EMAMI TAKES OVER KESH

KING

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AGENDA

Merger
Details

Strategy &
Synergy

Valuation
 MERGER DETAILS : THE ACQUIRER
Acquirer : Emami
One of the fastest growing FMCG company
Niche category player + innovator in Therapeutic and Ayurvedic segment - strong
entry barriers for the competition
Key brands are strong market leaders in their respective categories
Bigger basket of power brands and entry in new segments
Over 80% of the business comes from Wellness categories
MERGER DETAILS : THE TARGET
Target Company: Kesh King

Started in 2009. A brand of SBS Biotech

Portfolio consists of hair oil, shampoo and an Ayurvedic
capsule. Analysts estimate hair oil contributes 80% to total
sales, followed by shampoo at 15% and the rest from
capsules
Superior Gross & EBIDTA Margins.
 MERGER DETAILS
Merger Intent : Strategic
Emami paid Rs. 1,651 crore to acquire Kesh King
Include brand portfolio of Ayurvedic medicinal oil, herbal
shampoo & conditioner and Ayurvedic capsules along with its
respective formulations and all related assets, rights and
liabilities including working capital
Includes manufacturing contracts with third parties, some
manufacturing plant and machinery, some equipments
Non compete clause with the entity, SBS Biotech 5 yrs

Type of M&A: All Cash deal

900 crore debt as raised to partially fund the
1,651-crore acquisition and the remaining is through its internal
sources.
 THE PROCESS & TIMELINES
Kesh King owned by Sanjeev Juneja, had portfolio consisting of
Ayurvedic capsule, hair oil and shampoo. Kesh King brands had
clocked the sales of around Rs 300 Cr in FY 15 with 3 year CAGR of
61%. No. 1 player in the category with 32% Value Market Share
(MAT Mar15).

Incentive to sell, Kesh King became so big that to grow, there was
only two options either invest heavily to build a huge distribution
infrastructure and hire a professional team or sell it off to focus on
core competence of developing unique Ayurvedic product.

In January 2015 Deloitte was appointed as financial advisor . The

valuation was pegged to upward Rs 2,000-crore.

There were suitors aplenty - Dabur, Marico, Bajaj Corp, Wipro

Consumer Care but thought Kesh King had high valuation.
 THE PROCESS & TIMELINES

As one potential buyer after the other backed out, it was Emami
Chairman RS Agarwal who finally signed the deal. Deal came after
tough negotiations on valuation that lasted over four months, including
many meetings between Emami's promoter directors and Juneja and
Deloitte senior director Kalpana Jain. Final negotiations stretched over
several hours and lasted a week when agreement was reached for Rs
1,651 crore on 2nd June 2015.
Khaitan & Co was the legal advisor for Emami on the transaction.
AGENDA

Merger
Details

Strategy &
Synergy

Valuation
 STRATEGY: RATIONALE
1. Hair oil Segment
1. 7148C market, grew at 7% n 2014-15
2. Dominated by Marico (34%) followed by Dabur,
Bajaj and then Emami
3. Low Penetration indicates long term growth story
4. Present in north and east markets

2. Aggressive growth strategy: Acquisitions

1. 2008: Zandu for 750 Cr
2. Vanaspati Oil brand
3. Foray into Feminine Hygiene & Natural-Organic
4. Australian organic personal care brand Fravin
5. Sanitary napkin brand She Comfort for Rs. 50cr
6. Kesh King: New category, very fast growing brand.
In the last three years their growth has been almost
60% CAGR
STRATEGY: RATIONALE
3. Shift in Consumer Choices: Leveraging on the Indian health
opportunity
1. Growing interest in Ayurvedic and Natural products
2. Scalp and hair problems are on the rise. Hair fall being the
biggest problem
3. Growing consciousness that health needs to be actively
managed and diseases need to be prevented
4. Increase in in per-capita spends on healthcare. Kesh King is
priced at premium Rs.140 100ml bottle whereas the rest of
the brands are at Rs.60-70
5. Majority of the market demand comes from SEC C &D.
Opportunity to reach out to rural markets with smaller SKUs
 SYNERGY
Offered great synergy with the Personal & Healthcare
business of Emami business
Cost synergies would be driven through distribution and
media, but the major contribution would come mainly from
distribution
Emamis distribution is about 5x of current distribution of
Kesh King plans to expand the brand geographically
especially into South India
Expand product portfolio into other hair and scalp
solutions
Marketing muscle

Due to synergy benefits, it was foreseen that therell be cost

savings in raw material and administration as well. As a
result, the profit margin of this business will gradually
improve to 27% in FY18 from ~25% in FY15
AGENDA

Merger
Details

Strategy &
Synergy

Valuation
VALUATION :
Deal Value 1651 Crores

Form of Payment - Cash

900 Cr Debt
751 Cr Internal Sources Merger

Emami bought Kesh King at 5.5 times value of its sale

Industry Comparable Reckitt Benckiser's bought Paras Pharma at 8 times value of sales

Stock price dropped by 8% immediately post announcement of merger. Day

Close was down 5.8%

Financial Advisor Valuation : Delloite estimated the value of Kesh King to be

above 2000 Cr
VALUATION : In million Rs
2015 2016e 2017e 2018e
EBIDTA 1450 1764 2250 2813
Tax 406 494 630 787.64
NWC (WC @ 1.15% of Sales) 575 690 1035 1294
Capex @ 5% of Sales 150 144 180 225
FCF 319 436 405 506
Terminal Value @ 5% growth - - - 40869
rate
DCF @6.34% 300 385.85 337.17 32404
Firm Value 33427.02 or 3342.7 Cr

Firm Value as per the DCF calculations 3342.7* Cr

* Major Capital Expenditure Not Factored - Kesh King needed a huge capital investment inorder to further
realize its growth.!!!
VALUATION :
VALUATION :
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