Emami acquires Dermicool

On 25th March, Emami Ltd has acquired the Dermicool brand from Reckitt Benckiser Healthcare (India) Pvt. Ltd for a total consideration of Rs.4.32 billion, excluding tax and duties. Emami's acquisition of the Dermicool brand is a positive development and in line with its strategy to focus on niche categories with high efficacy products. The acquisition of Dermicool provides Emami market leadership of about 45% market share in the prickly heat and cooling talc category. This category in the pre-Covid period was growing at a higher rate of about 12% versus the overall talcum powder category's growth of 5%. Notably, Dermicool and Navratna generate 65% of sales from the rural markets. Consequently, in the near term, moderation in rural demand may pose some challenges. However, over the long term, differentiated positioning and under-penetration (11-12%) of 

Dermicool as prickly heat and anti-fungal talc provides strong long-term growth potential. In CY21, Dermicool did sales of Rs.1.13billion. The brand has a direct reach of 125 thousand outlets and an indirect reach of 1.8 million outlets. Currently, Navratna is reaching 200 thousand directly and 1.8 million outlets indirectly.

The brand has a gross margin of 55% and an EBITDA margin of 38%. The brand will continue to enjoy a high EBITDA margin despite investment in A&P spending. Emami plans to leverage the distribution and expects to optimize the trade, consumer & media spending.

Prickly Heat and Cool Talc category grew at a CAGR of ~12% (2016-19) vs. talcum powder category growth of 5% CAGR. The category size is Rs. 7.6 billion while the overall talcum powder size stands at Rs. 25 billion.

Category penetration is 11-12% (low penetration of 7-8% in west and south). North and West contribute 40% and 30% of sales, respectively. Dermicool derives 65% of sales from rural markets while wholesale contribution is at 35%. The summer season contributes 80-90% of the sales. Therefore sales particularly during April and May 2022 will add up to Emami's sales during FY23.

Nycil's (Zydus Wellness) market share is 34% and now Emami has become the market leader in the category with a 45% share. Navratna has a strong presence in North India.  Dermicool operates in the Prickly heat category and Navratna is only cooling talc. Navratna operates in the mass market category with 45% of sales coming from Rs.10 SKU. Dermicool is a more premium product with 80-85% of sales coming from Rs.125 SKU. 

A brand requires no further CAPEX. Management is confident of double-digit growth with a near-term aim to gain Dermicool's lost market share. In the longer-term revenue, scale-up would be through an increase in penetration levels.

Navratna and Dermicool are manufactured by the same third-party manufacturer.