Haircode buy conditions Marico’s growth

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Haircode buy conditions Marico’s growth

The Marico Group announced Egyptian haircare brand Haircode. Haircode is a profit-making company with an annual sales of over Rs 40 crore. CFO of Marico, Milind Sarwate gives details of the deal.

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Excerpts from Your Stocks on CNBC-TV18 Watch the full show » RELATED NEWS Marico buys hair care brand HairCode Marico raises Rs 1.5bn through QIP What can one expect from Marico? ALSO READ See latest News about Marico See previous management interviews See what other Experts & Brokerages are saying about Marico Marico BSE | NSE 25/05/12 Are Mutual Funds betting on Marico?

The Marico Group has announced the aquisition of Egyptian haircare brand Haircode, a profit-making company with an annual sales of over Rs 40 crore. CFO of Marico , Milind Sarwate gives details of the deal.

Sarwate informs that Marico has funded this acquisition out of a short-term debt. Recently, they had a QIP issue which made them richer by Rs 150 crore by way of equity. Hence, they will not raise further equity at this stage since they are very well placed with regard to the debt equity ratio.

Excerpts from CNBC - TV18's exclusive interview with Milind Sarwate:

Q: Tell us more about what Haircode does and what kind of balance sheet does it have?

A: Haircode is a haircare brand as the name suggests. But it is present in pre and post wash, which are the focus segments that we have. It is in hair-cream and hair-gels and it's more of an upmarket brand. So it caters more to the Indian counterparts of SEC A and B segments.

It has roughly about 1/4th of the market and along with Fiancée, which we acquired earlier this year in September, we would have almost half of the Egyptian pre and post wash market.

Q: How have you funded this acquisition?

A: Currently, we have funded it out of a short-term debt. Recently, we had a QIP issue which made us richer by Rs 150 crore by way of equity. I don't think we will raise further equity at this stage because right now, we are very well placed with regard to the debt equity ratio.

We will take a fresh look at what more acquisitions could be in the pipeline or what other use of funds we would have and decide accordingly.

Q: Have you deployed all of Rs 150 crore for this acquisition? How have you used the other sum of money?

A: Actually, what we raised was deployed at repaying short-term debt which we had earlier. So for this acquisition, we have raised fresh short-term debt.

Q: When would Haircode actually start contributing to your revenues?

A: Haircode is a profitable brand and we don't foresee many set up costs or any other things that would bring the profits down. It would contribute some time starting in the middle of next month as we take the brand completely over and put the distribution in place.

Q: What sort of margin appreciation are you taking into account once Haircode actually comes on?

A: Let me give the theoretical picture first. The Indian operations have typically had a high single digit PAT margin, we have typically around 7-8%. Haircode in Egypt would have a margin, which is more or less double of that. So it is in the band of 15-20% PAT to sales.

At the same time, the size of the brand in terms of turnover is about Rs 40-50 crore, even if I take next year's numbers into account. So it may not have a great impact on the overall profitability numbers but it's a step towards being a more value added company for us.

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