Kline analyst praises Estee Lauder's Indian venture

22-Jul-2008 - Last updated on 23-Jul-2008 at 17:49 GMT

Taking a minority stake in Forest Essentials will provide Estee Lauder with improved access to a small but fast-growing market brimming with opportunity, says a Kline analyst.

Estee Lauder announced the purchase earlier in the week citing high growth in the Indian beauty market as one of the key reasons for signing the deal.

Growth in the Indian market

The Indian prestige market, where Forest Essentials is positioned, is an attractive proposition with sales growth last year of 23 percent, according to Kline and Company.

The research company said the figure is well above the overall growth rate for the Indian market which stands at 13 percent but opportunities are limited by the size of the market.

Prestige beauty products only account for 2 percent of India's $6.3bn personal care market."Estee Lauder is making a smart move," said Kline analyst Carrie Mellage. "Prestige cosmetics is the fastest growing category in the Indian market."

Mellage said the government is planning to develop the retail space over the next few years which should feed more high growth in the future.

Currently Estee Lauder is a small player in the Indian personal care market with less than a one percent market share, according to Kline.

India's economy is still not sufficiently developed for a luxury orientated company such as Estee Lauder to have a large slice of the market. But continued economic growth can only help the company expand its presence and achieve high sales growth figures.

Potential beyond Indian borders

Having a minority stake in Forest Essentials may also have positive implications for Estee Lauder beyond in the Indian market.

Forest Essentials is the number one spa brand in India and develops products based on Ayurvedic medicine.

Mellage said the Indian firm has an interesting product assortment that complements the Estee Lauder portfolio and fits the current trend landscape.

Its Ayurvedic influenced cosmetics neatly align themselves with both the natural trend and the tendency for beauty products to having an increasingly pharmaceutical bent.

"It would be a smart strategy to take the brand out of India," said Mellage. "It has great potential in other markets."