Kaya Limited (‘Kaya’ or ‘the Company’), headquartered in Mumbai, Maharashtra, India, carries on Skin Care Business in India and through its subsidiary in Middle East region.

Kaya Limited was incorporated on March 27, 2003. Kaya Limited is a pioneer in specialized skin care and hair care and delivers customized services and products through a combination of qualified dermatologists and US-FDA approved cosmetic dermatological procedures across its chain of skin clinics in India & in Middle East through its step down subsidiary, Kaya Middle East FZE ("KME"). Over the past 13 years Kaya has increased its reach to more than 100 clinics and over 100 Kaya Skin Bars (including Shop in Shop and Stores) across 27 cities in India and has more than 21 clinics in Middle East.

Up to March 31, 2014, Kaya Limited was a wholly owned subsidiary of Marico Kaya Enterprises Limited ("MaKE"). As a part of an effort in consolidating and reorganizing the Kaya business, unlocking value for the shareholders of MaKE, reduction of administrative and operational costs and elimination of a mutli-layered structure, it was proposed to merge MaKE with Kaya. Pursuant to the amalgamation, from April 1, 2014 the Kaya Business will be conducted by Kaya Limited. The Kaya Business principally comprises the provision of skin care services and solutions under the brand name of Kaya Clinic in India and abroad.

Today, Kaya delivers specialized skin care and hair care solutions in India and overseas markets through its range of services and clinics at numerous locations. Kaya has expanded to more than 100 clinics, spread across 27 cities in India and more than 21 clinics in the Middle East. In May 2010, Kaya Limited acquired the aesthetics business from Singapore based Derma Rx Asia Pacific Pte. Ltd (Derma Rx) and exited the business in 2013 after gaining significant knowledge and technical expertise in various skin care categories.

All the services & products offered at Kaya are designed and supervised by a team of over 220 dermatologists and carried out by certified beauty therapists who undergo extensive training programs. The technologies and equipments used in delivering solutions are state-of-the-art, advanced skin care and hair care technologies which adhere to the highest international quality & safety standards. Today, Kaya is at the forefront of offering cutting-edge, world class services & products in the areas of Anti-Ageing, Pigmentation, Acne/Acne Scar reduction, Laser Permanent Hair Reduction, etc. along with regular beauty enhancement services. Kaya also has a range of more than 60 skin care and hair care products ranging from

Industry Overview

Beauty Services

The overall market for beauty services is pegged at 16,422 cr spanning salon-based beauty services and cosmetic treatments. Cosmetic treatments comprise of 20% of this category and is fast growing. India, today, ranks 4th globally, in non-surgical procedures.

These cosmetic treatments span skin care (around 60% of the market) and hair care, largest categories being laser hair removal, pigmentation and hair restoration. These treatments are retailed across stand-alone dermatologists and clinic- chains like Kaya.

Even though the market is highly fragmented with stand-alone dermatologists being the largest channel, customers are increasingly preferring expertise-led solutions provided by organized brands and clinic-chains.

The North and the West are the key markets in this space, though smaller markets in south and east are fast-growing. Pricing will be a key factor to expand the category in the Indian context.
Kaya is a market-leader in the cosmetic treatments space with regional competition across India.

Cosmetic Products

The Skin care retail products market in India grew by 7% in current value terms in 2017-18, to reach 11,390 cr. Facial care retail products account for 89% of this size and the sales of facial care products, especially moisturizers, were driven by the demand for skin whitening and brightening creams. Conversely, facial cleansers and masks witnessed robust growth due to rising social media awareness; Instagram trends and selfie appeal resulted in the increased adoption of such products, especially amongst urban consumers.

Hair care retail products market saw a value growth of 8% in 2017-18, to reach 20,860 cr. Conditioners and treatments remains the biggest category within hair care.

Ecommerce in the beauty retail-products space is fast growing. While colour-cosmetics has been a lead category, skin care and hair care retail products are also fast growing and emerging as key categories.

Middle East

Gulf Cooperation Council (GCC) is one of the highest penetrated markets in the world when it comes to Skin Care products and services (Estimates). Given the high incomes, cultural sensitivities, and high affinity towards European and American trends, the category of Skin Care Services in GCC is one of the most evolved in the world. The demand for the latest and the best, combined with a high propensity to pay, brings to the market very advanced and the best technologies/machines/products from across the world. Saudi Arabia stands at top in the hierarchy, followed by UAE, Kuwait, Qatar and Oman.

The skin in gulf starts experiencing such services at an early age, and therefore, the demand for quicker and innovative solutions continues to grow rapidly.

As per Euromonitor, UAE skin care products market is estimated around $150mn and KSA skin care products market is estimated around $600mn. These are expected to grow at 5% CAGR in the next few years. The UAE skin care services market is estimated anywhere around $250mn - $400mn, with a penetration of around 27%, while KSA Skin Care Services market is estimated anywhere around $400mn - @450mn with a penetration of around 19%. This is projected to grow at around 20% CAGR in the next few years, much faster than the Skin Care Products market, as more and more customers start their skin care journey through clinics and end at products.

Financial Analysis

Years	2018	2017	2016	2015	2014
Net Profit Margin	-4.94%	-0.20%	2.38%	9.57%	-10.93%
EBITDA Margin	1.40%	4.96%	6.98%	13.06%	-7.61%
ROCE	-7.96%	0.10%	3.36%	13.04%	-15.51%
ROE	-9.33%	-0.33%	3.50%	13.55%	-38.30%
Current Ratio	0.87	1.30	1.62	1.80	1.79
Interest Coverage	-12.73	0.61	448.35	1401.15	-187.60
Debt to Equity	0.23	0.08	0.00	0.00	1.37

1. The company has had mediocre sales growth of around 8.4% over the past 5 years. However, what is worrying is that the expense growth is almost 11% as against the revenue CAGR of 8.7%.
2. The PAT and the Operating Profit have both fallen by a rate of 10.74% p.a. and 12.3% p.a. respectively.
3. The ROCE, ROE and EBITDA margins had initially improved in FY15, however after that the margins have consistently gotten worse.
4. The Interest Coverage Ratio is currently negative, which means that the company will probably not be able to meet its debt payments, despite having a very comfortable debt to equity value.
5. The company’s cash flow situation also does not seem to be very good, as the operating cash flow has been negative on multiple occasions.

Years	2018	2017	2016	2015	2014
Cash from Operations	-11.52	-5.97	4.80	32.25	91.79
Net Profit	-19.77	-0.82	8.80	31.78	-31.72

 (Rsin crores)

6. The inventories have grown at a rate of almost 15% p.a. and the trade receivables have grown at almost 79% p.a., which indicates that the company has inventory pile up, as well as the fact that the company is probably not able to convert all sales into cash quickly.
7. The company’s cash flow in the past few years has been like this:

(Rs. in crores)

Years	2018	2017	2016	2015	2014
Cash from Operating Activity	-11.52	-5.97	4.80	32.25	91.79
Cash from Investing Activity	24.13	-40.80	-6.31	-16.50	-11.46
Fixed Assets Purchased	-34.71	-25.45	-42.14	-35.89	-16.32
Fixed Assets Sold	55.44	23.36	72.80	32.98	-124.37
Cash from Financing Activity	-6.98	33.43	-0.02	-0.02	-73.01
Operating Cash Flow to Sales	-0.03	-0.01	0.01	0.10	0.32

8. The promoters have 60.08% shareholding.
9. There seems to be a slight reduction in the median salary of employees every year.
10. The annual report says that no remuneration was paid to the Managing Director, Whole-time Directors and/ or Manager for the FY18.
11. The total remuneration paid to other KMP during the year was around 2.26 crore.

Future Prospects

Positive

1. The company has recently launched a number of new initiatives. One of them being an app, on which the customers can go and book their required services and get details about any of the services offered at the different types of Kaya Clinics, this is likely to boost sales.
2. The company has cut its prices to make its products available to a wider range of customers. Earlier their products would be priced at Rs 1,200, Rs 1,500, Rs 2,000, now there are enough products in the Rs 500-700 segment, Rs 300-500 segment. This has already paid off, and will probably continue to pay off.
3. The company’s investment in the hair market will probably pay off, as hair is a bigger market than skin and in the services space, the company has said that it will make hair a bigger player than skin. 
4. Kaya’s journey in Digital Marketing has seen a tremendous evolution in the last 10 years. More than 40% of our ASP is now spent on Digital, yielding around 30% of our new client base every year. With the launch of new identity, new website, and 800kaya, the customer base of kaya will likely expand in the near future.

Negative

1. The most prominent negative about the company seems that the books of accounts do not make sense. In the annual report of FY17, there was a loss after tax of 82 crores, but in the AR of FY18, the same value for FY 17 was stated as a loss of 28.7 crore. When comparing the notes, this value seems to be because an ESOP charge valuation was changed from intrinsic to fair value valuation methodology.
2. The cash flow management for the past few years has not been good, though this might turnaround in the recent future because of the change in management.

Conclusion

The company overall has seen a turnaround in the past year with rebranding the clinics and expanding product portfolio, cutting prices and an attempt at network expansion. This is all mostly due to the new CEO Rajiv Nair who joined in November 2016, who decided that the company needed new direction. Overall the company's revenues growing by 40 per cent since Nair joined. The only problem right now seems to be cash flow management, and whether the customers will accept the drastic rebranding or not.

CA.BinoyJ.Kattadiyil