Carlyle recently picked up a significant minority stake in tiles and bathware maker Varmora Granito Pvt. Ltd. Established in 1994, Varmora’s portfolio includes premium tiles, faucets and sanitaryware, and its products are sold through a distribution network of over 200 exclusive brand outlets in India and globally.
“If you look at (our investments in) SBI Cards, which is consumer and financial services, or Delhivery and Medanta which is consumer and healthcare, we have done a series of investments in India and Asia on the growing consumerism theme," Jain added.
Consumers are undergoing a secular shift in India from unbranded to branded products, he said.
“When you look at the emerging markets, and where India is on its per capita income, we believe inflection points happen in the way consumers consume—whether it’s food, apparel or the way they build their houses and invest in property. What happens at these income levels is there is a fundamental shift from the undifferentiated, unbranded products to high quality, differentiated, if not customized, products which are often associated with brands. You see a secular shift from the unorganized unbranded to organized branded."
With its investment in Varmora, Carlyle is betting on the transformation of the building materials sector from unorganized to organized, as consumers seek to spend more money on high quality products.
“50% of the market is unorganized. Over 50% of flooring in households is still traditional materials or cement, and not modern flooring solutions such as tiles, wooden flooring or marble. We like tiles as a big category for flooring solutions."
“When we worked on Varmora, a few things stood out. One is the brand and the differentiated product which has created a strong customer pull. They have 200 EBOs (exclusive brand outlets), where customers walk in specifically to buy a Varmora product. In tier II-III cities, there are dealers lining up for an EBO of Varmora that signifies the brand pull," Jain said.
The investment by Carlyle will help the company accelerate digital transformation, distribution, enhance the brand and build capacity organically through greenfield expansion and also through mergers and acquisitions.
“Our inclination is to have M&As where we can add capability and not capacity. In a consumer business, capacity is not of that much relevance, it’s more about consumer pull, the product capability, brand and distribution network. If there are niches where there is product differentiation, if there is a brand that has a much higher recognition than ours in certain pockets or states and there is complementarity and synergy, those are the acquisitions we will look at," said Jain.
Varmora is planning to grow its top line to ₹1,600 crore this fiscal year, Bhavesh Varmora, chairman, Varmora Granito, said.
It ended FY22 with a topline of ₹1,100 crore.
“We plan to expand our network of EBOs to 400 within a couple of years, while doubling our production capacity," he added.
