Henkel likely to invest in Jyothy Labs

German consumer goods major Henkel AG might invest in Jyothy Laboratories, the maker of the Ujala brand of fabric care and detergent products, this year.

Ullas Kamath, joint managing director and chief financial officer of Jyothy, said all “indications were positive” that Henkel would put in a bid, though nothing had been finalised.

“The option is open for them to come and talk to us. We were waiting for the board meeting (on May 23) to get over. That has happened. They can talk to us now. The option for them to invest in the company will close in March 2017,” said Kamath.

Speculation about the German major’s interest in the city-based fast-moving consumer goods maker has been growing in the past few months.

For the record, Henkel had the option to pick up to 26 per cent stake in Jyothy five years after the latter acquired its Indian subsidiary in May 2011. The question, according to analysts, was whether the German major would exercise that option. It now seems that it will, they say.

Henkel is said to be contemplating picking up the stake in Jyothy at Rs 500-600 a share, either through a fresh issue of shares or via a preferential allotment. Kamath declined to comment on the matter.

A 25 per cent shareholding by the German major will trigger a mandatory open-offer clause. This implies  Henkel will have to offer to pick up an additional 26 per cent.

As on March 31, the promoter group’s holding in Jyothy was 66.74 per cent. Foreign institutional investors and domestic institutional investors together held 23.79 per cent for the March quarter, while individuals and others held 9.46 per cent, data on Jyothy’s shareholding pattern on the BSE showed.

The combined annual turnover of Jyothy, following the merger of Henkel India into it, was Rs 1,300 crore, which has since increased nearly 27 per cent to touch Rs 1,645 crore in FY16.  While this is lower than Jyothy’s initial estimate of touching Rs 3,000 crore in net sales in five years, analysts say with Henkel looking at a possible re-entry, the dynamics could change for Jyothy, which could gain from its international experience and know-how.

Kamath said business plans might have to be altered if Henkel came on board, since it might decide to introduce some of its products into the country.

The German major has already licensed two of its brands — Pril and Fa — to Jyothy for a two per cent royalty. The possibility of the German firm licensing some of its other brands to Jyothy, analysts said, was there if it came on board as a 26 per cent investor.

This could increase the heft of Jyothy in the marketplace, which has a clutch of brands including flagship Ujala, Maxo and Exo in the fabric care, mosquito repellents and dishwashing segments, respectively. Some other brands in its portfolio that came following the Henkel India acquisition include Henko, Mr White, Chek, Neem toothpaste and Margo.

Of these, Ujala, Maxo, Exo, Henko, Pril and Margo are power brands giving Jyothy 80-85 per cent of its revenues, while Mr White is expected to join the power brands club in the immediate future.