Jyothy Laboratories’ founder M.P. Ramachandran and deputy Ullas Kamath held on for a decade to pocket the failing Indian unit of Germany’s Henkel
This March, Ullas Kamath got news he had been waiting the better part of the past decade for — Germany’s Henkel AG had engaged investment bankers to sell its Indian subsidiary and get out of India, where it had lost money every year since it started operations in 1991.
Not one to waste time, Kamath arrived in Dusseldorf, Henkel’s headquarters, uninvited. Surprising as it may sound, by now the top brass at the world’s third biggest company (after P&G and Unilever) were well acquainted with the company Kamath was associated with: The Rs. 627 crore Jyothy Laboratories. (Founded by middle-class entrepreneur M.P. Ramachandran, Jyothy is better known as the maker of Ujala liquid cloth whiteners and Maxo mosquito repellents.)
Kamath, Jyothy’s deputy managing director and Ramachandran’s right hand man, had met Henkel’s management at Dusseldorf twice in the past 10 years to strike an alliance and had even offered to buy out their Indian subsidiary, but had failed to convince them.
This time, though, he was better prepared. “I was determined to do everything to get the company,” he says.
Over a five-hour meeting, he laid out plans to turn around Henkel’s India business. Henkel, he said, had strong brands, but its management and sales force had failed it. With just one plant in Karaikal, Pondicherry, its logistics costs were out of control. Besides, Henkel India had routinely discounted its brands, which eroded their value.
According to Kamath, and others present, he received a patient hearing with a promise that the company would get back to him. As a listed company, the $22 billion Henkel AG had to follow certain procedures and they could not short-circuit the sale process without inviting bids.
It seemed the matter would have ended there. Yet, less than three months later, and after another trip to Dusseldorf and some negotiation, Kamath walked away with the deal, without entering a bruising bidding war.
How did he pull it off? The clues lie in the entrepreneurial calls that Ramachandran and Kamath made towards the closing of the deal. We’ll come to that in a bit. First, let’s get a handle on how and why the Jyothy-Henkel tie-up was aborted twice in a decade.
The Moorings
There was very little to suggest that the paths of Jyothy Labs and Henkel would cross.
When it started out in India in 1992, Henkel had plenty going for it, with globally well-known brands that were among the top three in the countries it operated in. To help navigate India, it had a reliable joint venture partner in A.C. Muthiah’s Southern Petrochemical Industries Corporation (SPIC), the flagship of M.A. Chidambaram group. For SPIC, the venture worked as forward integration, as its chemicals could be used by Henkel for its products.
Former employees say that the failure of both partners to fully appreciate the challenges in the Indian market plagued the venture from the start. The first major error the company made was to set up a plant in Karaikal to serve the entire country. This was unlike Europe, where Henkel routinely outsourced production. In India, Henkel wasn’t sure of the quality it would get, hence the single plant. The result: Logistics costs were so heavy that they wiped out 10 percent of margins.
Besides, there were several organisational goof-ups. Indian managers had to wait for approval from Germany for minor questions like changing marketing schemes. This made operations slow and lethargic. Also, several employees who came in from SPIC had no background in consumer goods marketing. Most of their experience was in selling fertilisers. Henkel’s parent used this as an excuse to control marketing and advertising campaigns and repeatedly misread the Indian market.
For instance, initial television commercials had models with freckles. A few years later, tanned models were used. “Fair skin is considered a sign of beauty in India and had they just stuck to that [they] would have done much better,” says a former employee.
Perhaps most significant was Henkel’s insistence on building distribution from the ground up. “In retrospect, the company should have tied up with someone. Once the big guys started fighting, we found ourselves squeezed,” says a former employee, referring to Hindustan Unilever and P&G slugging it out over detergents.
The Coup
(This story appears in the 15 July, 2011 issue of Forbes India. To visit our Archives, click here.)