Patanjali’s One Trillion Dream Run

It is a usual morning at Haridwar-based Patanjali Yogpeeth, the headquarters of the country’ second largest FMCG company Patanjali Ayurved (PAL). Cool breeze blowing from the Ganges, carrying with it a sweet aroma of the night blooming jasmine; patients waiting their turn at the OPDs (outdoor patient department) spread across the sprawling lush garden at the premises; visitors sipping on their rose water or hot herbal tea and eating dry gooseberries and golden apples; cars streaming in the parking lot of the country’s largest yoga institute.

Just then something stirs the air. It is Patanjali Ayurved CEO Acharya Balkrishna’s high-end Jaguar Land Rover. Clad in a white dhoti and stole, as Balkrishna alights from the car and walks towards his office, all employees present — including hospital staff, administrative officers and guards — rush to touch his feet. The sound of ‘Om’ reverberates as they exchange greetings.

Inside Balkrishna’s spacious room on the first floor of Yogpeeth, unlike any CEO’s office, there’s no laptop or computer but the four Vedas — Rig, Sam, Yajur and Athrva.  

The feeling at PAL is definitely not similar to any high-powered corporation in India, but its achievements are.  

Sipping on our refreshing drink of rose water sitting in his room, we finally begin our interview.  

From the very start, Balkrishna is clear about one thing — Patanjali won’t be linked to Baba Ramdev’s brand equity, anymore. Instead, Baba’s identity will be linked to Patanjali. “Soon, Ramdev will be known as ‘Patanjali ke Baba Ramdev’ and not vice-versa.”

Balkrishna, next in position to PAL founder Baba Ramdev, notionally owns 92 per cent of the company’s shares. According to Hurun India Rich List 2017, the 45-year-old is the eighth richest Indian. His worth stands at Rs 70,000 crore, up by 173 per cent in the last one year. He is sure that in no time, his company is set to overtake the country’s largest FMCG conglomerate Hindustan Unilever (HUL).  “Our plan is huge and we will be half a lakh crore, in a period of less than next five years,” says Balkrishna.
 
The Big Plans
PAL is set to launch a wide range of apparels, organic food, drinking water, security services and coloured cosmetics. Balkrishna reconfirms that the company’s sales will double by 31 March 2018 and that Patanjali will potentially cross a “turnover of Rs 1 trillion in the next few years”.

To put the target into perspective, Patanjali is planning to capture (market share) over one third of India’s entire packaged consumer products market, which is estimated at about Rs 3.2 trillion a year, according to a 2015 report by industry lobby Ficci and advisory firm KPMG. But Balkrishna is quick to mention that his company’s core interest does not lie in generating big money, but in establishing ayurveda across the world.  “We are using all our profits in corporate social responsibility. We don’t take dividends or use any money for personal purposes.”      

Like any other reputed FMCG company, Patanjali boasts of an impressive 260-acre food park, a well built seven-acre research and development centre, and acres of land, with state-of-the art machinery imported from around the world. PAL packs around 20 lakh units of Dant Kanti toothpaste — the highest selling brand by units — in a day, on a factory floor governed by intricately detailed standard operating procedures with workers in hair nets and gloves. In terms of value, desi ghee is its highest selling product.

The company also has a self-built logistics capacity of around 500 trucks. Encircled by CRPF security outside the premises, PAL has created its own security services called ‘Prakram Security’ employing both men and women security guards. Including logistics and security services, the company has 38 different businesses.

PAL is an inspiring story of meteoric rise — a successful business model based on low-pricing with ‘swadeshi’ identity. It is in fact a popular “case study” across management schools in India today. The company’s products are typically sold at a 15-30 per cent discount compared to competing brands. Experts attribute the deep discounting to its strong back-end sourcing.

However, the question remains how realistic is the company’s target to surpass HUL and reach a trillion-rupee turnover in the next three to four years? How feasible it is for the company to sustain its growth — based on just four high-performing product categories (about 40 per cent of the revenue comes from ghee, tooth paste, shampoo and hair oil) — in the long term?
 
Is It A Realistic Target?
According to market analysts, Patanjali’s ambition is huge, but based on its past record, not unachievable. HUL, the local unit of Anglo-Dutch consumer products giant Unilever Plc., which has been around in India since 1888, reported revenues of Rs 34,487 crore in FY16-17. In comparison, PAL posted Rs 10,561 crore during the same year, doubling from around Rs 5,000 crore in the previous year.

Yet, analysts are optimistic about PAL’s growth plans. The target of Rs 1 lakh crore in less than five years appear possible to many analysts. They also, however, admit that  biggies such as HUL, P&G, Dabur, ITC are not confused about Patanjali being a disruptive force that is posing credible threat to these established players.

Rajat Wahi, partner at consultancy firm Deloitte, says, “Going herbal is a global fad now. Multinationals are trying hard to get into that space and grab market share. Ayurveda has become a huge industry, but MNCs have deep pockets and wider, deeper reach, so they are capable of spending on R&D, manufacturing and marketing to beat Patanjali in the space.”

Despite increasing competition from new entrants such as Sri Ayurveda, Biotique and already Rs 800-crore strong Baidyanath, PAL is the single largest brand in the country whose target of doubling revenue in one year seems achievable to many. “No other ayurvedic brand will be able to achieve what it has achieved,” says brand consultant Harish Bijoor, founder of Harish Bijoor Consults Inc.

Abneesh Roy, research analyst at Edelweiss Securities, is also optimistic about the aggressive growth of the company. “With the portfolio of products that Patanjali has, it has potential in the rural market and should look to expand its operations in the vast rural markets of India.”

“Patanjali clocked a phenomenal 82 per cent revenue CAGR during FY12-16, which we believe will remain strong going ahead propelled by a widening distribution network (targets to triple its retail presence from 1 million outlets to 3 million by FY18 and now has separate distributorship for food and cosmetics), new product launches, new users and superior pricing,” says Roy.

Analysts believe the company has been proactive in innovation and disruptive pricing, plus it has very low debt, of around Rs 300 crore.

However, the rural market in India still remains untapped. Except for HUL, which has the widest and deepest supply chain and distribution network, no one has penerated it. To go deep to 10,000-population pockets, one needs to promote entrepreneurship, create jobs, expand manufacturing and impart technology training to farmers.
 
Driving Future Growth
Apart from ayurveda, Patanjali has zeroed in on another sector — food processing and organic food. “Globally, about 60 to 70 per cent of food is processed, due to which their farmers earn more. Unfortunately in India, only 6 to 8 per cent is processed. Our aim is to increase the percentage of food processing in India,” says Balkrishna.

The company will soon be selling organic food in the market. It is presently working on several aspects of organic cultivation. It is also planning to work with farmers and start cluster farming apart from opening integrated food parks and manufacturing units.

PAL is also venturing into textile manufacturing soon. It will be launching apparels starting from underwear to ethnic wear, western wear and sportswear. “After establishing ourselves completely in herbal and ayurveda, we are ready to establish stronghold in textile,” explains Balkrishna.

The company aims to generate sales of Rs 5,000 crore in the first year of the launch of branded apparel. PAL will also launch colour-cosmetics including lipsticks and nail polishes. “We do not believe in prior market research, while people may call us unprofessional. However, considering the response to our eye kajal (kohl), despite the presence of well-established brands such as Lakme, Maybelline and Lotus, we are sure the demand for our herbal colour cosmetics will disrupt the entire market,” says Balkrishna.
 
Winds Of Change At PAL
PAL’s strong resource hiring is key to its rapid success. But is it willing to invest money on people resource? The past allegations say otherwise. In 2014, the company’s former CEO S. K. Patra — who was credited with growing its sales manifold from Rs 317 crore to Rs 2,500 crore between 2011 to 2014 — quit alleging that PAL pays very little to people who work for it and call it ‘seva’ (voluntary work) instead of a career or a job.

“The allegations in the past were baseless. We are paying competitive salaries, and we have to do it, if we want to grow. We are paying around Rs 20 to Rs 25 crore in salaries every month. Only the top leadership team including 12 to 15 people are not drawing salaries,” retorts Balkrishna, saying  if the company wasn’t paying decent salaries, how could it poach thousands of employees from FMCG behemoths. The company’s current headcount is about 25,000 employees including the staff employed at the trust.

PAL is also planning to arm itself with young, business school educated talent. “We have been approached by several B-schools in the recent past. I have met placement heads and other chiefs from top colleges such as Indian Institute of Management (IIM) Ahmedabad, IIM Rohtak and IIM Lucknow. They all have requested us to visit them for campus placements,” says Balkrishna.

“We have hired more than 1,000 employees from leading companies such as HUL, Colgate, Dabur, Godrej and Nestle. Now, we plan to hire freshers from top-notch business schools, most likely in the coming placement season,” says Balkrishna, also divulging that PAL plans to hire about 10,000 employees in the next one year.

Also, the company is planning to hire a professional advertisement and promotion firm to design its advertisements and creatives. The move will also help PAL fight the complaints held by advertisement watchdog, ASCI.
 
Dealing With Misbranding & FSSAI Approvals
PAL was found guilty of misbranding its products, which it said were produced at its own units but were in fact manufactured elsewhere. Now the company is planning to build its own factories for products, such as atta, biscuits, corn flakes and salt, that are manufactured on loan licensed factories. “Within the next five years, we will have our own factories for everything we manufacture. This will make our quality control more stringent,” says Balkrishna.
   
Last year, a local court in Haridwar slapped five production units of PAL with a fine of Rs 11 lakh for “misbranding and putting up misleading advertisements” of its products.

This year, too, several complaints have been raised against the company. But Balkrishna claims that these are just attempts by foreign companies to “malign” Patanjali’s image as their future to continue business in India is under threat. He also claims that many of the products are medicinal and do not fall under the purview of food regulator Food Safety and Standards Authority of India (FSSAI). However, to gain the trust of general public, the company has started getting approvals from FSSAI.  

What Needs To Change
Despite the promising attitude of the company, Patanjali must take care of a few things, experts suggest.

First, the growth rate for pure FMCG products are likely to slow down. So for Patajnali, which is quite big in products such as honey, toothpaste, shampoo and hair oil, doubling of revenue might not be a cake walk. “The category growth rates will not exceed 13 per cent,” says Roy from Edelweiss Securities.

Second, though penetration into newer markets sounds like a good idea, poor monsoon can be a game spoiler. Especially, for rural demand, the monsoon will be crucial.

Third, while Patanjali isn’t taking competition seriously, multinational firms are catching up fast. For instance: after the ban on Maggi by FSSAI, Ramdev announced PAL’s instant noodle. However, since Maggi’s comeback, Patanjali’s product has lost its sheen. “Standing against FMCG behemoths is not easy. After all, they have their years-long brand equity,” says Arvind Singhal, chairman of management consultancy Technopak.

Balkrishna, however, claims that, “The demand for our noodles is exceeding supply. But due to our focus on other segments, we are unable to meet the market demand.”

Meanwhile, rivals thank the company for bringing Ayurveda back into vogue. “We believe that Ayurveda is a low-penetrated category in India and new entrants such as Patanjali has helped expand this market size by getting more non-users into the segment,” says Lalit Malik, chief financial officer of Dabur India.

But PAL is not scared of companies entering into ayurveda and herbal. Rather, it feels that most of the companies have no knowledge about herbs and they are just trying to follow the ‘me-too’ approach to survive.

Balkrishna even names a Colgate product to back his claim. “Colgate is promoting Cibaca Vedshakti with primary ingredient tulsi (basil). According to ayurveda, tulsi is very harmful for teeth and should not be applied on teeth directly. The company is cheating people by offering wrong ayurveda,” says Balkrishna. While a mail requesting response from Colgate to clarify the claims did not fetch a response, Partap Chauhan of Jiva Ayurveda, says, “Basil helps in destroying the microscopic organisms that are responsible for dental pits, plaque, tartar and bad breath.”

All said, it is no secret that with more companies entering the ayurveda and herbal segment, the pricing advantage of PAL would shrink. But analysts still believe, Patanjali will be something to watch out for.  

Rivals speak on Patanjali
1.  “Patanjali in India takes a very nationalist view of its business. They tend to be premium price oriented and it means that you have to respond with a very specifically constructed offering to consumer,” Ian Cook, Global CEO, Colgate Palmolive, in an investor call, saying there is a need to respond to “changing consumer preferences”

2. “We are beginning to regain some of the lost shares, we have rebalanced the whole value proposition for honey. I think the market growth in a sense has absorbed a fair amount of the Patanjali growth, which was not the case a year ago when he was really eating into shares of existing players. I think the worst is over,” Sunil Duggal, CEO, Dabur India, insisting the damage caused by Patanjali, particularly in honey, was now over

3.  “Products (of Patanjali) which have stronger association with the brand have done well such as ghee, atta, toothpaste. But in most of the cases, they are still struggling with a market share of 2-3 per cent. Their impact on us is very low. Patanjali, according to me, is the most overhyped brand in India,” Harsh Mariwala, Chairman, Marico

Baba On Rivals    
1.    “MNCs have no love for India, they are here to earn profits. They bring Re 1 with them and take back
Rs 100. It is because of Patanjali, all these MNCs have sleepless nights.”
2.    “Patanjali will finish the MNCs in the Indian market in the next five years”
3.    “Turnover figures will force MNCs to go for (kapalbharti) Yoga. Let’s end their monopoly. Patanjali will be the biggest brand in India in one to two years.”
4. “In India, Fast-moving consumer goods (FMCG) has meant MNCs so far…..Don’t know when Colgate will have to close its ‘gate’.”
5. ‘Ab tak Colgate ka toh gate khul gaya, Nestle ka toh panchhi urne wala hai, Pantene ka toh pant gila hone wala hai; aur do saal me, Unilever ka lever kharab ho jayega’  (By now, Colgate’s gate has opened; Nestle’s bird has flown (a reference to Nestle India’s logo), Pantene’s (a shampoo brand by Procter and Gamble India) pants are going to get wet, and in two years, Unilever’s lever will fail),”