Indian Salon Industry Report

May 2013

Indian Salon Industry Report Beauty consciousness has dawned due to rising affluence of consumers. With an increase in the number of households upgrading to a higher consumption lifestyle, there is an accelerated growth in the Indian beauty space. Branded salons have emerged as a key growth constituent.

This document has been prepared by Shilpa Bhattar and Kaustubh

Reevolv Advisory Services

Kulkarni. For any queries or detailed information contact us on

Private Limited

+91 22- 60022001 or email at [email protected]

Indian Salon Industry Report

Table of Contents Particulars 1. Executive Summary

Page Nos. 4

2. Wellness Industry Overview 2.1. Background

5

2.2. The Wellness Cluster

6

3. Indian Salon Industry Overview 3.1. Market Opportunity

7

3.2. Growth Drivers

10

3.3. Nature of Industry

13

3.4. Porters Five Force Analysis

15

3.5. Key Challenges of the Industry

18

3.6. Business Model

20

3.7. Key Success Factors

23

3.8. Unit Economics

26

4. Geographic Overview 4.1. City-Wise Market Size, Key Players and Number of Outlets

27

4.2. Pricing Analysis

29

5. Private Equity Interest in the Industry

2

5.1. YLG Salons (R&R Salons Pvt. Ltd)

30

5.2. VLCC (VLCC Health Care Ltd.)

31

5.3. Enrich (Enrich Hair and Skin Solutions Pvt. Ltd.)

32

Indian Salon Industry Report 6. Player Profiles 6.1. Summary

33

6.2. Affinity

35

6.3. Anoo’s

39

6.4. b:blunt

41

6.5. Belleza

44

6.6. Enrich

46

6.7. Green Trends

51

6.8. Jawed Habib

54

6.9. Juice

59

6.10. Lakmé

62

6.11. Looks

66

6.12. Naturals

68

6.13. Strands

71

6.14. VLCC

74

6.15. YLG

78

6.16. International Players in India

82

7. Global Players 7.1. Regis Corporation

83

7.2. Other Global Players

86

8. Annexure

3

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Indian Salon Industry Report

1. Executive Summary Beauty consciousness has dawned due to rising affluence of consumers. With an increase in the number of households upgrading to a higher consumption lifestyle, there is an accelerated growth in the Indian beauty space. Branded salons have emerged as a key growth constituent. Growing affluence has resulted in increased experimentation and the desire to look better. This has accelerated the growth of beauty products and services. Salons are at the centre of that growth. With this industry perspective salon chains like Jawed Habib, Lakmé, VLCC etc. are speeding up to establish their presence across the country. In addition to home grown players, foreign chains like Jean-Claude Biguine, Saks, Toni & Guy are also setting up salons to groom the Indian consumer. Clearly, the predominantly unorganized locally run beauty salon market is at an inflection point. The mushrooming of branded chains is expected to completely change the landscape a few years down the line, ushering in a new era of trained salon personnel, offering services based on global insights and professional products with the latest international technologies. The current size of the salon market in India is estimated to be around Rs. XX Bn in 2010, which has grown from Rs. XX Bn in 2005 at a CAGR of XX% p.a. The urban market has been growing at a faster pace of XX% p.a. from 2005-–2010 compared to the rural market which has been growing at a CAGR of XX%. Currently Delhi and Mumbai put together constitute more than XX% of the organized salon industry size in India. Among the tier 2 cities, Ahmedabad is the largest market followed by Surat, Nagpur and Chandigarh. However, as with any other industry, it is not without challenges. The scarcity of trained professionals is the biggest challenge in the industry due to the less number of training institutions. This supply-demand gap is leading to an upward salary cost for trained professionals coupled with higher attrition. Industry players find it extremely difficult to scale up because of lack of bank funding. The higher rentals in cities are acting as an impediment to growth. Recently the sector has witnessed a lot of interest from private equity funds; with funds like Everstone, Helion etc. investing in companies in this domain for further growth. The urban salon market in India is spending Rs. XX billion annually on salon services. This is far lower than the world standards. We are expecting this number to grow to Rs. XX billion by 2015. Similarly the total market as per our estimates is expected to cross Rs. XXX billion by 2015. The roughly Rs. XX billion organized salon market is growing at XXX% every year. At this rate, it has the potential to become a Rs. XX billion by 2015.

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Indian Salon Industry Report

2. Wellness Industry Overview 2.1.Background

2.2.The Wellness Industry Cluster

Fig 1: The Wellness Industry Cluster

Diagram

5

Indian Salon Industry Report

3. Salon Industry Overview 3.1.Market Opportunity

3.2.Growth Drivers

3.3.Nature of Industry

3.3.1. Unorganised

3.3.2. Organised Fig 11: Comparison of Unorganised and Organised Salons

Parameter Service Quality Training/SOPs Hygiene Product Quality Customer Engagement Location & Infrastructure Proximity Ambience Pricing

6

Unorganised

Organised

Indian Salon Industry Report

3.4.Porters Five Force Analysis Fig 12: Porters Five Force Analysis of Salon Industry

Diagram No

Five Forces

1.

Power of Supplier

a.

 Product

Remarks

 No. of suppliers  Switching cost  Availability of unique service/product  Price differentials

b

 Manpower  No. of trained professionals  Attrition  No. of professional training institutes

2.

Availability of Substitutes  Substitutes’ performance  Cost of switching  Buyer willingness

3.

Entry Barriers  Time & cost of entry  Knowledge  Economies of scale  Cost advantages  Technology

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Counter Strategies

Indian Salon Industry Report

4.

Power of Customers (High)  No. of customers  Price elasticity  Switching costs

5.

Competitive Rivalry (High)  No. of competitors  Exit barriers  Differentiation  Industry concentration (Scattered)  Diversity of competitors

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Indian Salon Industry Report

3.5.Key Challenges of the Industry

3.6.Business Model Fig 13: Typical Salon Business model

Diagram Fig 14: Franchising model of the leading salon brands

Name

9

Store Area (Sq. ft.)

Investment (Rs. million)

Upfront fee (Rs. million)

Royalty

Franchise Term

Payback Period of capital

ROI (%)

Indian Salon Industry Report

3.7.

Key Success Factors

Diagram

3.8.Typical Unit Economics Fig 16: Store level unit Economics for a typical unorganised and organised player Unorganised Average area Typical number of service points

1

Revenue per month per service point (INR) Commission to employees (as a %age of sales) Rentals* Per chair no. of employees Salary cost per employee per month (INR) Salary cost as a %age of sales (excl. commission) Raw material (as a %age of sales) Other cost (as a %age of sales) Operating margin (as a %age of sales) Capital expenditure ROCE %

10

Organised

Indian Salon Industry Report

4. Geographic Overview 4.1.City-Wise Market Size, Key Players and Number of Outlets Cities

Population (2011) (1) (million)

Population (2020) (2) (million)

Population Growth Rate % (2011– 2020)

GDP (2005) USD billion (3)

GDP (2020) USD billion (3)

GDP Growth Rate %

Average HH Income* 2007-08 (INR) (4)

Est. Size of the Salon Market (Rs. million)

Key organized players

Tier 1

Delhi

Mumbai

Kolkata

Chennai

Bangalore

Hyderabad

Pune * Average Household (HH) Income is on an annual basis Note- Population numbers are rounded off to two decimals. The population growth rate has been calculated without rounding off the population numbers Source — (1) - Census 2011, (2) - World-Bank, (3) - City Mayors Foundation, (4) - Future Capital Research - The Next Urban Frontier: Twenty Cities to Watch

11

No. of Centers

Indian Salon Industry Report

Cities

Population (2011) (million)

Tier 2 Ahmedabad Surat Jaipur Kanpur Lucknow Nagpur Indore Coimbatore Bhopal Ludhiana Allahabad Amritsar Raipur Chandigarh

12

Population (2020) (million)

Population Growth Rate % (2011– 2020)

GDP (2005) USD billion

GDP (2020) USD billion

GDP Growth Rate %

Average HH Income 2007-08 (INR)

Est. Size of the Salon Market (Rs. Million)

Key organized players

No. of Centers

Indian Salon Industry Report

4.2.Pricing Analysis Tier 1 Price Range

Female Haircut Less than Rs. 400

Rs. 400–Rs. 600

Less than Rs. 250

Female Haircut Rs. 250–Rs. 400

Female Style Change More than Rs. 600

Less than Rs. 600

Rs. 600–Rs. 800

More than Rs. 800

Less than Rs. 300

Female Style Change Rs. 300–Rs. 500

More than Rs. 500

Affinity Anoo's B:blunt Bellezza Enrich Green trends Jawed Habib JCB Juice Lakmé Salon Lakmé Studio Lime Lite Looks Naturals Saks Strands VLCC YLG Tier 2 Price Range Anoo's Bellezza Enrich Green trends Jawed Habib Lakmé Salon Naturals Strands VLCC Source — Reevolv Research

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More than Rs. 400

Indian Salon Industry Report

5. Private Equity Interest in the Industry 5.1.YLG Salons (R&R Salons Pvt. Ltd) Year

Investor

Amount invested

Instrument

Equivalent stake

Current stake

Source — Company Filings

Deal Multiples

FY2011 (Trailing) Pre-money (Rs. Million) Post-money (Rs. Million) EV/Sales PE *NM — Not Meaningful as it is in loss. Source — Company filings and Reevolv calculations

14

FY2009 (1 yr forward)

FY2010 (2 yr forward)

Indian Salon Industry Report

5.2.VLCC (VLCC Health Care Ltd.) Year

Investor

Amount invested

Instrument

Equivale nt stake

Current Stake (%)

Source — Company filings

Deal Multiples

FY2006 (Trailing) Pre-money (Rs. million) Post-money (Rs. million) EV/Sales* PE* Source — Company filings and Reevolv calculations * — based on standalone numbers of VLCC Health Care Limited

15

FY2007 (1 yr forward)

FY2008 (2 yr forward)

Indian Salon Industry Report

5.3.Enrich (Enrich Hair and Skin Solutions Pvt. Ltd.) Year

Investor

Amount invested

Instrument

Equivalent/ Current stake

Pre-money Valuation

Source — Company filings

Deal Multiples

FY2010 (Trailing) Pre-money (Rs. million) EV/Sales PE Source — Company filings and Reevolv calculations

16

FY2011 (1 yr forward)

Indian Salon Industry Report

6. Player Profiles 6.1. Summary Name of Salon Affinity Anoo's b:blunt Belleza Enrich Green Trends Limelite Jawed Habib Hair & Beauty Jawed Habib HairXpreso Juice Lakmé Looks Naturals Strands VLCC YLG Source — Company filings

17

Operating Since

Owned By

No. of outlets

Category

Wellness Segments

Target Segment

Concentration

Indian Salon Industry Report

6.2.

6.2.1. Overview Parameter

Description

Company Name Profile Wellness Segments Owned by No. of Outlets Business Model Products Target Customer Segment Brands Future Plans Source: Company Website and Reevolv Research

6.2.2. Locations North No. of Cities No. of Outlets Tier 1 No. of Outlets Tier 2 No. of Outlets Tier 3 and below Total – Outlets Major States/Cities Source — Company website

18

East

West

South

Total

Indian Salon Industry Report 6.2.3. Pricing

Haircut Cities

Female Starts from (Rs.)

Male

Style Change (Rs.)

Tier 1 Tier 2 Tier 3 Source : Reevolv Research

6.2.4. Talent Sourcing

\

19

Starts from (Rs.)

Style Change (Rs.)

Facial (Starts from Rs.)

Indian Salon Industry Report 6.2.5. Financials – whether data is available Profit & Loss Account for the year ended 31st March (Rs. Mn) FY2008

FY2009

FY 2010

FY 2011

FY 2012

FY2008

FY2009

FY 2010

FY 2011

FY 2012

FY2008

FY2009

FY 2010

FY 2011

FY 2012

Total Revenues Total Expenditure PBT PAT Balance Sheet as at 31st March (Rs. Mn) Share Capital Reserves & Surplus Shareholders’ funds Secured Loan Unsecured Loan Loan Funds Total Liabilities Gross Block Depreciation Net Block Investments Loans & Advances Other Current Assets Total Current Assets & Advances Current Liabilities Total Current Liabilities & Provisions Net Working Capital excl. Cash & Bank Cash & Bank Net Working Capital incl. Cash & Bank Total Assets Source: Company Filings, Totals may not tally due to rounding off

Key Ratios PBT % PAT % ROE % Source: Company Filings, Reevolv Research

20

Indian Salon Industry Report

6.3.International Players in India

Name

21

Description

Indian Salon Industry Report

7. Global Players 7.1. 7.1.1. Overview

Name

Description

Company Name

Overview

Target Market

Brands

Geographic locations

Training

7.1.2. Regis — Typical Acquisition Pricing Prototypical Acquisition: Salons

Source — Company presentations

22

Indian Salon Industry Report 7.1.3. Financials Profit & Loss Account for the year ended 30 June (USD. Mn) FY2008

FY2009

FY2010

FY2011

FY2012

FY2008

FY2009

FY2010

FY2011

FY2012

FY2008

FY2009

FY2010

FY2011

FY2012

Service Product Royalties and fees Sale of space advertisement Other Income Total Revenues Cost of service Cost of product Site operating expenses General and administrative expenses Rent Total Expenses EBITDA (excl. goodwill impairment) EBIT (excl. goodwill impairment) PBT (excl. goodwill impairment) PAT (excl. goodwill impairment) PAT (incl. goodwill impairment)

Balance Sheet as at 30 June (USD. Mn) Shareholders’ Funds Loan Funds Total Liabilities Net Block Goodwill, other intangibles and other Assets Investment in and loans to affiliates Net Working Capital excl. Cash & Bank Cash & Bank Total Assets Source: Company Filings, Totals may not tally due to rounding off

Key Ratios EBITDA % EBIT % PBT % PAT % ROCE % ROE % Source: Company Filings Reevolv Research

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Indian Salon Industry Report

7.2.Other Global Players

Name of Company

24

Operating Since

No. of Centres

Brands

Geography

Started by

Other Details

Indian Salon Industry Report

8. Annexure Key Ratios Material +Other Direct Expenses – increase/decrease in Stock

Direct Cost %

Total Revenues Personnel Expenses

Personnel Expenses %

Total Revenues

Selling & Distribution Expenses % Rent, Rates & taxes % EBITDA % PBT % PAT % ROCE % ROE % Capital Employed

Selling & Distribution Expenses Total Revenues Rent, Rates & taxes Total Revenues EBITDA Total Revenues PBT Total Revenues PAT Total Revenues EBIT Capital Employed PAT Net Worth

X 100

X 100

X 100 X 100 X 100 X 100 X 100 X 100 X 100

Total Liabilities – Cash & Bank (Liabilities = Shareholders funds + Loan Funds + Deferred Tax + Minority Interest)

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Indian Salon Industry Report About Reevolv Reevolv is a boutique consulting and investment banking company offering a "One Stop Shop" in the areas of business strategy, financial advisory and operations consulting to corporates and private equity funds. We service our clients in their constant re-evolution process through our in-depth industry research, domain understanding, our timely and superior execution capabilities and strong network to provide customized solutions to our clients. With a host of implementation focused services spanning across functions, we ensure that our clients reach the desired goals and objectives in most efficient manner. We achieve sustainability of our initiatives by an all round involvement of the client resources. This approach of an integrated improvement helps build a strong foundation for the forward leap of our clients. Reevolv understands and acts upon the Strategic, Financial and Operational needs of the clients on a regular basis to ensure adaptability and flexibility to suit the market and industry dynamics. Founded in 2008, Reevolv is a team of CAs, MBAs and Engineers with functional and industry expertise and diverse background of investment banking and management consulting.

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You can also email the research analyst at Shilpa Bhattar

Kaustubh Kulkarni

[email protected]

[email protected]

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