The colour got a shade dull for Godrej

MUMBAI: Fast moving consumer goods company Godrej Consumer Products Ltd (GCPL) is witnessing some dullness in its hair colour business, once considered to be its lustrous portfolio.

In the fourth quarter ended March 31, Godrej lost almost 2% market share, and now has 36% of the Rs 400 crore hair colour market.

It may be because the functional hair dye (black) is going out of fashion, points out an analyst.

“Companies operating in the cosmetic end of the business, like honey, copper-red, electric green have much greater prospects, both in semi-urban and urban areas,” he said. Therefore companies like L’Oreal and Lakme are increasing in market share.

That is a blow to Godrej because its hair colour business contributes nearly a quarter of its topline where, margins at 35-40% are three times the soap division (which contributes about 55% of sales).

After the relaunch of powder hair dye sachets, GCPL witnessed a sharp volume decline of its hair colour products, which contributes over 50% to its profits. Consequently, GCPL’s standalone recurring net profit declined 15% on-year during the quarter to Rs 25.3 crore, which is the lowest. GCPL’s market share in hair colours declined a sharp 180bps from 38% in Q3FY07 to 36.2% in Q4FY07 (an all-time low of 35.9% in March ‘07). This is in sharp contrast to the hike in April 2006, when the company gained market share.

The worrying aspect is in spite of being a market leader, Godrej’s hair colour business is growing slower than the overall market growth.

During the January-March quarter, the company’s hair colour business grew just 11% (to Rs 43 crore) against an industry growth of 21.3%, brokerage house Motilal Oswal said in its April 25 report.

The slow growth in colours also indicate possible decline in powder colour volumes,” Motilal Oswal said.

Hoshidar K Press, executive president and director, GCPL , said, “Our market share has declined because we have not grown in value terms as fast as the rest of the market. Since our products are moderately priced, our value share does not grow as fast. But in volumes, we are definitely growing.”

Press said in the applications space, the company’s market share continued to be 50%.

He said in spite of slipping share, the company continues to command 40% of the hair colour business, with L’Oreal and Vasmol tagging along at 20% each. Powered hair dye is the largest brand in the company’s portfolio, accounting for close to 70% of its hair colour revenues.

Godrej’s slipping market share could be the result of competition faced from premium brands, like Garnier, L’Oreal, newly born Restoria Discreet, aggressively touting themselves in the market, say analysts. And surprisingly, Godrej doesn’t seem to have a strategy to enter the premium hair colour market.

“Premium is not the big focus area for GCPL right now,” he said, adding that his primary focus is to increase penetration of existing products in rural and semi-urban areas. Penetration has increased in media-dark small towns with the launch of powdered hair dye sachets and these sachets are building the market voluminously, he remarks. Intererestingly, industry counterparts state that the sachet strategy has not worked as well as it should.

Anand Shah and Shilpa Yadav of ICICI Securities, in a note on April 26, point out that GCPL relaunched powder hair dye sachets in December; and this product accounts for close to 75% of category sales. The company hiked prices 12.5% from Rs8 to Rs9 per sachet. Despite the hike, GCPL’s hair dye sales grew a mere 10.9% YoY in Q4FY07.

The impact of the price hike and strong growth of other products such as Renew (growing 60% YoY) and Nupur Mehendi translated into a volume decline in hair dye sachets.

Brand consultant Harish Bijoor states that Godrej’s situation could be on account of the fact that premium upper-end hair colour brands like L’Oreal and Garnier are “unabashedly” marketing themselves and are seeing a resultant swing in sales.

Companies such as GCPL (which for long have been in their own comfort zone) are now feeling the heat from pedigreed rivals.

“Traditional hair colour companies like Godrej and Super Vasmol would face the heat, since in perception; they do not come in the premium high-end category. Earlier the split between functional hair dye and the cosmetic range was 85:15. Today its 50:50,” said Bijoor. But globally, hair colour is a big category. According to brokerage SSKI report, the hair colour market in India is just one-tenth of toilet soaps business.