Revlon Bets On Booming Professional Products Market In India

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Mass-market cosmetics manufacturer, Revlon (NYSE:REV), seems to have gained strong momentum after acquiring and consolidating The Colomer Group (TCG) early this year. Despite the heavy burden on its balance sheet from existing debt, Revlon raised more debt to prepay $675 million in existing debt and utilized the remaining proceeds to acquire TCG at a price tag of $660 million. So far, the consolidation seems to have worked very well. Revlon’s stock was the best performer among all cosmetics companies and has also outperformed the broader S&P 500 index in the year so far.

Geographically, the domestic U.S. market continues to contribute most to overall sales for Revlon. However, integrating TCG has helped the company diversify into the professional salon products market. In a recent statement, Mr. Umesh Modi, chief executive of Revlon India, announced the company’s future plans to enter the Indian professional products market in 2015. [1] In this note, we take a look at the global professional products market and Revlon’s strategy for the professional products market. We have a $30 Trefis Price Estimate for Revlon, 5% lower than its current market price.

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Increasing Disposable Income Should Drive Hair Care Product Demand In Emerging Markets

The professional beauty services market, which includes hair, skin and nail services and salon product retail, posted a sluggish 2.7% growth to reach $77.4 billion in 2013. The largest geographic component of the global market, the U.S. salon retail and services segment, grew a meager 2.3% to reach $65 billion, according to data from Euromonitor. [2] Comparatively, the global professional services market posted a growth rate of 4.1% in 2012, while the size of the U.S. salon retail and services segment grew 3.3%. [3]

Emerging markets continued to outpace developed market growth, especially in the hair care segment. The trading up in emerging and frontier markets to Western style consumer regimes has propelled demand for hair care products. In India, rural demand, which accounts for almost 60% of the country’s 1.2 billion population, is beginning to warm up to Western hair care products. [4] Similarly, frontier markets of Turkey and Iran are witnessing a rapid increase in availability, and therefore, greater consumption of these products. Going forward, the consumption patterns for Western cosmetics products is only set to gain further momentum in these markets.

Also important to note is the increasing demand for professional salon products and services from urban population in emerging markets. Hair colorants and hair smoothening agents are the two biggest value drivers for the professional hair care market, and developed markets have had an edge in this category in the past. However, emerging markets are fast catching up to developed markets. For example, hair colorant sales from India are expected to see the highest growth rate in the next five years, from their current size of approximately $380 million. [5]

Revlon Eyes Indian Professional Products Market For 2015

Banking on the rapidly expanding discretionary income from India, the company’s operations in India will enter the professional products category in 2015. [1] Revlon India, which is operated under a joint venture (JV) with the Modi Group, expects to generate a 30% growth in sales in 2014. [6] The entry into the professional products space in 2015 should further accelerate the company’s top line prospects.

For fiscal 2014, Revlon India expects to generate approximately (rupees ) INR2.5 billion (~$42 million) in revenues. [7] Although this is just 2% of overall revenues for Revlon, the professional products segment in India is expected to be worth INR12 billion (~$200 million) in the next few years. [1] Through the acquisition of TCG, Revlon has strengthened its professional product portfolio, particularly in the hair care segment. We believe this is one of the reasons Revlon might be considering entry into a market segment with presence of global competitors such as L’Oréal and P&G.

On a global level, we could see Revlon take an aggressive stance across emerging market economies, particularly with the strength in its portfolio from TCG.

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Notes:
  1. Revlon to enter professional products space in India next year, Zee Business, June 2014 [] [] []
  2. 2013 Professional Salon Industry Haircare Study Shows Slow Growth for the Industry, GCI Magazine, February 2014 []
  3. New 2012 Professional Salon Industry Haircare Study Shows Solid Growth for Salon Services and Retail Sales, PRWeb, March 2013 []
  4. Drivers and Opportunities in the Global Hair Care Market, GCI Magazine, May 2014 []
  5. Hair colourants lighten the global hair care market, posting the fastest growing innovation activity in the hair care sector, Mintel, October 2013 []
  6. Revlon eyes 30% growth, Rs 250 crore sales this fiscal, Zee Business, July 2014 []
  7. ref:1 []