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December 2, 1999


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Devangshu Datta

Is a good brand a good investment?

Every year, the A & M magazine runs its survey of the best brands in the Indian industry. This is a polled response with marks awarded in various categories and totalled up. It normally features various permutations of the usual suspects. This year was more of the same.Colgate topped, with Amul coming second, and a host of other household names featuring on the list.

The respondents were marketing gurus and executives drawn from across a wide spectrum of industry. What I was interested in seeing was whether there would be a clear, discernible linkage between the brands featured and the shareholders returns of the various companies that owned them.

It seemed like an interesting exercise for several reasons. As we all know, marketing guys and stockmarket analysts don't necessarily make their judgments on exactly the same criteria. It is also true that even when the same factors are under consideration, the weightage by different analysts will be very different and that again could mean that there would be a big difference between the marketeer's perception and the investor's. There is also the question of timeframes - investor perceptions are much more short-term whereas a marketeer is probably prepared to spend money over longer periods to build a brand.

Obviously analysts do like good brands and the "focus investing" school in particular loves them. But there is no objectively satisfactory way of quantifying brand-value. The standard balance-sheet valuation exercises are generally pretty notional and based on premises that don't hold good in the real world. Brands are usually treated as wasting assets while costs are amortised. The concept of brands gradually eroding in value directly contradicts the observation that good brands get stronger with the passage of time.

There were also some specific points of interest and contention in the list under consideration. First of all, several of the brands such as Amul, Coke, Pepsi, and Band-aid are owned by unlisted entities. So they had to be cut out of the loop since they cannot be easily assessed on the shareholder value criteria.

Again, SBI, Zee and Doordarshan aren't exactly conventional FMCG brands. So market evaluation of the listed entity would be different from that of the standard detergent manufacturer. A third point is that some of the brands are owned by private companies and marketed by listed sister concerns. Ariel, for example, isn't owned by P&G but by a different 100 per cent subsidiary. SK Consumer doesn't own Horlicks but licenses it.

Again Tata falls into a special category. The brand is owned by a private holding company Tata Sons (remember the fuss about royalty fees?) but used by a whole bunch of companies which straddle the entire spectrum of industry and are valued on their individual merits. Hindustan Lever is in the opposite situation - it is a single company that owns an entire spectrum of brands such as Surf, Lifebuoy, Close-Up, Ponds, Clinic etc.

There were also some interesting omissions. No Bagpiper, no Old Monk. Not a single tea or coffee brand ranked up there in the top 60 either, even if several soft drinks are ranked and Horlicks is number 7. What happened to Nescafe, Liptons, Brooke Bond, Taj etc? And are all those ITC ad-campaigns and sports event sponsorships worth nothing - where is Wills, Classic and Gold Flake?

Anyway, I decided to restrict my observations to the listed companies that owned brands in the top 30. After winnowing out the unlisted companies, clubbing the multiple ownerships and excluding Tatas, there were just 15 companies left in the list. I also decided to assume that the perceptions of Ariel and Horlicks would be reflected in the shareholder returns of the listed company. In multiple ownership cases like Lever, the highest has been mentioned in the SHV chart.

All of these are top corporates and can be compared against the benchmark index performances. The 30-stock Sensex (which does not include Zee) has returned just over 50 per cent since January 1. The BSE-100 (which does include Zee) has an average return of 86 per cent. As a glance at the shareholder value chart will show, most of these companies have scarcely performed at those levels. In fact the average return is 82 per cent but if Zee is excluded, that stupendous return drops to 29.6 per cent. There are several losers and many under-performers.

Another interesting point is that the chart sorted on shareholder value doesn't have any correlation with the rankings of the survey. The two biggest gainers apart from Zee are Godrej and HMT, which have basically benefited from a market perception of turnaround prospects. Both are in a restructuring process. Colgate has seen sub-normal return for the last couple of years mainly because of the loss in marketshare in oral-hygiene products to Lever. At the tail end, Bata and Phillips are still seen as great brands but both companies had poor results this year and the stocks have been hammered down.

One cannot draw conclusions from matching this survey to shareholder return since there is no clear correlation. However one can suggest that it is pretty likely that marketeers and investors judge things pretty differently. Probably the rankings would also have been markedly different if the respondents had been a bunch of FIIs and fund managers. Would there then be a clearer correlation between SHV and rankings? I wonder.

Another question is whether the marketing perception is more "correct" in the long run. That is, over a 3-5 year period, would a shareholder gain by being a contrarian and aligning his investments with the survey ranking rather than with the stockmarket returns. This cannot, of course, be answered until 2002!

 Rank (A&M)  Company  Industry  Price 26/11/99  Price 1/1/99  Gain/Loss %
9 ZEE TELEFILM ENTE 5857 641 813.73
30 HMT DVLG 10.25 4.9 109.18
8 GODREJ SOAPS PCIL 55.1 27.05 103.7
21 CADBURY INDIA FOMN 728 475 53.26
13 STATE BANK BNPU 234 164 42.68
5 HINDUSTAN LEVER PCMN 2312 16353 39.87
24 VIP INDUSTRIES MLUG 33 24.15 36.85
7 SMITHKLICONSUM FOMN 616 521.25 18.18
1 COLGATE PALMOLIVE PCMN 224.25 197.1 13.77
6 PROCTOR GAMBLE PCMN 843 803 4.98
3 RECKITT COLMAN PCMN 347.6 371 -6.31
28 PHILLIPS INDIA ECTV 97.5 127.5 -23.53
12 BATA INDIA LTFL 143.05 193.4 -26.03

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Devangshu Datta

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