Ayurvedic Solutions for Pain for over a Century
Amrutanjan Health Care Limited (‘the Company’ or ‘Amrutanjan’) is a small-cap Indian Company that operates in the Over-The-Counter (‘OTC’) pharmaceuticals, beverages, and women’s hygiene segment. The Company’s product portfolio includes pain products for head and back, congestion management products, fruit juices, ORS, sanitary napkins, corn cap, and sanitizer. The Company has 3 manufacturing facilities, all in India and has its presence in 21 countries with major exports to the African market. As of March 2020, Amrutanjan employs 677 employees.
Products Offered by the Company
How was Amrutanjan born?
Amrutanjan was founded by a journalist, nationalist, freedom fighter, entrepreneur, and politician “Desodharaka” Sri Nageswara Rao in 1893 in Bombay (now Mumbai). In 1885, after completing his matriculation, he studied in a Christian college in Madras, where he studied many books on Ayurveda. With his academic knowledge and the experience of working in a medical shop in Calcutta, he prepared some medicines. He further prepared a medicine for headache and other pain reliefs and named it ‘Amrutanjan.’
In 1908, he introduced Amrutanjan in the market and advertised it through his songs and poems. Amrutanjan gained popularity in a short period. The money he earned was given as a donation to the needy.
This earned him the epithet of ‘Viswadata’ from Mahatma Gandhi.
The headquarters were shifted to Madras (now Chennai) in 1914. In 1936, Amrutanjan became a public limited Company with the name Amrutanjan Limited. The Company changed its name from Amrutanjan Limited to Amrutanjan Health Care Limited in 2007.
Indian FMCG Sector
- According to the India Brand Equity Foundation (IBEF) Report, the FMCG sector is the fourth largest sector in India, expected to reach $103.70 billion by FY21 posting a 3-year CAGR of 23.15%.
- FMCG sector comprises of mainly three segments – Household and personal care, Health care, and Food and Beverages.
- Rural consumption contributes around 36% to the overall FMCG spending and is expected to touch $220 billion by FY25 from $23.6 billion in FY18.
- Growing awareness, easier access, changing lifestyle, increase in income, and rising population are the main factors behind the growth of this sector.
- The Union Budget 2019-20 allowed a tax rebate for income up to Rs.5 lakh. This is expected to increase the disposable income in the hands of the middle class, which in turn would boost the spending habit of the people.
- Increase in internet penetration has also contributed to growth in this sector. The Internet further serves as a research platform wherein 1 in 3 customers research online first and then shop offline.
- The introduction of Goods and Services Tax (GST) has also been beneficial to the FMCG sector. It led to a 3-8% drop in the prices of FMCG products in Modern Trade (MT) stores, which has contributed to the growth of this sector. FMCG sector has also benefitted from savings in logistics expenses due to smooth supply chain management and availability of input credit.
Amrutanjan operates in three key segments – pain and congestion management, beverages, and women’s hygiene.
For a large part of its history, the Company only operated with its flagship yellow colour balm. In this decade, the Company introduced new formats of offerings for its customers such as roll-on, spray, syrup, inhaler, etc. The Company has 2 factories for its pain management products in Chennai and Hyderabad. The key raw material for this segment is Menthol, whose prices are quite volatile.
In FY11, the Company diversified its business and entered into beverages market by acquiring Chennai-based Siva’s Soft Drink Pvt. Ltd. for Rs.26.20 crore under the brand name of ‘Fruitnik’. The Company has also launched Electro+ ORS under this brand. The Company has 1 manufacturing facility for beverages at the outskirts of Chennai.
In 2011, the Company also launched Advanced Pain Management Centre (APMC) at Chennai for pain management without surgery. It also sells Corn Caps under Amrutanjan’s brand.
In 2013, the Company entered the women’s hygiene segment by introducing Comfy – a sanitary napkin brand. The Company has outsourced the manufacturing of women’s hygiene products to a Good Manufacturing Practice (GMP) certified unit owned by a Strategic European Partner.
Recently, Amrutanjan has also launched No Germs Hand Sanitizer and Hydrogel Pain Relief Patch. The Company is also planning to launch surface cleaners in the future.
Amrutanjan brand is currently available in 1.06 million outlets (direct distribution reach of 0.25 million outlets), 11,100 MT stores, and on E-commerce platforms like Amazon, Pharmeasy, Sasta Sundar, Medlife, Big Basket, Reliance JioMart, Dmart E-Com, Medplus E-Com, and Netmeds. Amrutanjan currently has a presence in Indian as well as Gulf, African, and South-East Asian markets. The Company is also registered with USFDA and is looking to enter the US market.
COVID-19 led to a sudden lockdown in the entire nation forcing every business to close its operations. As per the management, the Company lost gross revenue worth Rs.33 crore in March 2020 due to COVID-19.
However, the Company benefitted from the shift in consumer behaviour towards Ayurvedic, health care, and immunity products. Due to the lockdown, the Company achieved last year’s E-Commerce sales figure in the first 5 months of FY2021. The Company has not made any pay cuts for employees and management. There is no liquidity crunch faced by the Company as it had a healthy cash reserve as of 31st March 2020 and continued to stand as a debt-free company.
The Company has diversified into food and hygiene products in the last 10 years to become a health and wellness company. It also started offering existing products in new formats. In FY20, Amrutanjan generated 30% of its revenue from new product launches.
- Use of Information Technology (IT)
Amrutanjan is making optimum utilization of IT in sales and marketing with the deployment of initiatives like Sales Force Management (SFA), online consumer tracking, and supply chain touch points. SFA provides a visual dashboard of sales activities to track order information, visited and unvisited outlets, productivity, focus products performance, and physical presence of sales personnel. Through this process, the Company has so far processed retail orders from around 2.4 lakh outlets from 7 Indian states.
- Non-Traditional Distribution Channels
The Company recorded MT channel sales of Rs.25.17 crore growing 18.5% over last year. In the last 6 years, CAGR growth of MT Channel is 26.7%. Amrutanjan is also focusing on online distribution through partnerships with various E-commerce platforms.
- New Product Launches
To capture more market share, the Company keeps on introducing new product variants to meet the ever-changing consumer needs and to stay ahead of the competitors. In FY20, new products contributed around Rs.70 crore of revenue (30% of total revenue). So far in FY21, the Company has introduced sanitizer and pain relief patch and plans to launch 4 more products in this financial year.
- Amrutanjan has a strong brand recall in pain management segment due to its long history of manufacturing ayurvedic balm and established distribution network. The Company is leveraging this distribution network to diversify into new products and geographies.
- The Company has a healthy financial position with no debt, high liquidity, and high reserves. The Company has the resources to invest in future growth either organically or inorganically without using excessive financial leverage.
- Amrutanjan’s major revenue is driven by the pain management segment with other segments contributing less than 25% to the sales. The Company’s Beverage segment of fruit juices and oral rehydration drinks is at losses. So far, the Company has not been successful in diversifying its business to other segments and reduce the dependency on pain management products.
- Amrutanjan has a weaker presence in metro cities with very little penetration in the Northern and Western Zone. Emami, its rival and the leader in the pain management market, has a stronghold in Northern India. The Company has to focus on geographical diversification to gain market share.
- Amrutanjan also has an international presence with export revenue crossing Rs.4 crore mark in the last 2 financial years and posting a 4-year CAGR of 14.8%. The Company can increase its export and international presence. The Company currently exports to the Middle East, Africa, and South Asia and has plans to enter the US and Europe.
- The most important growth driver for the pain management business is the increasing population, work stress, improper sitting posture, and erratic sleeping habits. India is the 2nd largest country in terms of population, with the median age of 28 years, it comprises the world’s largest working-age individual. By 2030 median age could increase to 31 years when it would still be far younger than the corresponding figure of 40 years in the US and 42 years in China, which shows more potential for pain business to grow.
- FMCG consumption in the rural area is expected to grow to $220 billion by FY25 from $23.6 billion in FY18. Rural consumption contributed 36% of Amrutanjan’s revenue and has the potential to grow further.
- Volatile prices of key raw materials like menthol and essential oils affect the OTC margins significantly.
- A high level of competition from other players in the OTC segment is a big threat to the Company.
- As the Company also operates in international markets trade barrier by the Government of other countries could hamper the Company’s revenue.
Michael Porter 5-Forces Analysis
Barriers to Entry
- FMCG companies require huge investments in setting up the distribution network and promoting brands. • Also, any new entrant will need to achieve economies of scale to compete with existing players.
- New product launches also require a large upfront investment in product development, market research, test marketing, and product launch. Thus, even without any major government restriction in the sector, it has moderate barriers to entry.
Bargaining Power of Suppliers
- The key raw materials used in production are menthol, essential oil, and crude oil. Crude oil, being a commodity, its price is governed by the international commodity market making the Company a price taker. Hence, the bargaining power of the supplier is high as the Company has no control over the price of raw material.
Bargaining Power of Buyers
- High brand loyalty discourages customers to shift to a different product but low switching costs and aggressive marketing strategies by a competitor can induce a customer to switch between products.
- However, the business does not cater to any single powerful buyer due to the small size of individual customers, which reduces the bargaining power of buyers.
Rivalry among Competitors
- Competition in the pain management segment is rising and the Company has managed to retain its second position in this segment. Some of its major competitors are Zandu, Tiger, Iodex, Moov, etc. Aggressive product launching and marketing along with low switching cost makes the segment very competitive.
- Also, the competition is high for Fruitnik as the beverage segment is dominated by Pepsi and Coke, with Frooti coming at a distant third place.
Threat of Substitutes
- Pain balms are largely Tier 2 & 3 city products and have a threat of being substituted by allopathic painkillers, pain rubs, creams, etc. However, the Company has started providing its products in different formats to appeal younger and urban crowd.
- For beverages, the threat of substitute products comes from energy drinks, water, tea, coffee, etc. Moreover, switching costs are very low in this segment and price is a major factor for a product’s demand over its substitutes.
Branding and Other Initiative
- Brand Loyalty:
Amrutanjan has been in existence for more than 100 years now and they have created a strong brand image. As per Economic Times Brand Equity (most trusted brands) 2017 survey, Amrutanjan ranked 6th among the top 10 OTC brands in India. Also, the Company is among the top brands in terms of Brand Equity Index (BEI) survey of 2019 within the users of head and body pain products. During the Kerala flood in August 2008, a large number of Comfy sanitary pads were purchased by the relief provider for flood victims, which shows the trust and faith of consumers in Amrutanjan.
- Animals welfare:
Amrutanjan has partnered with ‘People for Animal’ (PFA), India’s largest animal welfare network, which works to rescue and rehabilitate sick and needy animals. They also conduct sterilization programs, treatment camps, organizes ambulance service, and conducts educational programmes in schools to create awareness of animal welfare and protection.
- Environmental Protection:
A program on plastic ban awareness, through roadshow and street plays, was conducted by Amrutanjan in association with Exnora International in FY19, around the 10 km radius of its corporate office and factory location in Chennai for employees and the general public. To further motivate this movement, 2000 cloth bags were distributed.
- Social Responsibilities:
To follow the legacy of Sri Nageswara Rao who was known for his philanthropy, Amrutanjan has partnered with various NGOs and charitable organizations. Some of the societies through which it has taken such initiatives are:
– Sparsha Trust, for development of needy and vulnerable children
– IIMPACT NGO, for girl education
– Sevalaya, for development of rural poor
- Quality Management:
Amrutanjan is highly committed to the quality of the products to ensure not only high-quality product development but also to safeguard the well-being of its customers. Several quality management systems like ISO 9001 for the OTC division, and ISO 22000 for the F&B division. Along with this, the six sigma methodology has been adopted by the Company to achieve the highest quality and safety for the products.
Amrutanjan’s profitability decreased from FY10 to FY13 due to a slowdown in demand, increased competition, and increasing input prices. However, the Company recovered its bottom-line margin from FY14 due to lower input costs and increased sales of Comfy. Again, input costs were at all-time high levels in FY17 and FY18 that ended up impacting the margins. The Company needs to scale up its operations to benefit from operating leverage.
- Days Inventory Outstanding
The Company has significantly improved its efficiency in inventory management over the last 10 years. Due to COVID-19, the Company’s inventory at the end of March 2020 was high which impacted the ratio in FY20.
- Return on Equity (ROE)
The Company’s ROE went up from FY13 till FY16 due to strong revenue growth on the back of new product launches in the OTC segment and low menthol and essential oil prices. In the next 2-3 years, raw material prices were at a high level and thus impacted profitability. In FY20, Company lost revenue in March due to COVID-19. The Company has high idle cash in form of bank deposits which are dragging the returns down.
- Economic Slowdown: In the situation of economic slowdown, with low GDP growth and high food inflation, the consumer may tend to shift from branded product to non-branded product.
- High Price Volatility in Raw Materials: Increase in price of key raw material like menthol and essential oils are important factors which affect profitability. One of the input materials is crude oil which is subject to price fluctuation due to international demand and supply.
- Changing Consumer Preferences: Consumer’s preference keeps on changing due to highly competitive market and constant introduction of the new and improved product in the market. Failure to match the competition and to deliver the product to cater to the ever-changing needs of the customer is one of the primary risks. Due to the change in consumer preference, the product may lose market relevance and this may lead to long-term brand erosion.
- The Company’s board is comprised of 7 directors, out of which 5 are independent directors (constituting 71% of the Board) including a woman director. The other two directors belong to the promoter category, out of which one is a Non-Executive director and the other is the Executive director designated as ‘Chairman and Managing Director’.
- The Company held four Board Meetings in FY20 and during the year under review, the Independent Directors met once to discuss:
– Performance of non-independent directors and the board as a whole.
– Discuss the performance of Mr S Sambhu Prasad, Chairman of the company, taking into account the view of other directors.
– Quality, Quantity, and timeliness of the flow of information between the Company and the Board which are necessary for the Board to perform its duties effectively.
- A 127 years old company, Amrutanjan that predominantly operated with its Ayurvedic yellow coloured balm has only recently started to diversify its business by entering into FMCG products to look for more growth opportunities. The Company’s revenue started growing at a double-digit CAGR of 12% from 2009-2020 against a CAGR growth of a meagre 4% between 2001-2008.
- Amrutanjan’s Comfy Brand is placed well having recorded gross revenue of Rs.40 crore in FY20 up from Rs.19 crore in FY18. This segment will be crucial for future growth.
- The Company is launching new products aggressively with 30% of the revenue contributed by new products in FY20. In FY21, the Company is going to launch 6 new products.
- The Company has a strong balance sheet with no leverage and has a healthy amount of cash at its disposal.
- The Company is currently operating at full manufacturing capacity. Its growth is dependent on how it scales up its size and competes against big FMCG companies through aggressive product launches and marketing.
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Contributor: Team Leveraged Growth
Co-Contributor: Shahnawaz Khan
Research Desk | Leveraged Growth