Why Patanjali may be injurious to health of listed FMCG rivals

A report by brokerage firm IIFL claims the company is on course to clock revenues of Rs 20,000 crore by 2020, something that can have profound implications for both the fast-moving consumer goods (FMCG) industry at large and several listed players in particular.
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May 19, 2016, 02.11 PM | Source: Moneycontrol.com

Why Patanjali may be 'injurious' to health of listed FMCG rivals

A report by brokerage firm IIFL claims the company is on course to clock revenues of Rs 20,000 crore by 2020, something that can have profound implications for both the fast-moving consumer goods (FMCG) industry at large and several listed players in particular.

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Why Patanjali may be injurious to health of listed FMCG rivals

A report by brokerage firm IIFL claims the company is on course to clock revenues of Rs 20,000 crore by 2020, something that can have profound implications for both the fast-moving consumer goods (FMCG) industry at large and several listed players in particular.

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Raveena Singh
moneycontrol.com

With a Rs 2,000 crore revenue, Patanjali Ayurved Limited (PAL) has set the charts ablaze when it comes to growth. But the Baba Ramdev-backed brand may just be getting started. A report by brokerage firm IIFL claims the company is on course to clock revenues of Rs 20,000 crore by 2020, something that can have profound implications for both the fast-moving consumer goods (FMCG) industry at large and several listed players in particular.

"What makes Patanjali a credible threat is that it does not try to beat other FMCG companies at their game; it changes the game for them," says the report, titled Patanjali: Injurious to Listed FMCG Health authored by IIFL's Percy Panthaki.

The company, it says, enjoys several advantages over peers. It is associated with a personality followed by millions: Baba Ramdev. The combined with other factors such as price discounts, the appeal of the ayurvedic/herbal/natural platform and a desire to consume Indian brands makes for a winning formula.

The IIFL report says that the company may gain double-digit market share in 10 of 25 categories it analysed, including Ayurvedic medicine, honey, ghee and chyawanprash.

The companies that are expected to be impacted the most from Patanjali's are Colgate , whose revenues could be hit by 7.8 percent. "Patanjali has already garnered more than 5 percent market share and we believe that as general/modern trade distribution ramps up, market share would further increase to 13 percent by FY20," says the brokerage.

Dabur could be next, given Patanjali's overlap with Dabur products, such as Ayurvedic medicines, chyawanprash, honey, hair and skin care.

"In some of the categories such as honey and Chyawanprash Patanjali has a high right to win as it resonates with Patanjali’s core brand values of health and wellness," according to the report.

Other FMCG players such as ITC and United Spirits may escape the Patanjali onslaught, considering that they dominate product lines (cigarettes and liquor, respectively) that the latter considers unhealthy and against its philosophy. Market leader HUL can take a moderate hit, the analyst reckons.

However, the company's sterling growth has prompted rivals into action. HUL , for instance, has already revamped its Ayurveda brand 'Lever Ayush' to re-position itself in the naturals space. Dabur has decided to ramp up its line-up of Ayurvedic products significantly.

In a recent interview with CNBC-TV18 , Dabur CEO Sunil Duggal said it was too soon to evaluate Patanjali's impact on its business, and expressed belief the company would hold up to competition.

But as the brokerage report says, the battle lines are clearly drawn.

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