Henkel plans to purchase of 26 per cent stake in Jyothy Laboratories

Henkel a German consumer products company plans to exercise an option to buy 26 per cent stake in local fabric whitener and detergent maker Jyothy Laboratories. Jyothy Laboratories had acquired the Hekel's Indian unit in 2011.

Henkel is interested to purchase the stake and wants to exercise it before March 2016. After the three rounds of meeting these two companies negotiated the deal. The 26 per cent stake purchase by Henkel will be through an issue of fresh shares or through preferential shares which can be converted into equity shares after or a combination of both. Both these companies mutually accepted and decided the selling price could be in the range of Rs 500-600 per share.

After the deal, Jyothi Laboratories will get expertise from Henkel. Henkel wants to once again access into the Indian market, so the deal will help Henkel to play in India once again. And Jyothy Lab will get the access to better technology and research and development that will help it to compete to various FMCG companies.

In 2011, Jyothy Labs purchased a 50.97 per cent stake in Henkel India, and that time gave a detergent brand Henko, Mr White and Chek and personal care products such as Margo, Neem and Fa. Jyothy also got access to the northern and eastern markets in India after being a stronger player in southern India. 

Jyothy Labs is on a way to restructure its business. Jyothy Laboratories is planning to merge another subsidiary, Jyothy Consumer and Marketing, with itself, the reason is for tax benefits. The subsidiary had an accumulated loss of Rs 300 crore at the end of FY15.

Henkel is in loss of Rs 316 crore year on year but expecting this deal will be completed by 2017, which will benefit both parties. Jyothy Labs also plans to sell land in Chennai to raise about Rs 100 crore. The company earned net profit of Rs 121.12 crore and net sales of Rs 1,505.3 crore in the year ended March 2015. 

Jyothy Labs is targeting to double its profit in coming three years and sales in coming four years, also focusing on power brands, extension of product portfolio, distribution expansion coupled with benefits from continued favorable rural markets, these are the key growth drivers for the company.

Today Jyothy Labs is trading at Rs 287, down by 4.57 per cent.