Marico has agreed to acquire Halite Personal Care India which was a demerged personal care business of Paras Pharmaceuticals.
On February 15, 2012, Marico, after market hours, informed the Bombay Stock Exchange (BSE) that the company has agreed to acquire Halite Personal Care India which was a demerged personal care business of Paras Pharmaceuticals. The news resulted in the stock price to open up higher in the morning trade. The stock made an intra-day high of Rs 174, but finally closed the day down by 1.73 per cent at Rs 162.20.
Earlier, Reckitt Benckiser (RB) had acquired the segment from Paras Pharma and the deal was completed in April 2011. Now, according to this new deal, all the assets will be transferred by RB to Halite Personal Care India, a separate company in which Marico will buy 100 per cent stake. The deal amount, however, was not disclosed. According to the press release, the acquired business is expected to achieve turnover of Rs 150 crore in FY12.
The personal care business has strong brands like Set Wet (hair gel), Livon (hair serum), Zatak (deodorants, cooling talc and hair gel), Eclipse (deodorant for women), Recova (skin cream) and Dr Lips (lip balm). The acquired brands also have a stronghold in their respective segments. The acquisition would be completed in the next few months.
The arrangement of funds could be a combination of debt, equity and internal accruals. However, the company may have high debts on the book in the short run as it has debt repayment within one year of Rs 392 crore (approximately 49 per cent of the total debt). The December quarter performance of the company was also very robust. On a consolidated basis, the net sales of the company increased by 29.36 per cent to Rs 1,058 crore (volume growth of 20 per cent) while the net profit of the company increased by 21 per cent to Rs 84 crore on a YoY basis.
Marcio’s domestic business has a stronghold in hair oil and edible oil. ‘Parachute’ is its flagship brand in the coconut oil segment and it continues to grow at a healthy pace. In the December quarter, ‘Parachute’ oil witnessed a 13 per cent volume growth when compared to a similar period last year. ‘Saffola’ is the strong brand in the edible oil segment which had a volume growth of 15 per cent in the December quarter of 2011.
The acquisition will give Marico an opportunity to participate in the growing deodorant segment. Further, it may also reduce dependence on the edible oil and hair oil segments. The company may face some headwinds on account of funding but its long-term growth looks good. We at DSIJ had recommended Marico in our issue of Volume No 1 of 2012 (Where To Invest In 2012) and we still stick to it as we expect the company to perform well on the bourses.