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Will Patanjali manage to hit the Rs 20,000 crore revenue target?

By Puneet Wadhwa
May 05, 2017 17:17 IST
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Patanjali, to a large extent, has penetrated the target group for its products. As a result, increasing the consumer base and revenue by 100 per cent in FY18 will be a stiff challenge.

With a reported turnover of Rs 10,561 crore (Rs 195.61 billion) in financial year 2017 (FY17), Baba Ramdev- and Acharya Balkrisha-led Patanjali Ayurved Ltd (PAL) expects its revenue to hit the Rs 20,000-crore mark in FY18.

Analysts, however, are sceptical and are of the view that Patanjali may not be able to achieve this steep revenue target in FY18 purely on the basis of growth in the FMCG segment, given the current industry growth rates and that the revival in rural demand is still some time away.

“One must be mindful that this Rs 20,000 crore will also include commodity-related products such as rice, wheat, edible oil, and milk. Growth rates for pure FMCG products are likely to slow.

Patanjali is now quite big in products like honey, toothpaste, shampoos, and hair oil. So from the base these pure FMCG products has created, doubling of revenue looks very difficult.

The category growth rates will be around 13 per cent at best. Though penetration into newer markets will help, doubling still seems a farfetched idea as of now,” says Abneesh Roy, an analyst tracking the sector with Edelweiss Securities.

For the rural demand to kick in, analysts say the monsoon season this year will also be crucial. That apart, companies are now in the process of catching up with Patanjali in terms of ayurvedic products. In this backdrop, Patanjali will find it difficult to double this huge revenue base it has already created.

“I have doubts whether Patanjali can achieve the Rs 20,000 crore revenue target it has set for itself. Volume-wise, the FMCG industry is growing in single digits (4-6 per cent) for most players.

For FMCG players, we need a good monsoon to act as a catalyst to trigger a demand revival. Even one good monsoon (last year) was not enough to revive the rural demand,” explains G Chokkalingam, founder and managing director of Equinomics Research & Advisory.

Experts also suggest that Patanjali, to a large extent, has penetrated the target group for its products, i.e. people have shifted from the products of multinational companies (MNCs) and other domestic players to Patanjali. As a result, increasing the consumer base and revenue by 100 per cent in FY18 will be a stiff challenge.

“I think the Rs 20,000 crore (rs 200 billion) revenue figure for FY18 is too steep for Patanjali to achieve. There are alternative products in the ayurvedic segment from other players, such as Hindustan Unilever (HUL), Dabur, Colgate-Palmolive (India), and Emami.

That apart, the pricing advantage for Patanjali over other players has also reduced, with the FMCG companies resorting to aggressive pricing for their ayurveda products. I believe 20-25 per cent revenue growth for Patanjali in FY18 is a more realistic and an achievable target,” says AK Prabhakar, head of research at IDBI Capital.

Earlier in August 2015, Patanjali Ayurved had caught the attention of foreign research and brokerage house, CLSA, which wished that the company got listed at the bourses.

Patanjali is the 3rd largest FMCG player in India!

To challenge multinational restaurant chains like McDonald’s, KFC and Subway, Patanjali will soon venture into the business.

Growing at a rapid pace, Baba Ramdev’s Patanjali group has become the third-largest fast-moving consumer goods (FMCG) player in the country, surpassing firms like Nestlé, Godrej Consumer, Britannia, and Dabur.

The ayurveda major posted Rs 10,216 crore in FMCG and ayurveda sales during 2016-17, a jump of over 100 per cent from Rs 5,000 crore the previous year, the group announced on Thursday.

While most of FMCG companies, including ITC and Hindustan Unilever, are yet to announce their results for the January-March 2017 quarter, Patanjali is behind ITC and Hindustan Unilever’s trailing 12-month revenue in the January-December 2016 period of Rs 38,293 crore and Rs 30,783 crore, respectively.

Patanjali is ahead of Nestlé India (Rs 9,159 crore) and Godrej Consumer (Rs 9,134 crore), when compared to their January-December 2016 revenue. Analysts expect Nestlé and Godrej to post 10-15 per cent growth in Q4, which will keep Patanjali at third place based on its 2016-17 revenue.

Patanjali is now aiming at a two-fold increase in sales to Rs 20,000 crore and doubling its retail network to 12,000 outlets by March 2018.

Founded in 2006 by Ramdev and his close aide Acharya Bal Krishna, Patanjali Ayurved has grown exponentially in the past five years. While the growth rate for most FMCG companies in the country ranged between eight and 12 per cent during this period, Patanjali’s revenue multiplied by over 20 times - from Rs 453.4 crore in 2011-12 to Rs 9,346 crore in 2016-17.

Its revenue continued to grow in triple digits even during the past two years, when all its peers witnessed muted growth owing to general slowdown.

The Patantaji group’s total sales touched Rs 10,561 crore during 2016-17, with its FMCG business, Patanjali Ayurved, posting revenue of Rs 9,346 crore; the ayurvedic and herbal medicines business, Divya Yog Pharmacy, contributing Rs 870 crore; and Patanjali Gramodyog Nyas, a trust that works in the fields of animal husbandry and economic and social uplift of villagers, generating Rs 345 crore.

The group, however, refrained from revealing profits, and only said its profits had grown 100 per cent since 2015-16.

Business Standard excluded Patanjali Gramodyog Nyas while comparing the FMCG companies’ ranking by revenue.

Patanjali cow ghee (clarified butter) remained the most-sold product, generating Rs 1,467 crore. Its Dant Kanti toothpaste raked in Rs 940 crore, followed by Kesh Kanti shampoo (Rs 825 crore), herbal bathing soap (Rs 574 crore), and Kachhi Ghani mustard oil (Rs 522 crore).

Patanjali biscuits, honey, and washing powders and soaps did well by posting Rs 380 crore, Rs 335 crore and Rs 325 crore in sales, respectively. Among its branded commodities business, Patanjali Atta remained second only to mustard oil with sales at Rs 407 crore.

Currently, Patanjali holds a 15 per cent share in the domestic shampoo market. Its market share in toothpaste and honey businesses is about 14 per cent and 50 per cent, according to Ramdev.

The firm had ventured into the personal beauty and cosmetics market early last year with its Saundarya brand, which contributed Rs 231 crore to its top line, while its facewash business grabbed a 35 per cent market share with sales worth Rs 228 crore. Its skin care business clocked Rs 231 crore.

To meet its stated target for the current year, Patanjali will be investing Rs 5,000 crore in five new food parks in Madhya Pradesh, Maharashtra, Andhra Pradesh, Assam, and Uttar Pradesh.

The unit at MP will be dedicated for products to be exported to the US, the UK, and Canada, besides neighboring countries like China. Patanjali, which currently employs 100,000 people, will take that number to 500,000 in the next one year, Ramdev said.

To challenge multinational restaurant chains like McDonald’s, KFC and Subway, Patanjali will soon venture into the business.

“We are working on the business plan and branding. So, don’t be surprised if you find one day that Patanjali restaurants are serving nutritious and safe food in your neighbourhood. We will venture into segment very soon,” said Ramdev.

Taking a dig at other FMCG companies, Ramdev said his fight against economic colonisation of the domestic market would continue.

“Unlike Unilever, MHC, P&G, and Colgate, Patanjali spends its whole profit on education, research, cow promotion and protection, and will continue doing so. Patanjali is an organisation owned by 125 crore (1.25 billion) Indians. So, I seek their cooperation in our mission,” he said.

Arnab Dutta from New Delhi

Photograph: PTI Photo

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Puneet Wadhwa in New Delhi
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