On a Slippery Slope Thematic Note

Sector Outlook Cautious

Thematic Note on Indian Hair Oil Category

On a slippery slope

March 2014

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On a Slippery Slope Thematic Note

Executive Summary Sector Outlook Cautious

On a slippery slope
Date Mar 27, 2014
As Indian consumer begins to emulate west, we have witnessed several traditional categories in the Indian
beauty and personal care (BPC) space struggling for survival. Notably a few categories have not only survived Market data
this western consumerism onslaught but also managed to find global acceptance. Though sporadic in usage,
BSE SENSEX 22095
several categories such as hair oils have begun to emerge on a global platform as MNCs have begun to show
renewed interest in these offerings. Nifty 6601
Indian hair care space continues to be dominated by hair oils despite emergence of several other substitute BSE FMCG 6954
offerings in terms of gels, serums and conditioners. Coconut Hair Oil (CHO) continues to be the largest selling
hair oil, with growth in this category being driven by conversion from unorganized market. However the share FMCG Index vs. Sensex
of coconut hair oil has been stealthily on the downward trend as Value Added Hair Oils (VAHO) have made
500
inroads into the coconut oil market. We see that VAHO has a definitive advantage considering they are less 400
exposed to raw material vagaries and command better pricing power than CHO. Given the established 300
conversion pattern from CHO to VAHO, it was least surprising that the competitive intensity in the VAHO 200
category has increased manifold. Not only did several regional players venture into the category, but MNCs 100
(HUL,L’Oreal, etc) also began to show renewed interest and launched several brands to have a pie of the VAHO 0

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14
Jun-09

Jun-10

Jun-11

Jun-12

Jun-13
Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13
Sep-09

Sep-10

Sep-11

Sep-12

Sep-13
category. The early entrants though enjoy unabated market leadership in their respective VAHO categories
(Dabur in Amla hair oil, Bajaj Corp in Light Hair Oil (LHO) and Emami in Cooling hair oil) driven by their
BSE SENSEX BSE FMCG
superior brand strength, value for money offering and wide established reach.
Marico: Marico with a strong presence in the CHO category has begun to feel the pinch as conversion to VAHO gains Performance (%)
momentum. Limited pricing power due to wide unorganized market and heavy copra cost vagaries is weighing down
CHO market. Though present in VAHO markets, market leadership edge as in CHO could be lost in conversion theme. 1m 3m 12m
Dabur: Dabur is the market leader in the Amla hair oil platform, with presence in CHO and LHO too. Dabur Amla
Sensex 5% 4% 18%
gaining prominence as usage and reach of Amla based hair oils increase. Being present vertically across other hair
care categories, to end up as key beneficiary if there is a shift away from hair oils to other categories. 6% 5% 17%
Nifty
Bajaj Corp: Would be one of the key beneficiary of this conversion to VAHO. Market leader in LHO under its Bajaj
Almond drops (ADHO) brand, it has miniscule presence in Amla and Cooling hair oil space. Heavy reliance on single BSE FMCG 6% 1% 19%
brand ADHO (97% to revenues) could be fatal with competition intensifying in the LHO space.
Emami: Market leader in the Cooling hair oil through its brand Navratna, which contributes to ~25% of its revenues.
Tejash Shah
Though medicinal in nature, wider availability (Salons) and affordability (Sachets) have made them widely popular.
tejash@sparkcapital.in
Coverage Universe View: On a relative basis we prefer ITC to HUL among the large caps and prefer Bajaj Corp +91 22 4228 8155
(BJCOR), Emami (HMN) and Jyothy Labs (JYL) among the small & mid-cap. Stock Calls: ITC–Buy (TP:Rs.389), HUL-
Reduce (TP:Rs.526), BJCOR-Buy (TP:Rs.253), Emami – Buy (TP:Rs.502), Dabur–Reduce (TP:Rs.165), ZYWL– Gnanasundaram S
Reduce (TP:Rs.502), JYL-Buy (TP:Rs.246), GCPL-Reduce(TP:Rs.717), GSKCH–Add(TP:Rs.4632), Marico– gnanasundar@sparkcapital.in
Reduce(Rs. 214) CLGT- Sell (TP:Rs.991) +91 44 4344 0062

2
 On a Slippery Slope Thematic Note
Hair quotient in global context Sector Outlook Cautious

Hair Care as % of global Beauty & Personal Care – CY13 In the global hair care space, conditioner & oils recording strongest growth

Baby Products 7.1%

Men's Grooming 6.8%
Others
19% Hair care remains a Deodorants
Skin Care 6.7%
23%
prominent part of the
global BPC market, Sun Care 6.7%
Bath and Shower In a dove hair care Cosmetics 6.1%
9% study 75% of the Skin Care 5.9%
participants agreed
Hair Care Oral Care 5.7%
Oral Care 17%
hair care products
9% are used to feel Fragrances 5.7%
more attractive Hair Care 5.6%
Cosmetics (Click for additional
Fragrances 13% data) Depilatories 5.2%
10% Bath and Shower 5.2%

Source: Industry , Spark Capital Research Source: Industry , Spark Capital Research

Global Per capita consumption in terms of $ remains in favor of hair care Global top 10 hair care brands and their market share – CY13
Brand Company Market share (%)
Skin Care 14.1
Hair Care 10.6 L'Oréal Paris L'Oréal 7.6
Cosmetics 7.7 Pantene Procter & Gamble 7.0
Fragrances 6.1 Garnier L'Oréal 5.1
Men's Grooming 5.8 Schwarzkopf Henkel 4.4
Oral Care 5.8 Sunsilk Unilever 4.2
Bath and Shower 5.4 4.0
Head & Shoulders Procter & Gamble
Deodorants 2.9
Clairol Procter & Gamble 2.7
Baby Products 2
Dove Unilever 2.3
Sun Care 1.3
Wella Professional Procter & Gamble 1.8
Depilatories 0.7
TRESemmé Unilever 1.5
Source: Industry , Spark Capital Research Source: Industry , Spark Capital Research

3
On a Slippery Slope Thematic Note
Rise of ‘the oils’ - Globally Sector Outlook Cautious

What led to rise of hair oils on a global platform

2010 -13 hair care categories CAGR

Since CY2010 hair care markets in Western
• Conditioners (oils included) recorded the strongest
Conditioners & oil 8.6% Europe and North American witnessed massive
growth among hair care offerings as a wide positive
slowdown pressure (Click for additional data)
Shampoos 6.2% response was witnessed in developed markets to oil
as ingredient and finished product.
Colourants 6.1%
Hair Loss 6.0%
• Brands as Mythic oil from L’Oreal professionnel,
Ever since prominence of Asia Pacific and Kerastace’s Elixir Ultime and Moroccan Oil recorded
Salon 2.5% impressive volume offtakes.
Latin America is on the rise. Industry
2-in-1 2.3% sources predicted 80% of hair care growth in • Hair oils fast replacing the serums, as oils come with
Others 0.3% the next 5 years to come from these markets. an additional promise of protection and nourishment
without compromising on the glossy looks
0.0% 5.0% 10.0%
Source: Industry , Spark Capital Research

Saloon treatment alternate to price Innovation in line with emerging region

conscious consumers  cultural habits

Customising offerings at
=
HAIR OIL
affordable prices remained
the challenge (as ingredient and format)

Sunflower oil Olive Oil Coconut Oil Argan Oil

L’Oreal Mythic Dove hair oil

Garnier’s Olia oil Moroccan oil
Oil Shampoo therapy
hair dye treatment

Source: Industry , Spark Capital Research

4
On a Slippery Slope Thematic Note
Hair oil has taken off globally though usage remains sporadic Sector Outlook Cautious

Europe
‘One in five women in Europe now regularly
use a hair oil to do everything from washing off
hard-to-rinse product to conditioning frazzled
hair and giving a glossy finish’ L’Oreal study
(Click for additional data)

North America
‘U.S. consumers seem
more comfortable with the
idea of oil for the hair than
for the skin, because hot-
oil hair treatments have
been on the U.S. market
for years’ (Click for
additional data)

Latin America
‘Given the high salon
pattern in markets as GCC
Brazil, Salon styled Africa ,Wide market for hair
serums and hair oils ‘Huge unbranded and un- oils, given the large
typically tend to do organised market though Indian Diaspora.
better’ (Click for considering the availability of Market beyond the
additional data) various oils as Argan oil, Indian diaspora
Olive oil Castor oil, jojoba oil, remains miniscule’
avocado oil, virgin coconut (Click for additional
oils’ (Click for additional data) data)

Source: Industry sources, Spark Capital research

5
On a Slippery Slope Thematic Note
India - Hair care significance in Beauty and Personal care(BPC) Sector Outlook Cautious

Haircare remains a key constituent of the Indian BPC market (CY13) CY10-13 revenue CAGR of hair care in line with most emerging categories

39.9%
Others
14%
Men's Grooming Bath 27.4%
26.9%
7% 28% 22.0%
18.4% 19.3% 20.1%
13.5% 13.9%
10.7%
Skin Care
12%

Hair Care
Oral Care 26%
13%

Source: Industry data , Spark Capital Research Source: Industry data , Spark Capital Research

15 players occupying the top 2/3rd of the hair care market (CY13) Indian Hair care market leader commands 17% share (CY13)

Hair Care 15 Skin care 54%

Fragrances 12
Bath & Shower 50%
Bath 11
Skin Care 9 Oral Care 47%
Depilatories 7 high number of sub Mens Grooming 30%
Deodorants 6 categories within the
Oral Care 4 hair care space, has Deodrants 30%
led to lot more players
Cosmetics 3
occupying 2/3rd of the Color Cosmetics 29%
Men's Grooming 3 market
Baby 2 Hair care 18%

0 2 4 6 8 10 12 14 16 0% 10% 20% 30% 40% 50% 60%

Source: Industry data , Spark Capital Research
Source: Industry data , Spark Capital Research

6
On a Slippery Slope Thematic Note
Hair oils continue to be the dominant force in Indian hair care Sector Outlook Cautious

Acceptability and reach makes hair oil the largest category Consolidated hair care segment grew ~20% CAGR from CY10-13.

30.0%
25.0%
Colorants 25.0%
Conditioner 16% 21.1% 20.7%
2% Shampoo 20.0%
31% 15.9%
14.4%
15.0%
Coconut hair Oil
21% 8.5%
10.0%
Value added
hair oil 5.0%
30%
0.0%
Hair care Shampoo Perfumed Oil Coconut Oil Conditioner Colorants

Source: Industry data , Spark Capital Research Source: Industry data , Spark Capital Research

Rural expansion in hair care is limited and presents a great opportunity Penetration too except in coconut hair oils and shampoo remains low

100% 100% 89%

90% 90% 83%
80% 80%
70% 60% 70%
65% 57%
60% 80% 60%
95% 90% 50%
50% 37%
40% 30%
40% 25%
30%
30%
20%
20% 40% 35% 5%
10% 2% 0 2%
10% 20% 0%
5% 10%
0% Shampoo Coconut hair Oil Value added Conditioner Colorants
Shampoo Coconut hair Oil Value added Conditioner Colorants hair oil
hair oil
Urban Penetration Ruralpenetration
Rural Urban

Source: Industry data , Spark Capital Research Source: Industry data , Spark Capital Research

7
On a Slippery Slope Thematic Note
Value added hair oils beginning to emerge larger than coconut hair oil Sector Outlook Cautious

Light Hair Oil gaining traction CY10-13 growth rates suggest that other hair oils growing much faster

30.0% 27.7%
Other hair oil
12% 25.0% 22.5%

Cooling hair Oil 20.0% 17.8%

VAHO =
Light hair oil + 11% Coconut hair Oil 14.1%
Amla hair Oil + 42% 15.0%
Cooling hair oil +
Amla hair Oil 10.0% 8.5%
Other hair oil
17%
5.0%
Light hair oil
18% 0.0%
Coconut hair Amla Based Oil LHO Cooling hair Oil Other hair oil
Oil

Source: Industry data , Spark Capital Research Source: Industry data , Spark Capital Research

Share of unbranded has remained largely limited in other hair oil categories Strong market leadership across the four categories.

100% 2% # share
5% 5% 10%
Category Company Leading Brands
90% (CY13)
80% 37%
70% Coconut Hair Oil(CHO) 56% Marico Parachute & Nihar
60%
50% 98% 95% 95% 90%
40% Light Hair Oil(LHO) 59% Bajaj Corp Bajaj Almond Oil
30% 63%
20%
10% Amla Hair Oil 60% Dabur Dabur Amla
0%
Light Hair Oil Coconut Oil Amla Oil Cooling Oil Others
Cooling Hair Oil 55% Emami Navratna Oil, Extra Thanda
Branded Unbranded

Source: Industry data , Spark Capital Research Source: Industry data , Spark Capital Research

8
On a Slippery Slope Thematic Note
Slicing/Dicing of the category salience Sector Outlook Cautious

Hair Oil Industry - Overview

Hair Oil (Rs.810bn)

COCONUT HAIR OIL (~42%) AMLA HAIR OIL (~17%) LIGHT HAIR OIL(~18%) COOLING HAIR OIL(~11%)

Daily/ Weekly Daily/ Weekly Daily Medicinal

Usage pattern

Gender appeal Unisex Unisex Unisex Predominantly Male

Geographical South, West North, West North,West, East East, South

prominence

Land-scape Rural - Urban Rural - Urban Urban All

orientation

Across spectrum, mainly Sec

User Class •Mainly Sec B, C & D •Mainly SEC A,B •Across Classes
C&D

Positioning •Nourishment, Prewash •Nourishment, Prewash •Lifestyle, Post-wash •Medicinal. Prewash

Source: Industry data , Spark Capital Research

9
 On a Slippery Slope Thematic Note
#1 Conversion/Premiumization - Conversion to be a key theme in hair oils Sector Outlook Cautious

Organised Other hair oil

Coconut hair oil Light hair oil Amla hair oil Competing
(Herbal/ Cooling hair oil
based market market market Substitutes
Fragrance)
(Rs.~34bn)

Triggers  Complimentary proposition

 Non sticky value proposition
 Serums
 Rising propensity to spend
 Conditioners
Triggers  Rising niche needs in hair
care  Shampoo
 Rising
disposable  Emergence of post wash  Styling gels
income usage pattern

 Rising
aspirations
 Urbanisation
 Increasing LUP
offerings
 Better availability

Unorganised
hair oil market
(Rs.~15bn)
Source: Spark Capital Research

10
On a Slippery Slope Thematic Note
#1 Conversion/Premiumization - Evolution of hair care Sector Outlook Cautious

Hair has always assumed a key role in Indian beauty context. Anecdotes on hair and beauty evident
Hair care in in Indian scriptures
India

However hair care has predominantly meant only hair oils, oils were extensively
Hair oil in
used as nourishment conditioners.
hair care

Popular Popularity and usage were dependent on available oils, Coconut

variants in South India and Amla in North India

Usage patterns however got weaker as oils led

Weakening
to greasy looks
consumption

Emergence Forcing hair oils to be largely

of pre wash proposition
substitutes

Solution lies Light Hair Oil

in getting breaks the jinx
Source: Spark Capital Research light

11
On a Slippery Slope Thematic Note
#1 Conversion/Premiumization - Light hair oil seems key beneficiary Sector Outlook Cautious

Light Hair Oil Amla Hair Oil Cooling Hair Oil Coconut based Hair Oil

FY08 12.7% 15.7% 10.6% 61.0%

FY09 13.6% 15.7% 11.2% 59.6%

FY10 13.0% 15.0% 12.0% 60.0%

FY11 15.0% 15.0% 12.0% 58.0%

FY12 16.0% 15.0% 11.0% 58.0%

FY13 18.0% 17.0% 11.0% 54.0%

Source: Industry data , Spark Capital Research

Value Added hair oil Coconut Oil

Weakness Strength Weakness Strength

12
On a Slippery Slope Thematic Note
#1 Conversion/Premiumization - Failing to innovate is Innovating to fail Sector Outlook Cautious

Highly penetrated categories beginning to look for alternate niche categories for growth.

Category ~# penetration ~Market Size ~FY11-13 growth New Growth drivers Usage pattern Niche new categories

Specific bath Body wash,

One bar for Hair wash,
Toilet Soap 95.7% Rs.110bn 15% & shower
entire family Hand wash
offerings

Matic and Largely Bar Fabric

Laundry 90.2% Rs.150bn 10% conditioners
conditioners and powder

New usage Light hair oils

Hair Oil 74.5% Rs.81bn 18% Pre wash
patterns
Sensitive
Niche Daily, low offerings,
Toothpaste 72.8% Rs.55bn 16%
offerings awareness Mouthwash

Variants Sachets and Anti Hair fall

Shampoo 60.4% Rs.49bn 20% packages
launch daily usage

Cheaper Cool talc,

Talcum Specific
51.0% Rs.18bn 14% substitute for Deodorants
Powder positioning
deodorants
Source: Industry data , Spark Capital Research

Despite high Given the VFM mind-

High penetration LUPs though have Unorganised & MNC
penetration per capita set, pricing increases Emergence of New
achieved through also led to lower price wars though
value usage remains could lead to share and Niche categories
LUPs and distribution margins limit pricing flexibility
low. loss

13
On a Slippery Slope Thematic Note
#2 Sourcing/Pricing power - Integrated supply in CHO pressurizing margins Sector Outlook Cautious

Raw materials are either agri-based or commodity based

Measure Coconut Hair Oil (CHO) Light Hair Oil (LHO) Amla Hair Oil Cooling Hair Oil

Key Raw Material Copra Light Liquid Paraffin Oil (LLPO) Vegetable Oil Mentha Oil

Agri / Chemical Agri commodity Chemical Agri based Agri Commodity

Key Driver Coconut/Copra Brent Crude Palm/soya Mentha Leaves

Imported Local Local Imported Local/Imported Local

Production: India world (73%),

Imported From NA Imported by smaller players Imported by smaller players China (18%) followed by Brazil
and US.

Individual farmers and Coconut UP, Punjab, Haryana , Himachal

Locally sourced at NA NA
Development Board (CDB) & Bihar.

Re impact No Yes Yes No

Policy Impact MSP Import Duty bound Import Duty bound Yes

Integrated
Yes No No Yes
Suppliers

Producers Kerala, Tamil Nadu Imported by smaller players Imported by smaller players Traded commodity in MCX, India

Source: Industry & Spark Capital Research

14
On a Slippery Slope Thematic Note
#2 Sourcing/Pricing power - How have the commodities behaved? Sector Outlook Cautious

Coconut oil price trend Light Liquid Paraffin price trend

Prices have been high over the past few 90 LLP prices at record high levels,
months due to lower supply, Prices BJCOR management though
12000 though could ease as supplies from 80 indicated that price would correct
Kerala CBOT hit market. 70 downwards as we move along CY14.
10000
60
8000

Rs/kg
50
Rs/100 kg

6000 40
30
4000
20
2000 10
0
0

Source: Bloomberg, Spark Capital Research Source: Bloomberg, Spark Capital Research

Vegetable Oil price trend Mentha Oil price trend

3000
90 Vegetable oil prices are expected to Continuous decline of demand and
80 slightly increase on palm oil price rise, increasing supply from mint users to lead
Rupee stabilisation to cushion the impact 2500 to prices surging in the next 12 months
70
60 2000

50

Rs/kg
Rs/KG

1500
40
30 1000
20
500
10
0 0
Jun-09

Jun-10

Jun-11

Jun-12

Jun-13
Sep-09
Dec-09

Sep-10
Dec-10

Sep-11
Dec-11

Sep-12
Dec-12

Sep-13
Dec-13
Mar-10

Mar-11

Mar-12

Mar-13

Source: Bloomberg, Spark Capital Research Source: Bloomberg, Spark Capital Research

15
On a Slippery Slope Thematic Note
#2 Sourcing/Pricing power – Pricing power remains weak in CHO Sector Outlook Cautious

Copra price have doubled, but price rise has been limited Price increases have always been lower than copra price rise, indicating
27 27 27 27 27 27 27 27 27
limited pricing power
80 26 30
25
70 24 23 100%

Parachute Price/100ml
21 25
60 20 80%
Copra Price/KG

20 60%
50
40 15 40%
74
64 67
30 60 20%
52 54 53 10
20 47 41 41 41 46 45
34 40 0%
5
10 -20%
0 0 -40%
1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14
Copra price 100ml Parachute Coconut Oil price Copra price increase 100ml Parachute Coconut Oil price increase

Source: Bloomberg, Company filings, Spark Capital Research Source: Bloomberg, Company filings, Spark Capital Research

Vegetable oil prices have increased ~15% each year in the past 3 years Price increases in Amla hair oil have been limited
90 Vegetable oil price 100ml Dabur Amla Oil 41 40%
40 40 Vegetable oil price growth 100ml Dabur Amla Oil price growth
80
40 30%

Dabur amla price/100ml

70
39
Vegetable oil price Rs/Kg

60 38 38 38 38 38 38 20%

50 38
10%
40 37
36 36 36 36 36 36 36 0%
30
36
20 -10%
35
10
50 51 58 64 62 68 70 80 80 85 80 80 72 71 76 -20%
0 34 1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14
1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

Source: Bloomberg, Company filings, Spark Capital Research Source: Bloomberg, Company filings, Spark Capital Research

16
On a Slippery Slope Thematic Note
#2 Sourcing/Pricing power – LHO pricing power though unabated Sector Outlook Cautious

Bajaj Almond drop light hair oil prices have increased in line with LLP price Price increases have overall been in line with cost increase
100 55 55 55 55 60 80%
50 50

Bajaj Almond Oil price/100ml

90 42 70%
46 46 46 46 50
80 42 42 42 42 60%
50%
LLPO Price/kg

70 40
60 40%
50 30 30%

40 86 86 83 81 80 81 20%
75 79 74 74 75 76
65 66 20 10%
30 57 0%
20 10 -10%
10
-20%
0 0

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14
1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14
LLPO price increase 100ml Bajaj Corp Almond Oil Price Increase
LLPO price 100ml Bajaj Corp Almond Oil Price
Source: Bloomberg, Company filings, Spark Capital Research Source: Bloomberg, Company filings, Spark Capital Research

Soft menthe oil prices providing the necessary price cushion Price increases have been constant and steady over time period

2,500 70 100%
60 60 60 60
55 55 55 55 60 80%
2,000 50 50 50 50

Navratna Oil/100 ml
48 48 48
Mentha oilprice/ Kg

50 60%
1,500 40 40%
957 20%
1,000 30
772
0%
20
500 -20%
10
-40%

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14
0 0
1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

Mentha Oil price Increase 100ml Emami Navratna Cool hair oil price increase
Mentha Oil price 100ml Emami Navratna Cool hair oil price

Source: Bloomberg, Company filings, Spark Capital Research Source: Bloomberg, Company filings, Spark Capital Research

17
 On a Slippery Slope Thematic Note
#2 Sourcing/Pricing power - Pricing ranges of various categories Sector Outlook Cautious

Seasonal cooling oil, given

Prices in the amla oil their complimentary nature Light hair oil category exhibit
segment remain on the are priced higher than the the widest pricing range as
lower end given their traditional variants. Market base ingredient of the
constant attempt to lure leader Emami Navratna is offerings differ widely, the
coconut oil consumers, priced at the lower end. most popular among them
Therapeutic Amla oil prices Despite the presence of though is the almond
though on the higher end several regional players, offering. Bajaj Almond is the
Given the huge given their additional salon based usage enables market leader in the
unorganised market, ayurvedic benefits. Market premium pricing. category with ~59% share
pricing remains 600 Leader Dabur Amla operates
Rs/100 ml

under pressure in the at the lower end of the

coconut oil segment, pricing pyramid. 485
470
despite being 500
constantly exposed
to vagaries of copra. 395
Though market 400
leader commands

Range = Rs. 463

Range = Rs.437
Range = Rs.375
~56% share in the
branded market, 300
Parachute has been
judicious in its price
increases. Lower 200
Range = Rs. 77

LUPs to convert from

unorganised market 123 121
100 103
keeps the entry
100
pricing low. 44

23 20 33 22
0
Coconut Oil Amla Oil Cooling Oil Light Hair Oil
Source: Industry Data, Spark Capital Research

18
 On a Slippery Slope Thematic Note
#3 Competitive Landscape – Players vying to be on ‘Aspirational’ quadrant Sector Outlook Cautious

Premium

Niche Aspirational Quadrant (Pan India

Salon
Acceptance with Pricing power)
Pricing scale

Ayurvedics

Local

Extensions

MNCs
…

Regional

Regional Source: Industry Data, Spark Capital Research Pan India

19
On a Slippery Slope Thematic Note
#3 Competitive Landscape – Regional brands and their aspirations Sector Outlook Cautious

• Founded: 1984 • Founded: 1942 • Founded: 1957 • Founded: 1983 • Founded: 1980
• Group : G. K. Himgange (East India) • Group : VVD & Sons • Group : Dey’s • Group : Cavin Kare • Group : Vasu

VVD Gold (South India)

Keo Karpin (East India)

Cavin Kare (South India)

Trichup (West India)

Burman Herbal medicals Healthcare
(India) Private • Products: Hair oils, • Products: Personal
Limited edible oils, food • Products: Hair oils, care products, food • Products: Hair oils,
preparation and herbal OTC and Dairy products. herbal OTC
• Products: Himgange spices. offerings. offerings.
Ayurvedic hair oils • Chairman & MD: Mr.
• Promoters: Mr. V.V. • Promoters: Mr. BN C.K.Ranganathan • Chairman: Mr.V. B.
• Promoters: Danushkodi Dey Ukani
Mr.Gautam Kumar • JMD: Mr. TD Mohan
Burman • Current • Current • Managing Director:
management: management: • Markets: Tamil Nadu Mr. Haribhai Patel
• Current Mr.Niranjan and Mr.Gautam Dey, Mr. and Andhra Pradesh
management: Mr.Kabilan Ranajit Dey, Mr. • International
• Hair oil launch: 2008 Markets: North
Mr.Neeraj Kumar Subharthee Dey,
Burman and Mr. • International Mr.Ushanath • Hair care products: America, South
Vikram Kumar Markets: Malaysia, Banarjee, Mr. Aditya Shampoo, Oil and America Europe,
Burman Singapore and Banerjee Henna. South East Asia,
middle east. Middle East, Asia
• Hair oil launch: 1987 • Hair oil offerings: • Hair oil offerings: and Africa.
• Distribution: 650 Keo Karpin almond, Coconut Hair oil at 4
• Marketshare - ~30% distributors and retail olive variants, SKUs • Hair oil launch: 1990
in the cooling hair outlets massage oil and hair
oil. • Head office: • Hair care products:
• Presence in: Tamil vitalizer. Shampoo, Oil,
Chennai
• Dominance: Uttar Nadu, Andhra • Strengths: First capsules and
Pradesh, Bihar, Pradesh, Karnataka, effective anti hair fall • Manufacturing Henna.
Madhya Pradesh Kerala, Orissa, solution, strong locations: 8
and Chhattisgarh Chattisgarh, locations across • Hair oil offerings:
regional loyalty, Anti dandruff, anti
Maharashtra, Solid distribution India.
• Manufacturing plant: Madhya Pradhesh, hairfall, long &
Haridwar. network, • Other hair oils: strong and hair
Bihar, Jharkhand, Inexpensive
West Bengal and Meera did attempt to enhancer.
• Going forward: venture into other
Launch in south, Assam • Presence in: Sixteen • Head office:
branches located in hair oils in 2004 in
Launch of Kerlina • Going forward: North India, however Vadodra.
coconut oil. all major capital
Expansion into North cities. faced limited
& West success.

Source: Company Data, Spark Capital Research

20
On a Slippery Slope Thematic Note
#3 Competitive Landscape – MNCs renewed interest in Hair Oil category Sector Outlook Cautious

MNC variants in India MNC variants in India

• Hindustan Unilever take control of brand Nihar when it acquired TOMCO
1993 from TATAs. Company Varaints Proposition

• Hindustan Unilever extends All clear brand into Oils under Anti dandruff L’Oreal Paris 6 Shampoo, Conditioner and 6 Oil Nourish
2000 proposition. L’Oreal 1
Oil Nourish Oil.

• Hindustan Unilever sells brand ‘Nihar’ to Marico for a consideration of (1) Rose & Almond Oil (hairfall rescue)
2006 Rs.2.16bn (~1.8x sales, 10x EBITDA)
Hindustan (2) Hibiscus & Argan Oil (nourished
Dove Elixir 3
Unilever shine) and
• Hindustan Unilever extends Clininc Plus brand into Oils (3) Lavender & Olive Oil (dryness care)
2008
Garnier Ultra
L’Oreal 1 Extracts of Almond and Coconut
• L’Oreal launches Garnier Ultra Doux - Extracts of Almond and Coconut Doux
2011
Hindustan
• Hindustan Unilever launches Dove Elixir, a premium hair oil proposition in Clinic Plus 2 Clinic Plus and Clinic Plus Vita Oil
Unilever
2012 3 variants.
Hindustan
• Hindustan Unilever introduces Clinic Plus Vita – An almond variant. All Clear 1 Anti Dandruff proposition
Unilever
2013

• L’Oreal launches 6 Oil Nourish, Combination offering of Shampoo, Source: Industry , Spark Capital Research
2014 Conditioner and Hair oil.
Pricing matrix

Bajaj Corp Parachute Dabur Almond

Source: Industry , Spark Capital Research
Almond Oil Advansed hair oil Hair Oil
L’Oreal Paris 6 Oil Nourish 2.6 4.2 2.6
Paul Polman, CEO Unilever “We want to attack the market Dove Elixir 2.7 4.4 2.7
“We will continue to sell non- with brand new technologies
core, underperforming brands and products in all categories. Garnier Ultra Doux 0.4 1.0 0.4
and buy attractive bolt-on We are not interested in Clinic Plus -0.2 0.1 -0.2
brands when possible” making small improvements to
existing products” – L’Oreal All Clear 0.1 0.6 0.1

Source: Industry , Spark Capital Research

21
On a Slippery Slope Thematic Note
#4 South India - South remains the ‘tough nut’ to crack for LHO Sector Outlook Cautious

Coconut is just more than oil in South India. Breakup of the south India hair oil market

Light Hair Oil

Humid conditions 3%

Amla Hair Oil Coconut

13% Based Oil
(Inc. Others)
Cheaper prices and wide 72%
availability

Cooling Hair
Oil
12%
Wide perception that
heavy hair oil is better Source: Industry data , Spark Capital Research

Strong purchase
influencers in family SOUTH INDIA
• Beauty-conscious urban
consumers aged between 18
and 32 are the most active
Emotional attachment consumer group.
towards coconut • Higher dual income families to lead
to premium offerings as VAHO
gaining momentum.
Source: Industry data , Spark Capital Research • Traditional values though keep them
slightly restrained.

22
On a Slippery Slope Thematic Note
#4 South India - South is converting but on its own pace... Sector Outlook Cautious

South India Light Hair Oil

Socio Demographic Profile (Click for additional data)

 User Profile

Despite tropical nature air care products

Marketing to south the way it likes have higher acceptance. Personal
Socio demographic profile of south comfortably aligns with identified light
holds the key whether the light hair categories as Anti ageing creams, mouth
hair user profile, we understand that though there is high apprehension
oil space cracks the coconut. wash, depilatories too have higher per
towards first time usage. We also see that availability of light hair oil
capita spend in south
products in the rural markets in south remains abysmal.

Conversion of potential to demand JWT – 18.3 (Click for

additional data)  Categories that have
managed to crack south 
Complimentary Replacement Conversion to LHO is
inevitable in South India 1.Strong affiliation towards
coconut oil
given the favourable
Amla hair oil and Amla hair oil and 2.Solid purchase influencers
1.Socio demographic profile Conversion
Coconut Oil Coconut Oil 3.Wide perception that LHO
2.Higher disposable income though might
be slower than is not healthy
Cooling oil and
3.Increasing propensity to ROI due to
Cooling oil and 4.Tropical and Humid
Coconut Oil spend towards personal
Coconut Oil climate may not require
care in south India
post wash oil as in ROI.
4.Increasing consumer
Light hair oil and Light hair oil and needs for better looks
Coconut Oil Coconut Oil
Source: Industry Data, Spark Capital Research

23
On a Slippery Slope Thematic Note
#4 Whatsapp - Focus group study – Combing views Sector Outlook Cautious

“It is of utmost “Hates hair “Otherwise,

“To prevent importance as we oils and uses
my hair
dryness and require water to them rarely
while styling
would
greying of survive same goes
hair” become dry
hair” with hairs it requires
and fall off”
Nourishment!”

“As oil helps yo “As it makes

the hair feel “I need to
maintain healthy
lighter and is a grow my
“Keeps hair hair growth and
remedy for hair back”
smooth and calms one's mind”
maintains hair fall”
“It is an
texture”
I use hair oil because… essential
“As it Whatsapp focus group study nutrient to
reduces keep my
heat and hair
increases “It is “It retains healthy and
“Dunno Why, but
hair growth” great for moisture strong”
have been using it
massage” and
“User feels since childhood”
prevents
hair oil has dryness”
tremendous
It's
benefits to
nutritious
maintain the “As it is keeps “To improve
for hair
length and head cool and the
“To look the
health of because mother effectiveness
better” texture
hair” advises on a daily of shampoo”
improves
basis”
Source: Spark Capital Research

24
 On a Slippery Slope
#4 Whatsapp - Focus group study – Combing views
Hair oil usage pattern Scuttlebutt (Channel check) Notes
Gender Based
Male:
• Main reasons for usage were to keep scalp
Usage Observations
healthy and to prevent early hair fall.
• The usage pattern was generally limited to
3-4 times a week and the usage pattern has
remained constant.
Female:
• Nourishment and silky look were the key
reasons women used hair oils.
• Several users did note that the usage of
hair oil has reduced in the past 5 years due
to lifestyle changes
Male:
• Conversions were generally tepid, however
observations
key reasons pointed out for shift by few
Conversion
were down to non-stickiness.
Female:
• Most pointed out that they have not shifted
hair oils though usage pattern has changed.
• Niche needs and non-greasy looks were
key reasons pointed out by those who have
shifted to LHO
No threat from serums
Threats
• Across users, most noted that serums and
conditioners as complementary offerings
and can never replace hair oils.
Region Based
South India:
• Parachute was the most popular brand
followed by Dabur Amla.
• Healthy hair, scalp cooling and traditional
habit were the reasons attributed for usage.
Several users pointed to being conditioned
to use hair oil since childhood.
Rest Of India:
• Hair oils are used to Moisturise, maintain
texture and help in strengthening the hair
• Parachute and Bajaj Almond were the most
preferred among the users
South India:
• Users in south exhibited strong propensity
to change to superior offerings.
• Though no certain reasons could be
attributed, niche needs proposition was
prominent..
Rest Of India:
• Preference for non-sticky proposition was
widely visible, Non greasy and No smell
seems too have led to LHO growth.
No threat from serums
• Though ROI did acknowledge the clash
between conditioner and LHO offerings,
they believe the usage reasons differ.
Source: Spark Capital Research
Thematic Note
Sector Outlook Cautious
Age Based
Less than 25 years old:
• Parent influence on brand choice and usage
patterns of hair oils was evident
• Nourishment to prevent hair fall, styling
needs and hair strength were noted as key
reasons for hair oil patronage.
More than 25 years old:
• Need to maintain scalp and relaxation were
attributed pointed towards usage.
• Usage was also significantly higher in this
group as they believed it also protects from
harmful chemicals in shampoos.
Less than 25 years old:
• Either due to parental influence or not being
economically dependent, only a few had
noted changing brands in the past 5 years.
More than 25 years old:
• Move towards premium offering clearly
visible as specific hair needs emerge.
• Higher disposable income also contributes
to this up-gradation. Increasing need to look
younger drives niche offerings.
Emerging threat from serums
Few users above 25 years did acknowledge in
trying out serums and conditioners as
replacement
25
On a Slippery Slope Thematic Note
#5 Impact - How are each player positioned to drip the oil market Sector Outlook Cautious

Bajaj corp fortunes are heavily aligned towards hair oil Contribution of various hair oil categories to revenues*

Marico 62% 38%

Marico 44%

Dabur 19% 77% 4%

Dabur 15%

Bajaj Corp 1% 97% 2%

Bajaj Corp 99%

Emami 1% 99%
Emami 25%
0% 20% 40% 60% 80% 100%

0% 20% 40% 60% 80% 100% Coconut hair oil Amla hair oil Light hair oil Cooling hair oil Value Added Hair Oil

Source: Company filings, Spark Capital Research *Value added hair oil =(Amla hair oil + light hair oil+ cooling hair oil+ other hair oil) Source:
Company filings, Spark Capital Research

Presence in complementing/substitute categories Majorly catering to the Indian diaspora

Styling
Shampoo Conditioner Serums Hair color Marico 24%
Agents

Marico - - Livon Setwet Livon

Dabur 30%

Dabur
Dabur Vatika, - - - -
Dabur Bajaj Corp 1%

Bajaj Corp - - - - -
Emami 11%

Emami - - - - -
0% 5% 10% 15% 20% 25% 30% 35%

Source: Company filings, Spark Capital Research Source: Company filings, Spark Capital Research

26
On a Slippery Slope Thematic Note
#5 Impact - How the categories stack up against each other in positioning Sector Outlook Cautious

Playing to one strengths has been the key until now

Marico

Dabur

Bajaj
Corp

Emami

Coconut Hair Oil Amla Hair Oil Light Hair Oil Cooling Hair Oil Other Hair Oil

Source: Spark Capital Research

27
On a Slippery Slope Thematic Note
#5 Impact - Economic Moat Index – Qualitative Index Sector Outlook Cautious

Marico Dabur Bajaj Corp Emami

Category penetration
opportunity

Brand loyalty
Opportunities

Pricing power

Market Leadership

Portfolio across
hair oil categories

RANK 3 3 1 2

% of unorganized

Exposure to
commodity RM
Threats

LUP

Regional
Competition

MNC Competition

28
On a Slippery Slope Thematic Note
#5 Impact - Hair oil contribution and its potential impact Sector Outlook Cautious

Bajaj Corp Bajaj Corp

TP 253 • Market Attractiveness: Light hair oil remains the fastest growing hair oil segment. Structural shift from heavy
CMP 213 coconut based hair oils to light hair oils is gaining momentum. This category is estimated grow in excess of ~15%
CAGR of the next 3 years (in value terms)
Recommendation BUY
• Low competitive intensity: BJCOR’s nearest competitor is just ~16% market share and is showing minimal signs of
Financials FY14e FY15e FY16e aggression, whatsoever. Hence we believe there is almost no threat to BJCOR's leadership status.
Sales 6,811 7,878 9,274
EBITDA 1,866 2,051 2,375 • Strong Market leadership: BJCOR’s ADHO remains the unassailable leader in the light hair oils category, strength
PAT 1,758 1,883 2,193 of the brand can be gauged by its negative working capital cycle, premium positioning and strong pricing.
EPS 11.9 12.8 14.9
P/E 14.6 13.6 11.7 • Multiple initiatives to diversify single brand risk: 1.Launch of a cooling hair oil brand ‘Kailash Parbat’ last year,
ROE 34.8% 34.7% 37.7% 2.Expansion into Bangladesh. 3. Acquisition of Nomarks, anti-marks cream from Ozone Ayurvedics. 4. BJCOR,
armed with a cash surplus of Rs.~4bn, continues to scout for ideal brand / product for acquisition.
Returns (%) 1m 3m 12m
BJCOR 6% -2% -2% • Views & Valuation: We remain buoyant as valuation comfort in comparison to peers, leadership in its flagship brand,
Sensex 5% 4% 18% strong pricing power and increasing benefits from geographic (Bangladesh & UAE)/ Product (Kailash Parbat /
BSE FMCG 7% 6% 18% Nomarks) diversification makes BJCOR better placed among stocks in coverage. We have a target Price of Rs.243
Financials in mn, except EPS,P/E.ROE
Dabur Dabur
TP 165 • Impact from Amla to be limited: With Dabur Amla hair oil contributing to ~12% of revenues, we believe the impact
CMP 174 of conversion would be minimal on Dabur.
Recommendation REDUCE • Key Domestic categories: Management believes that dwindling inflation would assist in driving the otherwise
subdued urban consumption. Given the transformed focus towards urban, Dabur has announced ‘Project Core’ – an
Financials FY14e FY15e FY16e initiative to increase the number of chemist touch-points in urban market. Management targets to reach to ~125000
Sales 71,174 83,116 95,572 chemists from current ~75000 chemists in the next one year. We believe this initiative would not only assist in
EBITDA 11,783 14,355 16,521
expanding urban footprint but also enable to drive consistent growth and premiumization in Healthcare and OTC
PAT 9,014 11,089 12,964
5.2 6.4 7.4
portfolio which should augur well for customer profile diversification and margin improvement. Margins to gradually
EPS
P/E 33.6 27.3 23.4 expand to 17%-18% on increasing premiumization, improving gross margins and lower A&P spends.
ROE 37.8% 37.3% 35.4% • Namaste and MENA to lead growth: Though political instability could continue to affect performance in Bangladesh
Returns (%) 1m 3m 12m and Egypt, growth in international geographies to be led by increased expansion in Africa and Middle east countries.
Dabur 3% 3% 32% • View & Valuations: Change in geographical and product mix coupled with expansion in international geographies to
Sensex 5% 4% 18% assist growth momentum. we though are on a reduce stance with a TP of Rs.165, because of demanding valuations
BSE FMCG 7% 6% 18% and volatile macro headwinds.

29
On a Slippery Slope Thematic Note
#5 Impact - Hair oil contribution and its potential impact Sector Outlook Cautious

Emami Emami
TP 434 • Navratna Cooling Oil: Navratna cooling oil contributes to ~25% of HMN revenues, The brand continues to gain
traction on expansion and LUPs. Given the subdued mentha oil prices and superior pricing power, we see margins
CMP 502
from Navratna too improving in near term.
Recommendation BUY
• Low penetration in the key categories: Emami has built strong brands around categories that have minimal
Financials FY14e FY15e FY16e penetration and have immense potential to become large. Diversifying into new unexplored categories backed by
Sales 18,738 21,781 25,294 strong celebrity endorsements have enabled HMN to maintain market leadership in these categories despite
EBITDA 4,417 5,215 6,132 competitive intensity inching up. We believe HMN would be the key beneficiary as these niche categories expand to
PAT 3,899 4,679 5,422 become larger propositions.
EPS 17.4 20.6 23.9
P/E 25.0 21.1 18.2 • Brand Extensions: HMN currently has 4 power brands in Navratna, Boroplus, Zandu and Fair & Handsome. With
ROE 43.5% 40.4% 37.0% these brands having become household names, we believe brand extension opportunities into complementing
Returns (%) 1m 3m 12m
categories presents an exciting growth opportunity.
Emami -7% -10% 11% • Views & Valuation: Penetration potential in the key categories, brand extensions of the power brands and growth
Sensex 5% 4% 18% opportunity in the Zandu portfolio, keeps us excited on ‘Ayurvedically hedged’ Emami. We initiate coverage with a
BSE FMCG 7% 6% 18%
BUY rating and a Target Price Of Rs. 502 (16% upside to CMP, ~21x FY16E EPS)
Financials in mn, except EPS,P/E.ROE

Marico Marico
TP 214 • Parachute remains the key: Increasing rural focus remains the key driver for Parachute sales, however recent price
CMP 202 hikes to combat increasing copra prices could keep volumes muted. Value added hair oil volumes seem to be
affected due to unfavourable mix however MRCOs increasing focus should assist in near term growth.
Recommendation REDUCE
• Urban natured categories to remain impacted: Saffola sales is expected to be better in near term, however given
Financials FY14e FY15e FY16e the discretionary nature of the brand, macro pressures could impact volumes. Skin care & personal products
Sales 47,572 53,195 61,439 segments should continue to gain share and maintain strong growth momentum.
EBITDA 7,142 8,018 9,552
• International operations to be a mixed bag: Bangladesh business continues to be impacted by unstable political
PAT 4,796 5,511 6,498
EPS 7.4 8.5 10.1 climate while macro economic pressures in South Africa and South East Asia (inflation) should keep growth under
P/E 27.1 23.6 20.0 check. MENA and Egypt growth though should begin to see revival in near term.
ROE 22.3% 22.1% 22.5% • Copra prices on the rise: Copra prices that were benign throughout last year have increased ~78% y-o-y this
Returns (%) 1m 3m 12m quarter. Costs of other raw materials as Safflower and Rice bran though remain soft, selective price increases
MARICO -3% -7% -3% coupled with lower operating costs should see EBITDA margins sustaining at ~14%-15%
Sensex 5% 4% 18% • Views & Valuations: Given the increasing macro headwinds in driving volume growth and current high valuations
BSE FMCG 7% 6% 18% we maintain negative stance on MRCO with a reduce rating and a TP of Rs.214 (25x FY15E)

30
On a Slippery Slope Thematic Note
#5 Impact - Economic Moat Index – Quantitative Index Sector Outlook Cautious

Strong market leadership across the four categories.

Category Marico Dabur Bajaj Corp Emami

FY13-16E Revenue CAGR 10% 16% 15% 14%

Gross Margin (FY14E) 50.0% 52.3% 58.8% 61.4%

A&P/ Sales (FY14E) 13.0% 14.3% 14.5% 15.2%

Number of retail outlets reached 4.0 mn 5.8 mn 2.6 mn 4.0 mn

EBITDA Margin (FY14E) 15.0% 16.6% 27.3% 23.6%

PAT Margin (FY14E) 10.3% 12.7% 25.8% 20.8%

ROE 22.3% 37.8% 34.8% 43.5%

ROCE 17.8% 26.6% 35.6% 39.0%

Working Capital Days 48 35 -1 27

Debt/Equity 0.3 0.4 - 0.1

FCF Yield 3.3% 3.1% 3.9% 4.3%

Dividend Yield 1.2% 1.3% 3.2% 1.4%

FY13-16E EPS CAGR 20.4% 19.1% 9.4% 19.3%

Source: Company filings, Spark Capital Research

31
On a Slippery Slope Thematic Note
Sector Outlook Cautious

Appendix

32
On a Slippery Slope Thematic Note
What women want? – Hair care remains a focus area Return to Page 2 Sector Outlook Cautious

Among products used to feel more attractive, hair care remains prominent 21% of people surveyed wanted to change hair care appearance
Deodorant 82% 45%
Hari Care product 75%
33%
Perfume 74%
Facial care products 70% 24%
21%
Body moisturizer 70%
14%
Make-up/color cosmetics 11% 12% 12%
68%
Hair coloring 67% 4% 5%

Nail care products 46%

Skin-tanning products 21%
Skin-lightening products 9%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Source: Dove global beauty trends, spark capital research Source: Dove global beauty trends, spark capital research

Americans were in favour of hair care being integral part to attractiveness Developing countries had a higher emphasis in changing their hair looks

86% 40% 36%

82% 84% 85% 34% 34%
35% 31%
74%
65% 66% 67% 67% 67% 30%
25% 21% 22%
20% 17%
15% 12% 13%
10% 11%
10%
5%
0%

Source: Dove global beauty trends, spark capital research Source: Dove global beauty trends, spark capital research

33
On a Slippery Slope Thematic Note
Global hair care trends Return to Page 3 Sector Outlook Cautious

Western Europe Eastern Europe Asia

Market Size: $~15bn Market Size: $~5bn Market Size: $~20bn
CY10-13 growth: 2.6% CY10-13 growth: 3.6% CY10-13 growth: 8.4%
Leading Brand: L’Oreal Paris (L’Oreal) 15.5% Leading Brand: Schwarzkopf (Henkel) 17.8% Leading Brand: Pantene
Per capita usage: $31.6 Per capita usage: $14.7 (P&G) 7.3%
HC/BPC : 17.3% HC/BPC : 17.5% Per capita usage: $5.3
HC/BPC : 17.4%

North America
Market Size: $~12bn
CY10-13 growth: 2.6%
Leading Brand: Pantene
(P&G) 8.1%
Per capita usage: $35
HC/BPC : 15.4%

Latin America
Market Size: $~16bn
CY10-13 growth: 11.5%
Australasia
Leading Brand: Sunsilk Africa & Middle East
(Unilever) 10.9% Market Size: $~1bn
Market Size: $~4bn
Per capita usage: $26.7 CY10-13 growth: 11.8%
CY10-13 growth: 9.5%
HC/BPC : 20.6% Leading Brand:
Leading Brand: Schwarzkopf (Henkel)
Pantene (P&G) 6.6% 13.8%
Per capita usage: $3.1 Per capita usage: $41
HC/BPC : 17.5% HC/BPC : 16.1%

Source: Industry data, Bloomberg and Spark Capital research

34
 On a Slippery Slope Thematic Note
Rise of ‘the oils’ - Globally Return to Page 5 Sector Outlook Cautious

Key growth drivers of hair care globallly Popular brands across the globe

“The natural “At Home “West Meets

trend” treatments” East”

•The trend for more
natural ingredients
has been strong in
hair care, with most
of MNCs launching
ranges using
natural or nature-
inspired
ingredients.
•Giving rise to the
use of oils from flax
seed to grape seed
oil, coconut oil and
argan oil,
•Hair oil were used •Companies L’Oreal Offerings under Professionnal, Garnier and Kerastace brands
to nourish the hair launching products
and scalp deeply, that were
keeping hair successful in Asia
healthy and into Western
prolonging the time countries
needed between
hair salon visits, •As western world
thus saving money. begins to embrace
products from east,
•Proposition had prominent Moroccan oil Liz earle
changed from categories as hair
cleansing to oils are witnessing
nourishment. global acceptance.

P&Gs Pantene oil

offering Unilever offerings under Tressemme and Dove brands

Source: Industry , Spark Capital Research Source: Industry , Spark Capital Research

35
On a Slippery Slope Thematic Note
Hair oils across the globe Return to Page 5 Sector Outlook Cautious

How hair oils fare in Europe

Officially becoming the fastest Celebrity Followers

selling product in the multi-million 1. Scarlett Johansson
pound hair industry 2. Lady Gaga
3. Jessica Biel
Perception change was the key
to usage
Hair Oil replacing serums

“Given the rising inflation,

more consumers are looking
to lessen the number of saloon
visits, however prefer keeping
their hair glossy and Popular Brands
nourished” Mintel publications 1. L’Oreal Professionnel
2. L’Oreal Kérastase
“One in five women now 3. Garnier Olia
regularly use a hair oil to do 4. Aveda Beautifying
Marketing terms used to everything from washing off composition
sell hair oil hard-to-rinse product to
1. Greasy hair bouncy conditioning frazzled hair and
2. Alternate to salon giving a glossy finish”
treatment Latest findings from L’Oreal
3. Protection against
damaging blow dries “The key to the popularity of
4. Sweet smelling these products is that they are
5. Home dye conditioner so versatile - whether your hair
is dry, flat, curly or fine, there Threats
6. Multi tasking as hair
is an oil to suit” Tracy Rogers, 1. Premium priced
styling and
salon manager at Gina Conway 2. Popular only in few
conditioning.
Aveda in London countries

36
On a Slippery Slope Thematic Note
Hair oils across the globe Return to Page 5 Sector Outlook Cautious

How hair oils fare in US

Oils are increasingly What is making hair oil Popular perception against oil in US
becoming a hair cum skin click? 1. Greasy look
care proposition in US 1. Anti ageing propositions 2. Clogs pores
2. Natural care 3. Does not absorb
Hair oil treatments using 4. Heavy proposition
3. Noursihment
argan based Moroccan oil
4. Lighter proposition
most popular
Popular Brands
"We've been trained to think of 1. L’Oreal Professionnel
oil as heavy or thick or bad,“ 2. Moroccon Oil
Terry Darland, president of 3. Garnier Fructis
Christian Dior Perfumes North
America

“U.S. consumers seem more

comfortable with the idea of oil
for the hair than for the skin,
because hot-oil hair
treatments have been on the
U.S. market for years”
Virginia Peandro, manager of
skin-care product innovation for
Garnier
Marketing Drab
"A lot of customers are feeling
this pull back to basics," Neutrogena forever
Maren Giuliano, global Whole promoting “oil-free” look,
Threats Body coordinator for Whole dubbing oil as greasy
1. Usage is limited Foods Market Inc. P&G renames “oil of olay”
2. Multipurpose usage brand as “Olay”

37
On a Slippery Slope Thematic Note
Hair oils across the globe Return to Page 5 Sector Outlook Cautious

How hair oils fare in other geographies

Africa:
 Breakage prone hair, thus hair care protection and use of hair care
products is common for African people.
 However off-late hair extensions becoming popular, saving
consumers the money and time spent in maintaining hair.
 L’Oreal Carson hair oil treatments and Dabur Vatika hair oil
variants are popular among the branded players.
 Huge unbranded and un-organised market though considering the
availability of various oils as Argan oil, Olive oil Castor oil, jojoba
oil, avocado oil, virgin coconut oils.
 Traditional market, where MNC’s have found it difficult to break
into traditional categories, similar to India.

GCC:
 Wide market for hair oils, given the large Indian Diaspora. Market
beyond the Indian diaspora remains miniscule.
 Dabur Amla hair oil is the largest hair oil brand in the GCC and
commands more than 50 per cent of the market. Dabur Vatika
Hair Oil, another key Dabur brand, is the market leader in the
value-added pure coconut hair oils category
 Dabur is continuously though scouting to break open the middle
east consumer by launching variants as Olive Oil.

Latin America:
 Small hair oil market, the market dominated with hair care
offerings from Unilever, P&G and L’Oreal.
 Given the high salon pattern in markets as Brazil, Salon styled
serums and hair oils typically tend to do better.
 However inflation led Latin American markets growth to slowdown
in coming years.

Source: Industry , Spark Capital Research

38
 On a Slippery Slope Thematic Note
Is there a market at all for LHO in south? Return to Page 23 Sector Outlook Cautious

% of population aged between 18-32 Urban % Average Per Capita Spend (Rs. pa) Television Ownership (%)

41.2% 70.1
27.5% 78754
28.5% 31.2% 59966 47.2
54493 39.7
26.7%
26.5%

South India ROI India South India ROI India South India ROI India South India ROI India

Sex Ratio Mobile Ownership (%)

Light hair oil user profile 9.5
1.00 - Unisex 6.0
4.8
0.93
0.94 - 60% users aged between 15 and 39
- 2/3rd Urban
- Economic class SEC A1,A2,B1,B2
South India ROI India South India ROI India

Literacy % of number of nuclear families Average household size % of houses with more than 2 rooms
73.2 4.03
83.8 59.1 59.1
3.98
70.1
80.4 69.1
79.7 3.82 58.9

South India ROI India South India ROI India South India ROI India South India ROI India

Source: Census India, Spark Capital Research

39
 On a Slippery Slope Thematic Note
Where has it been going wrong? Return to Page 23 Sector Outlook Cautious

Proudly South New cool Social Change Humbly Speaking

Intellectual
Adapting Traditions Shattering the myth Experimentation Character vital
superiority

Portraying south The region is South is no more South has been

as world beaters, crafting an stereotyped as averse to
acknowledging independent style the docile and exhibitionist
and rewarding aesthetic. Creating a quiet, social culture, riches
South's wave that spans awareness and fame to co-
excellence in across art, fashion & questioning takes exist with
relevant fields entertainment prominence humility.

Using south celebrity as Light hair oils positioning Wanting for a change might Light hair oils positioning
national brand themselves as lifestyle go well with light hair oils themselves as alternate to
ambassadors does the options are beginning to given they attempt to break a serums /styling agents could
trick attract better traction traditional habit identify with south

South still seems
strongly
associates itself
with its
traditional habits
and customs
Light hair oils syncing
modern practices with
traditional values have
stuck the chord.
South Indians
though likes their
advertisements to
reflect a slice of life,
aesthetic appeal,
style quotient is
essential
Deodorant brands catch
the attention aplenty
given their traditional
style quotients
One of the most Brands that have
It is clearly mind and
experimenting associated in
body when it comes
consumers, portraying
to south, brands
however sticking characters for its
trying temptation
to typical identity have done
quotients have not
approach may fail well in connecting
been successful
to strike a chord with consumer.
Light hair oils could break Acknowledging the need for
the coconut jinx post wash nourishment with Illustrating light hair oil
challenging the south styling might do the trick for users with virtues of
consumer to experiment light hair oils confidence and courage.

Source:JWT, Spark Capital Research

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On a Slippery Slope Thematic Note
Sector Outlook Cautious

Absolute Rating Interpretation

Buy Stock expected to provide positive returns of >15% over a 1-year horizon

Add Stock expected to provide positive returns of >5% – <15% over a 1-year horizon

Reduce Stock expected to provide returns of <5% – -10% over a 1-year horizon

Sell Stock expected to fall >10% over a 1-year horizon

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On a Slippery Slope Thematic Note
Sector Outlook Cautious

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Analyst ownership of the stock No
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