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Indian yoga guru's company dents market share of global giants

MUMBAI (NewsRise) - Hindustan Unilever and Colgate-Palmolive, whose products are household names in India for decades, are rejigging their offerings and boosting investments as a yoga guru's 10-year-old herbal products company continues to chip away at their dominance in Asia's third-largest economy.

Baba Ramdev's Patanjali Ayurved, based in New Delhi, sells more than 350 products ranging from soaps to cleansers, supplements and noodles that are either made out of natural ingredients or are infused with herbs. Patanjali's positioning as a brand based on traditional Indian medicines has lured customers away from Unilever and Colgate, analysts say.

"For long enough, these companies were ignoring the Patanjali threat," said Pankaj Sharma, head of equities at Equirus Securities. "They were in a denial mode, except for some recent acknowledgments. The multinational companies are now forced to do a rethink on how they want to tackle it."

About 45% of Hindustan Unilever's portfolio that include Lux soaps, Surf detergent and Dove shampoo, is under "competitive threat" from Patanjali, "given the increasing acceptance of Patanjali's detergents, soaps, oral care, hair care and dishwash," Mumbai-based brokerage ICICI Securities said in a note to clients last month.

Though Patanjali will probably have a limited impact on HUL's revenue growth, profit margins could take a hit, ICICI said, as the Indian company's competitive pricing makes it difficult for rivals to increase prices. The "key will be if Patanjali adopts aggressive pricing approach during raw materials' inflationary environment, as that can expound the impact."

Patanjali, founded in 2006, had sales of 50 billion rupees ($751 million) in the fiscal year ended in March, Indian Express newspaper reported on its website on April 26. The company predicts it will double the revenue this year, according to the report. Brokerage IIFL Institutional Equities expects Patanjali to post revenues of 200 billion rupees by the end of March 2020. In a note to clients in January, IIFL said the company's success is fuelled by its unique business model that relies on a single brand, with a portfolio of products across a wide range of categories and its close ties with Ramdev.

Ramdev, a vocal critic of western culture and capitalism, is famous for courting controversies. He said homosexuality is a wrong sexual practice that can be cured using yoga. Last year, he said he was denied the Nobel Prize only because of the black color of his skin.

According to IIFL, Patanjali already has more than 5% of the market in the oral care category in India, and the share is likely to further rise to 13% by fiscal year 2020. The company's foray may wipe out 7.8% of Colgate's expected sales in 2020, the brokerage says.

Patanjali is threatening to chip away at its bigger rivals' market share at a time when Indian consumer goods companies are battling a demand squeeze in rural areas grappling with a drought for a second straight year. A pick-up in prices of raw materials such as crude oil and palm oil have put pressure on margins, but cut-throat competition in the market is holding back companies from raising prices.

"Patanjali has played the game the same way as a multinational company," Arvind Singhal, managing director of retail advisory firm Technopak, said. The company's distribution network spans small towns in rural India as well as retails stores in big cities, Singhal said. "The added advantage Patanjali has is its association with natural being healthier and that sells well in India now."

HUL, India's largest consumer goods company, earlier this month, reported its lowest sales volume growth in five quarters at 5% for the three months ended in March. It cited stiff competition and weak rural demand for the subdued sales volumes, a metric closely tracked by analysts. HUL's net income grew 7% to 10.90 billion rupees, on 3.4% rise in revenue to 78.09 billion rupees in the fourth quarter.

Dabur India, a local consumer goods company that makes herbal medicines and tonics, saw its health supplements business grow in single digits in the January-March quarter, as its honey sales were hit by Patanjali honey's launch.

U.S. consumer goods giant Colgate -- the maker of its eponymous toothpaste and Palmolive soap -- said it is facing a short-term sales slowdown in India, weighed by heightened promotional activities from competitors. Colgate also said it is rejigging some of its products in the natural products segment.

"The naturals segment in India has been growing rapidly," Ian Cook, Coalgate's chairman, president and chief executive, said in an earnings conference call last month. "To capitalize on this, we are revitalizing our Colgate Active Salt toothpaste bundle".

Colgate has been reeling under market share losses from the ramp up in Patanjali. In October-December, the company reported almost no volume growth. Colgate India is set to report its fourth quarter results on May 24. Analysts expect the company to clock in some volume growth this quarter, aided by significantly higher investments in promotions.

"For Colgate, market share is one of the most important metrics for management and it is likely that they will sacrifice near-term margins to stem the loss of market share," Credit Suisse said in a note last month. Colgate will continue to see pressure on volume growth, despite a marginal pickup likely in the fourth quarter, the brokerage said.

To be sure, HUL has also been stepping up investments in products that are based in the Indian medicinal system of Ayurveda to fend off competition. The company has resurrected Lever Ayush, its herbal health supplement brand, and last year bought a herbal hair oil brand that has a strong presence in some of the south Indian states.

"Time and again, multinationals in consumer goods sector in India have proved that they are very quick to adapt," Equirus' Sharma said. "We don't think this time, the case would be different."

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