The Hindu Business Line : KSDL launches new brand Wave for masses; opts for outsourcing

Chennai, April 28 Scarcity of sandalwood and consequently the increased costs of procuring raw material have made Karnataka Soaps and Detergents Ltd, makers of Mysore Sandal Soap, launch a new brand called Wave. The 90-year-old public sector unit plans to cater to the non-premium segment of the market through various products planned under this brand, including soap bars, liquid hand wash, shower gels and talcum powder.

“The sandalwood we currently have under forests and cultivation will last only 10 more years. So we need to diversify to make the company sustainable,” Mr B.H. Anil Kumar, Managing Director of the company, said on the sidelines of a press conference. About 90 per cent of the company’s current revenues come from sales of the flagship premium product, Mysore Sandal Soap, and the company wants to reduce this dependency.

The company had launched a turmeric soap, herbal hand wash and a cologne talcum powder under the Wave brand and plans to launch four to five more products this year, including shower gels.

“With high palm oil costs (raw material to make soap bars) and a recent trend of using it for ethanol extraction, we feel the market may move away from soap bars in future,” Mr Kumar said.

Thin margins

Though volumes in the non-premium segment are large, sales margins are thin. In order to increase margins, the company has started outsourcing the manufacture of Wave products to companies located in duty-free zones, such as Uttaranchal and Himachal Pradesh. This contract manufacturing also results in cheaper labour costs. Average wage an employee at Karnataka Soaps and Detergents Ltd is about Rs 20,000 a month, making it unwieldy to manufacture products in-house.

Except for the fragrance and product design, everything else is outsourced to contract manufacturers, Mr Kumar said. “This way we can compete (in terms of pricing) on a level playing field with competitors like Unilever and Wipro,” he said.

The company is also doubling its advertising spend to Rs 10 crore this year to market the Wave range. It has also tied up with Bharat Petroleum Corporation and Indian Oil Corporation to sell its products at their outlets, thus gaining access to 7.5 crore homes.

Modernisation

The company will continue to manufacture the Mysore sandal soap in-house but variants such as rose, jasmine and lime (proposed to be launched soon) would be contract manufactured.

The company’s factory at Bangalore has manufacturing capacity of 26,000 tonnes a year, of which only 8,000 tonnes is being used. Mr Kumar said he would be happy to let the remaining capacity be used by other companies on a contract basis, but as costs may be high, companies may not approach them.

Most of the machinery in the factory is over 20 years old and the company plans to invest Rs 20 crore this year towards modernisation. “We will solve the problem of excess capacity through increased automation. Also in the next 5 years, 50 per cent of our staff will retire. So this is the right time to modernise,” he said.

The company registered a profit of Rs 6.51 crore over revenues of Rs 165 crore for the year ending March 2008.

Raw material costs were about Rs 40 crore and are expected to rise by 20 per cent in the current fiscal. The company expects revenues of Rs 175 crore this year.

KSDL had also launched an improved version of Mysore sandal talc and agarbathis and announced a tie-up with the Kerala State Rubber Co-operative Ltd to market the latter’s coconut oil brand ‘Nutriko’ across India.

Overseas markets

It has entered new markets overseas such as the US, UK, Europe, Brazil and Africa with sales, predominantly from Mysore Sandal soap, touching Rs 5 crore in 2007-08 — a growth of about 20 per cent over the previous year. “We could have reached Rs 7-8 crore had it not been for the weak dollar,” Mr Kumar told Business Line. It has appointed dealers in these markets and plans to increase its distribution network to cover about 20 large retailers by end of this year. “Our products should eventually be available in chains like Wal Mart, Tesco and Carrefour,” he said.

Traditionally Middle East has been the company’s main overseas market with merchants directly buying the Mysore Sandal soap from India and selling it there.

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KSDL launches new brand Wave for masses; opts for outsourcing