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Business Growth 29 Sep 2014

Kaya to go capex-light to fuel growth, sustain margins

The Kaya chain is present in 26 locations in the country with 87 clinics in India and 18 overseas.

By PTI

Homegrown consumer goods player Marico's beauty and wellness arm, Kaya, that reported its maiden profit in the June quarter, will adopt a capex-light strategy to fuel growth and sustain margins, including opening more low-cost Kaya Skin Bars and selling its products online, says a PTI report.

Following its demerger from Marico in April and subsequent listing in July this year, Harsh Mariwala-promoted Marico Kaya Enterprises had reported a marginal net income of Rs 63 lakh on a revenue of Rs 70 crore in the June quarter. This was the maiden profit by the company that was set up way back in December 2002.

The Kaya chain is present in 26 locations in the country with 87 clinics in India and 18 overseas, mostly in the Middle East, serving over 7 lakh customers.

"We are adopting an asset-light strategy to sustain margins and profitability. This will see us opening more low- cost standalone kiosks called Kaya Skin Bars and focusing on selling our products online, for which we have tied up with a few e-commerce portals already. Also, we are already running four pilot skin bars in Bangalore and soon we will have more such bars," Marico Group chairman Harsh C Mariwala told PTI.

"Kaya Skin Bar is a product-only format. This will enable us to engage with our customers at multiple touch points. We also hope to scale up this model much faster as being a product-only model it provides us with an opportunity to look at franchisees as an option to scale up. By the end of the year we are planning at least 20 skin bars," he added.

Kaya chief executive S Subramanian said that while a normal Kaya skin clinic costs around Rs 1 crore to set up, a kiosk would require just about Rs 35-40 lakh. Kaya Skin Bars are a new retail format focused on offering more products than services, with the head-count capped at three per outlet as against eight-ten people at regular clinics.

The first Kaya Skin Bar was launched in Bangalore in January 2013 and each store is of less than 500 sq.ft area, while a skin clinic measures over 2,000 sq.ft, Subramanian said.

While the skin bars offer skincare products, skin clinics provide technology-led cosmetic dermatological services, Subramanian said.

In other words, the skin bars will compete with The Body Shop, Kiehl's and L'Occitane, among others.

Mariwala also said this does not mean that the company will go slowly with skin clinics as it plans to this year open 10-15 of them in the country and two-three overseas.

On the capex plans, Mariwala said it could be around Rs 100 crore over the next two-three years with an annual spend of Rs 25-30 crore. He said that the improved performance and the first profit is not a one-time blip but for the long term.

On the online sales strategy, Subramanian said that going the digital way has huge cost benefits and, apart from its own portal, Kaya has tied up with Jabong, Snapdeal, Flipkart, etc.

Last year, it had revenue of Rs 290 crore of which 60 per cent came from domestic operations.

Both Mariwala and Subramanian refused to put a number for the growth expected, saying the group does not offer forward guidance. They, however, added that the company's growth will be in double digits. Last year, domestic revenue grew 20 per cent, while overseas income grew by around 10 per cent, Subramanian added.

As to the overseas expansion plans, Mariwala said Kaya would be limiting itself to the Gulf markets, where it has 17 clinics now, 13 of them being in the UAE. There is more synergy and margins in the Gulf market, he added.

Kaya, the specialised skincare and beauty solutions provider, contributed around 7 per cent of Marico's Rs 4,000 crore topline last fiscal.

On whether Kaya will enter other related areas like spas, Mariwala replied in the negative, added that, "We believe Kaya has a distinct potential to create value as a specialised skincare business."

On the product side, Subramanian said services still account for a large part of revenue at about 80 per cent while products offer 20 per cent. He was quick to add that he wants to make revenue from products around 35 per cent over the next few years. Of this, online sales constitute 7 per cent.

Of the 55 products it sells, 60 per cent were developed in-house, he said, adding that it would be about 80 over the next two years.

Beauty and wellness services is a Rs 20,500-crore market, growing at 20 per cent per annum and the organised sector, which accounts for 25 per cent of this market, is growing faster, according to consulting firm, Booz & Co.

Though players like VLCC Healthcare and Shahnaz Husain Group are competitive, there is no direct rival to Kaya, as it is very niche and targeted at the upper-end consumer, thus capping faster growth as well.

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