The Barber Takes Stock
Jawed Habib, the first hair dresser to tap the Indian capital market, is confident his shares will command a premium. His business mantra: a good haircut is like a bad habit, difficult to shake off
For a moment, overlook the quirkiness. A barber hoping to raise 60 crore through an IPO begs a fundamental business question: how will he give value to his shareholders? The service—haircuts—can’t be mechanised. Hence, maintaining consistent quality is impossible. Revenue growth will be limited to the expansion of the network of hair salons to tier I and tier II cities. Profits will remain constant for long periods as the fee of haircuts cannot be changed frequently. Most important, the company’s brand value will depend on one man: Jawed Habib, celebrity hair stylist, now managing director of Jawed Habib Hair and Beauty Ltd ( JHHBL).
Habib appears unfazed by the scepticism. He has taken several risky decisions in the past, the biggest being to start out on his own in 2005, without the support of his father Jahir Habib, hairstylist of Jawaharlal Nehru. In five years, he owns a chain of 225 salons across 62 cities that attract customers mostly because they carry his name: Jawed Habib’s.
“People are amazed at my decision but I have no doubts,” he says. The move is gutsy, to say the least. Despite a wider bouquet of services, several other companies in the beauty and wellness sector have been unable to take this leap of faith. Vandana Luthra’s Curls and Curves is a case in point. Wellness arms of companies with deep pockets have also not been listed. For example, Marico’s popular beauty clinic, Kaya.
Globally, only a handful of salons, like Hong Kong-based Modern Beauty Salon Holdings, have taken the public route. Even they bank on a wide range of beauty treatments and branded beauty products to accelerate growth. Currently, JHHBL doesn’t have the comfort of either. So what makes Habib so confident? An analysis of the industry reveals some less apparent opportunities and prospects of scalable business model.
Brand Vacuum
The hair and beauty sector forms 40% of the wellness industry. According to a study by 2S Consulting and JHHBL, the wellness sector is valued at 6,900 crore and is growing at around 35% annually. “The size of the industry will grow to 28,400 crore by 2015,” claims Rohit Arora, JHHBL’s executive director. In the same period, the per capita spend on hair and beauty is predicted to go up by 316%—from $1.2 to $5. However, KPMG estimates say the size of the wellness industry in India is expected to reach 14,500 crore in FY2014.
Though the numbers are impressive, the sector is unorganised. For instance, hair styling is dominated by beauty product manufacturers and personality-based players. At one end companies like L’Oreal, Keune, Wella and Schwarzkopf have started lending their brand name to salons. On the other end celebrity hair stylists like Aalim Hakim and Adhuna Bhabani Akhtar in Mumbai are powering their parlours by an A-list clientele from the glamour industry.
The opportunity lies in creating a national brand known for quality service at reasonable prices. “Jawed Habib is positioned as a brand for the masses, it makes sense for him to go for an IPO. No one else in the fragmented market can do this,” says Yatan Ahluwalia, image consultant and director, Y&E Style Media. Habib claims he saw this potential early. “Through my salons, workshops and seminars in various cities, I realised the need for a salon in every city,” he says. The IPO is his way to accomplish this. However, an industry insider who wishes to remain anonymous doesn’t think Habib’s name can pull in haut monde customers. His salons are not the ‘it’ destinations.
This may have disastrous consequences in the fashion circuit. But for business the mass market means higher revenues. This can never be bad. Habib has a different take on this perception: “Celebrity or a common man—hair is hair.”
Growth Pangs
Though experts do not deny the potential, they are unsure that the business is scalable. Lifestyle companies usually faced this problem in the past. According to Sarabjit Kour, vice-president (research), Angel Broking, scaling up is the biggest challenge for any company entering an
unorganised sector. competition is high operates at several loc and regional levels.
“Companies like Marico have not listed the Kaya brand because it has not scaled up to such a level. It will be interesting to watch the market’s re sponse to Habib’s IP she adds. Vikram Hosangady executive director (transactions and services), KPMG India highlights another challenge: there is a lot of interest in consumer stocks—a company like Habib’s will face the pressure of being listed and reporting increasing profitability, very often a challenge for a small growing business where several outlets may not have achieved scale.
He has some more doubts: “It is a personality driven company. How will Habib ensure consistency of quality? The profit margins too are set as each salon will accrue fixed revenues.” There are HR issues as well. The beauty and wellness industry is plagued by a talent crunch and high churn.
But the barber businessman claims to have covered all angles. His team of managers—spearheaded by Arora, marketing and sales head Zafar Khan, human resource manager Amrit Rao and information technology head Prakash Singh—has spent many days honing the business model.
On doubts of whether the stock will excite investors, Arora says: “The stock will carry a scarcity premium. We are expecting to raise 60 crore though the IPO—25% of the total equity. This means we value the compa-0 crore.”
at ab out gi ving investors
money ’s worth? Arora s past data as the compay’s ability to scale up quickly. In 2006, the company had a chain of 37 salons. At the time of filing the draft red herring prospectus, e number had zoomed to 25. Also, Habib’s Hair Xpreo—a 99 dry haircut for nyone—is catching on in malls in tier I cities. “There are multiple levels of scalability—by adding more salons, starting franchises and exploiting the floor space for branding,” he says. JHHBL has already tied up with Katha Media for branding the floor space of the salon for 4 crore.
Will Jawed Habib hair and beauty products flood the market in the near future? Arora is tight lipped. But he says the option is not outside their radar: “Salons like Lakmé and L’Oreal are a move from products to services. We will have the advantage of transitioning from services to products.”
But what will really set the business going is the craze for looking good, always. Not just youngsters, even people past their prime want to be groomed. As Habib says, “A good haircut is a bad habit.” He’s hoping the nation will get addicted.
Zerodha (Trading Account)
DRHP
Top Contributor (1000+ Posts, 200+ Likes)
