Jyothy Henkel Acquisition

Presented By: Group 2

Atanu Misra
Debolina Chakraborty
Manish Watharkar
Jaskaran Singh

Date: 3
rd
July, 2014
Suraj Seshadri
Rohan Agarwal
Viraj Kondawar
Vivek Kar
Sumanth B. S.
Introduction
Jyothy Laboratory
Founded in 1983 by Mr. M.P.Ramachandran
headquartered in Mumbai Maharastra.
Famous brands - Ujala, Maxo, Exo, Jeeva and
Maya.
Companys research and development facility
focuses in area of new formulations, creating
cost effective processes and new product
offering
Business area Fabric care, Household
Insecticide, Allied business.

Henkel India
Established in 1916 as a subsidiary of Jyothy
Laboratories Limited headquartered at
Chennai

Comprises of brands such as Pril, Henko,
Fa, Margo, Mr. White, and Chek

Business area - Laundry, Home Care,
Cosmetics and Toiletries in retail
businesses


6
th
May 2011, Jyothy Lab had acquired 51% stake in Henkel India.
Strong Synergies - Jyothy Henkel acquisition
Strong strategy in place to unlock brand potential - Leveraging its brand Ujala with
a strong sub-segmentation strategy
Synergies to play out in FY13 - Acquisition of Henkel India has given Jyothy a range
of fabric-care brands across price points and geographies.
Sale of assets to reduce debt burden - Plans to sell land at Ambatur and Karaikal for
Rs. 2bn to substantially reduce its interest cost burden.
Change in estimates Estimates the earning by 22% but expect higher profit margins
due to less competition from HUL & P&G as the price war tapers off. Estimate 14%
revenue growth in FY14
Valuation - DCF-based valuation method, we value the stock at a price target of Rs 210
(earlier at Rs 300).
Better use of Henkels increasing revenues Revenue was increasing despite of low
profit margin
The Project Process
Project Set-up
Project Sponsor Jyothy Laboratories.
Project Leader Ullas Kamath, Deputy M.D, Jyothy Laboratories.
Project Priority To acquire at least 51% stake in Henkel- India.
Budget Rs.3308 million for 86% acquisition of Henkel India.
Project Deliverables -
Improvement in overall growth profile.
Increase its customer base.
Growth in detergents and dish wash segment.
Establishment as one of the leading FMCG companies in India.
Project Definition
Draft Statements of requirements
Buy Henkel Indias 59.35 million shares for Rs.20 each.
To take Henkels debt of Rs.454 crore.
Buy more than 68 million preference shares worth Rs.43.9 crore.
Team - Ullas Kamath, M.P Ramachandran.
Undertake project risk assessment :
Mature detergent market.
Effective integration of the two entities.
Debt and interest payment on the debt.
Procurement Plans:
Raw materials to be supplied by the current suppliers of Jyothy.
Conceptual Design



Constraints Convincing top management of Henkel in
Germany.

2,00,000
outlets
1.1 million
outlets
R
e
a
c
h

1 plant in
Karaikal
28 plants
across the
country
P
r
o
d
u
c
t
i
o
n

Premium,
metro
Mass-
market, tier-
2 town
P
o
s
i
t
i
o
n
i
n
g

Pays 18-23%
margins to
distributors
Pays 13 %
D
i
s
t
r
i
b
u
t
i
o
n

Rs. 40 crore
a year
Rs. 120 crore
a year
A
d
v
t
g
.

&

P
r
o
m
o
t
i
o
n


Henkel India Jyothy Labs
Jyothy will get into
departmental stores, Henkel
will get access to rural India
Will spread production of Henkel
products(except detergents)
saving approx 3% EBITDA
margins
The Combine
Pan-India presence across
segments
Overall distributor margins to
come down; expected saving
Rs. 60 croresApprox.
Approx. Rs. 120 crores a
year
Scheme Design
Implementation of the project
Continuous negotiations with the top management of Henkel,
in Germany.
Usage of Henkels continuously growing revenues.
Usage of Jyothys continuously growing profits.
Inability by Henkel to sustain the continuous losses it incurred.
Confirm completion
Confirm technical completion: May 6, 2011
Resolve reservations
Removal of bureaucracy
Increase efficiency of logistics system
Low expenses and high efficiency
Removal of unnecessary delays
Obtain acceptance of completed project: Apr 1,2012
Project review
Undertake post
Ullas Kamath, Joint Managing Director of Jyothy Laboratories
Project review
Enhanced distribution network
Opportunity to benefit from the turnaround in the business
Optimization of manufacturing
Jyothy gets into departmental stores, Henkel gets access to rural India
Pan-India presence across segments
Saving 3% EBDITA margins
Saving 60 crores from overall distributor margins
Building blocks in place for a bullish long term thesis
Transformation drives visible and achievable EPS growth
Thank You