Marico on Tuesday said it paid Rs 216 crore (Rs 2.16 billion) to Hindustan Level to acquire hair oil brand Nihar. This includes trademarks, copyrights, design rights, know-how, Internet domain name business rights and a 5-year non-competition in the filtered coconut oil category. This does not include transaction costs of about Rs 11 crore (Rs 110 million).
The company added that it has availed of a short-term loan facility to fund a large part of the acquisition. It plans to review its financing pattern over the next few months and may substitute the short-term loan with a mix of debt and equity.
Nihar is expected to add about 10 per cent to the company's turnover or about Rs 120 crore (Rs 1.2 billion). The company is targeting a growth of 25 per cent in its topline in the financial year FY07, with the profit growth target being in line with revenue growth.
At the PBDIT level, the acquisition would benefit Marico as the operating margins in Nihar are higher than the company's existing margins.
While in the short run, there is likely to be an effect on the PAT levels, in the medium to long run, this acquisition is likely to create value for the company, according to a company release. Marico may explore restructuring its balance sheet in order to continue with its policy of not maintaining intangible assets on its books.
Nihar is sold in two categories - coconut oil and perfumed hair oils and has a strong franchise in the eastern region where Marico is relatively weaker.In the coconut oil segment, Marico's Parachute has an over 50 per cent share of the Rs 800-crore (Rs 8 billion) market. Nihar has an all India share of about 9 per cent.
In perfumed oils, Nihar has a 40 per cent market share and Parachute Jasmine has a 35 per cent share and the acquisition will make Marico the market leader in this segment as well.
In addition to this, this would enable the company to leverage its distribution network and the incremental throughput would increase the turnover of the distributors resulting in increased trade equity for the company.Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Discussion Group
