We met Acharya Balkrishna, MD of Patanjali Ayurved, and visited the company’s manufacturing facility at Haridwar. The following are the key meeting takeaways:
* Patanjali’s differentiators lie in consumer trust in Ayurveda and in group founder, yoga guru Ramdev, its inherent product quality and lower product prices.
* Patanjali clocked revenues of Rs 45 bn-50 bn in FY16 (ghee sales being Rs 7bn, toothpaste Rs 3bn and herbal cosmetics R2.5 bn) and plans to grow at 100-125% annually for the next three years. The company may explore international markets if growth in the domestic market becomes saturated.
* New products launched in FY16 are gaining traction and the company plans to roll out an extensive range of baby care products, premium herbal cosmetics, guava drinks and dairy products such as WMP (Whole Milk Powder) in the near term. In-house manufacturing capacity of honey, which was launched about six months ago, has been ramped up to 65t/day and the company plans to increase this to 100t/day.
* Patanjali sources its raw material directly from farmers and a few vendors, and believes raw material availability could fall short in the medium term, given the shortage in cultivation of herbal ingredients. Currently, 90% of its products are manufactured in-house and management intends to maintain these levels in order to ensure product quality.
* Distribution is through 80 stockists and 2,000-3,000 distributors. The company also has 1,200 Chikitsalyas and 7,000 Arogya and Swadeshi Kendras, which it plans to double in FY17.
* Product pricing is on a Cost+Profit basis and is irrespective of competitor prices.
* As per Acharya, if supplied with high quality products, India’s personal care market has higher growth potential as compared to the food market.
* The company has set up a new R&D centre named Patanjali Research Institute and has ~250 people on its internal R&D and quality check team.
* Patanjali requires an investment of R10 bn in the near term to expand and modernise its facilities which will largely be debt funded.
RCML view: While Patanjali is riding on the increasing consumer acceptance and shift towards ayurvedic and natural products, we believe the company would need to strengthen its focus on back-end supply chain management and quality maintenance to achieve its goals, given the increasing complexity of the business.
