Crompton Greaves Consumer Electricals Ltd has offered to pay around Rs1,440 crore to buy home appliances brand Kenstar from Videocon group, two people directly aware of the talks said.
But the deal hinges on a “sustainable sales guarantee” clause that private equity-backed Crompton Greaves Consumer wants to include in the final agreement, the people cited above said on condition of anonymity.
“This is basically to ensure that the sales numbers of Kenstar quoted by Videocon do not deviate drastically in the near future from what has been stated,” one of the two people, a senior investment banker, said. The transaction will be a leveraged buyout, the person added.
“However, both sides are keen to work around this and close the transaction soon,” the person added.
Kenstar, a part of the Dhoot family-controlled Videocon group makes a range of kitchen and home appliances such as air conditioners, air coolers, mixer grinders and electric kettles.
Kenstar was incorporated in 1995 as Kitchen Appliances India Ltd. According to the latest corporate filings available, the company reported a loss of Rs26.42 crore on a total operating income of Rs1,939.50 crore in FY15.
While a spokesperson for Crompton Greaves declined to comment, emails sent to Videocon group remained unanswered till the time of going to press.
Kenstar was put on the block earlier this year by Videocon group to pare its debt which currently stands close to Rs40,000 crore. The group has been under considerable pressure from banks to bring its debt down to manageable levels, the people cited above said. Both persons described the Kenstar sale as a relatively easy transaction for the Videocon group since it is a separate consumer brand, unlike the other products of the group that are sold under the Videocon brand name.
Nudged by the banks, Videocon has sold its Mozambique oil assets to state-run Oil and Natural Gas Corp. Ltd (ONGC) for $2.475 billion and its direct-to-home business to Dish TV in an all-stock deal.
The Mozambique deal has, however, run into some trouble with the government looking into an allegation that the public sector enterprise overpaid by about $200 million for the assets, according to Press Trust of India report in February. The charges were however denied by the Videocon group, the report added.
In addition to its overseas oil and gas assets, Videocon group also owns a 25% stake in the Ravva oil field operated by Cairn India in Andhra Pradesh.
Crompton Greaves Consumer was originally part of the Gautam Thapar-promoted Avantha Holdings Ltd. In 2015, private equity (PE) funds Advent International Corp. and Temasek Holdings Pvt. Ltd acquired 35% of Crompton Greaves’ consumer products business from Avantha Holdings Ltd.
In July 2014, Crompton Greaves, which makes products ranging from transformers to electrical appliances, decided to demerge its consumer products business division into a separate publicly traded firm, as a prelude to a potential stake sale.
Fans, appliances, lighting, pumps, home automation, integrated security systems and wiring accessories come under the consumer products business unit. Since the acquisition by the PE funds, the firm’s market capitalization has grown significantly to Rs13,500 crore.
Currently, there is high investor interest among PE funds in consumer-facing businesses, especially in consumer durables and fast-moving consumer goods or FMCG, where valuations have soared in both private and public markets.
Source: Mint