Total Pageviews

Tuesday, 4 September 2012

PE firms betting big on Indian fragrance segment

This story first appeared in DNA Money edition on Tuesday, September 4, 2012.

Private equity firm The Blackstone Group recently picked up a 33% stake in Mumbai-based fragrance, flavours and aroma chemicals maker, SH Kelkar & Co (SHK), for Rs243 crore. The deal, second in the domestic fragrance segment in recent times, mirrors the growing interest of investors in India’s overall consumer story, not just retail front-end. Privi Organics, another Mumbai-based flavours and aroma chemicals maker, had raised Rs85 crore from Standard Chartered PE in March 2011.

Kedar Vaze, director and chief operating officer, SHK, said that in this second fundraise by SHK in two years, Blackstone has bought out the existing PE investor and also infused fresh funds. “Roughly 50% of the money raised has been used to give an exit (to the earlier investor) and the balance will be used to consolidate our position in the domestic and international markets,” said Vaze.
SHK enjoys 18-20% of the domestic fragrances, flavours and aroma chemicals manufacturing industry in India that is pegged at around Rs2,000 crore.
While organised players control 85% of the market, the top six enjoy 70% share and are growing in double-digits on account of rising demand from FMCG, processed foods, personal care and toiletries segments.

On market opportunity, Harminder Sahni, founder and managing director, Wazir Advisors, said, “In India, the processed food industry is gradually evolving, so the market is fairly small compared to the developed nations. While categories like personal care and toiletries (soap, shampoo, creams, lotion, etc) enjoy much larger market here, MNCs are the dominant players.”

However, these MNCs use very standardised flavours which they source from their global partners. The quantity is also not more since as only one gram of additive is needed for every 100 litre.

So why are PE funds betting on Indian fragrance makers? “Domestic brands, be it in the personal care space like ITC, KevinCare, Dabur, Marico and Godrej, or in processed food industry space which have become very valuable in the last few years, prefer to source from local players,” Sahni said.

PE funds are looking at the entire consumer story, not just front-end (retail chains and brands), but also the supply chain — distributors, suppliers, and their suppliers. So players such as SHK with sizeable market share in their segments provide good investment opportunity.

Experts see business of perfume makers rising and MNCs, too, eventually sourcing from them to cut costs, he said. “We are working with strong brand companies with over 2,000 products. In terms of volume and value growth, products like deodorants, fine fragrances and cosmetics are fast growing,” said Vaze, citing that deodorants as a category is growing at 40% per annum, while toilet soap has seen growth of 4-5% annually.

In the next 3-5 years, SHK will use most of the Blackstone funds to make acquisitions and is looking to expand to new markets. The company is targeting Rs700-750 crore revenues this fiscal with operating profit margins of 17-20%.

No comments:

Post a Comment