NEW DELHI: This Indian baba is not letting multinational giants sleep peacefully.
He unleashed a whole range of herbal products to turn the entire FMCG business upside down and then expanded into a whole range of other businesses from ayurvedic media, food products, textiles & garments and even security solutions.
Last heard the yoga guru is fast expanding production capabilities and taking his battle to the next level, by focusing big on branding and marketing to widen reach.
Reports said the company is now seeking to follow a more vertical or deep-dive strategy to create more segments within categories.
This could pose a challenge to most FMCG players, which are defending their turf by launching ayurvedic products, brokerage Nirmal Bang Institutional Equities said in a note.
Patanjali meets ‘Bharat’
Patanjali has almost become a ‘fad’, reaching nearly 53 percent of Indian households in the personal care segment and 26 percent in food products.
Even in rural households, it has built good reach by achieving nearly 24 percent market share in the personal care and 7 percent in food and beverages. Importantly, the brand has a very good retention rate and is certainly a challenge for most personal product manufacturers, the brokerage said.
The Hurun Report India in its latest report on richest Indians called Patanjali CEO Acharya Balkrishna the “FMCG’s Maverick Yogi”.
Balkrishna (45) ranked the eighth richest Indian and has seen his wealth surge 173 percent year on year to Rs 70,000 crore. He is also the most followed entrepreneur on social media with 56 lakh followers on Facebook, the Huran report said.
The Haridwar-based Patanjali clocked a turnover of Rs 10,561 crore in FY17.
FMCG accounts for nearly one-third of traditional media i.e. television, print and radio, and Hindustan UnileverBSE 0.58 % (HULBSE 0.58 %) remains the highest spender with a 25 percent share of the overall FMCG ad spend. ITCBSE -0.17 % and Godrej Consumer ProductsBSE -0.88 % also spend big on media ads.
Patanjali is catching up fast. The company has emerged a large ad spender, ranking seventh in the FMCG category and 15th on an overall basis.
Nirmal Bang Securities said the industry needs to watch the disruptive challenges posed by Patanjali closely. (See table)
India’s consumer spending behavior is changing fast, influenced by product innovation, disruptive competition, and digital landscape. This has kept the industry majors, including the MNCs, on their toes, prompting some of them to change business strategies.
Companies that consistently deliver winning consumer offerings through product innovations and distribution are only likely to retain and expand market shares, said Nirmal Bang Equities.
Premiumisation and saving to drive margins
The brokerage noted that the share of affluent and elite households in the Indian market may double to about 50 percent from 24 percent within a decade and that spell big potential for categories like deodorants and skin cream.
HUL and Gillette IndiaBSE -0.30 % is seen to be outpacing their listed peers with more than 100 basis points improvement in margin expansion, supported by strong premiumisation trend and high penetration in modern trade and e-commerce channels.
“For Dabur IndiaBSE -0.19 % and Colgate-Palmolive (India), we expect margin expansion to be modest, as category growth rates are somewhat sluggish and competitive challenges remain higher,” it said.
The BSE FMCG index has risen 20 percent in the last one year; ITC is up 11 percent, HUL 37 percent, Colgate PalmoliveBSE -0.16 % 11 percent and DaburBSE -0.19 % India 12 percent. Others such as Marico and Godrej Consumer Products have delivered consistently over the past five to six years. HUL and Gillette India have consistently outperformed their parent companies, except in 2016.
Indian consumer and consumer discretionary stocks have consistently traded at a significant premium to their peers and this has been evident not just in bear markets, but also in a bull market.
“We are expecting a recovery in home & personal care (HPC) segment on account of a favorable base and a gradual pickup in growth,” said Nirmal Bang Institutional Equities.
Dabur India, Emami, and CPIL are trading at five-times PEG; much higher than PEGs of HUL and Gillette India. “In the bull phase, all stocks are trading at a premium but looking at the earnings outlook for these companies, we believe the price multiples in case of Dabur India, CPIL and Emami are not supported adequately by future earnings growth. HUL and Gillette India have always been trading at a substantial premium and we expect them to continue in the same manner,” the brokerage said.
Courtesy – www.economictimes.indiatimes.com