The Indian wellness and beauty services industry, valued at Rs 11,000 crore, is getting a fair share of attention from venture capital (VC) and private equity (PE) communities. With less than 5% of the market being serviced by organised players, investors are sensing a big opportunity to derive immense value from the sector.
The wellness and beauty services market, which grew at 30% in the last two years despite the downturn, is expected to sustain growth at 25-30% CAGR for the next few years, according to the Ernst &Young-Ficci Wellness Report 2009. It is thus, of little wonder that the sector commands healthy respect from most quarters.
Bangalore-based salon chain YLG (You Look Great), started in 2009 by Rahul Bhalchandra and Rajiv Bopaiah, former Future Group employees, had raised Rs 20 crore from Helion Ventures and is now on the lookout for a second round of VC investments. YLG founder-CEO Bhalchandra said the company is keen to invest more in order to expand into another metro in the South or the West. YLG has set up a beauty training school, 15 salons and three home salon locations in Bangalore.
Two other companies, Naturals? and Enrich Salon, have been eyeing VC funding and are close to finalising deals, according to a person familiar with the matter. Last September, Chennai-based salon chain Naturals? said it was looking for Rs 100-crore PE funding. According to reports, the chain was in talks with TVS Capital, Peepul Capital and Aditya Birla Private Equity Fund to raise funds.
Bangalore-based luxury health club and spa Zela is also planning to raise between $10-15 million by the next year through VC funds for the second phase of its expansion. The Zela project was started early this year with an investment of Rs 15 crore, which was mostly self-funded, with some debt involved. The company plans to open more up-scale health clubs across the country in the next five years.
Says Sandeep Ahuja, MD, VLCC Health Care, ?Funding from PE firms is certainly an option, as is taking on debt from banks. We would be looking at the PE route when making an acquisition or for a project with a high gestation period.? VLCC had earlier received two tranches of funding from CLSA and the India Indivision Partners/Everstone Capital and is currently contemplating an IPO. Kanwaljit Singh, managing partner, Helion Ventures, adds,?This category does not seem to be affected by the general economic growth rate. The headroom for growth is unlimited for the next couple of years. There are more players who have received investments but this information is unavailable in the public domain. The market is likely to see greater activity from organised players bringing in better processes and better education to increase the prevailing skill levels,? says Singh.
Industry experts, however, say the biggest challenge investors currently face is the unavailability of companies in the growth stage. The time required for a company to establish its brand in order to create a healthy exit for investors is likely to be a concern in the short term.