TK launches rival condom brand after losing Durex rights
After buying out the entire stake of the condom manufacturing and distribution business for around Rs 150 crore from its foreign partner, TTK Healthcare has launched its own brand, 'Skore'.
The company said it was ceasing the distribution of Kohinoor and Durex brand condoms, the rights of which would be with Reckitt India.
The TTK Group had decided to buy out the entire interest of its foreign collaborator in TTK-LIG Ltd, a joint venture which had the licence to manufacture Kohinoor and Durex.
"We started the brand building exercise almost six months before and have launched our own brand today. We have an experience of 65 years in this business and have confidence in winning the market," said T T Jagannathan, chairman of TTK Healthcare. He added the brand building exercise would continue for five years.
While sources said the stake from the foreign partner would be worth Rs 150 crore, Jagannathan refused to divulge the price for buying out the 49.87 per cent stake of the foreign partner, New Bridge Holdings, part of Reckitt Benckiser, in TTK-LIG.
Earlier, Business Standard had reported the agreement for New Bridge Holdings to sell its 49 per cent share in TTK-LIG to the TTK Group. TTK-LIG would sell a 49 per cent stake in another partnership SSL-TTK, manufacturer of the Scholl footware and footcare brand, to the Reckitt Benckiser group. While the agreement regarding the settlement was signed at the end of September, the actual transfer happened today, including the transfer of money and the other formalities, said sources.
The 49 per cent stake sale in SSL-TTK to Reckitt Benckiser has to wait for approval from the Foreign Investment Promotion Board.
The agreement signed in September included New Bridge Holdings buying all the stocks with the trademarks of Reckitt Benckiser, including Durex, Kohinoor and Fiesta. TTK-LIG will henceforth be almost fully owned by TTK.
Source : http://www.business-standard.com
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Will The Appeal Last?
There may not be enough momentum for page industries, the local franchisee for jockey, to keep stretching its multiples
Page Industries share price in Rs
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Here’s a jockey who has ridden unhindered through tumultuous market cycles and produced outstanding returns for investors. He goes by the name of Prashant Jain, chief investment officer, HDFC AMC, the country’s largest asset management company by assets, and who is ranked among the best fund managers ever. So, it’s not surprising that given his enviable track record, every stock that he picks or dumps is keenly watched by the investing community. This time around, Jain has dumped one of the market’s favourite stocks, Page Industries. The innerwear major has been a darling of the bourses for a while now, with the stock gaining more than 12 times in value since the beginning of 2009. It is a story that investors and analysts couldn’t seem to get enough of, thanks to its consistent revenue and earnings growth, strong return ratios and generous payouts. But Jain has used the meteoric rise to jump off the saddle. From July 2011, when the stock began rallying from around Rs 1,900 levels, he has more than halved the holding in HDFC Prudence from 780,000 shares — which the fund had been holding since March 2008 — down to 312,000 shares as on date, when the stock is quoting at Rs 4,600. So, why would a top fund manager want to sell a multi-bagger stock? Is the growth story losing momentum or is there still enough steam left to justify Page’s lofty valuations? We decided to find out.
Page is better known in India for the brand it sells in India — Jockey. The Genomal family brought the brand to India in 1994, although its association with the Wisconsin-based innerwear maker goes back over 45 years — the family has been Jockey’s licensee in the Philippines since the 1960s. Page Industries has the right to manufacture and distribute Jockey brand innerwear and leisure for men and women not only in India but also in Sri Lanka, Nepal, Bangladesh and the UAE. Currently, the company sells Jockey products only in India and Sri Lanka, with plans to start with the UAE and Bangladesh soon. With the licence renewed till 2030, royalty payments are fixed at 5% of sales.
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In ship shape
One reason for that is Page’s distribution network. “Jockey’s biggest strength is its distribution network, which new entrants will find very difficult to replicate,” concurs Shivani Bhasin Sachdeva, managing director, India Alternatives Investment Advisors (IAIA), which has invested in one of its peers, Gokuldas Intimatewear (which owns women’s innerwear brand Enamor). Currently, the company is present across 1,200 cities and its products are sold through 400 distributors in around 23,000 retail outlets and 100 exclusive brand outlets. “We have a strong distribution base that can cater to many more years of growth,” says Genomal. The premium positioning and price allows Page to give its distributors and retailers hefty margins of 11% and 28%. The exclusive brand outlet (Jockey Zone) owners, who buy from distributors, get around 30%, allowing them to make 20% return on their investment. The number of Jockey Zones rose from 71 in FY12 to 100 outlets in FY13 and Page plans to add another 35-40 outlets in the current fiscal. The company already has 60% share of the organised retail market (large format stores) and as the share of organised retail increases from 18% now to 25% of the overall retail pie, it will put Jockey on a stronger wicket.
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Page is working on that. In addition to shapewear for women, the company recently introduced performance sportswear for men and also launched POP, a premium men’s innerwear label with waistbands in vibrant neon colours. In all, it introduced around 32 new styles in 2012 across segments.
Last year, it also became the exclusive licensee of swimwear brand Speedo — the brand is already available in 630 outlets across 62 cities and five exclusive outlets. While Speedo contributes a modest 2% (Rs 16 crore) to revenues, analysts expect its share to grow to around 5% in two or three years. Though swimwear market in India is still minuscule at Rs 200 crore, it is expected to grow rapidly helped by the increasing awareness of fitness and staying healthy. Also last year, the company introduced kidswear, which will not only help increase market share but also, hopefully, hook customers for life. In any case, it’s a big window for growth: the overall kidswear market is pegged at Rs 48,000 crore but expected to nearly double by 2016 as parents’ willingness to spend on their children increases.
Of course, growing market opportunities come with their own problems. The innerwear market is becoming increasingly crowded. While international brands such as Fruit of the Loom, Calvin Klein, Hanes and Tommy Hilfiger have made their entry in the past few years, domestic players such as Rupa, Lux and VIP are also aspiring to an increasingly premium customer group. Still, Page has managed to hold its own. “Some foreign players have not been able to make it work. You cannot just throw marketing dollars and create a brand in this segment. It takes time and only companies that get the customer connect right by understanding buyer behaviour and maintain product quality at reasonable prices will be successful,” says IAIA’s Sachdeva.
To Page’s credit, even in the face of growing competition, it has been able to pass on increases in input prices, which indicates its strong brand strength. Over the past two years, price realisation has moved about 10% higher to accommodate rising raw material and labour costs. “We have strong pricing power so we have managed to achieve our aim of being an aspirational yet affordable brand despite volatility in material prices such as cotton, particularly in the past couple of years,” says Genomal. The company is also ensuring that it is well-equipped to meet the increasing demand. “We continue to plan expansion of our capacity at 25% per annum, which will be funded by internal accruals,” he adds. In FY13, the company increased its capacity from 110 million pieces the previous year to 135 million pieces at a total cost of Rs 35 crore funded by internal accruals. The average realisation is Rs 108-110 per piece.
A stretched feeling
While greater contribution of higher value and faster growing products such as women’s and sportswear bodes well for the company on the revenue front, it could face a problem or two on its working capital and inventory management. Women’s and sportswear are prone to quick changes in fashion trends, which means Page needs to maintain more stock keeping units. As a result, its inventory days have moved up from 64 days in FY02 to 100 days in FY13 and with these segments growing in importance, that number is only likely to go up in future.
Increasing inventory levels and capital expenditure have led to a longer working capital cycle and impacted Page’s ability to consistently generate free cash flows. According to a report by Emkay Securities, dividend payouts (including tax) have been higher than free cash flows generated since the company’s listing in 2007, barring 2012, and this has led to increasing debt levels.
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Revenues over the next two years are expected to grow at an average of 24% coming off the previous five-year average of 38%. While margins are likely to gain from the removal of excise duty of 3.6% on branded garments, which the company has not passed on to its consumers, Page is likely to re-invest the gains in the business through branding initiatives, leaving operating margins stable at around 19-20%. “Branding initiatives are important to us because we realise this is not a 100 metre sprint but a marathon. So any excess money we make, we invest in branding,” says Genomal. Earnings growth is likely to move up by about 25% during the same period.
While there have been concerns on slowdown in consumer spending and the possibility of consumers switching to economy brands, The Equity Desk’s Maheshwari feels that at best there could postponement of purchases. “Brand stickiness is very high in this business. So there will be no serious threat to Jockey unless they slip on product quality,” he says. The company, too, isn’t too perturbed by the current slowdown in consumer spending. “Our core products [innerwear and basic leisurewear] are relatively non-discretionary, need based and affordable in terms of ticket price. So we see no reason why we should not be able to continue on our growth path, especially as the macro economic situation gets better,” says Genomal.
While the structural story remains intact, it is to be seen whether Page will be able to sustain its dividend payout by generating consistent cash flows without raising additional debt. Revenues and earnings continue to grow at a healthy rate, but the stock could see some de-rating if it doesn’t sustain its payout levels. At 35 times estimated FY14 earnings, the valuation looks steep with PEG of more than one. In other words, investors can take the cue from Jain and book profits at current levels.
