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As Patanjali's meteoric rise abates, other FMCG majors pull up socks

The Financial Express logo The Financial Express 06-12-2018
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Patanjali Ayurved claims that notwithstanding a marginal rise in revenue in 2017-18, volumes remained strong. "Our FY18 revenues were somewhat smaller due to GST-related issues and the shift in focus towards expansion and planning. But our sales volumes were not smaller," managing director Acharya Balkrishna told FE. He said the company targets to generate higher revenues in the current fiscal.

Patanjali had said in 2017 the firm's revenue would double every year to cross Rs 20,000 crore in FY18.

The company is focused on building a competent supply chain to improve product availability. "We do not see anyone as competition. Wherever we reach, we are satisfied. No harm in that. We are working on giving better products to customers at lower prices," Balkrishna said.

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He said the company has no plans of adding new products as of now. It is more keen on improving marketing and the quality and standard of products so that the demand can be met. He also said the company's ad spends are "under control" as aggressive advertising will be uncalled for without sorting out irritants in the supply chain. "We will increase ad spending as and when problems ease."

According to Ambi Parameswaran, brand strategist and founder of Brand-Building.com, Patanjali is a great success story even if it suffers from a temporary hiccup. Going from around Rs 100 to Rs 10,000 crore in a decade is a miracle, he said. "The brand was not built by advertising, but by the larger-than-life of Ramdev. The brand did not need to advertise heavily and that caused, in my mind, a dissonance with its core user group. The brand was supposed to be of good quality, endorsed by a lovable guru and prices were 30% lower. So why are they advertising? If HUL and Colgate spend 10% of their top line on advertising, I would have expected Patanjali to spend not more than 3% on ads. And the fact that they did too much wrong advertising might have hurt the brand. It has to go back to the basics: good products, good pricing and Ramdev's smile. Not tall claims in ads."

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Patanjali, which sells natural food products to herbal home care items to Ayurved medicine and has recently forayed into retail, hogged the limelight with its differentiated advertising — highlighting pricing difference with competitors, underlying the fact that Patanjali is an India product, Edelweiss said in a report last year.

Although, Ramdev's strong brand equity initially clicked with consumers, competition came out with focused ads and provided a mix of innovation and pricing cut. In Patanjali's case, innovation was very limited, Abneesh Roy, senior vice-president at Edelweiss Financial Services, told FE.

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"When I check edible oil for example, Patanjali spent Rs 96 crore (on ad) in FY18. That dropped to Rs 4.6 crore in first quarter (FY19). On a run rate of Rs 24 crore per quarter, they have dropped to one-sixth of that in edible oil. My sense is this would have continued in every category. Coming to Patanjali honey... they spent Rs 18 crore on advertising in FY18... that fell to Rs 1 crore in Q1.. so here it is a 75% shave off," Roy said.

Patanjali, which had doubled its revenue from Rs 5,000 crore in FY16 to a to Rs 10,561 crore in FY17, clocked a marginal 9.83% rise in revenue to Rs 11,600 crore in FY18.

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HUL's revenue stood at Rs 35,218 crore in FY18, more than twice of Patanjali.

To counter Patanjali's ascendancy, major FMCG players revamped and launched their own natural portfolios. In 2017, HUL relaunched Lever Ayush, extending it to the mass segment. Ayush, which was launched first in 2001 at the premium end, ran out of gas in six-seven years. HUL also acquired Mosons Group's flagship brand Indulekha to augment its position in the personal care basket. Colgate, which already had presence in the natural oral care segment with Active Salt toothpaste, launched the Cibaca Vedshakti in 2016, to be followed by the introduction of Swarna Vedshakti a year later to up its game.

Launch of the Ayush master brand in the mass segment across categories like toothpaste, face wash, shampoo, conditioner, etc, is envisaged to propel growth. This, coupled with Indulekha's clinical validation, is likely to boost the company's natural proposition. Colgate's strategy of focusing on the naturals' portfolio has evinced an encouraging response with repeat purchases, Edelweiss Securities said in two separate reports in October.

Outlining Patanjali's ambitious plans, Ramdev at an event in January this year had said the company's revenue will be more than HUL's in 2018-19.

Dabur, which saw its market share in honey dipping to 50% from 56% (according to the company comments in Q32017 results call) laid stress on the concept of science-based ayurveda to take on Patanjali's faith-based ayurveda. The firm's health supplements business grew 12.3% as chawayanprash and honey performed well. The skin care and salon category posted around 12% growth. Both the home care and hair oils businesses grew by around 11% while the toothpaste category grew by over 6% during the quarter, with the flagship brand Dabur Red Paste reporting a 19.5% growth. "With consumer demand for nature and Ayurveda-based products on the rise, Dabur's positioning as the "science-based Ayurveda" specialist will pave the way for future growth," CEO Sunil Duggal said.

Dabur is further reinventing Babool and a national rollout will happen next year. Its white ayurvedic toothpaste is also in progress. Nestle, on its part, reportedly pushed 25 new products in a short span to weather the Patanjali onslaught as the latter was quick to capitalise on losses Nestle had suffered after the ban on Maggi.

Patanjali Ayurved faced flat sales gains for FY18 after a 100% CAGR for the past four years. The company's honey and hair care products are not doing well and even strong categories such as toothpaste are plateauing, FE reported in August citing a Bloomberg story which quoted a Credit Suisse report.

Rising interest cost on account of debt-funded capex, increased short-term and working capital borrowings to fund the rising scale of operations also moderated the profit after tax margins for FY18, Care Ratings said in a June report.

Balkrishna said the firm's export market is picking up and products such as ghee, honey, oil, cosmetic and toothpaste are doing well. "The USFDA audit has been done, we have got all approvals. We are already exporting in European countries and the US. Now we are planning for the UK."

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