AUGUST 3, 2003
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Q&A: Jan P. Oosterveld
Meet a Dutch engineer who describes his company as "too old, too male and too Dutch". This is Jan P. Oosterveld, 59, Member, Group Management Committee & CEO (Asia Pacific), Royal Philips Electronics, a $31.8-billion company going through tough times. His mission is to turn Philips market agile and global in outlook.


Bio-dynamic Tea Estate
Is there a way to rejuvenate tea consumption? Rajah Banerjee, the idiosyncratic owner of the 1,500-acre Makai Bari tea estate, among India's largest, thinks he has the answer to the industry's woes: value-added tea. 'Bio-dynamic' tea, to use his phrase. Here's a look at some of his organic and flavoured tea experiments.

More Net Specials
Business Today,  July 20, 2003
 
 
Bring On The Band-Aids
Twenty-one months after its high-decibel launch, Dr. Morepen's plans of Over-The-Counter greatness have been hit by problems with suppliers, ineffective distribution, an exodus of execs, and its parent's financial troubles.
Dr. Morepen's Chairman Sushi Suri: Looking for an angel
MORE-PAIN
Cash Woes
Its parent's financial troubles hit 100 per cent subsidiary Dr. Morepen hard
Executive Exodus
Beginning January 2003, the managing director and key execs in marketing, logistics, and HR departed
Supply-side Concerns
Delays in payments to suppliers caused some of them to suspend shipments
Demand-side Concerns
Distribution hassles have made the availability of Dr. Morepen products erratic

Remember Dr. Morepen? This writer does: back in the winter of 2001, when the business was being launched, the company sponsored a health fair in New Delhi's central business-and-shopping district Connaught Place where this magazine's offices were then located. Jingles vending C-Sip, Gol Goli, and Dab Fizz blared out from loudspeakers as performers squeezed into larger-than-life packages of these brands walked the corridors of Connaught Place shocking hapless passers-by into a state of permanent brand-recall. Around the same time, advertisements for the business' five brands started appearing in the pages of mainstream magazines and on popular television channels such as Star Plus. And by the middle of 2002, Dr. Morepen had acquired Burnol from Reckitt Benckiser, its parent Morepen Laboratories had acquired Lemolate from Yash Pharma, and the Lifespring chain of healthcare and beauty products stores from Total Care and transferred them to Dr. Morepen, and its Chairman, Sushil Suri (also the chairman of the parent), mentioned in the course of an interview to a daily that the business was considering acquiring some brands from Novartis. All told, Morepen/Dr. Morepen (the line between the two companies was pretty hazy at this time) spent Rs 32 crore on acquisitions and Rs 10 crore on advertising and promotions in its first year of existence.

In many ways, the event at Connaught Place-the playground of Delhi's rich in the pre-independence era-and the advertising was a coming-out party for 38-year-old Suri and Morepen Laboratories, the Rs 517.21 crore company of which Dr. Morepen was a 100 per cent subsidiary until recently. Morepen was founded by K.B. Suri in 1984; after his sudden death in 2001, Sushil Suri, a chartered accountant who had joined the board of directors while still in his twenties, took over. And the company, which had largely been a bulk drugs manufacturer set its sights on becoming a global generics (drugs that go off patent), formulations, and OTC product company. Dr. Morepen was in the OTC business, and its launch was probably a celebration of the company's entry into the big league.

Only, circa July 2003, Dr. Morepen ads are off the air, its products are erratic in their appearance and disappearance from the shelves; the parent is in some sort of financial trouble; and its senior management team has moved on-Managing Director Kartik Raina left in January this year as did six senior execs from the marketing team, Head of logistics P.N. Sukumar departed in April, and Head of hr, Prince Augustine more recently. Today, Morepen's and Dr. Morepen's flak catcher Bhavna Sood has been made interim Head of Marketing although she still does more than her share of catching the flak (during this writer's meeting with her, she received at least two calls from depositors who had put money in fixed deposit schemes run by Morepen, only to have the company drag its feet over returning the amount at the end of the deposit period). And the company that proposed to replicate the OTC-products-plus-retail business model that Boots had made a success of in the UK hasn't added to the six stores that comprised the Lifespring chain at the time of acquisition.

Dr. Morepen is engaged in rationalising the number of SKUs at its Lifespring chain

The Sins Of The Parent

Sushil Suri is quick to admit every one of the problems enumerated above, maybe because he has a ready explanation for them. So, when a former exec claims ITC stopped supplying packaging material to Dr. Morepen in December 2002 because its payments were overdue, and another says, "Expense accounts were not cleared for six to seven months, salaries not paid for two to three months, and supplier outstandings hit an all-time high," Suri doesn't deny the facts. Instead, he claims Dr. Morepen suffered because it was a wholly-owned subsidiary of Morepen Laboratories. And the parent isn't really in the pink of health. Its revenues for the year ended March 31, 2003 were, at Rs 517.21 crore, just marginally higher than the corresponding figure for the previous year. And its net profit for 2002-03 was, at Rs 22.19 crore, 49 per cent lower than the previous year's figure even after removing a non-recurring income of Rs 10 crore. On April 29, this year the Bank of Nova Scotia recalled its working capital loan of Rs 79 crore to the company, something that eventually led to the Debt Recovery Tribunal freezing proceeds from the company's $15.25 million (Rs 70.58 crore) Global Depository Receipts (GDR) issue. Suri claims the bank rushed this despite assurances from the company that it would make good in early May (he attributes the original delay to the fact that it took the company almost 10 years to get its generics pipeline working).

With the parent caught in a cash crunch, the between-the-lines-message in Suri's explanation says, the 100 per cent subsidiary suffered. Effective April 1, Dr. Morepen became a company in which Morepen Labs has a 20 per cent stake; the promoters, who brought in an additional Rs 8 crore (Dr. Morepen's original equity was around Rs 2 crore) of equity now own 80 per cent of the company. And the Rs 120 crore that the parent has invested in Dr. Morepen has been made preference capital, redeemable in the eighth, ninth, and tenth years. New structure in tow, Suri is now on the lookout for an investor to whom he can divest between 15 per cent and 20 per cent of Dr. Morepen's equity. "We need an investor who understands the various products under the umbrella brand," he says. The financial crisis the parent found itself in, Suri maintains, delayed Phase II of Dr. Morepen's roll out. This phase, he adds, "had all to do with products and consolidation; the communication was Phase I". And so, the company couldn't launch products that were ready to hit the market; nor could it strengthen its channel network. Result? Although Morepen (and Dr. Morepen) Head of Sales Rajesh Arora claims, "we have a presence in 807 towns through 2,40,000 outlets, retailers across the country''. Even in the company's backyard, Delhi, retailers say their supply of Dr. Morepen products is erratic.

The Return Of The Dr

The number of products that are in Dr. Morepen's pipeline, waiting to be launched has swelled to 16, but it is unlikely the company will launch them anytime soon. The bulk of the launches will have to wait till 2004, by which time Dr. Morepen may have an investor on board. Nor will we see a rapid roll out of Lifespring stores: Suri believes the stores don't manage their stock keeping units optimally. "Three hundred brands of shampoo can only confuse consumers," he declares. Ergo, a sku rationalisation is underway, pruning the number down from 15,000 to 9,000 by 2005. And Suri is rebuilding a team to run Dr. Morepen. He looks at the spate of exits the company has seen pragmatically. "The parent was in trouble and there was confusion among (these) people about the future of Dr. Morepen." However, he insists that his start-up team was perfect to build the brand. Now, "in consolidation phase," he would rather stick with "conservative" people who are "accountable". It may be too early for a company that boasts marketshares of between 1 per cent and 5 per cent for its brands (except C-Sip and C-Candy, a Vitamin C drink and a Vitamin C Candy that have created categories of their own) to talk about consolidation, but Suri insists that the brand is built. Now, if he can only find that investor.

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