Monday, February 20, 2012

>Marico Acquires Paras’ Personal Care Brands from Reckitt

 What's new? — Marico has acquired key personal care brands (Set Wet, Livon, Zatak, among others) from Reckitt Benckiser for an undisclosed amount. Reckitt had acquired these brands from Paras Pharmaceuticals last year. The transaction involves the transfer of all key assets (IPRs, supply agreements & third party manufacturing agreements) to a separate company, which Marico will acquire over the next 3 months.

 Transaction adds ~4% to FY12E consolidated revenues — Mgmt noted that the revenues of the acquired business are likely to be ~Rs1.5bn in FY12E; i.e. ~4% of consolidated revenues. It notes that these brands in aggregate have grown at 20% p.a. (largely volumes) over the past few years - with GMs >50% - higher than Marico’s consolidated business. Details on the operating or net margins aren’t disclosed.

 Marico will purchase 3 main brands — a) Zatak (mass deodorant), b) Set Wet (styling gel + premium deo) and c) Livon (post wash conditioner). Mgmt noted that deos comprise ~50% of the revenues (both have ~6% market share), and the balance 50% is hair creams, conditioners, etc. Deos category has been an outperformer, growing at ~40% CAGR over the past 3 years.

 Strategically, transaction shows Marico’s intent in personal care — Mgmt disclosed strategic rationale was a) to attain critical mass with Marico’s brand Parachute Advansed in the post shower hair care + skin care space, b) some distribution synergies – Paras has reach of ~0.3m outlets – the company will gain incremental access to 60k (modest, given Marico’s total reach of 3m+ outlets). Given the small scale vs. the overall business, we think near-term synergies are limited. It will be interesting to see if over the medium term, mgmt launches the Vietnamese male grooming brands in India to augment the business – somewhat similar to Derma’s products in Kaya.

 Balance sheet implications — Marico has cash surplus of ~Rs4bn end Dec11. Mgmt noted that after setting aside a strategic cash reserve, it expects to utilize short-term debt to fund the acquisition and then use a mix of debt, internal accruals and / or equity financing. Given that Reckitt had paid ~8x trailing sales for Paras, even applying a 25- 50% discount would imply Marico’s consideration will be ~Rs5.6-8.4bn – essentially implies debt reduction is unlikely over the next 2 years.