Companies

Beauty salon businesses get a private equity makeover

Purvita Chatterjee Mumbai | Updated on September 25, 2012 Published on September 25, 2012

Private equity players are taking special interest in beauty salon business primarily due to higher operating margins and the model of the business.

Beauty may lie in the eyes of the beholder, but of late it is private equity players that have been eyeing the beauty salon business. A clutch of recent deals by private equity firms such as JM Financial India (Enrich), Helion Venture (YLG) and Everstone Capital and CLSA (VLCC) have helped these salons scale up rapidly, given the fresh infusion of much-needed funds.

“We took the first tranche of private equity investment in 2010 when we had just 15 salons and the next tranche in 2011. In the past three years, we have grown at 100 per cent and have an Ebita margin of 30 per cent, with 50 company-owned salons today. Private equity has helped us scale up rapidly as the salon industry has got some momentum now. We may soon require another round of funding,” says Vikram Bhatt, Director, Enrich Hair and Skin Solutions. The Mumbai-based salon has managed to tap into the southern market as well, with a resultant jump in sales turnover from Rs 24 crore in 2010 to Rs 50 crore in 2012.

Private equity players are taking special interest in this segment primarily due to higher operating margins and the model of the business.

Kaustubh Kulkarni, Managing Director, Reevolv Advisory, says, “There is hardly any capital expenditure involved in the beauty salon business and since most of them operate on leased property, the salons do not have to give any collateral to a bank to avail credit. This makes the private equity players more interested in the beauty salon business.”

Reevolv Advisory is a consulting firm with divisions such as management consultancy, investment banking and research.

Company-owned outlets are preferred over the franchise model, since the latter can be a risky business model for private equity players. “With the franchise seeking to earn a return on his upfront investment, there is a tendency to under report and cut corners. Such practices offer some upfront savings, but impact the service offering and experience,” warns Kulkarni. Enrich and YLG (You Look Good) have company-owned salons and both have offloaded minority stakes to private equity firms.

Reevolv Advisory pegged the organised salon market in 2011 at Rs 1,000 crore, and says it is growing at 35-40 per cent every year. It predicts that the salon business has the potential to become a Rs 3,900-crore business by 2015.

The urban market has been growing at a faster pace of 20 per cent from 2005 to 2010 compared to the rural market which has been growing at a CAGR of 13 per cent. Currently, Delhi and Mumbai comprise more than 55 per cent of the organised salon industry. Among the tier 2 cities, Ahmedabad is the largest market followed by Surat, Nagpur and Chandigarh.

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Published on September 25, 2012
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