The rapid rise of Patanjali Ayurved

It is not usual for brokerages in the stock market to write extensive reports on companies that are not listed on exchanges and where their clients cannot possibly invest. It can happen when an unlisted firm begins to threaten listed companies. This is exactly what is happening in the case of Patanjali Ayurved, a home-grown firm with interests in businesses such as food, consumer packaged goods and healthcare.

IIFL Institutional Equities, for instance, in a recent report termed Patanjali a credible threat for consumer goods firms—not trying to beat others at their game but changing the game for them. It expects the company to clock revenues of ₹ 20,000 crore by fiscal year 2020. Patanjali is estimated to have more than doubled its sales to about ₹ 5,000 crore in the current fiscal year. These are big numbers and the firm’s growth trajectory is reported to be spreading nervousness in some boardrooms as well. It is also one of the biggest advertisers on Indian television.

Patanjali Ayurved started in 2007 and has benefited from close association with well known yoga guru Baba Ramdev. The company is different from a typical business and the stated philosophy is to plough back profits into the company or to be used for social causes. The idea is to be present in as many categories as possible in order to give consumers more choices, and profits are to be reinvested in innovation and capacity expansion so pricing can be made more competitive.

The firm, in fact, has priced its product at a significant discount to others in a number of categories, which is helping drive sales. Patanjali is also said to be benefiting from a shift in consumer preferences towards herbal and ayurvedic products which are considered to be closer to nature. It has also positioned itself as a swadeshi brand, which has an appeal among a category of consumers.

However, the critical question now is, what does the rapid rise of Patanjali mean for other businesses in categories where it has a marked presence or plans to enter? To be sure, the rise of Patanjali has increased competition for incumbents in a number of product categories. But the effect of competition is likely to be different for different companies. While the impact is likely to be more profound on smaller businesses with a limited product portfolio, the effect on established companies with leadership positions and strong balance sheets is likely to be limited for a number of reasons.

For instance, Patanjali is currently focusing on adding more categories and products, which will give time to companies with scale and depth to adjust if required. Firms with leadership positions in respective categories are there for good reasons and not necessarily because of lack of competition—they can always adjust their product portfolios if consumer preferences actually begin to shift.

There are also potential difficulties that Patanjali could face as a business. For instance, it has ventured into too many products and categories and all may not do well. It is not clear what the company will do in that case. If it continues with products that are not successful, it will affect the prospects of others. Further, the company has relied on the Patanjali brand for all its products, which has worked so far. But the strategy could hurt if some products are unable to compete in the marketplace and have a spillover impact on the brand itself. Regulatory issues in one category can also have a similar effect. Therefore, long-term projections, both at the macroeconomic level and the company level should be read with caution.

This is not to undermine the success it has achieved so far—Patanjali is indeed a unique company in many ways. It will be interesting to see how it progresses in times to come.

At the broader level, it also shows that businesses which are not some variation of an online marketplace can still be built in this country.

For now, while shareholders and the management of different companies will reassess their plans, consumers will be happy with increasing choice and competition—that’s the beauty of a market economy.

Will the rise of Patanjali affect business prospects for other companies? Tell us at views@livemint.com