Big-Bang Deal: 16

Zy­dus Well­ness' ac­qui­si­tion of some Heinz brands is set to boost brand ex­ten­sions and push up the FMCG com­pany's rev­enue man­i­fold.

India Business Journal - - CONTENTS - IBJ BU­REAU

Zy­dus Well­ness' ac­qui­si­tion of some Heinz brands is set to boost brand ex­ten­sions and push up the FMCG com­pany's rev­enue man­i­fold.

Iwas n late Oc­to­ber, Zy­dus Well­ness an­nounced a big ac­qui­si­tion that it

con­sid­er­ing for a long time. The fast-mov­ing con­sumer goods (FMCG) com­pany un­veiled its Rs 4,595-crore pur­chase plan, which would give it con­trol of some of Heinz In­dia's pop­u­lar brands.

The deal clinched by Ahmed­abad, Gu­jarat-head­quar­tered Zy­dus Well­ness will bring in Heinz In­dia's iconic con­sumer brands, such as Com­plan, Glu­conD, Ny­cil and Sam­priti Ghee, un­der its fold. The over Rs 290crore com­pany is ac­quir­ing these brands jointly with its par­ent, Zy­dus Cadila, one of the coun­try's lead­ing phar­ma­ceu­ti­cal com­pany.

Heinz's four brands will add to Zy­dus Well­ness' per­sonal-care and well­ness prod­uct brands, such as Sugar Free (sugar sub­sti­tute), Everyuth (skin­care cream), Nu­tralite (a healthy al­ter­na­tive to but­ter) and Ac­til­ife (nutri­tional health drink for adults). The four brands ac­quired from Heinz saw a turnover of Rs 1,150 crore and EBITDA of Rs 225 crore for the 12 months ended June 30, 2018.

Post-ac­qui­si­tion, Zy­dus Well­ness' turnover is ex­pected to grow by al­most six-fold to around Rs 1,700 crore. The trans­ac­tion is set to make Zy­dus one of the strong­est play­ers in the do­mes­tic FMCG mar­ket. With the deal, Zy­dus will have eight brands, with five of them lead­ing brands in their re­spec­tive cat­e­gories.

Zy­dus Well­ness sees the ac­qui­si­tion en­rich­ing its health food and nutri­tion port­fo­lio, which con­tributes more than 80 per cent to its busi­ness. The deal will pro­vide the FMCG com­pany con­trol over Heinz's two large man­u­fac­tur­ing fa­cil­i­ties in Ali­garh (Ut­tar Pradesh) and Si­tar­ganj (Ut­tarak­hand), adding to its own three fa­cil­i­ties of one in Ahmed­abad and two in Sikkim. It will also bring un­der Zy­dus' fold Heinz's teams en­gaged in op­er­a­tions, re­search, sales, mar­ket­ing and sup­port. Af­ter the deal, Zy­dus will boast of a com­bined strength of five man­u­fac­tur­ing fa­cil­i­ties, 1,800 distrib­u­tors and nearly 20,00,000 sales points.

"The seg­ment that Zy­dus Well­ness op­er­ates in is well aligned with the four brands of Heinz. We had very lit­tle con­flict and see great amount of syn­ergy in terms of prod­uct po­si­tion­ing and propo­si­tion," stresses Zy­dus Well­ness Chair­man Sharvil Pa­tel. The deal, sub­ject to reg­u­la­tory ap­provals, is likely to be com­pleted in the fourth quar­ter of this fi­nan­cial year. It will be funded through a mix of debt and eq­uity, hav­ing re­ceived fi­nan­cial com­mit­ments from select pri­vate eq­uity firms and some sup­port from par­ent Cadila Health­care.

Ex­cit­ing jour­ney

It has been a long and ex­cit­ing jour­ney for Zy­dus Well­ness, the FMCG sub­sidiary of Cadila Health­care. The con­sumer prod­ucts com­pany was born on Novem­ber 1, 1994 as Carna-

tion Health Foods as a pub­lic lim­ited com­pany. It set up a unit in Ahmed­abad to man­u­fac­ture low-fat, zero-choles­terol, mar­garine as a but­ter sub­sti­tute and a low-fat, zero-choles­terol cheese.

In 1996, Car­na­tion Health Foods, which changed its name to Car­na­tion Nu­tra-Ana­logue Foods, scaled up pro­duc­tion and mar­ket­ing of mar­garine as a healthy al­ter­na­tive to but­ter, which soon be­came a sought-af­ter prod­uct among health-con­scious peo­ple. A decade later, in 2006, Cadila Health­care bought Car­na­tion and made it its con­sumer prod­ucts sub­sidiary.

Two years later, Cadila Health­care de­merged its con­sumer prod­ucts divi­sion and trans­ferred it to Car­na­tion. In 2009, Car­na­tion Nu­tra-Ana­logue Foods was re­named Zy­dus Well­ness, aptly re­flect­ing the con­sumer prod­ucts com­pany as a part of the Zy­dus Cadila Group. Zy­dus Well­ness thus got con­trol of Cadila's Sugar Free brand, which was launched way back in 1988.

For a decade since 2008, Zy­dus Well­ness has ex­panded rapidly, aided by its three prod­uct cat­e­gories of sugar sub­sti­tute, skin­care and health food seg­ments. With a strong po­si­tion­ing in the sweet­ener cat­e­gory, Zy­dus' Sugar Free brand has 94 per cent of the mar­ket share. Be­sides, its Nu­tralite brand com­mands a 40 per cent share of the but­ter sub­sti­tute mar­ket, while scrub and peel-off vari­ants of its Everyuth brand and nutri­tional drink brand Ac­til­ife have built de­cent mar­ket shares around them.

Ac­qui­si­tion gains

For years now, Zy­dus Well­ness has re­lied on a strat­egy based on in­no­va­tion. Be­sides, it has fo­cused on strength­en­ing its ex­ist­ing brands and ex­pand­ing in in­ter­na­tional mar­kets, such as the Gulf Co­op­er­a­tion Coun­cil coun­tries, Africa and South-East Asia.

In early 2015, on a trial ba­sis, the com­pany launched Sugar Free Green - an ex­ten­sion of its pop­u­lar brand Sugar Free - made from nat­u­ral leaves of Ste­via plant. Af­ter ini­tial set­backs, Sugar Free Green be­came a rage in the mar­ket as dis­cern­ing cus­tomers be­gan see­ing the ben­e­fits of a chem­i­cal­free, nat­u­ral, sub­sti­tute for sugar. Sim­i­lar in­no­va­tion in its other brands has helped Zy­dus top the mar­ket share chart and grow rapidly.

Mean­while, Zy­dus' ac­qui­si­tion of a few Heinz brands is set to be a gamechanger for the com­pany. An­a­lysts track­ing Zy­dus Well­ness note that the Heinz deal can put the con­sumer goods com­pany on a faster-growth track. Cur­rently, the com­pany is reg­is­ter­ing com­pounded an­nual growth rate in rev­enue of around 4 per cent an­nu­ally. The an­a­lysts fore­see Zy­dus Well­ness' rev­enue grow­ing by about 10 per cent in the next few years, buoyed by the new brands ac­quired from Heinz.

The con­sumer prod­ucts com­pany is also look­ing at lev­er­ag­ing the newly-ac­quired brands for fur­ther brand ex­ten­sion. It is plan­ning to have brand ex­ten­sions, such as Nu­traliteSam­priti Ghee and Everyuth-Ny­cil. Af­ter the sweet suc­cess of Sugar Free Green, Zy­dus Well­ness is all set to en­ter the may­on­naise seg­ment un­der its Nu­tralite brand. It is also open to en­ter­ing the lo­tions and fa­cial creams seg­ment un­der Everyuth this year.

Ac­cord­ing to Mr Pa­tel, Zy­dus will con­tinue to fo­cus on in­no­va­tion within the ex­ist­ing cat­e­gories, such as bring­ing in new flavours, like clas­sic veg­e­tar­ian, achari and cheesy gar­lic, within the Nu­tralite brand. Last year, the com­pany had rolled out Tulsi-Turmeric face wash and NeemPa­paya scrub un­der the Everyuth brand. The com­pany is now fo­cus­ing on many herbal vari­ants to spruce up its Everyuth brand.

Everyuth, pri­mar­ily a fa­cial cleanser brand, en­joys 85 per cent mar­ket share in peel-offs and 30 per cent in scrubs. How­ever, in the face­wash cat­e­gory, its share is quite low at about 2 per cent. This is where brand ac­qui­si­tions may play a cru­cial. Be­sides, the Heinz deal could en­hance its other brands and get Zy­dus Well­ness in the pink of its fi­nan­cial health.

"The seg­ment that Zy­dus Well­ness op­er­ates in is well aligned with the four brands of Heinz. We had very lit­tle con­flict and see great amount of syn­ergy in terms of prod­uct po­si­tion­ing and propo­si­tion."


Chair­man, Zy­dus Well­ness

Heinz's iconic brands, like Glu­conD and Ny­cil, are set to push up Zy­dus' turnover by al­most six-fold to around Rs 1,700 crore.

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