In a deal that puts them in a commanding position in the health foods and nutrition space, Zydus Wellness and Cadila Healthcare on Wednesday said they were acquiring Heinz India at a valuation of Rs 4,595 crore.
In a deal that puts them in a commanding position in the health foods and nutrition space, Zydus Wellness and Cadila Healthcare on Wednesday said they were acquiring Heinz India at a valuation of Rs 4,595 crore. Heinz India is the subsidiary of Kraft Heinz and makes Complan and Glucon D. Zydus Wellness chairman Sharvil Patel said on a television channel the acquisition makes sense given how difficult it is to acquire large brands in consumer space at the right valuation. “The combined entity will have five of the seven brands that are ranked number one and the combined distribution reach will go up to 4.5 lakh points,”Patel said.
Heinz India recorded revenues of around Rs 1,150 crore across four brands — Complan, Glucon D, Nycil and Sampriti Ghee for the 12-month period to June 2018. The earnings before interest, depreciation, tax and amortisation (Ebitda) was Rs 225 crore. Following this acquisition, Zydus Wellness will have consolidated revenues of about Rs 1,700 crore. Patel said the combined entity would have a 20% plus net margin. “We are acquiring Heinz India through a mix of debt and equity and private equity investors may invest in the company. Cadila Healthcare, being a large shareholder of Zydus Wellness, will also look at ingesting some equity,” Patel explained.
Shares of the two firms, however, were weak with analysts anxious the all-cash transaction was priced slightly on the higher side. Moreover, the possible purchase of an equity stake in the company, by financial investors, they felt, could dilute the capital base. “Assuming Rs 2,000 crore of debt and Rs 2,500 crore equity infusion by PEs, we estimate this deal to negatively impact Cadila’s earnings by 4-5% in FY19,” analysts at HDFC Securities wrote.
The core business of health food and nutrition contributes more than 80% to Zydus’ business. With Complan and Glucon D in its stable, the firm will be better positioned in the space. The distribution reach — with a combined strength of five manufacturing facilities, 1800 distributors and nearly 2 million customer touch points — will be bigger.
Patel said cash flows were comfortable and there was room to leverage. “We are at a net debt-to-ebitda of 1.3 times,” he said adding a large part of the transaction is going to be consummated through Zydus Wellness. The valuation of Rs 4,595 crore includes net working capital of Rs 40 crore, cash of Rs 15 crore and assumes no debt. The group is also in talks with a number of private equity players for funding. This will be the second acquisition for Zydus Wellness following the acquisition of Nutralite in 2006.
Heinz India owns two large manufacturing facilities in Aligarh and Sitarganj and teams devoted to operations, research, sales, marketing and support. “Both businesses are going to be growth drivers for the organization, ” Patel said. The Zydus Wellness stock fell 4.29% to end the day at Rs 1,203.95 on the Bombay Stock Exchange, while shares of Cadila Healthcare closed the session at Rs 358.40, down 5.17%. Avendus Capital acted as financial advisor to the company and Khaitan & Co acted as the legal advisor.