Avon Products (NYSE:AVP) has decided to further tap the Indian market to aid its recovery after posting another quarter of weak results. Currently, most of its Indian product portfolio focuses on women and plans are afoot to launch over 300 new products across various categories in the country by the end of current year. Simultaneously, the company plans to enter the men’s grooming market with 10-12 dedicated products. It currently sells around 1,500 products in India through its approx 1,00,000 direct selling agents. The new products would be launched across several categories, including colors, jewelry and skincare and can bring in significant revenues in the long term.
Untapped Indian market can drive long term growth
The company is present in the country through a wholly-owned subsidiary Avon Beauty Products India and sells it products in around 1,200 towns and cities. Last year, it launched jewellery products in the country and plans to start selling nutritional products sometime next year. Last Friday, the company launched two new anti-aging products under the brand ’Anew Genics’. It aims to reach 93 percent of the country’s population by the year 2015, up from around 70 percent currently. Simultaneously, it plans to launch personal grooming products for men before the end of this year, a market it estimates to be worth Rs. 17 billion currently with an annual growth of 25 percent.
We expect the renewed focus on the Indian market to positively impact the revenue growth rate. The market’s relatively untapped potential coupled with the increasing disposable income of the average Indian should help in the expansion being relatively easy for the company. The direct selling model should translate into enhanced reach for the company when compared to that of its competitors LÓreal and Revlon which primarily rely on brick and mortar stores to market their products. Also, as the company sources around 80 percent of its product locally which includes its production facility in the north Indian city of Dehradun, its margins are expected to be good.
The annual survey report (2010-11) by the Indian Direct Selling Association estimates the direct selling market to grow at 20 percent to Rs. 10.8 billion by 2015 from Rs. 5.3 billion in 2010-11. Amway Corp., another direct selling company has already established itself in India through the direct selling model and we see no reason why Avon can not do the same.
We have a $18 Trefis price estimate for Avon which is 15% above the current market price.