Jyothy Lab acquires 15% stake in Henkel

NEW DELHI/MUMBAI/BANGALORE: Mumbai-based Jyothy Laboratories has acquired a 14.9% stake in Henkel India from Tamil Nadu Petro Products Ltd for Rs 60.73 crore in an all-cash deal. The deal makes Jyothy the largest Indian shareholder in the struggling Indian arm of Germany's Henkel AG. With Jyothy shelling out Rs 35 a share, the deal values the target company at Rs 408 crore. This is more than a 20% discount with Henkel's stock closing at Rs 45.35 on the BSE on Wednesday and translates into a market capitalisation of Rs 528 crore.

Jyothy's shares closed down 0.44% at Rs 228 on the BSE, while Henkel India rose 4.98%. The move will help Jyothy, maker of 'Ujala' fabric whitener, ramp up its share in the fastgrowing domestic detergents market, dominated by giants Hindustan Unilever (HUL) and Procter & Gamble ( P&G ). Jyothy will use funds raised from its recent QIP (qualified institutional placement) issue and other internal accruals for the acquisition. According to an official directly involved with the developments, TNPL had approached Jyothy as its stake was not clubbed under competitive bidding. Jyothy will also participate in the bidding process to gain Henkel AG's 50.9% stake in Henkel India. "We will aggressively bid for controlling stake in Henkel. The acquisition helps to strengthen our urban distribution network, as Henkel has a strong presence in modern retail formats . We are very strong in rural areas," MP Ramachandran, CMD of Jyothy Labs, said.

Jyothy Labs was advised on the deal by Mape Advisory group. Chennai-based Henkel India is known for its products Henko detergent and Fa deodorant. It is a joint venture between Germany's Henkel AG & Co and Spic Group's Tamil Nadu Petro Products, with the German firm holding 51% stake. Henkel operates in three categories - laundry and home care; cosmetics and toiletries; and adhesives and sealants. Its key brands include Henko, Mr. White, Pril, Fa, Neem and Margo. "There is synergy between the two companies and we saw a value added proposition in this stake purchase," Ramachandran added in a statement.

The deal is in contrast with the recent Reckitt-Paras deal where Paras' valuation was as much as eight times its sales. In Henkel's case, the valuation is even less than the company's annual sales, which was in excess of Rs 500 crore last calendar year. "We see no logic why Jyothy bought a stake in Henkel when it had the option of buying select brands that could fit strategically ," said a Mumbai-based investment banker, who did not wish to be quoted. Analysts also see a bidding war for the remaining stake, especially from other homegrown suitors. "It's basically just a financial investment so far.

If they manage to buy the majority stake, then brand integration between the two companies will be possible," said Anand Mour, vice-president, Indiabulls Securities . While the buy could help Jyothy ramp up share in the domestic detergents market, analysts are skeptical as both companies have been losing market-share in their core categories despite stepping up their product portfolios. "We were interested in a few brands of Henkel and not the company. But, now we will have to wait and watch on whether Jyothy manages to pick up a majority stake. While we are still keen to buy brands, the deal could now be put on the back burner," said the chief executive of a homegrown consumer products company. Marketing experts feel that both Jyothy and Henkel have strong regional presence and are now trying to widen their footprint. At the same time, rivals such as HUL and P&G are focusing on establishing a strong network in the hinterland.