From the Viewsroom

Brand Patanjali

Parvatha Vardhini C | Updated on January 20, 2018 Published on April 28, 2016

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It must prove its mettle in the competitive market

The road to doubling the top line to ₹10,000 crore may not be smooth for Patanjali Ayurved. With products being sold at prices much lower than the competition, the strategy so far has been to achieve growth through volumes. Mouth-watering prices have also been possible due to factors such as negligible spends on advertising, backward integration/direct sourcing of inputs and low borrowing costs.

But these advantages may dissipate as the company turns more ambitious. For one, even as the company initially rode only on Baba Ramdev’s goodwill or word-of-mouth advertising at best, it has since inched up its advertising. Media reports suggest that between January and March 2016, Patanjali Ayurved doubled the number of advertisements it airs on TV channels, according to data from Broadcast Audience Research Council India. Besides, the company is said to have set aside about ₹350 crore for advertising in the last five months of fiscal 2015-16. Given that FMCG companies spend 10-15 per cent of their revenues on advertising, Patanjali has already realised that they cannot shy away at a time when they are looking to grow aggressively. Secondly, the company has been able to control input costs so far through measures such as direct sourcing from farmers. But as it expands to set up manufacturing and processing facilities across States, backward integration or direct sourcing at every location may be a challenge. Logistics and inventory costs may also rise. This apart, higher contract manufacturing, if undertaken to meet demand, will impact the operating profit margins. About 20 per cent of production is done through this route now.

Finally, interest costs on borrowings to fund its expansion plans will begin weighing on the profitability as well. Ultimately, as it scales, the need for price-led growth in the top line would become inevitable. It will be interesting to see Patanjali’s actual brand power in its ability to retain customers.

Chief Research Analyst

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Published on April 28, 2016
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