VISITNOTE

PATANJALIAYURVED
Waitinginthewings
IndiaEquityResearch|ConsumerGoods

We recently visited Patanjali Ayurveds (Patanjali) Food and Herbal Park EDELWEISSRATINGS
atHaridwarandmetthemanagementteam.Itisoneofthelargestfood
AbsoluteRating UNLISTED
and herbal parks in the world equipped with worldclass manufacturing
machinery and R&D facility. Management has set a revenue target of
~INR5060bninFY16(INR20.2bninFY15)andisconfidentofachievingit,
ledbyitspresenceinmostconsumercategories.Thecompanyisworking
onpluggingthegapsinthesupplychainanddistributionwithplansafoot
toimplementERP(forbetterinventorymanagement)andconsolidateits
online presence. Strong innovation and new products pipeline, pricing
discountstothepeers(1530%),ayurvedicandnaturalpropositionswith
low A&P spends (leveraging Baba Ramdevs brand pull) lend Patanjalis
productsanedgeovercompetition.However,distributionremainsakey
monitorable.

Thrustonrevenueoverprofitability;onlinemovestospurgrowth
Despitebeingacorporateentity,PatanjaliadherestoBabaRamdevsconsumercentric
ideologies.Hence,thefocusisonrevenueandnotprofitability.Thecompanyiswellon
course to achieve its targeted revenue of ~INR5060bn in FY16 (INR20.2bn in FY15).
Even though the thrust is not on profitability, the company managed to clock ~20%
EBITDA margin in FY15, aided by better cost management (latest machinery and
strongR&Dcapabilities)andlowerA&Pspends.Toimproveitsdistributionreach,itis
strengtheningitsonlinepresence.PatanjaliisalsoimplementingERPwhichwillhelp
ininventorymapping.Shortly,amobileappwillalsobelaunchedtohelplocateretail
outletsandforonlineorderingofPatanjaliproducts.

Newproductpipelinestrongandinnovative
Patanjali boasts of a strong new products pipeline. The products are not only
innovative, but reasonably priced too. A central R&D facility equipped with latest
techology along with a separate new product department have helped in lining up a
series of new launches over next few months. The new launches pipeline includes:
Patanjali Noodles, Dant Kanti Advance, Sugar free Chyawanprash, PowerVita,
Seabuckthorndietarysupplementandpowderedhairdye,amongothers.

AbneeshRoy
Aforcetoreckonwith +912266203141
OverFY1215,PatanjaliregisteredrevenueCAGRof64.7%.Thecompanyhasaggressive abneesh.roy@edelweissfin.com
plan to enter every consumer category (keeping aside those that impact lifestyle and
PoojaLath
health).Atthecurrentjuncture,thoughitspresenceinmanycategoriesmaynotqueer
+912266203075
the pitch for other consumer goods companies (each category not too big to impact pooja.lath@edelweissfin.com
except Ghee, which is expected to be INR12bn in FY16), over the long term, gaining
TanmaySharma
palpable distribution prowess could pose a serious threat to competition. Patanjalis
+912240407586
proactive moves in innovation have been crucial for its growth. Other consumer tanmay.sharma@edelweissfin.com
companieswillneedtostepupinnovations,particularlyintheherbalandayurvedic
space(distributionstrengthwillcomehandy)tocountercompetition. October1,2015

EdelweissResearchisalsoavailableonwww.edelresearch.com,
1 EdelweissSecuritiesLimited
BloombergEDEL<GO>,ThomsonFirstCall,ReutersandFactset.
ConsumerGoods

The3principlesvitalforgrowth
Patanjali Ayurved is a incorporated company under the Companies Act Patanjali Ayurved
Limited. Though a corporate entity, its working and ideology is not completely that can be
comparedtothatofaperfectcorporateculture.Thecompanyisfocussedontoplinegrowth
ratherthanprofitability.ItsbusinessideologyisinspiredbySwamiRamdevsideologiesto
toucheverylifethroughPatanjaliwhichwillhelptheconsumersandbepresentinallthe
segments where the consumers feel they can get a better product at a better price. The
organisationconductsitsbusinessonthefollowing3mainprinciples:

(1) Providing worldclass products to consumers (making sure the company does not add
anypreservativesorusesnaturalpreservativesasfaraspossible).

(2) Producing products in the most costeffective manner so that the products are priced
veryreasonably.

(3) Whatever profits the company earns are ploughed back into business so that it can
invest the same for launch of new products, cost effectiveness or further capacity
expansion.

Patanjali will not launch any products that are harmful to the health of consumers and
detrimental to the health and lifestyle of the people. Hence, the company will not get into
product categories like tobacco and liquor which are bad for health. Going forward, the
companyalsoplanstoopen500600branchesofAcharyakulam(educationalinstitutions).

Fig.1:The3vitalprinciplesthatdrivePatanjalisbusiness

Source:Company,Edelweissresearch

2 EdelweissSecuritiesLimited
 PatanjaliAyurved

Table1:Productcatalogue
GroceryandStaples DalsandPulses
EdibleOil&Ghee Ghee,MustardOil
Flour/Atta Atta,Besan,Others
Staples/Spices Spices,Salt,Rice

ReadyFood Confectionery Biscuits,Cookies,Candies

Snacks&Breakfast Honey,Papad,snacks,Namkeek
Sauces&Pickles Ketchup,Pickles
Sweets Murabba,SoanPapdi

Beverages Juices&FruitDrinks Apple,Amla,Litchi

Sharbat&Squash Squash,Sharbat

PerosnalCare FaceCare FaceCream,LipCare,Facewash

BodyCare BodyWash,Footcare,Lotions
HairCare Shampoo,Conditioner,HairOil,Hair
Color
Soaps&Handwash Handwash,soaps
OralCare Toothbrush,paste
Makeup Kajal
ShavingandGrooming ShaveGel,Shavecream

HealthCare HealthDrinks,Chyawanprash,
Nutrition&Supplements,
Digestives

Households Worshiprelated,Cleaning&
Washing,HerbalGulal

Source:Company,Edelweissresearch

Targetingmorethan250%revenuegrowthinFY16
Patanjaliclockedrevenueof~INR20.3bninFY15withEBITDAmarginof~20%.Thecompany
targets to achieve revenue of INR5060bn in FY16 itself. Growth is being driven by the
companyslargestsellingproduct,cowsghee(expectedtobeINR12bninFY16)followedby
DantKantiandKeshKanti.Patanajalialsohasarobustpipelineofnewproducts,whichwill
helpachieveitstarget.

Patanjali operates via 3 business segments, viz., foods (foods, supplements, digestives,
dairy, juices, etc), FMCG (cosmetics (shampoo, soaps, facewash), home care (detergent
cakes,powder,liquid),etc)andayurvedicproducts(healthcareproductsforbloodpressure,
skindiseases,jointpain,etc).InFY15,ofthetotalsalesofINR20.3bn,foodandcosmetics
contributedINR8bneach,whilehealthcareproductscomprisedthebalance.Thecompany
hasadequatecapacitytoachieveitsrevenuetargetofINR5060bninFY16.

3 EdelweissSecuritiesLimited
ConsumerGoods

Chart1:Salestrajectory
23,000
TotalIncome

19,000

15,000

(INRmn)
11,000

7,000

3,000
FY12 FY13 FY14 FY15
TotalIncome


Chart2:PATtrend
3,500
NetProfit

2,800

2,100
(INRmn)

1,400

700

0
FY12 FY13 FY14 FY15
NetProfit


Chart3:Revenuemix

TotalIncomeComposition
HealthCare
Ayurvedic
21%

Food
40%

FMCG
(cosmetics,hom
ecare)
39%
Source:Company,Edelweissresearch

4 EdelweissSecuritiesLimited
 PatanjaliAyurved

AspirestobepartofeverySKUinkitchen
Patanjaliisworkingonakitchenconcept,aspartofwhichitwilllaunchproductsthatwill
touch all categories of the SKUs used in an Indian kitchen. For instance, the company
alreadyhasproductsthatareusedintheIndiankitchensuchasdishwashbar,ghee,rice(has
3 variants of rice), pulses, spices, mustard oil, flour and madhuram (replacement for sugar
madeoutofjaggery)underthePatanjalibrandname.

Fig.2:SomePatanjaliproductsusedintheIndiankitchen































Source:Company,Edelweissresearch

5 EdelweissSecuritiesLimited
 ConsumerGoods

Attractivepricing,naturalpositioningensurecompetitiveness
Patanjaliskeystrength,apartfromitssuperiorproductquality,liesinpricing.Thecompanys
products are priced at ~1530% discount to competition, which makes it an attractive
proposition for consumers. It is able to offer such discounts primarily because of having
negligible A&P spend versus other consumer companies which have A&P spends ranging
from 1218%, as a % of sales. Another reason for the discounts is the consumercentric
ideologyoftheorganisationandsellingbestqualityproductsatattractivepricepoints.There
mayevenbesomeproductsinthecompanysportfoliowhicharemakinglossesorfetchlow
margins,butitcontinuestoselltheseproductstomeetconsumerneeds.

Table2:PricingofPatanjaliproductsversusotherconsumergoodscompanies
Patanjali Comparable
ProductName Qty ProductsPrices Price ComparableCompany Discount
SpecialChyawanprash 500gm 115 160 DaburChyawanprash 28.1%
PineappleJuice 1Ltr 85 99 DaburRealJuice 14.1%
CowGhee 1Ltr 450 710 ParsidairyfarmCowgheepure 36.6%
Honey 500gm 135 199 DaburHoney 32.2%
PatanjaliSaundrayaFaceWash 60gm 60 80 PearsFaceWash 25.0%
PatanjaliKeshKantiAntiDandruffShampoo 200gm 110 159 Head&SholdersAntiDandruffShampoo 30.7%
PatanjaliDantKanti(ToothPaste) 200gm 68 84 PepsodentGermicheck 19.0%
PatanjaliKantiNeemBathingSoap 75gm 15 24 HimalayaNeem&Turmeric 37.5%
PatanjaliSuperDishWashBar 175gm 10 15 VIMDishwasBar 32.8%
PatanjaliCornFlakesMix 500gm 145 182 KelloggsCornFlakesOriginal 20.2%
PatanjaliDetergentPowderPopular 250gm 13 19 RINDetergentPowder 31.6%
Source:Edelweissresearch

Lowerandeffectiveadvertisingaidslowerpricing
PatanjaliAyurvedhaslimitedadvertisingexpenses,whichgivesitenoughleewaytopasson
thesavingsfromloweradspendsbywayoflowerprices.Thecompanyadvertisesinalimited
waynewstickers,regionalnewspapers,somedigitaladvertising,etc.,thoughgoingaheadit
might start other forms of advertising too. Patanjali has adopted the unique information
basedadvertising.Forinstance,thecompanyhighlightsthepositivesofcowsghee,which
automatically helps sale of Patanjali Ghee. In the recent past, the companys print
advertisinghasseenamarkedincrease.

Fig.3:PatanjalisinformativeprintadvertisementsKeshKantiandGhee













Source:Company,Edelweissresearch

6 EdelweissSecuritiesLimited
 PatanjaliAyurved

For the consumers, Baba Ramdev remains the face of Patanjali and its products. Baba
Ramdev, during his yoga sessions, showcases the Patanjali products. After the session, he
makes the attendees aware of the benefits of using Patanjali products. Till date, close to
70mn people have come in contact with Baba Ramdev through his yoga camps and it is
believed that this can increase to 200mn going ahead. This highlights the potential reach
that the Patanjali brands can have without much mainstream advertising. Also, being
associatedwithBabaRamdevhelpsincreatingabetterperceptionamongconsumersthat
beingayurvedicofferings,thePatanjaliproductsarehealthy.

Fig.4:BabaRamdevpromotingPatanjaliproducts

Source:Company,Edelweissresearch

Onlineplatformtospruceupdistributionnetwork
ManypeoplecomplainthatduetoPatanjalisweakdistributionnetworkitsproductsarenot
easily available everywhere and they are unable to buy them. To address this concern, the
companyhaschalkedoutanaggressiveplantoimproveitspresenceontheonlineplatform.
Currently, it is already selling its products through its website,
www.patanjaliayurved.net, from where consumers can order the products and get
free delivery of the same if the order value exceeds INR499. Other companies like
bigbasket.com, etc., that also sell Patanjali products online have been barred from doing
so. The company is also implementing ERP for better mapping of inventory (SAP has
already been implemented). Patanjali will also be launching its mobile app, which will
allow consumers to locate nearby outlets that are selling Patanjali products and also
facilitateonlineorderingofproducts.

Patanjali also sells its products through the Patanjali Chikitsalayas (where free medical
consultancyisgivenbymedicalpractioners),PatanjaliArogyaKendras(healthandwellness
centre)andSwadeshiKendras(regularoutlet).Asforreach,thecompanyhascloseto0.2mn
outlets and 10,000 franchisee model of Chikitshalyas and Arogya Kendras. Distribution
wise, the company operates through 100 super distributors (this will be bolstered going
forward)whointurnsupplytothewholesalersandretailers(whooperatethrougha500600
strongsalesteam).Asofnow,thecompanyhasnoplanstohavedirectreach.

7 EdelweissSecuritiesLimited
 ConsumerGoods

Fig.5:Patanjaliayurved.net

Source:Company,Edelweissresearch

Apart from online presence, Patanjali is also taking steps to enhance its overall distributor
coverage. The company has invited applications for distributorship of its products. Being
seizedofthefactthatthatthereishighdemandforitsproducts,Patanjaliisnowoffering
separatedistributorshipforfoodandcosmeticscomparedtotheearliersystemwhenone
distributormanagedboth.Also,thecompanyisgivingdistributorshipatthedistrict,tehsil
andmandilevels,whichshowsitsconfidenceonitsthegrowthtrajectoryanddemandfor
itsproducts.

8 EdelweissSecuritiesLimited
 PatanjaliAyurved

Fig.6:ApplicationformfordistributorshipofPatanjaliproducts(availableonline)

Source:Company,Edelweissresearch

9 EdelweissSecuritiesLimited
ConsumerGoods

Newproductspipelinestrongandinnovative
Patanjalihasaseparateteamfornewproductdevelopment.Thecompanyhasbeenableto
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
withinaperiodof3monthsitisnowreadywithitsowninstantnoodles.Theproducthas
beensentforapprovalandisexpectedtobelaunchedwithinaperiodofonemonth(wegot
achancetotastetheproductandreallylikedit).Thecompanyhasarobustandinnovative
pipelineofnewproductswithsomesetforlaunchsoonandsomeothersatR&Dphase.

Newproductsthatareexpectedtobelaunchedsoon:
PatanjaliNoodles(willcompetewithinstantnoodleplayerslikeNestleandITC).

Dant Kanti Advance (already has 3 variants of Dant Kanti toothpaste Regular,
Medicated(similartosensitive)andJunior).

PowerVita(willprovidecompetitiontoallhealthfooddrinkcompanies(Mondelez,GSK
Consumer)thisproductismadeupofayurvedicingredientslikeBrahmi,etc.).
SugarFreeChyawanprash(competitiontochyawanprashmanufacturingcompanieslike
DaburandEmami).

Seabuck thorn dietary supplement in collaboration with DRDO (made under a

technologysharingagreementwithDRDO(usedbyarmypersonnelintoughterrainsas
asourceofnutrients)).Thisproductwillhaverichnessofallthenecessarynutrientsand
willbemadeavailabletocivilians).
Powdered hair dye (the company has a separate unit, Coloroma, which manufactures
herbalcoloursanddyes).

Divyapay(healthdrinkcomparabletotea)indipdipformat.

Child range (the company is also planning to launch a childrens range under Patanjali
whichwillincludeproductslikebabyoil,talcumpowder,babysoap,shampoo,etc).

ProductsatR&Dphase
Buttermilkinpowderform.

Oatswithmasala.

Chicorycoffee(caffeinefree).

Weightgainandlossproducts.

Madhuramgingerandroseflavor.










10 EdelweissSecuritiesLimited
 PatanjaliAyurved

PatanjaliFoodandHerbalPark:Oneofthebiggestworldclassfacility
PatanjaliFoodandHerbalParkisoneofthelargestfoodparkintheworldspreadover150
acres.Constructionoftheparkwascompletedinrecordtimeof10monthsandtheparkhas
beeninoperationforover5yearsnow(parkconstructionstartedinFeb2009anditstarted
operationsinJanuary2010).

Patanjali has 3 manufacturing units in Haridwar (we visited the largest one, Unit 3).
Productionatunit3isdividedinto3parts:(1)food,(2)cosmetics;and(3)digestivesandRTS.
Gheeandayurvedicmedicinesaremanufacturedattheother2manufacturingunits.

ItisaworldclassplantequippedwiththebestmachineryinstalledbycompanieslikeTetra
Pack, Alfa Laval etc. As far as manufacturing is concerned, Patanjali does 90%
manufacturing inhouse. However, going ahead to meet demand and therefore enhance
capacityitisopentoeventhirdpartymanufacturingoropeningnewplants.Thecompany
has zero waste technology wherein whatever is left after usage of the raw material is
furtherprocessedforfurtherusage.Thisparkemployscloseto10,000personnel(fromin
andaroundthecitywithinaradiusof25kms).

Fig.7:PatanjaliFoodandHerbalPark

Source:Company,Edelweissresearch

RobustR&Densuresqualityandnewproductdevelopment
DuringourplantvisitwealsovisitedPatanjalisR&Dfacility,whichiswellequippedwithall
the latest machinery necessary for testing the products. The company has a separate R&D
department for each of the production units where the manufactured products are tested.
The company also has a highend central R&D facility situated at the park. This facility
ensures the products meet high quality standards and is undertakes R&D for new product
development.

11 EdelweissSecuritiesLimited
 ConsumerGoods

Organisationalculture:Buildingblocks
ThoughPatanjalimightnotberegardedasacompletecorporatesetup,butthecompanyhas
been taking significant steps to professionalise the management and incorporating the
necessary processes and technology in the work culture. Patanjali is emerging as an
Employer of Choice as many professionals are independently coming forward to work
withthecompany.Duringourvisitandinteractionswefoundthereanymanyprofessionals
whoaremanagingdifferentunitsandhavepastworkexperienceincompanieslikeDabur,
ShehnazHussain,SGHLabs,AlkemLaboratories,etc.Patanjaliiscurrentlyadvertisingfor
many positions. The company has tied up with all major hiring agencies like naukri.com,
linkedin,etc.,togetthebesttalentfromindustrytoworkforit.

As for the processes, the company is moving towards a KRAbased working system and is
definingitsprocessesandinternalcontrolsystems.SAPhasalreadybeenimplementedwhich
hasledtoautomationinmajorityoftheprocesses.Thecompanyiscurrentlyintheprocess
to implementing ERP. Overall, the organisational culture is very employee friendly as the
company engages in a lot of training and development programmes for its employees. It
alsoengagesincareercounsellingandmentoringactivities.

12 EdelweissSecuritiesLimited
 PatanjaliAyurved
EdelweissSecuritiesLimited,EdelweissHouse,offC.S.T.Road,Kalina,Mumbai400098.
Board:(9122)40094400,Email:research@edelweissfin.com

NiravSheth
HeadResearch
nirav.sheth@edelweissfin.com

Coveragegroup(s)ofstocksbyprimaryanalyst(s):ConsumerGoods
AsianPaints,BajajCorp,Colgate,Dabur,GodrejConsumer,Emami,HindustanUnilever,ITC,Marico,NestleLtd,PidiliteIndustries,GlaxoSmithKline
ConsumerHealthcare,UnitedSpirits

RecentResearch

Date Company Title Price(INR) Recos

30Sep15 Britannia MDmeettakeaways: 3,087 Not

Industries Reloadingthegrowthpunch; Rated
VisitNote
16Sep15 Dabur CEOmeetingtakeaways: 282 Buy
Bankingonhealthforfuture
wealth;VisitNote
07Sep15 Consumer GoingtheSMARTway;
Goodsand SectorUpdate
Retail

DistributionofRatings/MarketCap
EdelweissResearchCoverageUniverse RatingInterpretation

Buy Hold Reduce Total Rating Expectedto

RatingDistribution* 155 45 8 208 Buy appreciatemorethan15%overa12monthperiod
*stocksunderreview
Hold appreciateupto15%overa12monthperiod
>50bn Between10bnand50bn <10bn

Reduce depreciatemorethan5%overa12monthperiod
MarketCap(INR) 151 54 3

13 EdelweissSecuritiesLimited
ConsumerGoods
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14 EdelweissSecuritiesLimited
 PatanjaliAyurved

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