(ZWL) has signed a definitive agreement to acquire 100% equity share of Heinz India Private Limited (HIPL), jointly with Cadila Healthcare Ltd. (HPIL is the subsidiary of Kraft Heinz). The cost of acquisition is Rs4,595cr (subject to customary working capital and other adjustments - assuming target net working capital of Rs40cr and minimum cash balance of Rs15cr); to be funded through a combination of debt and equity. The valuation for the acquisition comes out to be ~4x FY18 sales. The acquisition is expected to be completed by early CY2019. Comapny has mentioned that few leading private equity firms have committed to partnering the transaction.
This acquisition would include (a) the brands – Complan
(rights for India, Bangladesh, Nepal and those countries where seller has IP rights), Glucon D
and Sampriti Ghee
(global rights), (b) two manufacturing facilities in Aligarh and Sitarganj, and (c) teams (of operations, research, sales, marketing and support). HIPL has a distribution network of ~800 distributors and ~20,000 wholesalers covering 29 states. It should be noted that HIPL has proposed to carve out business related to brands of ketchup, tomato sauce, mayonnaise, etc. before the closing of the transaction.
HIPL had reported revenue of Rs1,130cr (excluding the carved out businesses) with an EBIDTA of ~Rs225cr (EBITDA margin of 19.9%) for the last fiscal (June ending). HIPL’s revenue (excluding carved out business had declined by 8.6% in FY18 and was flat in FY17.
We believe that this acquisition would complement ZWL’s existing product portfolio in terms of food, nutrition, and skincare. The turnover of ZWL will witness a huge jump to ~Rs1,700cr (~Rs510cr in FY18). However, we believe that this would be marginally EBITDA margin dilutive as ZWL enjoys EBITDA margin of ~24%, whereas the margin for the acquired business is ~20%. The transaction is expected to be EPS accretive. This would also expand the reach for ZWL with 5 manufacturing facilities, 1,800 distributors and ~2 million customer touchpoints.