Financial investor Sparrow Hill Advisory Pvt Ltd has exited its seven-month-old investment in beauty and hair care salon operator Jawed Habib Hair & Beauty Ltd (JHHBL) with 32% return ahead of the company filing for a public float. JHHBL is looking to raise Rs 60 crore through an initial public offering to acquire brands associated with hair and beauty care in Indian and abroad besides acquiring customised software, setting up exclusive brand outlets and repayment of debt among other plans. 

Sparrow Hill, that invested a total of Rs 5.96 crore in two tranches—Rs 3.96 crore in May 2010 and Rs 2 crore in October’10, sold its entire stake representing 44.35% to another investment entity Greenfield Investments 2 for Rs 8.12 crore in December. This works out to a pretty enviable annualised return. More information on Greenfield Investments’ parentage could not be gathered.

JHHBL is also backed by ad-for-equity investor Bennett Coleman & Co Ltd (BCCL is the publisher of English newspaper Times of India among others) through Brand Equity Treaties Ltd that had subscribed to a convertible debenture worth Rs 12 crore in September. It is to be converted into shares on or before June 2012 depending on IPO (if it is floated ahead then the conversion will be before the due date). The conversion price stands undisclosed.

The last transaction between Sparrow Hill and Greenfield Investments was at a price of Rs 17 per share. At this price the company was valued at just Rs 18 crore. However, with the company eyeing Rs 60 crore through the public float, it is looking at a substantial premium over Rs 17 per share.

A 25% equity dilution will value the firm at Rs 240 crore and a 50% equity dilution in the IPO would value it at Rs 120 crore (not counting the convertible debentures of BCCL). In either case, the pre-IPO financial investors will be sitting on a multibagger.

For the April 1- November 20, 2010 period the consolidated revenues of the company was Rs 28.58 crore with net profit of Rs 5.4 crore.

The company largely draws on the brand equity of celebrity hair dresser Jawed Habib Akhter whose grandfather was barber to both the last British viceroy Lord Mountbatten and Jawaharlal Nehru, India's first Prime Minister.

Besides hair and beauty care salons, through self owned and franchised outlets, it also runs academies for hair styling & beauty. It owns 8 outlets and runs 176 franchised outlets in 62 cities across India besides six self-run academies in addition to 35 others through franchised outlets across 36 cities.

Beauty and hair care industry is bustling with activity due to growing discretionary consumption expenditure on lifestyle related sectors in India. Recently Enrich Salon was in talks to raise $10 million from JM Financial India Fund and another BCCL-backed salon chain startup Birla Medspa (that has few outlets in Mumbai under the brand name Evolve) is also in the queue to raise Rs 65 crore through a public issue.

Earlier, Helion Venture Partners invested Rs 20 crore in YLG, a chain of salons and spas in 2009 while beauty and wellness player VLCC has also raised private equity funding from CLSA Capital Partners and Everstone Capital's Indivision fund. Healthcare and fitness chain Talwalkars went public last year.

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