L’Oreal (PINK:LRLCY) inaugurated its largest factory in the world in Jababeka, Indonesia, on Tuesday. The approximately $130 million, 710,000 square feet complex will function as a regional production hub as the company expands its presence in the Southeast Asian region. With a population of 600 million and a growing economy which has led to a steady increase in discretionary income levels, Southeast Asia is among the fastest growing pockets for beauty product companies.
The company has increased its focus on the Asian markets overall. For example, it plans to set up a new production facility in India with an investment of $80 million and pass on the benefits of reduced production costs to the consumer.
Asia is one of the fastest growing markets for L’Oréal with sales from the region increasing 10% like-for-like to almost $4 billion during the first nine months of the current fiscal.  The new Indonesia factory will focus on hair and skin care products, which together contribute almost 70% of total cosmetics sales for the company. L’Oréal plans to export almost 70% of the goods (close to 210 million units annually) produced at the factory and save on production costs as it sources locally and shipping costs due to proximity to the target markets.
It aims to reach 1 billion new consumers in the next 10 years and expects Southeast Asia to contribute a significant portion of that amount. The new factory will help it respond to the increasing demand for beauty products in Indonesia and ASEAN countries.
We think the proximity of the factory to the Asia-Pacific market will help it keep costs in check as it competes in the highly price sensitive market and realize a major portion of the 5-year, US$26 billion growth in the Asian cosmetics market forecast by the Euromonitor research group.
We have a Trefis price estimate of $26 for L’Oreal which is at par with the market price.
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- Cosmetics giant L’Oreal opens huge Indonesia plant, AFP, November 2012 [↩]