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Here is something about story narration that interests all of us. It is the way characters are visualised, the interplay between them, and the incredible twists and turns. Of course, the element of unpredictability is the perfect icing on the cake. In many ways, Darshan Patel’s tryst with Fogg is no different. The episode goes back to mid-2011 when a round of focus-group discussions (FGDs as marketers call them or just in-depth interviews conducted in groups) was under way. Earlier that year, Patel’s Vini Cosmetics had launched 18+—a deodorant—but with little success. Sensing he had missed out on a key insight, he went back to doing what he knew best: consumer research. For weeks, the exercise was conducted in the top eight cities, but the insight remained elusive and Patel’s patience ran thin. Finally, he got the feedback that the deodorant got over very soon. Looking for a solution, he turned to non-aerosol pumps to regulate usage. Towards the end of 2011, Patel launched a new brand called Fogg (an acronym for ‘Friend of Good Guys/Girls’), with the tag line “bina gas wala spray (a spray devoid of gases)”, and hasn’t looked back since. In fact, it pipped market leader Axe—owned by fast moving consumer goods (FMCG) giant HUL—to the top spot within a year.
Today, Fogg commands 20 per cent of the Rs 4,000-crore deodorants market, with Axe garnering only 5-6 per cent. This kind of a growth story rarely misses the attention of eagle-eyed investors. Bay Capital had invested in the company even before Fogg was launched, and it was thereafter joined by Sequoia Capital and WestBridge Capital. In all, they put in over $200 million and were amply rewarded. The biggest bet, however, has been made by KKR, through its Asian Fund IV. The global private equity (PE) major acquired a 52 per cent stake in the deodorants company this June for $625 million, valuing Vini at a whopping $1.2 billion. This is the biggest fund infusion by a PE player in the Indian FMCG sector till date. At 8.3x sales for FY20 and 34x EBITDA—the latter being an acceptable way to judge how expensive a deal is—this valuation is not loose change. The enterprising Patel divested 35 per cent stake (it was at 59 per cent earlier) to KKR and pocketed a cool $420 million. In the new scenario, KKR holds 52 per cent—Sequoia sold its 17 per cent and made a 4x return through a full exit—with Patel and WestBridge holding 24 per cent each. The high valuation does raise the question on how much of a story is still left in Fogg and how the investment can be recouped.
Vini Cosmetics Chairman Darshan Patel's mantra is to create a high-quality product and sell it at a premium
The big-ticket deal in June was a case of history repeating itself and Patel had a role to play in it. In 2006, he sold a 23 per cent stake in Paras Pharmaceuticals, a company owned by his family, to PE fund Actis for $43 million. This was on the back of differences in the family, with a non-compete clause seeing him biding his time at his orchard. While at Paras, Patel set up its distribution network and made a huge success of brands such as Moov, Krack, D’Cold and Dermicool, setting the momentum for the company. While he had moved on, this momentum led to Paras being acquired by Reckitt Benckiser for $726 million in 2010. The deal, which led to handsome returns for promoters and investors, remains one of the biggest in India’s FMCG sector.
When Patel was biding his time at the orchard, unknown to most, he was nursing the idea of launching a deodorant company, with Vini being set up in 2009. His first brand may not have done well, but Fogg set the tone for Patel. So what’s the secret of the company’s success? A close look at Vini’s numbers is interesting. In 2019-20, it spent 23 per cent of its net sales on selling and distribution (which includes advertising and promotions) when the industry average for deodorants is at best 7-8 per cent. Patel’s mantra is simple: create a product that sells at about 10 per cent more than its competition’s price, with its high quality justifying the premium, and spend a lot to promote it. In the case of Fogg, a long-lasting deodorant was the clincher. It leads to high margins of 25 per cent at the EBITDA level. “The ability to spend on Fogg is higher than its competition because of the higher margins that the brand earns,” points out Milind Sarwate, founder and CEO, Increate Value Advisors. It is a smart play on what he terms the “abundance mindset”. “You charge higher margins, spend more on creating demand, get a bigger franchise and the higher volumes generate a high rupee margin. This money is again deployed in higher spends on demand creation. It is a virtuous cycle that Vini has been riding on,” says Sarwate.
Fogg is clearly the big story for Vini and it accounts for at least 75 per cent of the company’s revenue, a marked drop from over 90 per cent in 2016. Over time, Patel has built other brands such as Ossum and White Tone. Still, that high level of dependence could be a worry for KKR, leading to some vulnerability.
FMCG veteran Ranju K Mohan, who has spent considerable time in the deodorants business, says almost all companies in this sector succeed with one brand. “Once the sales and marketing structure is built up, they get the next brand or success in a category. It will not apply to multinationals since they have a larger portfolio that they own globally,” explains Mohan, also the co-founder and executive director of Ikigrow and Prismatic Hotels.
[Darshan Patel] has created sub-segments in Fogg. Each time he does it well, he leverages the Fogg brand
Ranju K Mohan,
Co-founder and Executive Director, Ikigrow and Prismatic Hotels
The interest in the consumer business is driven largely by the stability investors see in it. “If a company has a strong brand coupled with a history of growth, it becomes attractive. If it comes with scalability, the story becomes a lot more robust,” says Abhijeet Kundu, vice-president (Research), Antique Stock Broking. However, he is quick to add, “The brand will have to be very profitable with an ability to sustain it over a long period of time.”
Evidently, this is the opportunity that KKR has seen in Vini. On every occasion, be it at Paras or Vini, Patel identifies a need and creates a strong sub-category. According to Mohan, the ability to get that key consumer insight and then create a strong sub-category is Patel’s strength. “With this, he aims for market leadership,” he explains. This did not miss KKR’s attention, not to forget the inherent growth story in the FMCG space. “When there is a slowdown, it is the sector that is least impacted and in times of growth, it is the first to gain. That inevitably leads to getting a higher valuation from investors,” says Mohan. It is also learnt that KKR measured Vini against the likes of FMCG majors such as HUL, Marico and Dabur. “Even when the market is at a peak, FMCG stocks have not been outperformers. That is the reason for the sector to be seemingly attractive,” says Kundu. The price-to-earnings multiples of the large FMCG companies stand at anywhere between 60x and 90x; and in terms of market capitalisation, they are at least 10x-12x of their sales numbers.
If a company has a strong brand coupled with a history of growth, it becomes attractive. If it comes with scalability, the story becomes a lot more robust
vice-president (Research), Antique Stock Broking
KKR did not respond to a questionnaire from Business Today on the deal and the way forward. In a statement soon after the transaction was completed, Gaurav Trehan, CEO of KKR India, had said, “As a strong leader in India’s fast-growing personal care products market, Vini is a great example of innovative, dynamic home-grown Indian companies that KKR supports to reach their full potential. We are truly excited to collaborate with Darshan [Patel, chairman], Dipam [Patel, vice-chairman], and Vini’s talented team to strengthen the company’s capabilities, grow its product portfolio, further accelerate its expansion as well as lay the foundation for its future success.” Meanwhile, Patel (who did not respond to a detailed questionnaire from Business Today) has not been sitting tight with both revenue and profit of the company remaining on the growth path (see graphic). Nor is he going easy on Fogg. From a simple offering a decade ago with no more than seven-eight variants, Fogg sells upwards of 40 variants today with a price range to match. For example, a 100 ml perfume for women costs Rs 500, which is also the price for a top-end deodorant for men. “Obviously protecting a high market share is not easy. That’s exactly why he has continuously created sub-segments in Fogg. Each time he does it well, he leverages the Fogg brand name along with the company’s superior execution capability,” says Mohan. Like ITC’s Engage, Fogg sells a pocket deodorant as well.
Starting off as an offering for men, Fogg has an impressive range for women as well, with the intention to have a larger base of users. Patel broke the mould to offer a range of fragrances, something the other deodorant brands did not. It is estimated that this part of the business brings in at least 15 per cent-20 per cent of Fogg’s overall revenue. Equally important is the gifting route Fogg has taken: a pack of two can set you back by over Rs 900. In one stroke, it lends a premium image to the brand and ensures margins remain healthy. The perfume part of the portfolio took off after the roll-out of the GST regime hit the unorganised sector hard. “It is a much wider portfolio from Fogg and that is a smart move,” says Mohan. Another strategy was to sell low-unit perfume packs to penetrate deep into smaller towns.
On the face of it, KKR has a ready-made portfolio to play with and the competition has some serious catching up to do. But the question is what role will Patel— with his 24 per cent holding—play? It is a point Increate’s Sarwate alludes to. “This ability to disrupt the market is a core competency that Vini can boast of. However, this competency seems to be residing in its leadership and one is not sure if it has become an organisational coding,” he says. According to him, investors will bet on a few factors among which are “a strong market leadership, demonstrated profitability, the probability that the leadership will make the disruptive capability hard-coded in the organisation at large and, finally, forays into adjacencies with a similar disruptive approach”.
[Fogg can] spend more than its competition because of the higher margins the brand earns
Founder and CEO, Increate Value Advisors
Those familiar with the transaction think KKR is working towards listing Vini Cosmetics at some point. “A strategic sale at this price will be difficult and they will need to deliver on this big-ticket investment. Going public is the only way to do it,” says a PE executive who has known Patel for a long time and declined to be identified. In his opinion, Patel will not be required on a daily basis. “KKR will end up bringing in a professional CEO and look for acquisitions in related areas to boost Vini’s valuation. There is a good chance that Darshanbhai will sell at least 10 per cent of his holding through the process of listing the company.”
Patel is not known to be emotionally attached to what he creates. The exit from Paras at a valuation much lower than what it was sold for did not matter. As Mohan puts it, “He understood the process of creating brands and, above all, uses consumer insights to build a strong position in the category. Besides, he quickly realised how important it was to win distribution in a market as widespread as India.” Fogg today sells at 800,000 outlets and many distributors are said to know Patel personally. Much as Paras was sold, he kept these relationships intact and when it was time for Fogg, it stood him in good stead. Anyone who knows Patel well isn’t betting on the man staying on at Vini. “He must be thinking of the next big idea and giving it some kind of form already,” says the PE executive quoted earlier.
Patel blazed a trail by creating the segment of non-gas deodorants, with the competition following him. Today, non-gas deodorants make up as much as 40 per cent of the total market, with each player’s communication focussing on that aspect. Over the past decade, Fogg has remained one of the biggest successes, managing to disrupt the competition. As KKR embarks on the Fogg journey, it has on its plate a brand that is well set. That said, it will have to keep the innovation story going in an environment that is becoming more challenging. Consumer expectations are high and much like the line in the Fogg advertisement, they will keep asking the brand only one question: Kya chal raha hai (So, what’s happening)?
Story: Krishna Gopalan
Producer: Vivek Dubey, Rashi Bisaria
Creative Producer: Raj Verma, Anirban Ghosh
Video Editor: Vivek Sheel, Mohsin Sheikh
UI developer: Ravi Kumar, Mohd. Naeem Khan