Prospects of Ayurveda Industry in India

Mihir Mohanta

Background Ayurveda Industry

When we think Ayurveda …..

The other face of the Industry

The other Face of the Industry

STATUS OF AYURVEDA

•Number of registered medical practitioners: 366,812 •Number of dispensaries: 22,100 •Number of hospitals: 2,189 •Number of hospital beds: 33,145 •Number of teaching institutions (undergraduate): 187 •Number of upgraded postgraduate departments: 51 •Number of specialties in postgraduate medical training: 16 •Number of pharmacies manufacturing Ayurvedic medicines: 8,400

•In addition about 400,000 Ayurvedic practitioners, •There are over 170,000 homeopathic physicians; •India has about 500,000 medical doctors •Reliance on Ayurvedic medicine is heavy in states like Kerala. •Many Ayurvedic practitioners in small villages are not registered.

Exports of Ayurvedic medicines

•Exports of Ayurvedic medicines have reached a value of 100 million dollars a year (about 10% the value of the entire Ayurvedic industry in India). •About 60% of this is crude herbs (to be manufactured into products outside India) •About 30% is finished product shipped abroad for direct sales to consumers, •And the remaining 10% is partially prepared products to be finished in the foreign countries

Legislation for pharmaceutical

The major legislation for pharmaceutical regulation is the •Drugs and Cosmetics Act, 1940 (DCA) and its subordinate legislation, •The Drugs and Cosmetics Rules,1945 (DCR). •Drug (Prices Control) Order, 1995, •Drugs (Magic Remedies) Objectionable Advertisement Act, 1954 •Pharmacy Act, 1948

Regulatory framework for Drugs

REGULATORY FRAME WORK In India, the import, manufacture, distribution and sale of drugs and cosmetics are regulated by the “Drugs and Cosmetics Act, 1940 (DCA), the Drugs and Cosmetics Rules, 1945 (DCR). OTC Drugs ‘OTC Drugs’ means drugs legally allowed to be sold ‘Over The Counter’ by pharmacists, i.e. with out the prescription of a Registered Medical Practitioner. Although the phrase ‘OTC’ has no legal recognition in India, all the drugs not included in the list of ‘prescription-only drugs’ are considered to be non-prescription drugs (or OTC drugs). Prescription-only drugs are those medicines that are listed in Schedules H and X of the Drug and Cosmetics Rules. Drugs listed in Schedule G (mostly antihistamines) do not need prescription to purchase but require the following mandatory text on the label: “Caution: It is dangerous to take this preparation except under medical supervision”. Drugs falling in these three schedules are currently not advertised directly to the public under a voluntary commitment by the pharmaceutical industry. Currently, non drug-licensed stores (e.g. non-pharmacists) can sell a few medicines classified as ‘Household Remedies’ listed in Schedule K of the D&C Rules in villages whose population is below 1 000 subject to certain other conditions.

Regulatory framework for Ayurveda

OTC drugs registered as ‘Ayurvedic Medicines’ (i.e. traditional Indian system of medicines containing natural / herbal ingredients) are also regulated by the DCA (Drug & Cosmetic Act) and DCR. Ayurvedic drugs are manufactured under a manufacturing licence issued by the Ayurvedic State Licensing Authorities. However, they do not require a drug sale licence and can be sold freely by non -chemists. Some of the largest OTC brands in India are registered as ‘Ayurvedic Medicines’ because of their plant-based natural active ingredients e.g.

•Vicks VapoRub, •Amrutanjan Pain Balm, •Zandu Pain Balm,

Licensing Authority

Power to provide manufacturing and selling licenses’ - which are the two main stages required to manufacture and sell a drug - belongs to each individual State Government through its -Food and Drug Administration (FDA). -These Food and Drug Administrations (FDAs) also carry out enforcement of the DCA and the DCR. The DCGI office is established in modern premises in Delhi: Central Drugs Standard Control Organization Directorate General of Health Services Ministry of Health and Family Welfare Government of India FDA Bhavan, ITO, Kotla Road, New Delhi - 110002 Phone: +91-11-23 23 69 68

Emerging Industry Trends Extracts of McKinsey Report

Definition of Markets

Tier 1 markets as metros (population 1 million),

Class 1 towns (0.5 million to 1 million ) and Class

1A towns (0.1 million to 0.5million).

Tier 2 markets are the remaining urban markets

(Class II, II and IV towns )and rural areas.

From a market size of US$ 6.5 billion in 2005, the Indian pharmaceuticals market will grow to about US$ 20billion by 2015. This implies a compounded annual growth rate of 12.4 percent. In terms of scale, the Indian pharmaceutical market is ranked 14th in the world. By 2015, it will rank among the top 10 in the world.

Projected Indian pharmaceuticals market size

The incremental market growth of US$14 billion over the next decade is likely to be the third largest among all markets.

The incremental market growth

Cumulative growth rate

The growth drivers

Rising disposable incomes and an upward shift in income demographics will be the dominant factor – 40%

Growth profile of diseases

•The prevalence of diabetes will rise from 2.8 per cent in 2005 to 3.7 per cent in 2015; •coronary heart disease from 3.3 to 4.9 per cent; •obesity from 1.3 to 2.7 per cent •hypertension will grow by another 50 million cases •Key therapeutic areas that will grow as a result of the increase in lifestyle disorders are •cardiovascular •neuropsychiatry •oncology.

Market growth

• 45 % of market growth in the next decade will take palace in tier 2 markets.

•Rural markets alone will account for 27 % •Class II, II and IV towns accounting for 18 % By 2015, the share of Tier 2 markets will grow marginally to 44 per cent, implying a market size of US$8.8 billion.

Rural Market Potential

• A large part of the population is excluded by pharma companies when they don't reach out to the rural market.

• The market can grow anywhere between 10 and 17 percent, if it has access to the rural areas.

• The rural market, which constitutes 67 percent of India's villages, accounts for just 17% of total pharma industry sales, being valued at Rs 9,146 crore in 2010.

• The report states that accessibility of medication in rural areas is very poor with less than 20 percent of the population having access.

(Source Report: Pricewaterhouse Coopers Report)

•Both EBITA & PAT % margins are very low. Such margin cannot sustain a business operation.

•Capital Turn over almost 15 times in a year is very unlikely.

DABUR HHPC

Operating Results:

FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08

2009-

10

Sales Growth YOY (%) 14% 12% 9% 7% -4% 15% 24% 18% 15% 177%

EBITA Margins (%) 11% 13% 12% 12% 13% 13% 15% 17% 18% 18% 0.8%

PAT Margin (%) 6% 8% 7% 6% 7% 9% 11% 13% 13% 14% 0.4%

Debt as % Capital Employed 53% 47% 35% 44% 70% 32% 31% 20% 25% 14% 0.0%

Capital Turn Over 1.5 1.6 2.0 1.7 0.9 3.0 2.7 2.8 3.3 3.3 15.7

RoCE (%) 15% 17% 20% 13% 16% 29% 31% 39% 46% 48% 7.1%

% Earning on Face value of Share 1724% 2655% 274% 238% 322% 381% 549% 396% 324% 384% 17.1%

Key Indicators trends Dabur Compared with HHPC

Cumulative annual growth of categories

10% 10% 9%

10% 9%

13%

22%

OTC sales - India Analgesics Cough, Cold &Allergy

Gastrointestinals Vitamins, Minerals& Suppliments

Dermatologicals Lifestyle OTCs

Consumer attitude on suffering

Go to the pharmacist

44%

Go to the doctor 24%

Self-medication 23%

Do nothing 9%

Marketing Strategy Product

CLASSICAL PRODUCTS

1. Arishtas 2. Asavas 3. Bhasms 4. Chawanprash 5. Churns 6. Gutikas 7. Kashayas 8. Oils 9. Vatis

Our Classical Products are prepared as per CLASSICAL TEXT in our Vedas.

Ramdev's Top 10

Ramdev's Top 10 Category

Healing

Heritage

Presence

1 Divya Mukta Vati High Blood Pressure No

2 Divya Kesh Taila - Herbal Hair oil Hair Care/Loss No

3 Divya Medohar vati 50gm Weight Loss No

4 Orgy Oil - Penis Enlargement Sexual Health No

5 Divya Madhunashini Vati 120 Tabs Dibetes No

6 Divya Kesh Kanti Shampoo Hair Care No

7 Divya Dant Kanti Herbal Toothpaste ToothCare No

8

Divya Shilajit Sat (pure shilajit

extract) Sexual Health Yes

9 Divya Medha Vati(Tablets) 40gm

Memory

enhancement No

10 Divya Giloy Sat / Amrita Sat Body Immunity No

Comparative presence of HHPC in Lingaraj Apsara.

Sl. No Name Category

Part of

Ramdev Top

10 Category

HHPC

Presence

1 Cold Chung Cough & Cold Yes

2 Gastric Powder Digestive (Acidity) Yes

3 Trifala Powder Intestinal disorder, rejuvenation Yes

4 Trishakti Junai Akra Digestive No

5 Pimples Herbal Face Pack No

6 Black Spot Face Pack No

7 Beauty Care Eye Pack Face Pack No

8 Bleach Pwder Face Pack Yes

9 Meda Hrasaha Churan Weight Loss Yes No

10 Hair oil-1 (falling ) Hair care Yes No

11 Hair oil-1 (vitalise ) Hair care Yes No

12 Hair oil-1 (regeneration) Hair care Yes No

13 Health Powder Health Suppliment Yes No

14 Fat reduction Weight Loss Yes No

15 Pain Oil Pain Killer Yes

16 Joint Pain Pain Oil (Rehumatic) Yes

17 Kamaudipana Churna Sex Enhancement Yes No

18 Sthamandha Churna Sex Enhancement Yes No

19 Breast Oil -Growth Sex Enhancement Yes No

20 Breast Oil -strong Sex Enhancement Yes No

21 Rati shakti Sex Enhancement Yes No

22 Danta Amruta Tooth Paste Yes No

Dabur portfolio contribution

Category Sales in Lakh

Sales

Contribution

Hair Oils 56,838 20%

Chyawanprash 22,058 8%

Honey 13,650 5%

Tooth Powder & Paste 45,301 16%

Hajmola 14,661 5%

Asva- Arishta 6,477 2%

Fruit, Nector & Drinks 31,115 11%

Vegetable Paste 916 0%

Others 96,560 34%

Total 287,576

Source: Annual Report Dabur 2009-10

Category Share -Dabur

Hair Oils 20%

Chyawanprash 8%

Honey 5%

Tooth Powder & Paste 16%

Hajmola 5%

Asva- Arishta 2%

Fruit, Nector & Drinks 11%

Vegetable Paste 0%

Others 33%

Suggested Category

Sl. No Category 1 Blood Pressure

2 Hair Care/Loss 3 Weight Loss 4 Sexual Health

5 Diabetes 6 Face Care 7 ToothCare

8 Memory enhancement 9 Body Immunity

10 Joint Pain

11 Digestives 12 Honey 13 Herbal Tea

Chyawanprash-Category

Market Segment

Size 400 Crore

Growth in 2010 25%

Market Share

Volume

Zandu

Pharma Emami Baidyanath Dabur Others

2010 (Oct-Dec) 6% 9% 12% 64% 10%

2010 (Apr-Dec) 4% 9% 14% 64% 10%

2009-10 3% 6% 13% 67% 11%

2008-09 2% 6% 13% 70% 9%

*AC Neilson

There are 2 pictures one for strength & other for immunity

Radiation at the back of Dhoni is implying on power or strength

Pack is bright red, which stands out in the shelf and catches attention

HHPC is confused on trying to communicate so many things-

Cold, infection, body vitality, geriatric health care.

The baby picture feeding confuses further to be a baby food.

Ingredients are prominent than the product utility

Face Pack Comparisons

100g/Rs50/OTC/Own Retail Outlet

20g/Rs35/OTC/Trade fair

75g/Rs50/OTC/Trade fair

20g/Rs20/OTC/Trade fair

100g/Rs15/OTC/Wholesale cum Retails 20g/Rs35/OTC/Trade fair

100g/Rs20/OTC/ Trade Fair 20g/Rs32/OTC/Trade fair 100g/Rs15/OTC/Wholesale cum Retail

Face Pack Comparatives

12.5

199

17

3.75

40

6.25

21.875

43.75

0 50 100 150 200 250

Gulzar Mix fruit

Biotic Myristica

Chandan

Sandal Herbia

Apsara Herbal

S.H.G

Herbia

Fabindia

Selling Price (Rs/-) of 25gms equivalent Face Pack

Comments on Honey:

HHPC product looks messy more like a pickle bottle where as Dabur product is clean & bright.

Communication: HHPC product communicates the ingredient of the product ie honey comb, while in

the Dabur product the picture of a happy family communicates the benefit of the use of product

Dabur has the very prominent “branding” on the face where as HHPC has just the logo.

The product transparency and the golden borders expresses the purity of the product in Dabur.

Dabur Honey is marketed on product authenticity, and it provides guarantee on “Purity”

Posters: Two comparative posters intend communicating same message- weight reduction. The right

side poster catches imagination fster because of the depicted picture on it.

Honey Comparatives

Cost spread comparisons

26%

82%

2%

8%

8%

54%

41%

27%

5%

27%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Gross Margin

Raw Material

Packing Material

Processing

Marketing

Dabur

Heritage

Packaging Options

Pet: Poly Laminate with stickers- saves cylinder cost for

printing.

Common printed laminates for multiple products-

differentiation through the Labeling sticker

Craft Paper Laminate Zip pouches- for easy reuse

A wide range of colorful plastic tubes are available for cosmetic range of Packaging

– mostly Chinese

Packing Material Options

Barcodes:

Barcodes: One of the mandatory requirement for modern retail is the barcode. A product is identified and tracked through the barcode only. Below is one sample barcode. Besides the barcodes there are mandatory requirements which are necessary to be displayed in the stickers. Barcodes can be easily obtained through Internet. Below name of the web site address. https://www.officialeancode.com For more information regarding EAN codes / barcodes: Call 1-404-885-6066 (international)

BRANDING

BRANDING Brand not necessarily has to be the name of the company. Band has to be unique, simple and easy to remember word(s). It can be acronym too. A serious thought needs to be given on it. Brand is something…. M A K I N G A P R O M I S E that motivates customers, partners, investors and employees to buy from you or buy into you E X P R E S S I N G Y O U R P R O M I S E through compelling names, brand styles and communications D E L I V E R I N G O N Y O U R P R O M I S E to each party to keep it credible and keep your organization focused U S I N G W H A T Y O U S A Y , what you do and what you value to create branded experiences that build loyalty and referrals

Marketing Strategy Pricing

Price Points

Brand MRP

Dabur Honey 1kg 260

Dabur Honey 500gm 146

Dabur Honey 400gm Pet Bottle 132

Dabur Honey 250gm 89

Dabur Honey 100gm 43

Dabur Honey 50gm 23

PENNY PACKS

Hindusthan Uni Levers (HUL) strategy of entering rural markets were based on small packs like sampoo sachets of Rs1/ 2/3. Lifebuoy soap of Rs2/-. . ITC’s sale of single pieces of cigarettes contribution is more than packets. Less than Rs5/- price points are very important for the rural markets. Advantages of Penny Packs It generates maximum number of trials Laddis (strips) in small shops creates visibility Branding creates product awareness – like serving in flight or train Many a times % margins are higher in the small packs

Penny Packs

Rs 2/-,2g , Himani Ayurveda Rs 1/-, Parag Pouches Rs 1/-, Dabur

Rs 1/-, Bajaj & Company Rs 1.50/-, KM Pharma Rs 1/-,Bajaj & Company

Penny Packs

Rs 1/-, 3ml, Bajaj Corp. Rs 1/- 3ml, GK Burman Rs 1/-, 3ml, Himani Herbs

Rs 1/-, Paras Eatables Rs 1/-, Raja Spices Rs 1/-, 5ml, Dabur

Margin contribution-Dabur

Sl. No Category of Goods Yr Gross Margin % Average GM %

1 Hair Oils 2009-10 105% 110%

2008-09 134%

2007-08 92%

2 Chyawanprash 2009-10 63% 95%

2008-09 115%

2007-08 106%

3 Honey 2009-10 67% 84%

2008-09 90%

2007-08 97%

4 Tooth Powder & Paste 2009-10 209% 133%

2008-09 82%

2007-08 109%

5 Hajmola 2009-10 56% 58%

2008-09 82%

2007-08 38%

6 Asva- Arishta 2009-10 53% 65%

2008-09 62%

2007-08 80%

7 Fruit, Nector & Drinks 2009-10 48% 66%

2008-09 43%

2007-08 105%

8 Vegetable Paste 2009-10 -12% -6%

2008-09 -15%

2007-08 9%

MRP build up

Price (MRP) build-up for non-price-controlled medicines

and Ayurvedic medicines is as follows:

% %

Manufacturer’s selling or ex-factory price (MSP) 100 60.2

Central VAT (16% of 57.5% of the MRP) 115.2 69.44

State VAT (4% of the MRP) 121.8 73.4

Stockist / Wholesale price (margin = 10% of the MRP1) 138.33 82.64

Maximum Retail Price (MRP) (margin = 20% of MRP1) 165.3 100.0 165.3 100

Marketing Strategy Distribution

Channels of drug Distribution

Channels of drug Distribution

Franchise Model

MAHARISHI AYURVEDA FRANCHISE

SET UP COST M1 Model M2 Model

Minimum Recommended (Sqft) 250 600 Rs. Rs.

Interiors, Wood Work, Paint, Branding 105,000 225,000 Furniture & Fixtures 65,000 110,000

Signages 50,000 60,000 Sub-Total (A) 220,500 395,000

Equipments

Tools & Equipments 5,000 30,000 Electricals Equipments 25,000 50,000

Inverter/UPS 15,000 25,000 Computer Equipments & Software 30,000 30,000

Telephone & Internet connection 5,000 5,000 Misc. items 5,000 5,000

Sub-Total (B) 85,000 145,000

Total Capital Expenditure (A+B) 305,000 540,000 Stock of Medicines for Pharmacy 100,000 125,000

Funds for Operational Expenses (3 months) 150,000 225,000 Total Working Capital Requirements (C) 250,000 350,000

Pre Opening Marketing Expenses (D) 25,000 30,000

Total (A+B+C+D+E) 580,000 920,000

Franchise Fee 100,000 250,000

TOTAL PROJECT COST 680,000 1,170,000

MAHARISHI AYURVEDA FRANCHISE M 1 MODEL

PROFITABILITY STATEMENT PROJECTED P&L STATEMENT

PARTICULARS 1 2 3 4 5 Total Capital Investmentnvestment 680,000 680,000 680,000 680,000 680,000 Number of Patients First Time (per day) 6 8 12 18 24 Revisit (per day) 3 4 6 9 12 First Time (per year 300 days) 1,800 2,400 3,600 5,400 7,200 Revisit (per year 300 days) 900 1,200 1,800 2,700 3,600 Income from Consulting first time 450,000 600,000 900,000 1,350,000 1,800,000 Income from Consulting revisit 112,500 150,000 225,000 337,500 450,000 Income From Pharmacy 1,215,000 1,620,000 2,430,000 3,645,000 4,860,000

Gross Revenues 1,777,500 2,370,000 3,555,000 5,332,500 7,110,000 Operating Expenses Cost of Medicines 850,500 1,134,000 1,701,000 2,551,500 3,402,000 Staff Cost 360,000 360,000 360,000 720,000 720,000 Rent 120,000 120,000 120,000 120,000 120,000 Royalty to MAHARISHI AYURVEDA 84,375 112,500 168,750 253,125 337,500 Marketing Expenses 88,875 118,500 177,750 266,625 355,500 Electricity & water 60,000 60,000 60,000 90,000 90,000 Communication 24,000 24,000 24,000 36,000 36,000 Travelling & Conveyance 60,000 60,000 60,000 120,000 120,000

Total Other Operating Expenses 1,691,952 2,052,872 2,741,759 4,234,535 5,266,013 OPERATING PROFIT 85,548 317,128 813,241 1,097,965 1,843,987 % of Gross Revenues 4.81 13.38 22.88 20.59 25.94

% Return on Investment 12.58 46.64 119.59 161.47 271.17

Innovative rural distribution

Product Visibility

MODERN RETAIL MODERN RETAIL Typically however, less than 5% of sales of FMCG manufacturers in 2006 went through organised retailers. A manufacturer or importer has to make his proper arrangements for distribution to the retail level. For OTC/FMCG products Modern retails work on the following modes: Sign an annual TOT (Terms of Trade) where they negotiate the below terms MRP based marked down margin 25- 40% Annual back margin on sales target- 1-3% Occasional Promotions of certain value End cap/ display Income RTV (Expired or damaged product return to the vendor) Advantages of operating with Modern retail No need on product distribution It creates strong branding value It generates good quantity of sale It also generates consumer data Impact of Promotions can be very easily tracked Customers are aware of products – as there is planogram display

Marketing Strategy Promotion

Art work comparison

HHPC: Sexual Debility Drug

Lingaraj Herbal : Breast Strong Drug

Comment:

Most products of HHPC lacks customers connect in terms of Picturisation.

Most often the pictures are of the Ingredients & not the benefits

Recommendations:

Re look at the Artwork of the entire product portfolio.

Define USP of each of the product. Not more than 2 USP.

Produce connecting picture to the defined USP.

Do a pre-testing validation of Art work. Does it easily communicate the intended message (USP)

Rural Advertising

Rural Advertising

Modern trade display

Modern trade display

Entrepreneur

Poster of Namita Mishra

Highlights

Qualified doctor

100% herbal

Registered production unit

Product range high lights face pack & the others

Contact address & numbers

Products are basics- which would be valued

like commodities.

Well Packed- looks value added and hence can be

priced high.

Product Value Addition

Khandani (Bunyadi) Ayurvedic Jadibuti treatments

They keep migrating with mobile tents. Raw jadibuti as well as manufactured medicines are being used. They are seen in metros as well as small cities. They have a specific clientele.

Weekly Markets is health delivery platform for Rural Folk

Typically there are 5-6 jadibbuti sellers in a weekly market. They are not just sellers but also prescribe what formulation to be taken.

Weekly Markets ……jadibuti…….contd…..

Weekly Markets today are also feed by Ayurveda drug sellers….

Strategic Vision

HHPC

500

1,000

2,500

70 160

450

Phase 1 Phase 1 Phase 3

Sales (Lakhs) EBITA (Lakhs) Linear (Sales (Lakhs))

Understanding the Business - Phase 1

Business model Consolidation-

Phase 2

Rapid Organic & Inorganic

Expansion- Phase 3

Strategic business frame work for HHPC

Strategic business frame work-Proj. balance sheets

Projected Balance sheet HHPC

2014-15 2016- 18 2021-22

Operating Results: Yr-3 Yr-5 Yr-10

Sales 50,000,000 100,000,000 250,000,000

EBITA 7,000,000 16,000,000 45,000,000

EBITA Margins (%) 14% 16% 18%

Profit Before Tax (PBT) 5,600,000 13,200,000 39,400,000

Taxes 756,000 1,782,000 5,319,000

Tax Rate (%) 14% 14% 14%

Profit After Tax (PAT) 4,844,000 11,418,000 34,081,000

PAT Margin (%) 9.7% 11.4% 13.6%

Financial Position:

Fixed Assets (Net) 2,500,000 20,000,000 50,000,000

Current Assests, Loans & Advances 15,359,855 35,359,855 75,359,855

Current Liabilities & Provisions 1,400,000 2,800,000 5,600,000

Net Working Capital 13,959,855 32,559,855 69,759,855

Days of Sales 102 119 102

Total Assests 16,459,855 52,559,855 119,759,855

Share Capital 894,800 1,294,800 3,237,000

Reserves & Surplus 8,948,000 12,948,000 32,370,000

Share Holders Funds 9,842,800 14,242,800 35,607,000

Loan Funds 10,000,000 20,000,000 40,000,000

Debt as % Capital Employed 50% 58% 53%

Total Capital Employed 19,842,800 34,242,800 75,607,000

Capital Turn Over 2.5 2.9 3.3

RoCE (%) 49% 80% 96%

Equity Share Data:

Earnings Per Share (Rs) 541 882 1053

No of Shares 8,948 12,948 32,370

Thank You