patanjali all set to make pants ..

Recently, Patanjali Ayurved announced its plans to launch its clothing line across four categories (knit wear, woven wear, denims, ethnic wear) in the summer of 2018. The garments, manufactured by adopting a combination of its own processes and outsourcing, will span menswear, womenswear, and childrenswear. Retailing of products would be undertaken through company-owned stores and franchise outlets.

Preliminary impressions of the ambitious plan suggest that textile companies in the home textile, technical textile, and core yarn/fabric manufacturing may not face issues owing to the move.

Since Patanjali is expected to focus more on the domestic market, apparel firms, which derive a significant percentage of their revenue from exports, will not have much to worry about, at least initially. Nonetheless, the possibility of international markets being explored by the Haridwar-headquartered company cannot be ruled out in the long-run.

Furthermore, the swadeshi brand, prima facie, will aim to gain market share in the mid to low end of the market by selling its products at competitive price points. Therefore, premium and high-end apparel players, who have a large presence in metros, are unlikely to be its direct competitors.

Unorganised players to face the heat

While Patanjali will affect some of the large players (since it has set a top-line target of Rs 5,000 crore in the first year itself), the unorganised textile manufacturers, who are already reeling under GST-induced pressure, would be the worst hit.

Stiff price competition could force organised players to keep their margins in check too, contrary to our expectation of their margins expanding by virtue of the industry's transition from unorganised units to the organised ones.

Additionally, GST will be advantageous to Baba Ramdev’s brand because rates on apparel are more or less tax neutral (at 12 percent for those costing Rs 1,000 or more, at 5 percent on those sold below Rs 1,000) vis-a-vis the pre-GST tax structure.

A deeper analytical drilldown of the announcement indicates that manufacturers/dealers, who are predominantly present in the entry level to moderate-tier branded/unbranded garments (a segment where pricing plays a pivotal role in influencing demand), will face the biggest challenge. However, in the beginning, the real impact of Patanjali's entry will be visible in India's tier 3, semi-urban, and rural areas.