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Home-grown FMCG company Jyothy Laboratories, owner of the ‘Ujala’ brand, is planning to be debt-free around June-September 2019, as it eyes a big-ticket acquisition later in the year.
Acquisitions, mostly strategic fits, could be in core categories (household insecticides, personal care, fabric care) or even adjacencies like hair care.
However, the focus companies will be those whose products can be placed in a mass distribution channel.
Paring the debt
“Once we are debt-free, we can leverage the balance sheet for acquisitions,” Ullas Kamath, Joint Managing Director of Jyothy Laboratories Ltd, told BusinessLine .
According to him, the company intends to retire around ₹190-200 crore of debt that had accrued at the time of the acquisition of Henkel’s India operations in 2011; and also market borrowings that were subsequently invested as capex.
Jyothy Laboratories financed the entire ₹785-crore acquisition of Henkel’s India operations through a mix of internal accruals (worth ₹385 crore) and market borrowings.
It re-financed the debt on Henkel India’s books by taking NCDs worth ₹400 crore from Kotak Mahindra Bank Ltd.
According to Kamath, it makes sense for the company to go for a big-ticket acquisition, like its 2011 one (Henkel’s India operations), to aid inorganic growth and shore up margins.
“Once in five to six years, if you do a decent acquisition, you will leverage to get inorganic growth,” he said, adding that target companies would have an EBITDA of around 10-12 per cent.
However, if they are strategic fits, like Henkel, even if they have low EBITDA, they can be be looked into.
As on September 2018, Jyothy Laboratories reported a revenue of ₹428 crore and a net profit of approximately ₹45 crore.
The company’s operating profit margin stood at 16.5 per cent.
The company has already begun discussions with target companies (for acquisitions).
In acquisition talks
And, according to Kamath, it is in talks with four odd companies — primarily regional ones — mostly from South India and the eastern region.
These brands could be strong regional ones that have failed to scale up or do not have the bandwidth to go national; or national ones that have financial and management problems because of which they are suffering.
“The board has approved of up to ₹1,000 crore for investment. We may be doing less than that,” he said adding that funds will be a mix of debt and internal accruals.
Apart from its fabric whitener brand Ujala, the company also owns dishwasher brands such as Exo and Pril. Other popular brands include Margo soaps, Maxo mosquito repellents and Neem toothpaste.
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