Vasishti to merge with Hind Lever

Board to meet tomorrow to consider 10:1 swap.

Hindustan Lever Ltd (HLL) is set to merge associate company Vasishti Detergents (VDL) with itself. The swap ratio is expected to be 1:10, that is, for every 10 shares of VDL, a shareholder of the detergent company would get one share of HLL.

The face value of HLL share is Re 1 and that of VDL is Rs 10. The valuation exercise was conducted by S B Billimoria and Co.

In a notice to the Bombay Stock Exchange, HLL said its board would meet on Thursday to consider a proposal for amalgamation of VDL, settle the draft scheme of amalgamation and decide on the share exchange ratio.

VDL is a Rs 25 crore company that manufactures soaps and detergents from its plant at Ratnagiri. It does not have any brands or distribution set-up of its own and supplies its entire output to HLL through a processing arrangement. HLL currently holds 33 per cent stake in VDL

Analysts see the proposed merger as a consolidation move by HLL, aimed at bringing about further synergies between manufacturing and marketing activities.

"It will reduce administrative and operational hassles. It will also enable HLL to scale up capacity of the VDL plant. Apart from that it will not have any major impact as VDL is only a small Rs 25 crore company, " says an analyst.

VDL was initially promoted by Tata Oil Mills and Maharashtra Pradesh Petrochemicals (MPCL) under the name Tata Vasishti Detergents in 1988. The company came out with its initial public offering in 1992.

HLL acquired Tomco's shareholding in VDL post the Tomco-HLL merger in 1993. HLL also acquired an additional 11.1 per cent shareholding of MPCL's stake. At the time of acquisition, VDL was a sick company.

Though VDL was a loss-making company at the time of acquisition, it made profits for the first time in 1998.

Soaps and detergents contribute around 45 per cent to HLL's sales.

In the quarter ended June 2005, the company's soaps and detergents business grew 9.3 per cent over the corresponding period in the previous year to Rs 1287.6 crore.

During the last financial year, HLL's top line grew by 2.1 per cent in the soaps and detergents segment, but there was a decline in segment profit by 28.8 per cent over 2003.

The segment margins dropped from 24.8 per cent in 2003 to 17.3 per cent in 2004. It has made significant investments in product innovations and upgradation of active detergent bases.

For instance, Surf was relaunced as Surt Excel Blue and Surf Excel Quick Wash was introduced with low foaming properties last year.