Is Patanjali’s ~20,000-crore revenue target realistic?

With a reported turnover of ~10,561 crore in financial year 2017 (FY17), Baba Ramdev- and Acharya Balkrisha-led Patanjali Ayurved Ltd (PAL) expects its revenue to hit the ~20,000-crore mark in FY18.

Analysts, however, are sceptical and are of the view that Patanjali may not be able to achieve this steep revenue target in FY18 purely on the basis of growth in the FMCG segment, given the current industry growth rates and that the revival in rural demand is still some time away.

“One must be mindful that this ~20,000 crore will also include commodity-related products such as rice, wheat, edible oil, and milk. Growth rates for pure FMCG products are likely to slow. Patanjali is now quite big in products like honey, toothpaste, shampoos, and hair oil. So from the base these pure FMCG products has created, doubling of revenue looks very difficult. The category growth rates will be around 13 per cent at best. Though penetration into newer markets will help, doubling still seems a farfetched idea as of now,” says Abneesh Roy, an analyst tracking the sector with Edelweiss Securities.

For the rural demand to kick in, analysts say the monsoon season this year will also be crucial. That apart, companies are now in the process of catching up with Patanjali in terms of ayurvedic products. In this backdrop, Patanjali will find it difficult to double this huge revenue base it has already created.

“I have doubts whether Patanjali can achieve the ~20,000 crore revenue target it has set for itself. Volume-wise, the FMCG industry is growing in single digits (4-6 per cent) for most players. For FMCG players, we need a good monsoon to act as a catalyst to trigger a demand revival. Even one good monsoon (last year) was not enough to revive the rural demand,” explains G Chokkalingam, founder and managing director of Equinomics Research & Advisory.

Experts also suggest that Patanjali, to a large extent, has penetrated the target group for its products, i.e. people have shifted from the products of multinational companies (MNCs) and other domestic players to Patanjali. As a result, increasing the consumer base and revenue by 100 per cent in FY18 will be a stiff challenge.

“I think the ~20,000 crore revenue figure for FY18 is too steep for Patanjali to achieve. There are alternative products in the ayurvedic segment from other players, such as Hindustan Unilever (HUL), Dabur, Colgate-Palmolive (India), and Emami. That apart, the pricing advantage for Patanjali over other players has also reduced, with the FMCG companies resorting to aggressive pricing for their ayurveda products. I believe 20-25 per cent revenue growth for Patanjali in FY18 is a more realistic and an achievable target,” says AK Prabhakar, head of research at IDBI Capital.

Earlier in August 2015, Patanjali Ayurved had caught the attention of foreign research and brokerage house, CLSA, which wished that the company got listed at the bourses.