HUL re-enters hair oil segment

Buys Indulekha, other brand from Mosons for Rs 330-crore and a deferred series of payments, first such in FMCG

Twelve years after making its previous acquisition, in marine products, the country's largest consumer goods company, Hindustan Unilever, has bought hair oil brands Indulekha and Vayodha from the Kerala-based Mosons Group. It has thus re-entered the hair oil category, which it had exited in 2006.

HUL said it had signed an agreement with Mosons to acquire the two brands for Rs 330 crore. In addition, it will pay Mosons 10 per cent of the brands' domestic turnover, beginning 2017-18, for five years. Analysts value the total deal size at a little over four times the FY15 sales. Total turnover of the two brands, mainly Indulekha, was Rs 100 crore for the year ending March 2015.

“Indulekha has a strong presence in the south and has also ventured into Maharashtra. The deal at 4.1 times FY15 sales (assuming 10 per cent sales compounded annual growth) appears reasonable, compared to the 5.5 times sales paid by Emami for Kesh King,” said Abneesh Roy, associate director, research, institutional equities, Edelweiss. Kesh King was bought for Rs 1,651 crore by Emami this June. The brand's turnover for the year ended March 2015 was Rs 300 crore.

While deferred transactions are not uncommon in acquisition deals, they haven't been used in the fast moving consumer goods segment, investment  banking sources said. Most key FMCG deals, such as on Kesh King and Paras Pharma, have involved an upfront payment of the entire deal amount, they said.

The Indulekha transaction, therefore, could spark a trend, with buyers deferring a part of the payment. "It is win-win for both seller and buyer," said Samir Bahl, chief executive, Anand Rathi Advisors, investment banker for Mosons. "The seller is getting a reasonably good amount in hand at the close of the transaction and at the same time, it doesn't hurt the buyer significantly. Deferred transactions work well when the credentials of the buyer is established, as in this case. They will make the necessary investments to grow the brands, notably Indulekha."

With the acquisition, Mosons exits the hair oil space. It had been looking to offload flagship Indulekha for a while and had given Anand Rathi a sale mandate. Talks with HUL began around six months earlier, after private equity investors such as TPG and Carlyle walked out, citing steep valuations. The asking price of Mosons was Rs 500-600 crore at the time.