Salon Industry

Market Size

Rs. 10,000 Crores in CY12

Organized Segment

Rs. 2,500 Crores in CY12

Expected Annual Growth Rate

Organized: 30% Annual

Unorganized: 20% Annual

Average Salon Spending

India: $1.5

US: $230

China: $10.3

Malaysia: $30.2

Global Average: $15

EV/EBIT Median

16.45x for Jawed Habib & VLCC

Indian Salon Industry 2013

The 10,000 cr Indian salon industry is largely unorganized with only around 2,500 crores forming the organized segment. But the organized segment is expected to grow at a much higher rate of 30% compared to the unorganized segment which is expected to grow at a rate less than 20%.

With more than 1.2 billion people in India, the average per person annual spending on salons is only US$1.5 (~Rs.80) per year compared to the global average of around US$15, US$230 in the US, US$10.3 in China, and US$30.2 in Malaysia.

What’s driving growth in the salon industry?

  • Growing purchasing power of the Indian middle class
  • Increased spending on lifestyle needs
  • Favorable demographic age profile
  • Swelling urban population
  • Increasing awareness of grooming among men
  • Availability of world class product brands

What could stand in the way of this growth?

  • Lack of skilled hair stylists
  • High attrition rates of staff
  • Lack of financing and bank funding
  • Difficulty in scaling a non-mechanizable service

How salons are differentiating?

  • Brand strengthening by offering unique propositions
  • Product and service range which provide an experience rather than just a ‘haircut’
  • Location and reach targeting the right spenders; malls have become a focus area
  • Presence of back-end training academy to tackle shortage of skilled and trained talent

Popular Brands

Number of Salons 100+ 10-100 <10
Domestic Brands Shahnaz Hussain, Jawed Habib, Lakme Salon, VLCC, Naturals (Venus), Trends in Vogue (CavinKare) Enrich, Belleza, Star & Sitara, Affinity, Looks, Vibes, b:blunt, Strands, Anoo's, Silhouette, Juice Bodycraft, Bounce
International Brands None Toni & Guy (UK) Jean-Claude Biguine (France), Saks (UK)

Source: Company Websites, News Articles

Private Equity and Venture Capital Activity

PE players are taking special interest in this segment because of the high operating margins (around 30%) and low capital expenditure (salons operate on leased properties).

Investments are used to

  • Scale up nationally
  • Finance acquisitions
  • Expand internationally
  • Expand training centers
  • Brand building

PE/VC Investment in salon businesses:

  • JM Financial India: Enrich (50Cr)
  • Helion Venture: R&R-YLG (20Cr)
  • Everstone Capital: R&R-YLG (100Cr), VLCC (50Cr)
  • CLSA Private equity: VLCC (50Cr)
  • Indivision India Partners (Kishore Biyani's Future Group PE): VLCC (46Cr)
  • Sparrow Hill Advisory: Jawed Habib (6Cr)
  • Greenfield Investments: Jawed Habib (8Cr)

Typical Salon Economics

Average area

1200 sq ft

Average Capex

50 lakhs

Average Revenue

50 lakhs

Operating Margin

25%

Payback Period

4 years

 

Valuation Metrics for Indian Salon Industry

There are no listed hair salon players in India. Jawed Habib IPO filing and VLCC fund raising are analyzed below to estimate valuation multiples. Jawed Habib's IPO was priced by adding a scarcity premium, but they finally deferred the plan to raise funds from public and dropped the IPO:

Company

Outlets

Valuation (INR Cr)

EV*/Revenue

EV/EBIT**

EV/Outlet (INR Cr)

Jawed Habib (IPO Filings)

225

240

5.3x

17.9x

1 Cr

VLCC (PE Investment)

180

1500

2.1x

15.0x

8 Cr

*EV: Enterprise Value (measure of company's value)

**EBIT: Earnings Before Interest & Taxes (company’s operating profit)

Source: Jawed Habib - DRAFT RED HERRING PROSPECTUS Jan 2011, VLCC – Press Release