergent company in the country, perhaps the first of its kind in Asia, to adopt backward integration in its manufacturing processes." It definitely is the first Indian company to raise equity through book-building. So far, only debt issues have been built by book. Nirma hopes to raise "anywhere between Rs 350 crore and Rs 400 crore to part-finance our soda ash project, which we expect to cost Rs 1,037 crore," says Kaushik Patel, vice-chairman, Nirma Credit & Capital.

Nirma Ltd went public in 1994 at a premium of Rs 100 per share, and now quotes at around Rs 350. Lead manager J.M. Financial believes the second equity offer will sell at between Rs 350 and Rs 400 per share. Says a foreign fund manager: "Considering its cost leadership and future potential, Nirma, even at Rs 400, is a steal."

 Not only financial analysts, even competitors are keenly observing Nirma's backward integration plans. Its 75,000 tonnes per annum Linear Alkyl Benzene (LAB) plant near Vadodara has just gone on test run. The soda ash plant, to be set up near Bhavnagar, will have a capacity of 400,000 tonnes per annum. Says Kalpesh Patel, Karsanbhai's son-in-law and heir apparent, Nirma's executive director: "Once the two-plant backward integration is complete, our cost of detergent manufacture should drop by a further 25-30 per cent."

 Nirma detergents are much cheaper than other brands (see table), and its price-based strategies have already spawned case studies in business schools across the world. Coming in at an astonishing Rs 3.50 per kg in plastic pouches, when the cheapest detergent brand was Rs 13 per kg, Nirma soon came to dominate the market, a position it never relinquished despite the many clones, even when Lever put its might behind the cheap Wheel. Today when the market size is upward of Rs 7,500 crore, Nirma is number one. And with over seven lakh tonnes of detergents sold every year, Nirma would be one of the world's biggest brands.

Says Karsanbhai: "I had backward integration in mind from day one. Once we have the full range, the gap with TNCs (read Hindustan Lever) shouldn't be much." In the soaps and toiletries business, Lever is ranked number one with almost 70 per cent marketshare. Nirma, ranked two, has captured more than 15 per cent in seven years, while Procter & Gamble, Godrej and unorganised businesses fight it out for the rest. In detergents and washing powder, Nirma outstrips Lever with a 40 per cent share.

A lead Patel intends to retain. To start with, "not only will costs come down, the latest technology will ensure quality to match," says Kalpesh. The LAB plant with technology by UOP International of the US is the second of its kind in the world; the soda ash plant uses technology from AKZO Nobel of the Netherlands.

IN a recent modernisation drive, Nirma also set up Italian technology from Binacchi and CMB that can produce 500 toilet soaps per minute wrapped and carton-sealed for dispatch. Says Karsanbhai's son Hiren: "No plant in India has such state-of-the-art facilities." The Moraiya complex near Ahmedabad also houses a packaging unit which has imported the latest eight-colour printing machinery from Cerutti Spa of Italy. This unit makes about 2 million polypouches (right from the raw material—low-density polyethylene—stage) and prints about 20 billion soap and detergent cake wrappers a day.

The next war Nirma intends to launch is in the personal toiletries market. In detergents, Nirma had a huge price gap to exploit, and the element of surprise on its side. In toiletries, it faces a galaxy of brands like Lux, Camay, Sunsilk, Clinic, Liril, and Pond's, each commanding reasonably large marketshares. The Patels, of course, are confident. Says Hiren: "We are all set to repeat the success of Nirma Washing Powder...." While maintaining its price leadership, Nirma's new growth mantras are quality and brand loyalty. For the premium end of personal toiletries segment, it has launched Nirma Beauty and Nirma Premium soaps, Nirma shampoos and Super Nirma Detergent blue powder. The group has always believed in umbrella branding: Nirma is the only brandname its products will ever have. Says Karsanbhai: "Sony is an umbrella brand as is Ford or Omega. The point is that Nirma stands for freshness and quality and all its products reflect the brand."

 Of course, only time will tell whether facts will bear out this confidence: while umbrella branding is common—and has been highly successful in consumer durables—it has never worked to that extent in non-durables. Pond's toothpaste sank without a trace, Palmolive and Dettol soaps haven't actually set the Ganga on fire. But Karsanbhai points out the other advantage of umbrella branding: reduced advertising costs. Argues he: "The Levers spend over Rs 150 crore per year for brand development which is all charged to the consumer, while our advertising costs are less than Rs 20 crore." In the meantime, Nirma continues its irritating—for Lever—copycat strategy. Nirma Super's packaging looks similar to Surf's; like Lux, wrappers of Nirma Beauty soaps carry a film star—Manisha Koirala—on them.

But Karsanbhai's key concern is getting rid of the lower-end tag that dangles from Nirma products, a perception that matters more than reality in the non-durables market. "In terms of quality, our products are as good or bad as any other, not just in the country but internationally," he says. Lux is priced at Rs 9 a cake with 50 per cent total fatty matter (TFM)—higher the TFM, better the quality, and hence price—while Nirma Beauty retails at Rs 6 for 70 per cent TFM. And yet Lux is by far the more popular of the two. This is something that Karsanbhai has left to the next generation—son-in-law Kalpesh, and sons Hiren and Rakesh. Says he: "The backward integration and the enthusiasm of the next generation at Nirma couldn't have come at a better time." The task for the new breed is to consolidate the detergent sector and grow into the personal soaps market through stringent control on quality and pricing. The structure is in place. During the past few years, the public company Nirma has merged several of its private concerns—Nilnita Chemicals, Nirma Detergents, Nirma Soaps & Detergents and Shiva Soaps & Detergents. This translated into a turnover of Rs 1,350 crore from nine locations in 1996-97.

The marketing wing, Alpa Marketing Enterprise, will also become a fully-owned subsidiary of Nirma, rechristened Nirma Consumer Care Company. Only Nirma Chemical Works Pvt Ltd which owns the brand Nirma will remain with the promoters. Which means that even if there is a takeover attempt—unlikely since Karsanbhai is not willing to reduce the family stake to below 51 per cent (see interview)—the most valuable asset of the family, the Nirma brand, will remain with them.

Says Kalpesh: "We have also set up a joint venture operation in Bangladesh and have started marketing ventures in West Asia and Africa. We are also looking at the Chinese market." That may be seen as a poor cousin's efforts to turn transnational, but Nirma is looking at it as an opportunity. For Karsanbhai, the sky is the limit.