Rarely do capital market experts look beyond the universe of companies listed on the stock exchanges. Their spreadsheets, presentations and analysis revolve around the financial ratios of listed companies that report their revenues and profits at regular intervals.
Home-grown ecommerce stars like Flipkart, Snapdeal and Paytm, among others, have caught the attention of such analysts with their advertising blitzkriegs and profit-eroding discount sales.
But, there is one unlisted company that is now on the radar of almost all the big brokerages; it is not burning cash and boasts of a loyal following, traits that are uncommon in the ecommerce space where profits are a distant dream. The company is Patanjali Ayurved Ltd (PAL).
Patanjali is clearly targetting much older fast-moving consumer goods (FMCG) majors like Colgate-Palmolive, Nestle, Dabur and HUL; its wide array of products — including spices, pulses, chyvanprash, toothpaste, shampoo, toothbrush, instant noodles, tea, jam, corn flakes and also beauty products — competes directly with products from the heavyweights. A quick glance at the packaging of a PAL product usually makes it clear which market-leader is being targetted; the design similarities do not seem coincidental. Patanjali is also taking on the big players in other geographies, exporting its products to Canada, the USA, Mauritius and UK, among other countries.
According to leading domestic brokerage IIFL, Patanjali’s main promoter is Acharya Balkrishnan, who owns 93 per cent of the company; the remaining stake is owned by Sarwan and Sunita Poddar, an NRI couple. Yoga teacher and television personality ‘Baba’ Ramdev does not own any stake in the company, but he has played a huge part in the brand’s gaining visibility, by marketing it in the numerous yoga camps that he holds across the country.
In a 57-page report released in January, IIFL said, “Patanjali Ayurved Ltd has, in a short span of less than a decade, recorded a turnover higher than what several companies have managed to achieve over several decades. There is no doubt that Patanjali is a disruptive force in the FMCG space and is a credible threat for the incumbents.” IIFL is of the view that the growing appeal of ayurvedic and ‘natural’ products, along with factors like low price and allowing consumers to express Indian-ness in an increasingly nationalistic environment, will help Patanjali achieve sales of Rs.20,000 crore by FY20.
Similarly, Bonanza Portfolio, in a note issued on 8th January, said that the FMCG industry has become more competitive “with the launch of Patanjali products” and that Patanjali “is set to eat market share of some of the FMCG majors present in oral care, hair care and OTC (over the counter) products with its economical pricing across its brand portfolio.”
IIFL states that Patanjali’s highest impact will be on Colgate, since it has gained substantial traction in oral care; next most affected is Dabur, due to multiple category overlaps. And ITC, Godrej Consumer Products Ltd and Nestle are least likely to be impacted due to few common categories. “Our analysis suggests that by FY20, Patanjali will have high market shares in categories such as honey (35%), ayurvedic medicine (35%) and ghee (33%) and will have eight categories with turnover greater than Rs.10 billion (Rs.1,000 crore). Success may be limited in chocolates (4%), detergents (4%) and noodles (4%). Ghee, biscuits and ayurvedic medicine will be the main contributors to Patanjali’s turnover,” states the report.
According to Credit Suisse, Patanjali has gained significant traction in the toothpaste category with “fairly limited distribution.” Industry data indicates that the brand has a 4-5% market share, despite having fairly limited distribution, it says.
Global financial major Credit Suisse downgraded Colgate-Palmolive India to ‘neutral’ due to the traction that Patanjali is generating in the dental care segment. A Credit Suisse report released last month said: “Colgate's volume growth has seen a significant drop in FY16, which is divergent from peers who are seeing steady volume growth. The key reason in our view is the strong traction that Patanjali has gained in the category.”
The figures bear this out. As per statements filed with the Registrar of Companies (RoC), Patanjali Ayurved’s net profit increased from Rs 95.19 crore in FY13 to Rs 196.31 crore in FY14; sales increased from Rs 843.92 crore to Rs 1,186.71 crore in the same period. The numbers for FY15 were not available with RoC.
A team of analysts from Edelweiss, who went to Patanjali's Food and Herbal Park at Haridwar and met senior officials, said that the management is confident of achieving a revenue target of around Rs.5,000-6,000 crore by FY16. The resulting report said, “The company is working on plugging the gaps in the supply chain and distribution with plans afoot to implement ERP (for better inventory management) and consolidate its online presence. Strong innovation and new products pipeline, pricing discounts to the peers (15‐30%), ayurvedic and natural propositions with low A&P spends (leveraging Baba Ramdev’s brand pull) lend Patanjali’s products an edge over competition. However, distribution remains a key monitorable.”
In March last year, the board of the company passed a resolution to enhance the cash credit limit of the company from Rs 150 crore to Rs 300 crore to meet the growing working capital requirements. Promoter Acharya Balkrishna, who is also the managing director of the company, agreed to pledge 30 per cent of his holding as security against the enhanced credit limit, according to documents filed with the RoC.
Reliance Securities says that Patanjali has stepped up its advertising and promotional spend and was one of the top three brands advertised on television in last week of November as per Broadcast Audience Research Council (BARC).
“Priced anywhere between 10%-30% cheaper than peers, Patanjali poses serious challenge to flagship products of many companies. We expect companies like Dabur to be most impacted by Patanjali while companies like Colgate, Emami and HUL to be marginally impacted,” it said in a note released in January. According to the brokerage, Patanjali is looking to double its revenue from Rs.2,000 crore in FY15 to Rs.5,000 crore in FY16 estimates.
And Patanjali’s web site reflects that expansion. The site has application forms for people interested in opening a Patanjali Mega Store or Patanjali Chikitsalya or Arogya Kendra; the ‘mega stores’ require a minimum of 2,000 sq.ft. of space and an investment of around Rs 50–60 lakh in ‘A’ grade cities. And a chain of Chikitsalya and Arogya centres has been planned for villages with a population of less than one lakh, with space requirements ranging between 350 sq.ft. to 1,000 sq.ft,, with investment requirement from Rs 6–12 lakh.