Onjus - Squeezed Out

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Oranges Turn Sour Contd...

On January 6, 2000, ETL won a reprieve from the MRTPC and had the order restraining ETL from marketing its product as a natural orange juice, vacated. The two-member bench consisting of senior member Sardar Ali and member Moksh Mahajan vacated the order and found that the 'balance of convenience' tilted towards Onjus. The MRTPC made it clear that the Commission was not making any observations on whether Onjus was a natural orange juice or not, but there would be no restriction on ETL selling the brand.

Onjus is Squeezed With the success of Onjus, Goyal decided to concentrate more on the foods business, which meant he had to get rid of the loss-making textile division. In 1998-99, the textile division had made losses to the tune of Rs.220 million. The losses resulted in huge debts. ETL owed around Rs.870 million to various FIs including the IDBI, ICICI and IFCI, in the form of secured and unsecured loans. Besides, the company also owed money to commercial banks. Of the Rs. 870 million, Rs.320 million was outstanding against the textiles division and the remaining amount was outstanding against ETL as a whole. The FIs permitted Goyal to offload 20% stake in ETL and stipulated that the money received should be utilized to pay the entire debt. The FIs also insisted that the debt of the textile division be paid from the fruit processing division, but Goyal opposed the idea.

In early 1999, Goyal tried to offload a 20% stake in ETL to Foreign Institutional Investors (FII), but failed. The FIIs were not willing to invest in a company with unrelated businesses, but were not averse to investing in a hived-off food-processing venture. As Goyal failed to offload stake to the FII, the financial institutions asked ETL to pledge Onjus and Life brands in lieu of debt. Following this, the company filed a proposal for restructuring of debts and hiving off of textile division into a separate company, Avon Synthetics Ltd.

The institutions approved the de-merger of the textile division with ETL in a 1:1 ratio. With the approval, Goyal decided to go for the de-merger and later sell off the textile division at an appropriate time and pay off the debts. Meanwhile, to prevent the textile division from being closed down, the cash flows from fruit business were channeled into the textile business. The FIs did not appreciate the development and decided against investing in both the businesses of ETL. This led to the shut down of both the textile as well as the food-processing units in late 2000.

Will Onjus Make a Comeback?

Goyal planned to re-launch Onjus in mid-2001. He said, "We are getting ready to roll out the brands in the next two months. Nothing has really changed and nobody has been able to make a dent in the market while we have been away. Consumers like our taste and will always come back to it."¹² However, analysts felt that the chances of Onjus making a comeback were slim. Almost 200 people working on the brand had quit, and it would be difficult for the company to get the right people to market the brand. Analysts also felt that it would take a lot for the brand to pull itself out of the financial crisis before it hoped to stage a re-entry.

Meanwhile, competition had heightened in this category. PepsiCo's Tropicana, launched in mid-1998, was very successful and had garnered a 35% market share by 2001. The product's greatest advantage was that it was a well-established brand in the US and was backed by PepsiCo's vast distribution network of more than 600,000 outlets in India. Against this backdrop, analysts felt that Onjus might just get side tracked unless it made a quick comeback.

Exhibits

Exhibit I: The Fruit Beverages Market
Exhibit II: Cross Comparison of Major Players in the Fruit Beverage Market

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12] April 5, 2001, Catalyst - The Hindu Business Line.