Henkel AG set to sell off stake to Jyothy

NEW DELHI: German firm Henkel AG will sell its entire stake in Henkel India to Jyothy Laboratories , maker of Ujala fabric whitener, in a rare instance of a local firm buying out an international brand in India.

Henkel AG's board last week approved the sale of its 50.97% stake in its Indian arm to Jyothy, two officials in direct knowledge of the development told ET.

"The legal formalities and due diligence of the deal are on and a formal announcement is expected within the next couple of weeks," one of them said on condition of anonymity.

The officials said the sale will be at substantial discount to Henkel's current market price.

The negotiated price is speculated to be 50% cheaper than what Jyothy last month paid Tamil Nadu Petro Products for its 14.9% stake in Henkel India. That deal was for about Rs 60.7 crore, at a discounted Rs 35 per share.

An email sent to Henkel AG on the matter remained unanswered till the time of going to press. Top Jyothy officials too declined comment on the development.

It is not yet certain if Henkel will license its global brands such as Fa, Pril and Bref to different owners. Henkel brands have been losing share and accumulating losses in the country.

Analysts tracking the sector say Jyothy Labs' buy is unlikely to spur a revival of Henkel's brands in the short term.

"Even at a discounted price, Jyothy will find it tough competing with players like Hindustan Unilever and P&G in the detergents space (with Henko)," an analyst at a leading Mumbai-based brokerage house said. "The Rs 445-crore Jyothy, which has extended its Ujala brand to detergents, too, hasn't been able to make a dent in market share of the big players," the person said, requesting anonymity.

A Mumbai-based investment banker said that Jyothy will stop being a debt-free company after the deal since Henkel has Rs 520 crore debt on its books. "This may impact the financial performance of the firm," the person added.

Besides declining market share, Henkel's sales in calendar year 2010 dropped 10% to Rs 534 crore.

Meanwhile, Jyothy is learnt to have got a line of credit for about Rs 600 crore from ICICI Bank in expectation of the buyout. Jyothy has Rs 210 crore of cash and it raised Rs 228 crore through qualified institutional placements last year.

Henkel and Jyothy have overlapping portfolios in categories such as fabric care and dish wash.

Henkel's brand basket includes Henko, Mr White and Chek detergents, Pril and Bref household cleaners, Margo soaps, Fa deodorants and Neem toothpaste. Jyothy's key brands are Ujala fabric whitener, Maxo household insecticide, and Exo dish wash.

The deal marks a phase of consolidation in the Indian FMCG space, as companies have been looking for buyouts, both in local and international markets. Last year, British firm Reckitt Benckiser bought Paras Pharmaceuticals, maker of Moov, Krack and DermiCool brands, for Rs 3,260 crore.

And Parachute maker Marico sold off its Sweekar edible oils brand to Cargill India last month.

In February this year, Henkel India's German parent Henkel AG had mandated HSBC to divest its assets across personal care, laundry and home care categories.

While Emami, Wipro and Dabur initially expressed interest in Henkel's brands, they later pulled out.