Monday, April 18, 2011

Fwd: TSB Now a Barber come out with an IPO

Interesting read. I personally feel JHB ipo will do good (else it will
be a learning) as there is a huge vaccum of branded saloons, though 60
crores may not be enough. This is shared as a thought that such
interesting IPOs are missing in healthcare domain.

---------- Forwarded message ----------
From: Kiran Chheda <>
Date: Mon, 18 Apr 2011 11:40:11 +0530
Subject: TSB Now a Barber come out with an IPO
To: TSB-JBIMS-M&A group <>

*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

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'

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

*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. The competition is high and operates at several local and regional

"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
response to Habib's IPO," 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 company at 240 crore."

What about giving investors their money's worth? Arora cites past data as
the company'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, the
number had zoomed to 225. Also, Habib's Hair Xpreso—a 99 dry haircut for
anyone—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.

Thanks & regards,
Kiran B. Chheda

*Every morning I check the Forbes 100 Richest Indians' list. If I am not
there, I go to work.*

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Dr Akash Rajpal

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