German consumer goods firm Henkel’s Indian arm has received its shareholders’ nod to sell arguably its fastest-growing business unit in India – the hair care products business housed under the Schwarzkopf Professional Division. The division is to be sold to Henkel Adhesives Technologies India Pvt Ltd, a wholly owned company of Henkel AG that is currently into adhesives business.

“Against the background of the current economic and competitive environment, it has become imperative to restructure the company and strengthen its financial position. The sale of the company’s hair care division will lower the debt level of Henkel India Ltd,” the company disclosed on Friday. The transaction is expected to be concluded before the end of April and would mark the German parent slicing off the businesses it wants to retain in India, ahead of dissociating itself from the listed subsidiary.

Last month, the mid-sized FMCG company Jyothy Laboratories Ltd, which has a history of backing from private equity investors such as Baring Private Equity Partners and Actis, had acquired 14.9 per cent stake in Henkel India Ltd from Tamil Nadu Petro Products Ltd (a listed company of Muthiah Group) for Rs 60.73 crore, making it the single largest Indian shareholder in the public listed firm.

Reportedly, Jyothy had also emerged as the sole bidder to buy German parent’s 50.9 per cent stake in the Indian subsidiary, after other potential suitors like Dabur, Emami and others backed out. Jyothy Labs, which was advised by boutique investment bank Mape Advisory Group for the transaction, sees synergy with the existing businesses of Henkel India.

The latest performance numbers for 2010 is not available, but Henkel India’s Schwarzkopf Professional Division had posted a growth of 34.7 per cent in 2009, much faster than its other businesses.

Henkel AG that has been in the process of consolidating its multi-brand global portfolio, counts Schwarzkopf among its top three brands across categories, besides adhesive brand Loctite and fabric care brand Persil. Schwarzkopf also happens to be the biggest and fastest-growing brands within its global portfolio, clocking revenues of €1.8 billion during 2010 over three times its sales in 1995 when it generated revenue of €500 million.

It also showed a glimpse of its strategy for the hair care brand last year with its acquisition of 100 per cent stake in Schwarzkopf Inc. (USA) to strengthen its hair salon business under Schwarzkopf Professionals in the USA that is under a license agreement. It could well look at a similar model to push its products further in the world’s second fastest-growing major economy. There are already some large hair salon chains that are operating in India including Lakme and L’Oreal.

The sector has seen a slew of private equity/venture capital interests. In 2009, Helion Venture Partners invested Rs 20 crore in YLG, a chain of salons and spas, while beauty and wellness player VLCC also raised private equity funding from CLSA Capital Partners and Everstone Capital’s Indivision fund. Another salon chain Jawed Habib is in the queue to go public.

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