FAISAL NUMAN

FASHION BRAND MANAGEMNT

STUDY OF A LOCAL BRAND

Foundation of Brand Patanjali and Patanjali Ayurveda (History)

In 1997, Patanjali Ayurveda Limited (PAL) started as a small pharmacy in Haridwar which has
grown into a huge consumer sector conglomerate today and is poised to be further bigger. In fact,
the rise of PAL is being so staggering and well entrenched in consumer psyche that large Indian
and Foreign Research houses are considering this pretty much a Disruption Factor in the overall
consumer sector.
With the aim of popularizing Yoga, Baba Ramdev started teaching Yoga through small camps
and shivirs. The breakthrough moment came in the year 2002 when Sanskar, a spiritual channel
in Hindi, signed Baba Ramdev for its morningYoga program. The program was a hit. Next year
in 2003, the rival channel of Sanskar,
Aastha signed up Baba Ramdev for its 5 am Yoga program titled Divya Yog. This program
made Baba Ramdev a household name across the country. This also gave a big boost to Baba
Ramdev's Yoga Shivirs/Camps (Ramdev, Wikipedia) A typical Yoga Shivir of Baba Ramdev
comprises of Yoga and Pranayam postures with Baba Ramdev explaining the benefits of each of
those postures, the benefits of embracing Ayurved, the testimonials of people who got cured from
terminal illnesses by practicing yoga and pranayama, singing patriotic songs and above all Baba
Ramdev explaining ill effects of the MNCs and their products on the Indian economy and how
they are looting India and exploiting Indian populace. It is estimated that around 70 million
people have been touched by Baba Ramdev through his Yoga Shivirs and experts assume
this number to rise to 200 million, going forward. The live telecast of Yoga Shivirs was
instrumental in building the Brand Patanjali, Yoga, Ayurved and above all Baba Ramdev. Both
Baba Ramdev and Acharya Balkrishna were working with a single minded focus to restore the
original place of Yoga and Ayurved as described in the Indian scriptures and ethos. In 2006, Baba
Ramdev and Acharya Balkrishna established Patanjali Yogpeeth Trust. A landmark
organization fostering the cause of Yoga, Pranayam and Ayurved. This further strengthened the
brand Patanjali. Also Patanjali
Yogpeeth Trust is considered to be an organization which laid the foundation for Patanjali
Ayurved Ltd to grow at a rapid pace. The basic objective of Patanjali Yogpeeth Trust is to spread
the awareness of Yoga, help the economically weak section of society by providing them free
treatment of diseases and to perform cutting edge Research and
Development in Ayurved. Patanjali Yogpeeth Trust is located on Delhi-Haridwar highway in a
sprawling campus of 100 acres. It employs around 200 doctors and has a huge treatment facility
through which ayurvedic treatment is provided to the economically weaker sections of the
society. It is now a multinational organization with its branch offices located in countries like
US, UK, Canada, and Nepal etc.
Through Patanjali Yogpeeth Trust Baba Ramdev has touched millions of lives till date
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In Aug 2015 CLSA came out with a report titled Wish you were listed, Patanjali Ayurveda and
summarized the threat it presented to listed counterparts. Moreover, lately Credit Suisse, IIFL
Research, MOSL, Nomura, etc., have over the last 2 months came with various reports stating
the obvious i.e. PAL taking the fight on the ground and beating the really big guys at their own
turf.
Product Catalogue

What is making the brand Tick?

A Strong Brand Ambassador:
The fact that Baba Ramdev, a yoga guru himself, promoting the herbal and organic Patanjali
products - has proved that celebrity endorsements work if there is a high connect between the
endorser and the features of the brand. He endorsed on the name of Swadeshi
factor associated with the company. He mainly preached about the evil effects of using fast
food with chemicals and toxics in them. He made them believe about the corruption in society
and how the big brands are dealing with lives of people at the cost of profit.
"We don't want to put anyone down, but we would like to instil swadeshi pride so that Indian
money does not go out of the country."
Own Distribution Channel and low Advertisement Spend:
This achievement till date from a small pharmacy store to hitting INR 2000 cr., revenue is pretty
perceived by distribution network.
It is worth noting that most of the large FMCG companies have a large distribution network with
warehouse, distributor, wholesalers and retailer; while PAL has depended on 10,000 stores and
has now started building a traditional network mode.
PAL is unique in a sense that it is the only FMCG Company built mainly on its own retail
network. The company has ~10,000 consumer touch points as Chikitsalays (Dispensaries) and
Aarogya kendras (health centres). These are operated by third parties as Patanjali Exclusive
Stores. Bulk of the sales of PAL until recently were via these stores. The company is now
building up a more robust distribution network to make its products available in general trade
and modern trade. The products are currently available in 200,000 outlets but the company
targets to make them available in 2,000,000 outlets by Dec 2016. Thats a 10x growth in a span
of 1 year.
PAL has set out a unique deal with Modern Retail wherein the company will get separate space
in the store instead of fighting for shelf space. Moreover, in October 2015, Patanjali partnered
with the Future Group, to offer its products range through Big Bazaar outlets across the country.
There is a great demand for their interesting range of products, said Biyani whose group is
targeting INR 1000 cr in sales from Patanjali products this year (FY16); this vs. INR 1300 cr
worth of Unilever products annually from him. I believe Patanjali will hit INR 5000 cr in
revenues this year, double it next year and in the next two-three years, become a Top Three
Indian consumer products brand, said Biyani. (Source: Forbes)
Patanjali is now in the process of starting mega-marts modern retail formats of 3000-5000
square feet, which would stock only Patanjali products. One such store has been recently opened
in Nagpur.
This pipeline of sales & distribution is developed at a very minimal advertisement spend.
Generally FMCG companies spend anywhere between 10% to 14% of Sales; while this numbers
is less than 5% in case of PAL. Lately, the company has started advertising and has taken in two

brand ambassadors i.e. Hema Malini and Olympics Medalist Sushil Kumar, for its Biscuits and
Ghee respectively.
Smart pricing:
The Company sources products directly from farmers and cuts on middlemen to boost profits.
Hence, they are able to reduce their raw material procurement cost and are able to produce goods
at a much cheaper price. To promote Ayurveda and Health, simple packaging can be a very
effective way of promotion as well as cost cutting on packaging and advertising. With a
natural look (especially with leaves and herbs), consumers get a feeling of health and wellness
and they are attracted to buy the product.
Traditional FMCG companies are highly profit oriented. In fact, the RoE of key FMCG
companies are:

Source: Axis Capital, TFI Research

PAL has generated RoE of ~50% in FY14 and net profit margin of ~11.30% despite having a
pricing substantially lower in its product category vs. its peers. The following section shows

Affordability factor of PAL products is one of the reasons for popularity. As Baba Ramdev said,
the purpose of Patanjali is Upkar and not Vyapar, hence their products are reasonably priced.
Further, such pricing strategy will surely help Patanjali in making inroads, especially in the
countryside and the middle class or lower middle class population, given that their products are
close substitutes to the consumer goods produced by major FMCG companies. Penetration in the
rural market shall be critical for PAL to be able to take hold of lions share in the consumer
market.
Swadeshi Advantage
The Government of India is pitching in for greater economic activity and the market is ever
expanding, the ambitious plans of Patanjali are in consonance with both Make Indian and Make
in India, giving it a stronger moral pedestal to stand on as compared to as compared to the
MNCs. Moreover, while big wigs like ITC and HUL primarily produce western household
products, Patanjalis product line in mostly Ayurveda and even its Shampoos and Toothpaste are
produced from natural ingredients hinting at a healthier lifestyle. In short, its product appeal to
Indian Nationalism and a sense of Swadeshi, which might help it in getting an even greater
market share. Even among the small number of competitors for Ayurveda Products, Patanjali has
a definite advantage given the popular face of Ramdev.
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State of the manufacturing facility and food park.

On 5 January 2010, the worlds largest food park opened 20km from the holy city of Haridwar,
Uttarakhand, India. The INR 500 cr.., Patanjali Food and Herbal Park is spread across ~95 acres
in first phase; and has generated direct employment for 7,000 people. The construction started in
February 2009 and was completed in a record time of less than a year. Construction work
included the building of warehouses, research and development centres, variable humidity stores,
multi-commodity cold storages, pre-cooling chamber, and a ripening chamber.

Product Portfolio:
The process is simple. Top-selling products across brands are picked up from the market and
then similar products are developed based on herbal formulations under Patanjali brands. Mostly,
they are replicas of successful products of multinational companies.
Current positioning vis--vis its competitors
The total turnover of large FMCG companies in India was ~INR 80,000 cr., in FY15 and
expected to hit INR 85,000 cr., in FY16. 60% of total turnover is pretty much dominated by
MNCs and balance by large Indian corporates. All these Indian corporate are, lets say, OLD
MONEY and who are conglomerates or being in business for long time and not threatened by
any local incumbent for a long long time. In fact, only threat ever happens is when some outside
giant comes into play.
The following table summarizes revenue of key players:

^
Amount in INR crores, * Nestle Results are calendar year, ~ Excluding ITC Source: Axis
Capital, IIFL Research, TFI Research
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PAL looks like a shining light in the slow growing FMCG space with the company expected to
double its revenue every 2 years i.e. from INR 5000 cr., in FY16 to INR 10,000 cr in FY18 to hit
INR 20,000 cr by FY20. This growth is no ordinary achievement, its unprecedented for a
Consumer Sector / Staples companies. I have been a consumer sector analyst and for a company
like this we would have valued at multiples twice that for HUL.

Note: PAL valued at 50% premium to HULs implied M.Cap to Sales valuation for FY18.
This makes Baba Ramdevs company more valuable than Nestle India and pretty much
come after HUL.
IMPACT ON KEY PLAYERS
Recently, Credit Suisse (CS) downgraded Colgate to neutral on 11 Jan 2016 According to CS,
Colgate is facing a stiff competition in the dental cream category by PAL as despite fairly limited
distribution the herbal brand enjoys a 4-5% market share. It feels that PAL share may cross
double digits in toothpaste category over the next few years after it expands distribution in 2016.
In fact, CS has cut earnings estimate of Colgate for FY18 by 3-7% due to competition from PAL.
In fact, IIFL research states that large FMCG companies will be hit anywhere between 2% of
sales to 8% of sales. This number is quite significant from large company perspective as growing
at 9% to 11% is considering a HUGE ACHIEVEMENT and if this growth is taken off; and PAL
growing at 41% CAGR then it can provide a huge threat to large companies and be a boon for
customers.
What will make the brand tick in future?
New products pipeline strong and innovative
Patanjali has a separate team for new product development. The company has been able to
leave a mark owing to the pace and frequency of new product launches. Its robust R&D
Department has churned out new products in quick time and lower costs. For instance,
Patanjali started working on its own brand of instant noodles post the Maggi issue and
within a period of 3 months it is now ready with its own instant noodles. The product has
been sent for approval and is expected to be launched within a period of one month (we got
a chance to taste the product and really liked it). The company has a robust and innovative
pipeline of new products with some set for launch soon and some others at R&D phase.
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New products that are expected to be launched soon:

Patanjali Noodles (will compete with instant noodle players like Nestle and ITC).
Dant Kanti Advance (already has 3 variants of Dant Kanti toothpaste Regular,
Medicated (similar to sensitive) and junior).
PowerVita (will provide competition to all health food drink companies (Mondelez, GSK
Consumer) this product is made up of ayurvedic ingredients like Brahmi, etc.).
Sugar Free Chyawanprash (competition to chyawanprash manufacturing companies like
Dabur and Emami).
Seabuck thorn dietary supplement in collaboration with DRDO (made under a
Technologysharing agreement with DRDO (used by army personnel in tough terrains as
a source of nutrients)). This product will have richness of all the necessary nutrients and
Will be made available to civilians).
Powdered hair dye (the company has a separate unit, Coloroma, which manufactures
Herbal colors and dyes).
Divyapay (health drink comparable to tea) in dip dip format.
Child range (the company is also planning to launch a childrens range under Patanjali
Which will include products like baby oil, talcum powder, baby soap, shampoo, etc.).
Products at R&D phase
Butter milk in powder form.
Oats with masala.
Chicory coffee (caffeine free).
Weight gain and loss products.
Madhuram ginger and rose flavor.
Recommendations on what should the brand do in the future

The company has been doing well till now because it has been into a franchise model and the fan
following of Baba Ramdev has helped reach the company such heights. But this model and the
current target market (the fan base) is on the point of reaching saturation. This is why the
company has decided to enter the traditional retail model. To succeed in this sphere, the company
will have to change its policy. With such stiff competition, the company will have to move
towards traditional mediums of communication, with more focus on TV advertisements.
The company also needs to pay more attention towards its social media assets- generate more
user activity. These assets can be of great value especially to connect to the youth, something that
Patanjali has not been able to do so well till now.
CONCLUSION
Ramdev has political leanings, but that does not by itself take away the fact that he is serving the
Nation by promoting products which are made in India, and seek to revive the culture, the way of
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living of India and the fact remains that Patanjali seems to be involved more in making available
Indian products at a low price than becoming a business giant, even if it did have an ambition to
become a business giant, there is nothing wrong with that.
One may also argue that Patanjali is going to face tough competition from specialized companies
but till now it has shown enough business acumen to get an unprecedented market share, and
over the last 2 years or so, Patanjali Products have started appearing increasingly on the shelves
of Retail Stores, showing that it has definitely entered the market and is here to stay. The
argument that his opponents use, that Ramdev has become a businessman, is pure rhetoric,
entrepreneur skills, is exactly what India needs for becoming a superpower, if at all, he has
developed such skills, he deserves praise for that and there is nothing in Indian Culture which
bars someone from possessing and making use of such skills.
One of the most point, we want drive home is that well managed home grown enterprise is pretty
much capable of being a strong competitor. We would urge small companies, manufacturers, to
work in organized manner and take the MAKE IN INDIA move forward and create disruption
agents.