Patanjali Ayurved hits GST roadblock: Sales growth may slow down in FY18

This would have an impact on Baba Ramdev's stated goal of making Patanjali the largest FMCG company in the country by March 2019

After growing at a breakneck pace for five years, Baba Ramdev’s Patanjali Ayurved has hit a major roadblock. During the financial year 2017-18, the group’s sales growth has slowed down considerably–- thanks to the massive transformational work following the implementation of the good and services tax (GST) regime in mid-2017.

According to Patanjali spokesperson S K Tijarawala, the initial glitches related to GST and the realignment work required due to its implementation cost Patanjali two months’ business in 2017. “We are in a growth mode and we have grown during the past year, contrary to the initial predictions that FMCG companies would face de-growth due to the implementation of GST. But, unlike other years, in 2017-18 we got only 10 months to do business. This might have a certain impact. The final revenue numbers are still being calculated. But, what we can confidently say now is that the 2017-18 revenue figure will not be less than what it was in 2016-17”, he told Business Standard.

 

In 2016-17, the Patanjali group had posted Rs 105.6 billion in revenues, of which Patanjali Ayurved – the flagship entity that markets most of its packaged consumer good products – contributed Rs 93.46 billion. Earlier, Baba Ramdev had set a target of doubling Patanjali’s sales during 2017-18 to over Rs 200 billion.

The recent hiccup is in contrast with its past performances. During the five years between 2011-12 and 2016-17, the group was growing its revenue at about 88 per cent CAGR (compound annual growth rate). While during the two years between 2011-12 and 2013-14, Patanjali Ayurved’s sales grew at 62.4 per cent CAGR. 

Its topline gained an unprecedented momentum since April 2014. For the next three years – from 2014-15 to 2016-17 – Patanjali Ayurved’s sales grew at an astounding CAGR of 98.7 per cent.

During that time, the venture co-founded by Baba Ramdev gave sleepless nights to executives working for other fast moving consumer good (FMCG) giants. Apart from its fast-growing sales and distribution network, Patanjali had launched a blitzkrieg -– launching a flurry of products and venturing into all possible categories in the FMCG segment at a rapid pace. Between 2015-16 and 2016-17, at least over 200 new products were launched by Patanjali Ayurved in over two dozen categories.

The highly charged approach to bombard the market, however, was seen to be changing in 2017-18. The demonetisation of two key currency notes-- Rs 500 and Rs 1,000-- in November 2016 hit its business, as it pans across smaller towns. Come July 2017, the business environment turned tougher with the advent of GST and the reslting massive reorganisational work that was required to realign operations. According to Baba Ramdev, this had an impact on Patanjali’s sales. (He told so to Business Standard in January, 2018).

There are other factors, too.

According to analysts, of late, Patanjali has been shifting its focus towards strengthening its production capabilities, whereas initially it vehemently pushed its products in the market. This created a “huge gap” between the demand for its products and supply. During the last year, some of its energy was diverted towards completing the six mega food park projects that are under construction in Nagpur (MP), Dhankaur (UP) and Baripada (Assam), among other places.

Since 2017, it has considerably increased its focus on expanding its retail reach through the conventional general-trade model, even though the Patanjali group had been dependent on branded franchise stores from the beginning. The exercise required the appointment of 25,000 distributors, who would immediately increase its reach to 3 million outlets. According to sources, this had an adverse impact on its relationship with a section of its old franchise partners, many of whom severed ties with Patanjali.

The glitches would have an impact on Baba Ramdev’s stated goal of making Patanjali the largest FMCG company in the country. Earlier, he had estimated to beat Hindustan Unilever by March 2019, Tijarawala says, but, now the deadline has been revised to the year 2020.