Ramdev's Patanjali to borrow Rs 1,000 cr as it plans aggressive expansion

If it was the ‘shirshasana’ yoga pose that Baba Ramdev’s Patanjali had been showcasing to the consumer goods sector so far, it's time now for the company to try the ‘padmasana’ pose – settling itself on a stable base. While over the past few years the diversified Patanjali Group has set an unprecedented example of growing by leaps and bounds before laying down a strong in-house manufacturing and widespread distribution base, it is now transforming its business model by expanding its production capacity and distribution reach, much in line with other consumer goods majors.

So far, the group had been funding most of its requirements from internal accruals. However, now, it is looking to borrow close to Rs 1,000 crore from external sources. Given the kind of aggressive plans that the group has for the next two years, external borrowing was the need of the hour. In fact, in February this year, the company spokesperson told Business Standard that it is looking for funding to finance its upcoming food parks.

The company has set a target of beginning production at four new facilities by mid-2018, which would require investments to the tune of Rs 5,000 crore, Patanjali Ayurved Managing Director Acharya Bal Krishna told this newspaper earlier this year.

The project encompasses food and herbal parks, which Patanjali plans to build in four locations — Gautam Budhha Nagar (Uttar Pradesh), Nagpur (Maharashtra), Tezpur (Assam), and Indore (Madhya Pradesh). While the facility in Assam is expected to be operational by March, the other three food parks will start production by June next year.

The food park in Uttar Pradesh, which is expected to cater to the crucial market in the National Capital Region of Delhi, will require an investment of Rs 1,400 crore in two phases. The first phase, which will require an investment of Rs 800 crore, will be ready by Diwali, Bal Krishna said.

The fast-growing Indian consumer goods company that thrives on the 'Swadeshi' (domestic) theme is desperate to expand its production capacity to meet the growing demand for its products. During the past few years, a phenomenal growth in sales (at 82 per cent CAGR during 2011-12 and 2015-16) forced it to depend on third-party manufacturers as the food park at Haridwar became over-utilised. However, a higher dependence on outsiders for sourcing finished products could hurt its margins in the coming days, analysts said.

The company continues to remain less leveraged than all its competitors in the space. According to a note published by credit ratings agency ICRA this year, "... The ramp-up for facilities will increase reliance on external debt, which is expected to result in some increase in the gearing level. These facilities once operational, are expected to drive the company’s future revenue growth". Apart from the fact that such a large amount of investments will be tough to meet from internal accruals in a short span of 16 months, borrowing money from banks has also become an easier proposition for Patanjali as ICRA upgraded its credit rating for fund-based facilities by two points – from A- (A minus) to A+ (A plus) – recently. Currently, Patanjali has Rs 320 crore in debt, out of which, Rs 300 crore is fund based.

Building the base

• Patanjali is in mission mode to ramp up production capacity; launched time-bound plan in February

• Requires heavy investments till mid-2018 to build and start production in four large facilities

• It is now looking for bank loans to meet its Rs 5,000-crore investment plan within a short time

• Most of Patanjali’s past investments were met from internal accruals, which keeps it less leveraged

• Growing dependence on third-party manufacturers for production could impact its margins in the future