Sales of Patanjali Ayurved Ltd. fell for the first time in five years as the goods and services tax left the distribution network of the homegrown consumer goods maker broken.
Yoga guru Ramdev-backed company’s standalone consumer goods revenue declined more than 10 percent to Rs 8,148 crore in the year ended March 2018—the first time since 2013, according to a report by Care Ratings.
“The decline was primarily because of its inability to adapt in time to the goods and services tax regime and develop infrastructure and supply chain.”
The fast-moving consumer goods company’s sales grew more than fourfold in three years through March 2017, as it aimed to overthrow market leader Hindustan Unilever Ltd. and No. 2 ITC Ltd. by selling everything from staples to salt.
The new nationwide sales tax rolled out in July last year – that subsumed a web of levies and mandates multiple monthly returns to improve compliance – stalled the growth of India’s consumer goods sector. While rivals managed to recover, Patanjali still hasn’t.
Patanjali’s technology back-end was not ready for the GST-related inventory and invoicing management in time, a person aware of the company’s affairs told BloombergQuint requesting anonymity.
Patanjali’s spokesman SK Tijarawala, when speaking to BloombergQuint over the phone, denied that. Distributors were slow to transition to the new indirect tax system, he said.
Till last year, the company relied on exclusive partners to supply products. It’s now aggressively adding those who also manage supplies of large consumer goods makers like HUL and ITC, according to Dhairyashil Patil, national president of All India Consumer Products Distributors’ Federation.
The problems resulted in a mismatch between the products required and sent, according to Patil.
Some items are in excess while there’s a shortage for others, he said. Distributors are also sitting on damaged inventory, he said. “That’s deterred them from stocking Patanjali’s products.”
The company retails through 5 lakh franchisee stores and also via supermarkets like Big Bazaar and Reliance Retail and online retailers including Amazon. Patil said nearly 90 percent of the small outlets that exclusively sold its products from biscuits and instant noodles to shampoos soaps and shampoos face supply crunch.
Patanjali is trying to plug the gaps. It’s integrating technology to ensure stock matches demand, Tijarawala said, admitting that there was a “problem of oversupply in a few areas”.
For distributors, disruption also means that supplies come late. By the time products land, they are close to the date of expiry, according to Ashish Jaiswal, a company distributor in Nagpur, told BloombergQuint. “Also, the company takes time to settle claims.”
The problems with the distribution network come as, according to Care Ratings, Patanjali is in the middle of a debt-fuelled expansion.
Increased overhead costs because of the expansion, higher distribution and selling expenses, advertising and promotion expenses and higher dealer discounts and commissions will keep its performance subdued in the medium term, the rating agency said.
Patanjali needs to ensure it resolves the issues with its supply chain at the earliest, brokerage IIFL said in an October report. The slowdown is a direct result of poor management of trade channels and lack of a coherent advertising strategy, it said. “Exclusive retailers who were excited and enthusiastic two years ago feel angry or defeated today.”
(This article was first published in BloombergQuint and has been republished here with due permission.)
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