Marico Ltd, which went into a restructuring process by creating two separate entities for its consumer and skin care business Kaya, might look at private equity investments for its skin care company Kaya, said three brokerage houses.
Of late there has been a rising interest among the private equity players for salon business. Firms such as JM Financial India, Helion Venture, Everstone Capital and CLSA have invested in salons such as YLG, Enrich, and VLCC.
“The restructuring has been done in a bid to get rid of Kaya, which has not been able to make any profits so far,” said an analyst at a leading brokerage house. That apart, the restructuring might help improve the margins of its consumer business arm.
He further added that by hiving off Kaya, the promoters who hold 60 per cent stake in the skin care company would get a better valuation, while the money will go into their kitty instead of Marico, the listed entity.
Kaya, formed as the skin clinic and premium salon a decade back, has so far not been able to break-even, despite repeated assurance by the management. Kaya has over 100 outlets across India, West Asia and Bangladesh. However, it has been unable to break ice with the consumers given the niche services it offers and the high pricing.
“Its name has always confused the consumers. It is either a pure salon or a skin clinic. Besides, it doesn’t have products for the salon business that other players such as L’Oreal or Lakme have,” said an analyst.
Kaya, in the last six quarters has earned Rs 172 crore, which is seven per cent of consolidated revenues, but incurred a segment loss of Rs 1.57 crore.
According to analysts, Kaya will be valued somewhere around Rs 1,000 crore.
According to Nitin Mathur of global brokerage firm Espirito Santo, “Patience amongst shareholders for the Kaya business to break even was running out and this should provide some respite.”
However, the current proposal compels minority shareholders in Marico to participate in the MaKE business. Nitin added, “Marico has tried several measures to break even and we are not enthused by the Kaya business in this economic cycle. We believe further a cash infusion (or strategic investor) might be required in the Kaya (or MaKE) business before it can turn into a sustainable business model.”
Kaya has been a loss-making venture for Marico and during FY 2012 Kaya made a loss of Rs 29 crore at the PBIT level on net sales of Rs 279 crore. The demerger would result in Marico turning into a pure FMCG player enjoying superior return ratios, said an analyst at Angel Broking
Priyanka.pani@thehindu.co.in