Rs 3,260-crore deal will help UK firm broaden its OTC portfolio.
Reckitt Benckiser of the UK today bought Ahmedabad-based Paras Pharmaceuticals for Rs 3,260 crore, in a deal that values the maker of brands such as D’Cold, Krack and Moov at eight times its sales of Rs 401.4 crore.
Reckitt will buy the 63 per cent stake of emerging markets private equity investor Actis, along with those of Sequoia Capital and remaining shareholders, including Paras founder Girish Patel and his family. Reckitt will finance the transaction from internal resources, the firm said.
Some analysts said the price is too steep, against an industry standard of four times the sales — a reason why the stock price of Emami, a losing bidder, went up sharply on the Bombay Stock Exchange today.
But others said Reckitt priced-in the growth potential of India’s fast growing market. Actis stands to make more than a three-fold gain on its 2006 investment in Paras.
“The acquisition of Paras is another step forward in our growth strategy in consumer healthcare. It creates a material healthcare business in India, one of the most promising healthcare markets in the world, with the addition of number of strong and leading brands,” said Reckitt Benckiser CEO Bart Becht.
The size of the deal is rare in the fast moving consumer goods (FMCG) industry, though deals of this size are common in pharmaceuticals. Only six months ago, Abbott acquired Nicolas Piramal’s branded generics business at nine times its sales and 36 times Ebitda, coughing up a whopping Rs 17,000 crore.
Though Reckitt officials said that the firm has been growing in the mid-teens over the last four years, analysts said Paras’ growth rate has been at over 25 per cent a year.
“Obviously, Reckitt wanted a firmer foothold in the over-the-counter (OTC) market, which Paras offers. It was looking at future growth and the potential the brands hold. All of this justifies the premium paid,” said Ranjit Kapadia, vice-president of institutional research at HDFC Securities.
According to Reckitt India head Chander Mohan Sethi, the firm will close the transaction latest by the second quarter of next year.
“As we disclosed at the Q3 results stage of Reckitt internationally, our available facilities are £3.4 billion. We do not disclose the cost of our individual facilities. However, suffice it to say that RB is able to fund at very attractive levels,” he said to Business Standard in an interview following announcement of the deal today.
Though Sethi declined to indicate how the Paras brands would be integrated into Reckitt, he did say they would be exported to markets abroad. “Depending on the potential and requirement, we will look to export Paras brands abroad,” he said.
Reckitt has a combination of OTC and FMCG products, which gel well with Paras. While 75-year-old antiseptic brand Dettol is the biggest in its portfolio, contributing nearly half of its Rs 2,000-crore turnover, Reckitt has also been aggressively trying to grow its share in India by introducing several of its global powerbrands.
Among other products in Reckitt's portfolio in India are Harpic, Lizol, Colin, Mortein, Vanish, Easy Off Bang, Air Wick and Finish in the home care arena, while OTC products include Disprin, Clearasil and Strepsils. It also has Veet in the personal care and Cherry Blossom in the shoe care space.
“It’s the OTC portfolio that Reckitt is keen to grow in India. For Paras, the healthcare portfolio will have more traction compared to its personal care or consumer brands. Its brands – Moov, D’Cold and Krack -- have been category breakers. For Reckitt, this is the best route to grow,” said an analyst tracking the sector.
