Mumbai: Indian fabric whitener and detergent maker Jyothy Laboratories Ltd is in advanced talks to buy Henkel AG’s majority stake in its Indian arm for Rs900 crore ($202.8 million) including debt, three sources said.

Jyothy will assume all of the Rs525 crore ($118 million) of debt at Henkel India , the sources with direct knowledge of the deal said. That would bring Jyothy’s equity infusion to about $85 million.

ICICI Bank, Kotak Mahindra Capital and Axis Bank have agreed in principle to lend Rs600 crore to Jyothy for the buyout, the sources said, declining to be identified because details were not public yet.

“Henkel India’s brands have been losing market share in the country. Jyothy’s financial performance will be impacted with this deal as it is expected to assume the debt on Henkel’s books," said an analyst with a Mumbai based brokerage who did not wish to be identified.

Competition is intense in the fast moving consumer goods sector, as Henkel competes with firms such as Hindustan Unilever, Procter & Gamble Hygiene and Healthcare India and Godrej Consumer.

“It is very unlikely that the buy will spur a revival in these brands in the short term," he said.

Jyothy Labs, known for its Ujala range of fabric care products, enjoys the largest market share in that category.

Shares of Henkel India extended gains to 5%, touching its daily trading limit at Rs34.70, following the news. Jyothy shares ended down 0.8% at Rs211.

Jyothy is also planning another round of equity dilution after the acquisition, and is in talks with a clutch of private equity investors to help it retire the debt, said the sources.

New Deal, Higher Stake

Jyothy picked up a 14.9% stake in Henkel India from Tamilnadu Petroproducts for Rs607.3 million in March. The new deal for a 51% stake would bring Jyothy’s total stake in the Indian unit to nearly 66%.

Jyothy’s bid is for 51% of the entire business, even though Germany-based Henkel is looking to sell its Indian soap brand Margo separately in hopes of attracting a higher value, the sources said.

HSBC represents Henkel on the deal. Indian boutique investment bank Mape Advisory Group represents Jyothy.

Jyothy has Rs210 crore in cash and had raised Rs228 crore via a qualified institutional placement last year.

Both Jyothy and Henkel India operate in the home care, fabric care, dishwashing, personal care and household cleaning segments in India.

Henkel India is known for its hair styling brand Schwarzkopf Professional, detergent brands Henko Stain Champion and Mr White and home care brand Pril. It also offers a range of adhesives.

The Indian fast moving consumer market has witnessed several acquisitions in the last fiscal year, including British consumer goods firm Reckitt Benckiser’s takeover of privately held Indian ointments and personal care company Paras Pharmaceuticals for about $726 million.

Jyothy Labs could not be immediately reached for comment, while a Henkel spokesman declined comment saying the company does not comment on market speculation.