Marico spins out Kaya
Marico Packaged consumer goods have demerged its services business Kaya into a separate listed firm as a part of the business restructuring process. The company will create two separate companies through partitioning of the current Marico Ltd, into an FMCG business company ‘Marico Ltd’ (already in existence) and a Kaya business company viz. ‘Marico Kaya Enterprises Ltd’ (MaKE, to be formed). As per the restructuring process, the company’s Consumer Product Business (CPB) and International Business Group (IBG) will now form a unified FMCG business and MaKE will be redefined separately.
The company created two separate companies through partitioning of Marico Ltd
Brief about the Company MARICO
Marico is a leading Indian Group in Consumer Products & Services in the Global Beauty and Wellness space was incorporated in 1988 and during 1990 took over the then 40-year old consumer products business of The Bombay Oil Industries Limited. Marico’s Products and Services in Hair care, Skin Care, and Healthy Foods generated a Turnover of about INR 4000 Crore during 2011-12. Marico’s brands and their extensions occupy leadership positions with significant market share in most categories – Coconut Oil, Hair Oils, Post wash hair care, Hair Gels/Creams, Deodorants, Anti-lice Treatment, Premium Refined Edible Oils, niche Fabric Care, Male grooming etc.
Marico is present in the Skin Care Solutions segment through 107 Kaya Skin Clinics and Derma Rx clinics in India, The Middle East, Bangladesh, Singapore, and Malaysia. Marico’s branded products are present in Bangladesh, other SAARC countries, the Middle East, Egypt, South Africa, Singapore, Malaysia and Vietnam.
Marico’s own manufacturing facilities in India are located at Goa, Kanjikode, Jalgaon, Pondicherry, Dehradun, Daman, Poanta Sahib and Baddi and are supported by subcontracting units.
International Consumer Products Corporation has their manufacturing facilities at Mouchak and Shirir Chala, near Gazipur in Bangladesh, 6th October City, Egypt, Salheya City, Egypt, Sadaat City, Egypt, Mobeni in Durban, South Africa, and Ho Chin Min City, Vietnam respectively.
MaKE will house the Kaya business, through its subsidiaries Kaya Ltd and all Kaya entities overseas.
Recently, Kaya announced that it would launch smaller outlets called Kaya Skin Bars at half the cost it took to set up its regular skin clinics. The area of the new stores would be less than 500 sq. ft and would be unveiled in Bangalore and Delhi, before moving to places such as Mumbai, Pune, and Kolkata.
The plan was to have approximately 150-200 Kaya Skin Bars in five years — more than double the number the division has seen in the last 10 years. Currently, Kaya has a total of 107 clinics in India, the West Asia and the South East Asia, including countries such as Singapore and Malaysia. The newer smaller-format stores are also expected to give a further boost to Kaya’s top line, growing at over 30 percent a year.
Consideration for Demerger
The shareholders of Marico Ltd as on the record date shall be issued one share of MaKE with a face value of Rs 10 each to be issued at a premium of Rs 200 per share for every 50 shares of Marico with a face value of Re 1 each. The total Networth of MaKE would now be INR 270 crore.
|Sr. No.||Shareholders||After Demerger|
|No. of share||% age of Holding||No. of share. ||% age of holding|
|EQUITY SHARE :|
|A||Promoter Group :|
|Indian|| 385,118,520|| 59.74%|| 7,702,370|| 59.74%|
|FII|| 177,748,924|| 27.57%|| 3,554,978|| 27.57%|
|DII || 36,617,849|| 5.68%|| 732,357|| 5.68%|
|Non Institutions|| 45,222,306|| 7.01%|| 904,446|| 7.01%|
|Custodians|| – || 0.00%|| – || 0.00%|
|C||Total|| 644,707,599|| 100.00%|| 12,894,151|| 100.00%|
Reason for the Demerger
MaKE requires a completely different mindset to grow. So they are off the Marico hat from MaKE and unshackled it from the Marico rules so that it can help to improve valuations of the parent company that has been weighed down by the weak performance of its services arm.
The Demerger of MaKE will help in delivering better value for both entities. Demerger would help in bringing greater synergies to the national and international businesses. As at March 31, 2012, Marico Limited (“Marico”) held 100 % of the Equity Capital of MaKE Limited (“Kaya”) at a cost of Rs.73.00 Crore (Rs.73.00 Crore). The Company has also advanced long-term loans to MaKE of Rs. 103.00 Crore. As per the latest audited financial statements, MaKE has negative net worth as at March 31, 2012. During FY12, MaKE’s skin solutions business achieved a turnover of INR 279 Crore which is 7% of total revenue of Marico, recording a revenue growth of 33% over FY11 but on an overall basis, MaKE made a loss of INR 29.1 Crore at PBIT level. As it contributes about 7% to Marico’s revenue in FY-11-12 but had incurred a loss of INR 1.57 Crore in the half year ended 30th Sept 2012, affecting Marico’s bottom line as MaKE is struggling from last 10 years to turn into profit but is yet to succeed. It tried to go in for smaller stores in order to stem losses; even that did not help much. Therefore MaKE is more of a liability for Marico so demerger move is not surprising move.
The market cap of Marico has multiplied by more than 5 times since last 5 years showing a strong response of the company. But in recent period the performance has been below par because of the influence of MaKE business.
The listing would lead to an entrepreneurial approach and a separate leadership team which could finally help MaKE turn around.
This restructuring is a proactive step in building Marico’s sustained value creation, by proactively re-organizing itself, taking into account –
- The context of increasing convergence of businesses in Consumer Products Business (CPB) in India and the International FMCG businesses (IBG), and
- MaKE’s distinct potential to create value as an independent business.
Effect of Restructuring
The restructuring will enhance shareholders value through.
- Sharper focus and greater energy across both organizations and businesses.
- Synergies across the value chain, product portfolios, talent pool and capability through an integrated FMCG business, in India and overseas.
- The resurgence in the MaKE Business through a distinctly entrepreneurial approach and independent leadership team.
- More customized ways of managing MaKE-specific talent.
- The impact of the Restructuring on Marico’s Profit & Loss Account
- There will be no adverse effect on the Profits of Marico Ltd. The cost of executing the proposed Scheme is about Rs 2.5 crore. These would be adjusted against Share Premium account and hence will not affect Marico’s Profit & Loss Account.
- Conversion of intra-Group debt into equity for MaKE will involve entries only on capital account, such as the loans given or equity invested in being adjusted against net worth of the investor company as a part of the Court approved Demerger Scheme. These will therefore not impact any Profit & Loss account.
It is important to note that in today’s competitive environment it is essential to recognize when should a company go for the restructuring of business considering the shareholder’s interest. At the same time, it is necessary to pick up the right management to run the different divisions of the company especially when the company is a conglomerate. The decision to carve out service business as an independent entity, in our opinion is in the right direction to create and enhanced value for all stakeholders.