“Patanjali will shut the ‘gate’ on Colgate. The birds in Nestle’s nest (logo) will also fly away,” Baba Ramdev claimed in a direct dig at his FMCG rivals.
The maverick yoga guru has managed to script an unprecedented entrepreneurship story, successfully bringing ayurveda back into the mainstream consciousness just like he popularised yoga many years ago.
Patanjali’s emergence, it seems, will be at the cost of traditional FMCG biggies such as Hindustan Unilever, Nestle, Marico and Dabur.
This is evident from the way these companies have been dented in the past four months, as investors assess the impact that Ramdev’s company will have on market share and consumer preferences.
The BSE FMCG index, a gauge of the FMCG stocks on BSE, has slumped 9 per cent so far this year even as consumption demand has revived and good monsoon is expected to drive up rural wages to support demand growth.
On the individual stock front, the dent isn’t as pronounced as some would have you believe. Companies like Marico, Dabur have gained as much as 15 per cent in the year so far while HUL, Nestle and Emami have lost between 0.84 to 0.07 per cent.
“I think the market is growing. So there is room for everyone, but there will be some give and take in market shares. Patanjali has this ayurvedic halo around it and Baba Ramdev is a great brand,” said Pradip P Shah, Chairman, IndAsia Fund Advisors.
“There is a natural feeling that these products are good and the price points are lower compared with the premium products available in the market. There is a great product out there and their distribution and packaging are pretty good,” he said.
Is it just Baba’s charm?
Raamdeo Agrawal, Co-Founder & Joint MD of MOFSL, echoed Pradip Shah’s views, saying: “It will definitely take away market shares in some segments. They have a segment where they will thrive. So it is a marketing challenge for the rest of the pack, be it Hindustan Unilever or Colgate or Emami, whosoever is hurt by Patanjali products.”
He believes traditional players “have to find their way and it will be unsettling for one or two years, when Patanjali is growing up from Rs 0 to 10,000 crore.”
Patanjali has already laid a roadmap for investment worth Rs 1,150 crore for setting up new processing units, as it chases that Rs 10,000 crore revenue mark.
“Patanjali will have some challenges coming in later on product superiority, because one needs to see whether product superiority or just the blind faith in Baba Ramdev’s brand equity is driving them,” Raamdeo Agrawal pointed out.
Is anyone safe from Patanjali’s blietzkrieg?
For many on Dalal Street, Baba Ramdev is being touted as the slayer of the Big FMCG firms. But Deepak Shenoy, Founder of Capital Mind, says companies like Dabur and Marico are being less impacted by the Baba blietzkrieg.
“Marico and Dabur are probably less impacted by Patanjali than some of the mainstream FMCG players, especially in the food segment. From that perspective, looking at Dabur and Marico, Dabur is a better valuation play and has more room for price increase compared with Marico,” he said.
“Both are great companies, have enormous capacity from a fundamental perspective but Dabur is better valuation wise,” he said.
Raamdeo Agrawal sees traditional players underperforming in the short term due to the impact on market share and margin, but he refuses to believe that Patanjali will rewrite the rules in the FMCG space.
“Yes, they will underperform because sales may grow, but profit may slow down. Obviously, there will be a challenge for one or two years. But I do not think it is something that will just rewrite the rules of a successful FMCG company in India.”
Can Big FMCG chart a comeback?
Ian Cook, global CEO of US multinational Colgate-Palmolive, has for the first time acknowledged the competition in the herbal segment in India and said Colgate plans to launch newer products in the ‘natural’ space, an ET report said.
HUL revived its Ayush brand last September in a bid to thwart the competition from Patanjali. It is using the e-commerce platform to reach out to a new consumer base.
“Clearly, Patanjali is making inroads, but that does not mean the Unilevers of the world will fade away. They are astute. They have excellent marketing. They will come out with different products. They will come out with different prices,” said Pradip P Shah of IndAsia Fund Advisors.
He reminds of HUL’s comeback when Nirma took away market share from Surf excel, and it came back with Wheel to take away market share from under the Nirma nose.
“These guys have the resources, they have the ability and an inclination to do it, but they are perhaps a little reluctant to cut prices. They want profitability. Their focus is on margins and so they will follow and be competitive, but in the process, the whole market is growing and that is the great opportunity that India offers to everyone,” he added. Teemu Selanne Womens JerseyShare This