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GlaxoSmithKline Consumer Healthcare signs a brandsswap deal with GSK Pharmaceuticals

NEW DELHI: GlaxoSmithKline Consumer Healthcare has signed a brandsswap deal with its associate company GSK Pharmaceuticals as part of a strategy to cross £1-billion, or Rs 8,000-crore, revenue mark by 2016.

The cross-functional collaboration deal, to swap select brands and independently market, sell and distribute them, is one of the four levers of growth that the maker of Horlicks milk drink and Sensodyne toothpaste has identified to more than double its revenues from Rs 3,259 crore, managing director 
Zubair Ahmed said. 

"We are banking on innovation, close collaboration with GSK Pharma, rural thrust and accelerating our base business," Ahmed, who's term at the helm was extended by four years last month, told ET.

To begin with, GSK Pharma's over- thecounter calcium and vitamin supplement Ostocalcium will now be marketed and sold by GSK Consumer while the former will market and distribute products under the consumer division's specialised arm Glaxo Nutrition including Actibase and Actigrow nutrition supplements. 

"We will collaborate to leverage each other's assets in more than one ways," Ahmed said, adding that more such brands could be switched between the two firms to maximize their potential. The deals will involve a cost that both the listed entities will pay each other. 

Industry watchers say the positive response to GSK Consumer's sensitive toothpaste Sensodyne—which has overtaken Colgate Sensitive in two years of launch to become the category leader with 26% 
market share in March as per Nielsen data — has triggered the new move. 

"The strategy could be to ramp up distribution with both entities pooling in their resources," Shirish Pardeshi, co-head, research, at brokerage firm 
Anand Rathi Financial Services, said. The pharma company, for example, can leverage better negotiation strengths in chemist channels, he added. 

"GSK Consumer is yet to exploit general trade and chemist channels fully...one reason could be its price points are too high in case of general trade," Pardeshi said. 

The only other time GSK's consumer and pharma divisions struck a similar cross-functional deal was for pain relief ointment Iodex in the mid-1990s. GSK Consumer wi l l sel l Ostocalcium through close to one million outlets that its brands such as Horlicks and Boost directly cover. 

The collaboration could extend to sales representatives bundling products to, for example, doctors, promote the pharma division's Augmentin antibiotic and consumer arm's Sensodyne toothpaste. 

Or the GSK Pharma team could talk about the consumer firm's products like women's Horlicks and mother's Horlicks while approaching gynaecologists for their prescription products. In November last, parent firm 
GSK plc invested over $1 billion (over Rs 5,400 crore) to take up its shareholding in GSK Consumer Healthcare to 78% through an open offer. Since Ahmed joined GSK Consumer in early 2007 from shaving blades maker GilletteBSE 0.29 %, the firm's revenues have increased from Rs 1,396 crore in 2007 to over Rs 3,259 crore in 2012, with a 600% shareholder return during the period.

The company's revenue target of £1-billion by 2016 will include its operations in neighbouring countries such as Sri Lanka and Bangladesh. 

In the past five years, GSK Consumer has reduced its dependence on mainstay Horlicks with the launch of high-margin cookies, instant noodles, and Sensodyne toothpaste. 

In the rural space, GSK Consumer plans to focus on creating new products targeted at rural consumers and introducing sachets and low-unit packs of existing products. 

"We are identifying gaps and researching to create products to cater to rural demand and demand of the huge migratory population in metros," Ahmed said. These products for emerging consumers would be launched over the next 12-18 months. The firm plans to distribute its products across 50,000 villages by 2016. 

Growth Levers 

Innovation, close collaboration with GSK Pharma, rural thrust, accelerating base business 

GSK Pharma's Ostocalcium to be marketed and sold by GSK Consumer 

GSK Pharma will market and distribute products under GSK Consumer's specialised arm Glaxo Nutrition 

GSK Consumer's global brand Sensodyne (26% share) overtook rival Colgate Sensitive (25%) in March '13 

In November 2012: 
GSK plc invested over $1b billion to take up its shareholding in GSKCH India to 78% through an open offer