Mumbai: After acquiring a majority stake in Henkel India Ltd from its German parent, Jyothy Laboratories Ltd said it will restructure the Rs600 crore debt on the detergent and soap maker’s books in 3-6 months by selling some of its assets and possibly diluting equity.
Jyothy, which makes the Ujala Supreme fabric whitener and Maxo insect repellent, was free of debt before the purchase, which included acquiring all the assets and liabilities of Henkel India. It now has a debt-equity ratio of 0.75:1, high for a consumer goods company.
On 5 May, Jyothy bought Henkel AG and Co. KGaA’s 50.97% stake in its Indian unit for Rs118.72 crore, a couple of months after it acquired Tamilnadu Petroproducts Ltd’s 14.9% stake in Henkel for Rs60.73 crore.
Repositioning brands: Jyothy’s deputy managing director Ullas Kamath. Shriya Patil Shinde/Mint
“In the next three-six months we will re-engineer our debt to go back to being debt free or at least bring it down to a serviceable debt of Rs200–300 crore,” Jyothy’s deputy managing director Ullas Kamath said in a conference call with reporters.
Jyothy is considering selling some idle assets owned by both the companies. These could include Henkel’s factories in Karaikal and Ambattur, both in Tamil Nadu.
These idle asset could fetch Rs100-150 crore, said Kamath. The assets can be valued only three months after Jyothy makes an open offer to shareholders for another 20% stake in Henkel India, as required under law. Jyothy’s internal accruals from operations of Rs100 crore a year could also help in repaying the debt, Kamath said.
Jyothy may consider other debt and equity options as well to lower its acquired debt and for working capital. “We don’t rule out an equity dilution but are not in talks with anyone right now,” said Kamath.
“It’s a given that Jyothy will not be a debt-free company in the medium term,” said Bhaumik Bhatia, an analyst at IDBI Capital Market Services Ltd. “Normally, it is not a good sign for FMCG (fast moving consumer goods) companies to have a debt-equity ratio of 0.75:1. But this is a case of acquisition. Given the plans outlined by the company, Jyothy should be able to reduce the debt in the company.”
The Mumbai-based Jyothy plans to double the advertising budget for Henkel brands such as Pril, Margo, Fa and Henko to Rs75-80 crore, or 16% of its sales. “We will reposition and look at new prices and packaging for the brands as we look at being present across all price bands of economy to premium,” said Kamath.
The Henkel acquisition is synergistic for Jyothy as both the companies are present in the same categories of detergents and fabric care. But while Jyothy, an economy to mid-market player, earns about 70% of its revenue from rural India, Henkel gets a similar contribution from the cities. Henkel also earns a third of its revenue from defence canteens and modern trade, where Jyothy has negligible presence, said Kamath.
Bhatia also said Jyothy could begin to show some lines of worries in its core business when it announces its fourth-quarter results. Gross margins are expected to be affected by the rise in the price of crude.
Jyothy had disappointed in the previous two quarters and the market may punish another letdown, said Bhatia.
Jyothy’s net profit in the December quarter rose 0.4% to Rs16.9 crore and sales rose 9.6% to Rs149.44 crore. Henkel India posted a loss of Rs2.33 crore in the December quarter compared with a loss of Rs22.34 crore in the year earlier.
Jyothy’s shares fell 0.2% to close at Rs221.55 a piece on the Bombay Stock Exchange on Friday, while Henkel’s shares gained 4.92% to Rs35.29. The benchmark Sensex gained 1.7% to close at 18,518.81.