Tuesday, September 14, 2010

Strategy Digest Volume 5

Stake in Paras up for grabs

(Expansion strategy)

Paras Pharma is the Ahmedabad-based unlisted firm which manufactures over-the-counter and personal care brands like 'Moov', 'Krack', 'D Cold', 'Set Wet' etc.

Its products are popular but have a low penetration till now, which indicates their future potential. Its two major equity holders – Actis and Sequoia Capital – are looking to sell their stake for around $700 million. Companies that would have synergies with Paras Pharma products would be FMCG firms and other pharmaceutical companies. This synergistic effect has been recognised as is evident from the nature of the companies (Marico, Dabur, Emami, Glaxosmithkline) which have expressed interest in buying a stake in Paras.

P&G reduces prices; may lead to price war

(Market competitiveness strategy)

In what could lead to a price war in the competitive FMCG market, FMCG major P&G has decided to reduce the prices of certain brands even though input costs have been increasing. It has reduced the price of Whisper Choice, a product for female hygiene, by 20% and that of Pampers Baby Active, a baby care product, by 12%.

It is usually difficult for companies to reduce prices in these categories since they have high taxation. However, following the price cut by P&G, it is likely that rivals such as Johnson & Johnson will also cut prices, leading to a price war.

Expansion of JK Tyres

(Expansion strategy)

In view of increasing demand, JK Tyres is undergoing an aggressive expansion policy with smart pricing policies. Since the prices of rubber have risen (doubled in the past one year), JK Tyres has increased its prices and passed on the increase in raw material costs to the car and commercial vehicle manufacturers.

They have also decided to explore a segment they had left 20 years back – two wheelers – after looking at the rapid growth in the segment.

Vishal Retail finds buyer

(Survival strategy)

Vishal Retail, which was under heavy debt and had been looking for a buyer, has finally succeeded in finding buyers for its business ensuring its survival. It will sell its frontend retail trading business to the Shriram Group and the back-end wholesale trading business to the Indian arm of private equity firm TPG for a total consideration of Rs 100 crore.The sale will also include all the underlying assets and liabilities of the firm.

Vishal Retail, which conducts its business under the names of ‘Vishal’, ‘Vishal Megamart’ and ‘Vishal Fashion Mart’, had declared accumulated losses of Rs 427 crore as on March 31, 2010, which exceeded the net worth of the company. It has expanded its business using the debt-heavy capital structure but its earnings fell below expectations during the economic slowdown.

Even though Vishal Retail has ensured its survival through this sale, it will lose its core business of retailing and will have to look at new business avenues.


  1. Very nice analysis.

    About Vishal Retail : Its interesting to observe the demise of its retail outlets. With its focus on low priced (heavily discounted) clothing, I would have expected it to do comparatively better during the slowdown.
    What is intriguing is whether this also marks a change in Indian buying behavior...that of often driving a hard bargain towards cost minimization. Is it a sign of Indians looking at visiting and purchasing at AC outlets, as a style statement and no longer as just another purchasing avenue ? Is it that, Vishal as a brand has been weighed down as something "cheap", which the modern metropolitan youth cannot flaunt ? Only time will tell...

  2. Regarding P& G price War:-
    I would like to ask why P&G is focusing its price variation only in Sanitary products. As mentioned above as well that Tax is quite high in these product then why it is not looking for product like Surf, Soaps and other fast moving product than Sanitary products. another matter of fact is that other product have high penetration as compared to Sanitary product so this strategy will be more successful for such product.

  3. Dreamer: Thanks. Yes, it is interesting to see the change in the attitude of the Indian buyers. However, what mostly went against Vishal Retail was the fact that they had not accounted for such a slowdown. Just like Subhiksha, which operated on a similar model, it took more debt than sustainable.

    Although the buying behaviour is changing, there is still potential for low-cost players as has been exhibited by Big Bazaar.

  4. Anupam: Good question. The reason why P&G has reduced prices of its sanitary products is because it is very difficult to increase prices on them. As you said, the penetration level for sanitary products in less than 15% in India, a reduction in prices would definitely increase penetration.

    Since detergents and soaps have high penetration levels, reducing prices on these products would simply lead to a price war and a reduction in their profits since there would be limited increase in demand.