Mumbai: Jyothy Laboratories Ltd said it will bid to acquire control of Henkel India Ltd from Henkel AG soon after announcing on Wednesday that it was picking up a 14.9% stake in the unit from Tamilnadu Petroproducts Ltd.
Henkel, which has sought bids from prospective buyers by the first week of April for the 50.97% stake, will auction its holding in the Indian venture, marking the end of an attempt to emulate the success of Hindustan Unilever Ltd, the country’s biggest consumer goods maker.
The sale of the remaining stake will be completed in the next three-four weeks, said Ullas Kamath, deputy managing director of Jyothy Laboratories. “Our bid is under process,” he said.
The stake was acquired from Tamilnadu Petroproducts, Henkel India’s co-promoter, for Rs60.73 crore, Jyothy Laboratories told the Bombay Stock Exchange (BSE) on Wednesday. The purchase is being made at Rs35 per share, Rs10 lower than the market price and will cut Tamilnadu Petroproducts’ stake to 1.7%.
Jyothy Laboratories moved rapidly to close the deal after it learnt of the sell-off plan, Kamath said.
“We got to know about the deal yesterday, were fast to move and closed it within 24 hours,” he said. Kamath said he’d been doing his homework on Henkel India for the past three years and was able to convince his board to make the offer.
MAPE Advisory Group Pvt. Ltd advised Jyothy Laboratories. HSBC Securities and Capital Markets (India) Pvt. Ltd and HSBC Trinkaus and Burkhardt AG are advisers to Henkel.
Jyothy Laboratories, which owns brands such as Ujala fabric whitener and Ujala techno bright detergent, deliberately kept its purchase below the 15% threshold that would have required a mandatory open offer for a further 20% holding, Kamath said.
The company had raised a war chest of Rs227.88 crore through qualified institutional placements in August last year to pay for acquisitions. “We can raise another Rs500-600 crore from the banks in debt if required,” said Kamath.
Henkel India and Jyothy Laboratories are both present in the home care, fabric care, dish washing soap, personal care and household cleaning segments. Other firms in the race for the remaining stake are Godrej Consumer Products Ltd, Wipro Ltd’s consumer arm Wipro Consumer Care and Lighting, and Emami Ltd, Kamath said. Mint couldn’t verify this independently and was unable to reach out to the firms for immediate comment.
“Jyothy has an edge over the competition as it has a similar portfolio to Henkel, which has close to 60% of its sales from detergents,”?said Anand Mour, analyst at Indiabulls Securities Ltd.
M.P. Ramachandran, chairman and managing director of Jyothy Laboratories, echoed this in a statement: “There is synergy between the two companies’ product offerings and we saw a value-added proposition in this stake purchase.”
Jyothy Laboratories posted a net profit of Rs16.9 crore and sales of Rs149.44 crore in the quarter ended 31 December. The stock lost 0.44% to close at Rs228 on BSE, Henkel India rose 4.98% to Rs45.35, while the benchmark index, the Sensex, rose 1.05% to close at 18,358.69 points. The announcement was made after markets closed.
The sale of the stake comes after Henkel tried to turn things around and boost India revenue, including a change of managing director a little less than two years ago, Mour said.
In a 25 February report on Henkel, Celine Pannuti and Ankur Gupta, analysts at JPMorgan Securities Ltd, had highlighted that “significant headwinds remain in 2011 with tough competitive pressure and rising input costs”.
“While Henkel (India) aims to focus on the pricing and further cost-cutting initiatives to tackle challenges of margins of around 13% after 12.3% in 2010, leading to earnings growth of around 10%, we believe the pace of margin expansion will remain under scrutiny,” the analysts had said.
Henkel’s brands in India include Henko, Mr. White, Pril, Fa, Neem and Margo.
Jyothy Laboratories was founded in 1983 with an initial capital of Rs5,000 by Ramachandran. Ramachandran, who wears only white—a habit he inherited from his father, started out as an accountant in a Mumbai firm before turning entrepreneur. Among his latest ventures is the retail chain Jyothy Fabricare Services Ltd.
The sale of the stake by Tamilnadu Petroproducts to Jyothy Laboratories marks another divestment from what was once one of south India’s biggest conglomerates, the MA Chidambaram Group, also known by the name Spic, or Southern Petrochemical Industries Corp. Ltd.