Sharemasterindia.com: Emami shares closed nearly 6 per cent lower on Tuesday as analysts
feared that the company's acquisition of ayurvedic hair and scalp care
brand Kesh King was expensive. A day later, Emami shares recovered as
brokerages such as Nomura praised the deal.
Emami paid Rs 1,651 crore to acquire Kesh King, which had reported a revenue of Rs 300 crore for 2015 fiscal year. Emami's payout represented a valuation of more than 5.5 times Kesh King's sales and 11.4 times its operating profit. Kesh King's EBITDA (earnings before interest, tax, depreciation and amortization) in FY15 was Rs 145 crore.
"Headline acquisition multiple looks high, but there are several positives from the deal," Nomura said in a note. The products of Kesh King are based on the ayurvedic platform which is similar to Emami's portfolio and hence is definitely a synergy, Nomura said. Emami has a history of turning brands around quickly, the brokerage added.
"It (Emami) has made fewer acquisitions than most other mid-cap names in our coverage but all the acquisitions have been accretive and successful," Nomura added.
The brokerage retained a "buy" rating on Emami with a target price of Rs 1,134.
Emami, which had a cash balance of Rs 800 crore as of March 31, 2015, said it will fund the acquisition through internal accruals and a judicious mix of debt.
Emami Management on Kesh King Deal:
On Wednesday, Emami's management told NDTV that the higher premium for Kesh King is justified given its high potential of growth.
"They (Kesh King) have a very high EBITDA margin; it is in the range of 40-45 per cent... In last three years, their business has grown by 61 per cent CAGR," Naresh H Bhansali, CEO (finance, strategy & business development) & CFO of Emami said.
Emami also highlighted the fact that the growth in ayurvedic hair care category remains very strong. In the near term, high growth is likely to sustain even before the synergies from the acquisition are taken into account, the company said.
According to Emami, Kesh King's acquisition will strengthen its portfolio as the company is into very niche category of oil like Navratna Cool Oil.
Emami will be able to grow this brand "very aggressively" as there is a huge distribution synergy, the company said.
Kesh King brand is currently present only in very few towns. Emami expects with their wide distribution network they will be able to enhance the sales of this brand rapidly.
As of 3.15 p.m. shares of Emami traded 1.55 per cent higher at Rs 1,082.70 apiece, compared to 1.36 per cent drop in the broader Sensex.
Emami paid Rs 1,651 crore to acquire Kesh King, which had reported a revenue of Rs 300 crore for 2015 fiscal year. Emami's payout represented a valuation of more than 5.5 times Kesh King's sales and 11.4 times its operating profit. Kesh King's EBITDA (earnings before interest, tax, depreciation and amortization) in FY15 was Rs 145 crore.
"Headline acquisition multiple looks high, but there are several positives from the deal," Nomura said in a note. The products of Kesh King are based on the ayurvedic platform which is similar to Emami's portfolio and hence is definitely a synergy, Nomura said. Emami has a history of turning brands around quickly, the brokerage added.
"It (Emami) has made fewer acquisitions than most other mid-cap names in our coverage but all the acquisitions have been accretive and successful," Nomura added.
The brokerage retained a "buy" rating on Emami with a target price of Rs 1,134.
Emami, which had a cash balance of Rs 800 crore as of March 31, 2015, said it will fund the acquisition through internal accruals and a judicious mix of debt.
Emami Management on Kesh King Deal:
On Wednesday, Emami's management told NDTV that the higher premium for Kesh King is justified given its high potential of growth.
"They (Kesh King) have a very high EBITDA margin; it is in the range of 40-45 per cent... In last three years, their business has grown by 61 per cent CAGR," Naresh H Bhansali, CEO (finance, strategy & business development) & CFO of Emami said.
Emami also highlighted the fact that the growth in ayurvedic hair care category remains very strong. In the near term, high growth is likely to sustain even before the synergies from the acquisition are taken into account, the company said.
According to Emami, Kesh King's acquisition will strengthen its portfolio as the company is into very niche category of oil like Navratna Cool Oil.
Emami will be able to grow this brand "very aggressively" as there is a huge distribution synergy, the company said.
Kesh King brand is currently present only in very few towns. Emami expects with their wide distribution network they will be able to enhance the sales of this brand rapidly.
As of 3.15 p.m. shares of Emami traded 1.55 per cent higher at Rs 1,082.70 apiece, compared to 1.36 per cent drop in the broader Sensex.
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