Marico up on buying Paras personal care brands from Reckitt

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Marico up on buying Paras personal care brands from Reckitt

Marico shares surged over 4% on Thursday morning on the FMCG player's acquisition of personal care business of privately held Paras Pharmaceuticals from UK's Reckitt Benckiser.

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Marico shares surged over 4% on Thursday morning on the FMCG player's acquisition of personal care business of privately held Paras Pharmaceuticals from UK's Reckitt Benckiser.

Reckitt Benckiser had acquired Paras Pharma in December 2010, but had later said it would only focus on the company's healthcare business.

The transaction envisages transfer of all key assets including intellectual property rights, supply agreements and third party manufacturing agreements to a separate company, in which Marico will acquire 100% shares, it had said late Wednesday.

"It fast-forwards our journey towards creating a portfolio for the future with a significant presence in the male grooming and post wash hair care segments," Saugata Gupta, CEO, consumer products business had said.

The biggest benefit for Marico is that it gets hold of three key brands - Zatak deodorant, Set Wet styling gel and leave-on conditioner Livon, all of which are ranked among the top three in their respective categories.

Marico expects Paras personal care business will achieve a turnover of Rs 150 crore in the current fiscal year.

Deodorants comprise 50% of the revenues, and Deos as a category has been growing at 40% compounded growth over the past three years, say analysts.

Marico had reported third quarter net profit of Rs 84.12 crore on revenue of Rs 1,058 crore.

"The acquisition has to an extent alleviated distributor's concern over Marico's narrow product portfolio. This will also lessen Marico's dependence on edible oils and hair oils besides giving it an opportunity to participate in the rapidly growing categories in India," said Abneesh Roy and Harsh Mehta of Edelweiss Securities.

The two analysts have a "buy" rating on the stock, with Rs 185 price target, saying Paras personal care business will provide an immense growth opportunity and higher profitability.

Citigroup analysts Jamshed Dadabhoy and Aditya Mathur, however, are not very bullish, at least in the near-term.

"The company will gain incremental access to 60,000 outlets (modest, given Marico's total reach of 30 lakh+ outlets). Given the small scale versus the overall business, we think near-term synergies are limited," they said.

Further more the Citi analysts feel the deal will strain Marico's balance sheet.

"Marico has cash surplus of Rs4 billion (Rs 400 crore) as of end December 2011. Given that Reckitt had paid 8 times trailing sales for Paras, even applying a 25-50% discount would imply Marico's consideration will be Rs5.6-8.4 billion (Rs 560-840 crore) - essentially implies debt reduction is unlikely over the next 2 years," Dadabhoy and Mathur said, putting a "sell" rating on the stock.

At 10:50 hrs, Marico shares were up 4.5% at Rs 172.40 on NSE.

Nachiket Kelkar
nachiket.kelkar@network18online.com