In today’s Finshots, we trace the journey of the Patanjali Group and tell you why the Supreme Court has imposed a temporary advertising ban on one of its entities.

The Story

Patanjali Foods’ share price fell by nearly 5% this week. But it looks like investors punished the stock due to some confusion.

See, the Supreme Court of India came down heavily on Patanjali on Tuesday. It admonished the company for running misleading advertisements that targeted allopathic medicine. And imposed a temporary ban on ads. For instance, here’s what a half-page ad that Patanjali published in July 2022 said:

“MISCONCEPTIONS SPREAD BY ALLOPATHY: SAVE YOURSELF AND THE COUNTRY FROM THE MISCONCEPTIONS SPREAD BY PHARMA AND MEDICAL INDUSTRY.”

But here’s the thing. It wasn’t Patanjali Foods that ran those ads. And it wasn’t Patanjali Foods that the court ruled against. Rather, it was Patanjali Ayurved. Sure, it’s a group company but it’s the not same thing.

But what’s the difference between the two, you ask?

Let’s take it from the top.

In 2009, the Baba Ramdev-led Patanjali Group wanted to disrupt the FMCG industry with a straightforward strategy. They figured that the big incumbents weren’t focusing on natural products. So Patanjali could tap into the inner nationalism of Indians and promote products that espoused the traditional Ayurveda of the land. It didn’t matter whether it was biscuits, ghee, toothpaste or shampoo. Just drum up the Swadeshi (made in India) angle. And promise to sell these products at a cheaper price to appeal to India’s masses.

Now Baba Ramdev was already making waves as a yoga guru. People looked up to him. So they simply used his personal brand to cash in on this opportunity. Instead of building a regular dealer-distribution network like others, they focused on branded franchise-led stores for growth. These stores carried the Patanjali name.

And this big-bang entry set the cat amongst the pigeons in the FMCG world.

People began publishing reports saying, “Patanjali Ayurved has turned out to be the most disruptive force in the Indian FMCG market…” Office pantries were soon being stocked with Patanjali biscuits. Patanjali soaps and shampoos soon took over home bathrooms. Everyone wanted a Patanjali product. The company even went on an advertising blitz — at one point they had more ads on air than other FMCG peers.

You can imagine that this spooked rival MNCs in India, no?

Their sales had hit a speedbump and they had to do something quickly. They went on overdrive to revive their ‘natural’ product portfolio — shampoos and soaps with an Ayurvedic touch appeared. It was their AYUSH range.

And soon enough Patanjali Ayurved wasn’t the only game in town.

But that’s also when the cracks began to emerge.

For starters, the heft of the biggies allowed them to price their products at similar price points as well. Patanjali was losing its uniqueness.

Meanwhile, the Goods and Services Tax (GST) kicked in and Patanjali stumbled. It couldn’t set up the infrastructure needed for GST-related inventory and invoicing. And that hurt the supply chain hard.

But it wasn’t just that…

See, Patanjali thought that the strategy of relying only on franchise-run exclusive outlets for distribution was a problem for its growing ambitions. And so it went after the general trade category — the kirana stores and small supermarkets. The problem with this was that the franchise owners began to feel ignored because they didn’t get the goods exclusively anymore. And they often found themselves in short supply of products.

Finally, as Patanjali tried to ramp up production, its quality suffered. It had over 2,500 products and to keep up it subcontracted production to third parties. But this meant that no one was checking for quality as stringently as before. In 2017, a study on its Amla juice showed that it had over 30% ‘foreign matter’. And then, the Armed Forces’ Canteen Stores Department (CSD) suspended the sale of a batch of this juice too.

People began questioning the Patanjali effect. The demand dropped. And FY18 was horrendous — Patanjali Ayurved thought it could double its revenues from ₹10,000 crores. But instead, it actually fell to ₹8,100 crores.

Yup, things weren’t looking good at all.

So the Patanjali Group decided to shake things up a bit.

First, it went after a company called Ruchi Soya which was in deep debt and pretty much bankrupt. Now even though this edible oils and soya granules maker has collapsed, it still had sizeable revenues and an export business. And since Patanjali could buy it out for dirt cheap, it would give it a nice boost to the top line as well. Not to forget that Ruchi Soya’s 500,000 retailers would come into the Patanjali fold too and help expand the network.

Oh, and the added advantage was that Ruchi Soya was also a company listed on the stock exchanges. So that meant Patanjali would be a publicly traded company too.

And then Patanjali decided to change its organisational structure.

Starting in 2021, it used Ruchi Soya to gradually buy out all the food businesses from Patanjali Ayurved — biscuits, cookies, noodles, breakfast cereals, ghee, honey, juices, atta…everything! And it gave Ruchi Soya a rebrand — called it Patanjali Foods Ltd.

That meant Patanjali Ayurved became more of a wellness and personal care brand. Patanjali Foods turned into a food brand. And both of them operated pretty much as separate businesses.

That’s also why the company says that the Supreme Court rap on the knuckles won’t really hurt the listed entity. That it'll be business as usual.

But will it?

Well, it's hard to say for sure. You'd assume that the ban will have a bit of an impact on the brand's image. But it's also hard to quantify it because even without resorting to massive ad spends, Patanjali Foods seems to be having a decent run of late.

For starters, the big promises certainly seem to be back — it wants to hit the ₹50,000 crore revenue mark by around 2028.

And one reason for that optimism is that Patanjali Foods is still very much an edible oils player. That’s where it gets 80% of its revenues from. It’s a high-volume game that can really bolster the top line. For context, this segment generates over ₹25,000 crores of topline today.

But that’s not what Patanjali seems to be betting on to hit its target. It thinks that within the next 3–4 years, its Food and FMCG division will make up 50% of the sales.

Now that’s quite ambitious!

And we get where it’s coming from. The segment seems to be on track to deliver over a 25% jump in revenues in FY24. So maybe Patanjali believes this trend will continue.

Or rather, Patanjali’s hoping this trend continues. Because the thing with edible oils is that it’s quite a low-margin business. You see, out of the ₹25,000 crores it generates, Patanjali only manages to eke out ₹100 crores in profits from this segment. On the other hand, nearly a fifth of the revenues made by Food & FMCG flows into the bottom line.

So yeah, you can see why Patanjali really wants to double down on this segment. It wants those healthy FMCG margins.

And since the Supreme Court order bars the Group from advertising 'medicinal products', Patanjali Foods can actually ramp up ad spending on edible oils and biscuits and ghee if it wants to really drive growth.

But even then — will these lofty goals remain just on paper like the ones from 2017? Or will this time be any different?

What do you think?

Until then…

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