Mumbai: Detergent and insect repellents maker Jyothy Laboratories Ltd on Thursday said that it purchased Henkel AG and Co. KGaA’s 50.97% stake in its Indian unit for Rs 118.72 crore.
Henkel AG, the maker of Pril, Mr White and Henko, however, can come back to India’s fast-growing Rs 45,000 crore personal care segment through a primary or secondary purchase of as much as 26% stake in Jyothi Lab after five years.
With this acquisition, Jyothi Lab, the maker of fabric whitener Ujala Supreme and insects repellent Maxo, will double its sales to Rs 1,200 crore and extend its presence into the premium categories.
It will also have access to Henkel AG’s global brands and research and development (R&D). Henkel India Ltd does not sell all brands of Henkel AG.
Mumbai-based Jyothy Lab will pay Rs 20 a share to buy 59.3 million shares in Henkel India.
“Along with the cost of open offer, debt and preference shares, overall, Jyothy Lab’s acquisition cost will be around Rs 818 crore, little less than two times the company’s turnover,” said a person involved in the transaction but declined to be named.
Jyothy Lab had initially bid Rs 10 a share. But as Henkel was not comfortable with the initial offer price, Jyothy Lab doubled its offer price, he added.
Jyothy Lab’s shares rose 7% to close at Rs 222.05 a piece on the Bombay Stock Exchange on Thursday while Henkel’s share price fell 1.18% to Rs 33.55 a piece.
The price at which Jyothy Lab is acquiring Henkel India’s stake is 42.8% lower than the price it had paid in March to acquire Tamilnadu Petroproducts Ltd’s 14.9% stake in Henkel for Rs 60.73 crore.
With this acquisition, Jyothy Lab will have a 65.87% stake in Henkel India. It will have to make an open offer to acquire an additional 20% in Henkel India as required by the guidelines of India’s capital market regulator.
While the acquisition will be financed through cash, Jyothy Lab will refinance the debt on Henkel India’s books by taking a Rs 600 crore loan from Kotak Mahindra Bank Ltd.
Henkel India owes about Rs 454 crore to lenders, according to a Jyothy Lab release.
For the quarter ended 31 March, it posted a loss of Rs 18.33 crore on sales of Rs 119 crore.
Jyothy Lab posted a net profit of Rs 16.9 crore and sales of Rs 149.44 crore in the December quarter. It is yet to announce its March quarter earnings.
Jyothy Lab will purchase 68 million preference shares in Henkel India from Henkel AG for Rs 43.9 crore, subject to regulatory approvals, the company said.
Jyothy Lab had raised Rs 227.88 crore through qualified institutional placements in August last year to pay for acquisitions. It will look at selling off some stake in the holding company to private equity investors in a couple of months, the person quoted earlier said.
“This...will help us in strengthening our position in urban India,” said M.P. Ramachandran, chairman and managing director of Jyothy Lab. “It will also give us access to any new product launches of Henkel AG in the future.”
Marco Swoboda, corporate vice-president, Henkel AG, said: “We are happy to join forces with Jyothy Lab, bringing in R&D and international brands and benefiting from Jyothy’s ...marketing and sales In India.”
The deal could prove synergistic for Jyothy Lab as both the companies are present in similar product lines, said Bhaumik Bhatia, an analyst with IDBI Capital Market Services Ltd.
Henkel India and Jyothy Lab are both in the home care, fabric care, dish washing soap, personal care and household cleaning segments.
“While Henkel predominantly caters to the urban distribution centres, Jyothy has targeted more at the mid-market and economy segment,” said Bhatia.
Henkel has a 1.3% market share in the Rs 12,000 crore detergents category, according to market researcher Nielsen Co.
However, detergents is a highly competitive segment with presence of large multinationals such as Procter and Gamble Co., maker of Ariel and Tide, and Unilever Plc, maker of Surf and Wheel.
High penetration in toilet soaps, packaged tea, washing powder and detergent cakes with minimal scope of rise in usage has resulted in sluggish growth in these categories, according to a Standard Chartered Bank report released in January.
Challenges for Jyothy Lab include turning it value accretive in a highly competitive market, said Anand Mour, an analyst at Indiabulls Securities Ltd.
Henkel, which sells detergents and bath soaps in India including Henko, Mr White, Pril, Fa, Neem and Margo, has been spending heavily on marketing, said Bhatia.
“Marketing spends account for around 36% of sales and distribution for the company and there is no volume growth,” he said.
MAPE Advisory Group Pvt. Ltd advised Jyothy Lab and HSBC Securities and Capital Markets (India) Pvt. Ltd and HSBC Trinkaus and Burkhardt AG are the advisers to Henkel AG for this transaction.