The ‘Baba’ of all brands

Known as the fragrant chewing tobacco king the world over, the DS group is looking beyond its Baba and Tulsi brands of zarda to establish itself as a business conglomerate of substance

The habit of zarda (chewing tobacco) in Asian and Far Eastern civilization has been inherited over the centuries and continues even in modern times despite the fact that the traditional way of preparing the chew has been very cumbersome and unhygienic. Moreover, due to its alleged carcinogenic properties chewing tobacco has reportedly claimed unaccounted number of lives all over the world. “The allegations against zarda may be true, but cannot be easily substantiated” says Rajiv Kumar, MD of the Rs.1,000-crore DS (Dharampal Satyapal) group of Delhi and makers of the famous chewing tobacco brands Baba and Tulsi, Rajnigandha Paan Masala, Paas Paas and Catch brand of spices and beverages. “Anything in excess takes its toll,” he adds and justifies his products by saying, “Nobody has complained so far about our products. The reputation established by our brands the world over justifies that.” The introduction of Baba zarda in 1949 gave chewing tobacco an identification and respectability that this segment of tobacco never enjoyed. “It was unique in its taste,” recalls Rajeshwar Dayal, a Delhi based historian of the Walled City. “For the first time, zarda was spiked with fragrances produced in the Delhi and Kannauj regions. It had in it a secret formula hidden to blend tobacco with perfumes and saffron that made Baba unique in taste. It also became difficult to replicate the taste unique only to the brand.” The outcome was obvious. Over the past 50 years the brand has become a benchmark for other zarda manufacturers all over the country who have been experimenting with various kinds of blends to produce something similar to Baba and Tulsi, but have failed as none of them has been able to match the quality, taste and popularity of the zarda produced by the DS group, which has now established several other businesses unrelated to its tobacco and tobacco-related products.

“Of course, right now zarda manufacturing is the mainstay of our business but we are taking other business initiatives as well,” says Rajiv Kumar. Primarily a zarda manufacturing house which started its operations from a small shop at Delhi’s Chandni Chowk area in 1929, the DS group has diversified into a variety of FMCG products, rubber, steel and hospitality industry in a big way in the past 10 years or so. DS group is not the only one in the business which has started looking at diversifying. There are other prominent zarda and gutka manufacturers as well in UP, Bihar and Maharashtra – thanks to their huge cash flow, that has induced them into other businesses. The makers of the Pune-based Manikchand gutka have diversified into mineral water and real estate development. Ahmed Hussains of UP have also got into real estate and cateries. The Bhagalpur-based makers of 300 brand zarda are into various non-tobacco related activities.

Zarda, paan masala and gutka marking has become a veritable gold mine for most manufacturers with a large part of transactions in cash, much of which is not shown in income tax returns. They also avoid paying excise duties. Says Amitabh Garg, a senior official in the Income Tax department, “As a natural corollary, many manufacturers are diverting these funds into other businesses to gain both security and respectability. They really don’t need to approach financial institutions for their other start – ups.” “Surprisingly,” says Garg, “many zarda and gutka players are venturing into other businesses different reasons, one of them being threats from the underworld. Of late, the under world has taken an unusual interest in the chewing tobacco and paan masala business, forcing manufacturers to part with machinery and know-how.” Agrees Harakh Chand Jain, a senior executive with a Maharashtra-based zarda and gutka manufacturer, which was in the news recently for its alleged links with Dubai and Pakistan-based underworld dons. Says Jain, “While the business is highly profitable, it is also wrought with problems compounded by the unholy incursions of the underworld that tries to skim the cream off your profits. Therefore, making investments in other businesses only hedge our larger interests. ”Rajiv Kumar does not agree.” As a company, we are not bothered by the underworld because we have never had to deal with it. Even as a closely held company we have maintained our transparency and published our annual reports. We are one of the larger excise duty payers in the business, which helps us in getting tax benefits, which in turn, goes to an excrow account. If you have to grow as an exemplary corporate entity, you have to pay taxes. And to grow further you have to diversify. You have to invest and make worthy use of your internal accruals and profits by getting into different business segments,” he says. A.V.Subramani of investment banking division, SBI, says, “Even though zarda and related products have been their mainstay, the Kumars have been looking for alternative investment avenues and diversifying for the past 25 years. They launched their Catch brand of salt and pepper almost 20 years ago. “It was a pioneering effort in packaging with table-top rotatory dispensers. In order to achieve further they imported a state-of-the-art low temperature grinding (LTG) technology. This was the beginning of fulfilling their conglomerate’s ambitions.”

The financials
Of the group’s total turnover of over Rs. 1,000 crore, sales of non-tobacco products such as Rajnigandha paan masala (Rs. 312 crore), perfumery compounds (Rs.149 crore), Catch spices (Rs.28 crore), Pass Pass mouth freshener (Rs. 17 crore), Catch brand of mineral water and soft drinks (Rs. 13 crore), gold or silver leaves or warq (Rs.2 crore), fetch more than half of the revenue. Tobacco and tobacco-related products earned the company Rs. 351.8 crore. The DS group is also seeing a steep increase in its revenue from its Manu Maharani Hotel at Nainital.

Recently, the group also made a headway in marketing produces such as pineapple slices and juices from its fruit canning factory in Agartala, Tripura, a tax free zone for new industrial set-ups. By this year end, the company is planning to launch Pass Pass choorans in a big way to take on Dabur’s Hajmola, which has more than 60 percent market share. The total market size of the chooran business is around Rs. 200 crore, which is mostly in the unorganized category. DS expects to clock a sales of Rs.3 to Rs.4 crore in the first year itself.

The increase in sales has impacted positively on the group profits that have been witnessing a sizeable jump each year. In FY 2005-06, the group cocked sales of Rs. 1,099 crore (profit after tax Rs. 85 crore) as against the previous year’s sales of Rs. 933 crore (Profit Rs. 67 crore). The company has a huge network of 1 lakh distributors and over 25 lakh retailers across the country and abroad. And all this in a company and abroad. And all this in a company that is 100 percent owned by the family with little doubt. When Seth Dharampal set up his small perfumery at Old Delhi’s Chandni Chowk in 1929 with his brother Premchand, his idea was to sell some of the best locally produced perfumes to discerning buyers. He was also a connoisseur of chewing tobacco, selecting the best and finest tobacco leaves for his own consumption. But he had his zarda unblended which didn’t go unnoticed by his young son, Satyapal, who was developing skills with various perfumes experimenting and blending them together, and in the process, discovering a range of new fragrances.

In 1948, Satyapal at age 18, tasted one of his blends and found it unique as it left a very good taste lingering in the mouth for a good duration of time. It gave him an idea : how would the plain zarda-that his father consumed – taste, if it was blended with one particular blend of perfume he had discovered? He thought he would give it a try. He took a handful of zarda with his blend of perfume and saffron. In a matter of minutes, the zarda had acquired a unique taste. It was then offered to family members and friends in paan who raved and asked for more. A few weeks later, Satyapal realized he had a sure shot winner in the product. And the word-to-mouth publicity about the product’s unique flavor and its growing demand among family members, friends and their friends, prompted Satyapal to advise his father to launch the zarda’s commercial production. Rameshwar Nath Mehra, an Old Delhi resident and a retired legal luminary recalls, “The launch of the zarda on the first day itself was a big revelation. People were raving about the unique flavor of the zarda. It was an instant hit with consumers. Its uniqueness could be seen in the fact that it not only made people quit smoking and switch over to it, but also induced them to using zarda orally. In fact, it created a new generation of zarda consumers who probably thought chewing of perfumed tobacco was much less harmful than smoking.” So huge was Baba’s popularity that a new adage got coined in the ‘60s: “Chandni Chowk ka chana bhatura, barfi aur Baba chhaap zarda nahin khaya tau kuchch nahin khaya.” Soon, the perfumery business which got Dharampal Satyapal just a few thousands of rupees per month for many years, was relegated to the background. The new tobacco product had overtaken the sales of other chewing tobacco products as well raking in earnings in thousands per month. By 1964, when Baba became the flagship brand of the hitherto small establishment, the modest Chandni Chowk shop became one of the famous land marks in Old Delhi with distributors and retailers from all over the country and even Pakistan started making a beeline for it.

Urban consumers
Says V.Kapoor, a former marketing employee at ITC, “In the 60s many urban-based smokers quit smoking to take up chewing Baba tobacco in the belief that it had less nicotine content and more flab our derived from sandalwood oil. The Baba products were also being marketed in various range and sold as Baba 120, Baba 160, Baba 600 etc. according to the strength of the flavor. But Baba 120, which is the cheapest of the lot, was the most preferred brand and sold in huge quantities, bringing in assured returns to its distributors and retailers who were selling the product in black to its urban customers across the board. Most consumers of DS tobacco and tobacco-related products have remained largely urban.

“At one time, there was a huge short supply of Baba 120 and we were unable to keep up with the demand as it grew exponentially,” says Ravinder Kumar, chairman of the DS group. “Finally, we had to sell them in a rationed manner,” chuckles Rajiv Kumar, “and applied the rule: one person, one package.” “It was one consumer brand then,” adds Pranav Kothari of Kothari & Sons, a leading distributor of tobacco products, “which was being sold at a premium by many unscrupulous distributors and retailers. It forced the promoters to step in to streamline their distribution and retailing network to prevent black marketing.” Between 1964 and 1984, the Baba brand featuring units logo an interesting amalgam of the Laughing Buddha and an Indian sadhu in saffron robe with tilak on the forehead, assumed an iconic status with people flaunting zarda cans in their hands. “It was and is the sign of unwavering customer loyalty across the world,” claims Rajiv Kumar proudly. “The logo and the products’ choicest and finest ingredients make them international favorites,” he adds. “These standards have been the corner stone of all the DS offerings – be it flavored betel nuts or a natural mouth freshener like silver-coated cardamoms.” The company has over 30 manufacturing units across the country to produce tobacco and non-tobacco products.

Right since 1987, when the group launched Catch range of salt and pepper – its first step towards diversification – it has been gradually extending its non-tobacco product portfolio which includes a range of Catch masalas for the kitchen, natural spring water, clear flavored drinks, tonic water, jal zeera and snacks such as packaged pistachios, cashews, green grams, green peas and jumbo corns – all under the brand name Catch. The Catch brands of salt, pepper and spices have also been gaining in popularity among institutional buyers including hotels, restaurants, and hospitals. In the recent years, the Indian Railways has become one of the top institutional buyers of Catch products. This, as well as other entities have enabled the brand to register a 100 percent year-on-year growth in sales for the past eight years. “We have many competitors,” says Rajiv Kumar, “such as MDII, Badshah, Everest and MR in the masala category, but we are gaining a fairly large share of the market in the branded category.” In the beverages category too, the products have continued to make inroads ever since the company announced all its beverages use pure spring water sourced at its Kullu facility in Himachal Pradesh. According to senior executives in the company’s marketing division, the Catch spring natural water is becoming a niche brand in north India with a good number of clients that includes the prime minister’s household. The success of its beverages and snacks line has spurred the company to earmark a Rs.100-crore investment to further grow the segments. It also plans to introduce a variety of new products over the next two to three years.

The new focus
However, the turnover of food and beverages segments still remain smaller as compared to the tobacco, paan masala, betel nuts and mouth fresheners. The paan masala segment has seen a major growth with Rajnigandha overtaking its competitors in most of the states. To take on the competitors, the company has launched several new products such as Tulsi Royal Gold Pan Masala and Tulsi Royal Gold and Nazakat Pan Masala with tobacco.

The packaging change in Tulsi My Mix and Tulsi Zarda is another innovation. The company also retains its dominant position in the mouth freshener category with its Pass Pass. In the same category, it has further consolidated with the launch of Pass Pass Meetha Magic last year with a mix of colored fennel, dates, coated sugar balls, silver coated cardamom, rose petals and betel leaves. While the Baba, Tulsi and Rajnigandha brands continue to flourish, the group has set its sights on hospitality, rubber and steel business. It recently ventured into the hospitality sector with plans of launching five star properties in larger cities and boutiques and heritage properties at tourist destinations. Its first hotel, Manu Maharani at Nainital, acquired five years ago, market its entry into the hospitality industry. Thereafter, it took over the Airport Hotel at Dum Dum, Kolkata, after its divestment by ITDC. Currently under renovation it will be recommission as a five-star hotel in the next two years. In addition, DS Hotels and Resorts have acquired tracts of land in Jaipur, Udaipur, Ranthambore, Shimla, Mussoorie, Jim Corbett Park, Manali and in Goa with plans of setting up hotels and resorts managed by renowned international players in the category. Right now the group isscouting for international management partners to run the Kolkata property and is hoping to tie up either with Radisson or Starwood in the next few months.

“With the boom in tourism industry,” says Rajiv Kumar, “Our company is confident of emerging as one of the largest players in the hospitality segment.” Kumar has already earmarked an investment of Rs. 1.000 crore over the next three years in the segment. He has already invested Rs. 200 crore acquiring properties in Kolkata, Jaipur and Udaipur.

The Rs. 5,000 crore target
Infrastructure development including power transmission is another sector the group is looking to venture into. For this along with other initiatives, the northeastern parts of the country would be another thrust area for the group and the investments have already begun. The group has already set up a Rs. 100 crore packaging unit in Guwahati, Assam. Last month, the group’s Rs. 85 crore heat resistant rubber thread manufacturing plant became fully operational in Agartala, Tripura. This plant with a total installed capacity of 5,000 MT annually will manufacture a premium quality heat resistant latex rubber thread used in a variety of inner wears. “It is one of the largest investments made in our state,” states Manik Sarkar, chief minister, Tripura. “With a huge scope for exports of rubber thread to neighboring Bangladesh and other international markets, we might set up additional plants there with a further investment of Rs. 150-200 crore,” says Rajiv Kumar. “Forty percent of the installed capacity of the plant has already been booked for exports,” he adds.

Also underway in Tripura is a Rs. 250 crore steel plant to produce 1.5 lakh tonnes of galvanized sheet per year. “It is a major business initiative in this part of the country,” says Kumar. “There is a huge demand for the product not only in northeast, but also in Bangladesh, which is contiguous to Tripura.” Rajiv Kumar has various other plans too to get into other businesses in the region. “Right now,” he says, “We are metamorphosing from a pure sectoral company to a conglomerate with interests in multiple business segments and which we have identified as a future growth areas. We want to be a Rs.5,000 crore group in the next five years. And that seems quite achievable.”