Deal focus: KV Asia opts for beauty in Indonesia debut

More than a decade after its founding, Southeast Asia-focused KV Asia Capital has completed a first investment in Indonesia, acquiring a 25% stake in domestic beauty and personal care brand Victoria Care for IDR613.8 billion ($43 million).

“We are disciplined. We want to invest in good opportunities and good management – and we have found both in Victoria Care. The growth prospects for beauty and personal care in Indonesia are massive, it’s already a $5 billion industry. And management has demonstrated an ability to deliver, even during the pandemic,” says Arliadi Mahadi, a director at KV Asia.

The private equity firm, which brought in Adams Street Partners and Hermes as co-investors in the deal, had been following Victoria Care for some time – including prior to the company’s IPO last December. It bought in at IDR366 per share, a 266% premium to the IPO price. As of early November, Victoria Care was trading at IDR466, with a market capitalization of roughly IDR3.13 trillion.

Buying in at the IPO wasn’t an option. Indonesian companies often keep the initial float small and wait for the stock to stabilize before bringing in larger institutional investors via a private placement. Victoria Care was no exception. It sold approximately 1 billion shares in the IPO, or 15% of the total issued shares. KV Asia has picked up 1.68 billion shares from the family of CEO Billy Hartono Salim.

Salim, whose family still owns 59.9%, gave up his job as an accountant in 1988 to launch a cosmetics and fragrance products distribution business. He assumed control of Victoria Care in 2010 – the company had been founded three years earlier – with a view to manufacturing own-brand products.

Victoria Care is now one of the leading mass-market players in a highly fragmented Indonesian beauty and personal care industry, ranked first hair in coloring and haircare products. Mahadi estimates that the market is split roughly equally between high-end international brands and local players. The latter comprises over 700 companies, of which about 200 are small and medium-sized enterprises (SMEs).

There are seven brands in the Victoria Care portfolio: Miranda for hair coloring, treatment and styling; Herborist for skincare; Victoria for women’s fragrance and personal care; Victoria Iria for goat’s milk-based toiletry and skincare products; Nuface for facial care; CBD in the premium haircare segment, aimed at hair salons; and Sixsence for fragrance products for teenagers.

Revenue came to IRD1.05 trillion in 2020, up from IDR797.8 billion a year earlier. Body care and antiseptic products – rollout was accelerated in response to COVID-19 – accounted for just over half of total sales. During the same period, net profit rose from IDR111.8 billion to IDR145.6 billion.

Victoria Care’s distribution network includes approximately 3,000 traditional wholesalers, 9,000 modern retailers, and 60,000 traditional or small-scale retailers. The company is developing online sales through relationships with e-commerce platforms, and it also exports products to Malaysia, Brunei, mainland China and Hong Kong, South Korea, and Japan. KV Asia will help develop these channels.

“First, as an institutional investor, we will help improve on ESG [environment, social, and governance] protocols. Second, while they are already strong in traditional modern and general trade channels, we will support the development of complementary emerging channels, such as e-commerce and exports. Third, we will help them connect with a broader supply chain network in the region. They aspire to become bigger locally and internationally,” says Mahadi.

Indonesia’s growth potential is demonstrated in its annual per capita spending on beauty and wellness: $35, compared to $80 in the Philippines, $170 in Thailand, and $250 in Malaysia. Victoria Care said in its IPO prospectus that the industry would be worth IDR100 trillion “in the near future,” up from IDR46.4 trillion in 2017, citing Ministry of Industry data.

The company sits at the top end of the mass-market, with an average product price of less than $3. As a result, it doesn’t feature on beauty e-commerce platforms such as Sociolla where price points are 2-3x higher. Mahadi notes that the shipping costs would be the same as Victoria Care’s product cost, which makes little economic sense. Even as e-commerce grows, traditional retail will remain a significant area.

Rather, the company’s competitive edge is based on a proximity to the market and an ability to respond quickly to demand. This is a key consideration in Indonesia where complexions and skin tones differ markedly, within the country as well as compared to developed markets. Product composition is also important, with most of Victoria Care’s portfolio halal certified.

“Local players have the benefit of understanding the market better and can react faster to trends. They are starting to realize that and make the best use of their competitive advantage,” Mahadi adds. “However, it’s a fragmented market and only a few leaders have demonstrated the ability to grow, to bring quality products to market quickly and at an affordable price.”

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• Topics
• Southeast Asia
• Consumer
• Expansion
• Indonesia
• KV Asia
• Growth capital