One of the more difficult yoga poses is the shirshasana, or headstand. It has also become the default posture for India's consumer staples industry. Whatever multinationals thought they knew about their market has been turned upside down in the past three years by a bearded guru in saffron robes.
Gadfly first wrote about Baba Ramdev a year ago. By then, the mystic whose food and personal-care empire offers salvation from toxic chemicals had already evolved from a fad to an emerging long-term threat to Colgate-Palmolive India Ltd. and Hindustan Unilever Ltd.
Colgate, whose supply chain may not have been too badly hit by India's recent cash ban, might still struggle to avoid losing market share to Ramdev. That's even after Colgate launched its own herbal toothpaste -- the first localized brand in the eight decades it's been in India.
At the present rate of growth, Remdev's Patanjali Ayurved Ltd. will be a $1 billion company next year. To grow from there, it will need a carefully measured dose of toxicity: Handled well, debt could be a tonic, helping the herbal brand sustain its sixfold expansion of the past three years.
This month, Patanjali won a two-notch credit rating upgrade from ICRA, the India affiliate of Moody's Investors Service. So far, the company has just $47 million in borrowings. But the business is reaching an inflection point.
About 30 percent of its revenue comes from toothpaste, honey, clarified butter, soap and gooseberry juice, according to Religare Securities. The other 70 percent spans noodles and hair oil to sugar and rose sherbet. From a working capital perspective, that's an expensive product portfolio to sustain. If Patanjali continues to remain light on fixed assets, it will have to outsource more of its manufacturing. That, ICRA says, could compress last year's net profit margin of 16 percent.
Those margins are crucial. They're higher than the five-year average of 11 to 14 percent for Ramdev's bigger competitors, partly because the guru doesn't have to spend as much on advertising as them. His grinning face is everywhere -- he is the publicity.
To researchers at Frost & Sullivan, the "Patanjali effect" is one of the big consumer trends that are defining the Indian food and beverage industry, alongside a quest for greater variety, smarter packaging, more value for money, and an increasing focus on health and hygiene. Now others are rushing to mimic Ramdev's traditional twist on modern living. Without a capital infusion, the guru's profitability could start waning.
Although an IPO would probably be lapped up, a premature float could bring its own problems. Cutthroat competition and a lax regulatory regime make a combustible combination. For listed companies, protecting reputations can be very expensive. Nestle India Ltd. was hit for half a billion dollars when, in the summer of 2015, the country's food safety regulator asked it to recall Maggi noodles from shop shelves, alleging higher-than-permissible levels of lead. Ramdev, who used the opportunity to start his own noodle brand, would hate for the shoe to be on the other foot.
Acquiring scale as a private company, while protecting margins, is the more sensible strategy for now. If the guru can show as much acumen in borrowing intelligently and investing wisely as he has in winning over consumers, multinationals in India will need some of their own strong headache medicine.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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