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Background

Henkel Spic was incorporated in 1987 as Spic Fine Chemicals by Tamil Nadu Petro Products for the manufacture of zeolite based detergents, in technical collaboration with Henkel KgaA of Germany. Henkel increased its stake in the company to 47% in 1996, through preferential allotment and the company was renamed as Henkel Spic India. Tamil Nadu Petro Products currently holds 18% stake in the company. Henkel Spic has acquired two Shaw Wallace subsidiaries, Calcutta Chemicals and Detergents India for a consideration of Rs511mn. It has also acquired household care brands like Brisk, Attack and Limeshot from Modern Home Care Products.

After setting up a strong base in the Southern part of the country, Henkel is now looking at creating a nationwide presence. It has widened its product portfolio by acquisition of several new brands in related product segments. The detergents market in India comprising of laundry soaps, synthetic detergents powders and bar is estimated to be 2.8mn tpa valued at Rs36bn. Demand for synthetic detergents has been growing at 8-10% pa. The synthetic detergent market is segmented on the basis of price as popular, mid-priced and premium. Nirma and HLL, the key players have positioned their brands in all segments Nirma dominates the popular segment while HLL is the market leader in the premium segment. P&G and Henkel Spic also have a presence mainly in the premium segment. Henkel Spic has also launched a mid- priced brand to expand its coverage.

Despite the growing competition in FMCG sector, Henkel Spic posted excellent Q42001 results. It recorded over 26% growth in Q4 sales at Rs897.7mn compared to Rs711.1mn in the corresponding period a year ago. Operating profit margins soared 109% to Rs54.8mn as against Rs26.2mn in the same period last year. After providing lower depreciation charges, the company reported a net profit of Rs20.3mn, representing a five-fold increase against Rs3.1mn in the corresponding period a year earlier. The annualized EPS for the October-December 2001/02 stood at Rs2.8.

Due to growing demand in the Rs25bn Indian detergent sector, the company is trying to spread its products to other parts of country. The German parent has a strong brand equity in household products and personal products such as deodorants. The parent has launched its liquid cleaner brand Pril. Other new products from the parent's stable like Fa Perfumes and deodorants, etc have also been launched in the Indian market. While the company is well entrenched in the south, it now proposes to expand its distribution network, to make its products available throughout the country. The acquisition of Calcutta Chemicals and Detergent India's brands and distribution network has also led to enhanced reach. A wider product portfolio, new launches and enhanced distribution reach will enable the company to establish itself as one of the leading players in the consumer goods business.

After declaring impressive results for the quarter to December, the scrip has spurted by 28% to Rs32 in two consecutive days. Compared to other FMCG stocks like Nirma, HLL and P&G, Henkel’s valuations are compelling. It is currently trading at a PER of 11.4xFY01. Robust results, strong brand name and increasing reach are expected to spark further rally in the near term.

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