Philips has kick-started what could be a consolidation drive in the highly fragmented small kitchen appliance business in the country. The acquisition of Maya Appliances, that sells its products under the Preethi brand and is particularly strong in the southern markets, will further expand the hold of Philips in the Indian kitchen appliance market.
Preethi has sales of around Rs 400-450 crore or about $100 million as per reports. Although the deal value stands undisclosed, the Dutch firm could be paying around Rs 400 crore for the buyout of the privately held firm, as per VCCircle estimates. The closest listed peer for Preethi would be Bajaj Electricals whose market cap is roughly as much as its revenues.
The deal involves purchase of brand as well as production facilities of Maya Appliances, which has around 850 employees on its rolls. Preethi sells various products including iron, coffee maker, gas stoves, and electric cooker but is specially a strong player in the mixer-grinder business. It competes with the likes of Sumeet and Bajaj besides various other firms including Philips.
For Preethi this deal makes sense. It has been trying to become a bigger player in north and west India but the existence of other players including strong domestic firms had made it a difficult game. Now with combined distribution, after sales service and branding muscle of Philips, Preethi could penetrate deeper in the highly competitive segment.
The promoters get a huge sum of money while still being involved with the management. TT Vardarajan, the chairman and managing director of the company will continue as the chief of the company though now under the Philips umbrella. Ernst & Young advised Maya Appliances on the transaction.
Philips could use Preethi as a mass end product with a differential pricing and positioning it as a sub-branded line under its global mother brand in the future. It can also be used to attack the mass market with more aggressive pricing not just in India but also in other markets where Preethi is already present. A legal merger of Maya Appliances with Philips India is unlikely immediately as it could raise eyebrows of residual minority investors of Philips India (that delisted few years ago) but is a foregone conclusion for the future.
The small kitchen appliance has been a strong point for Philips in the country even as it was otherwise unable to make money in the consumer electronics business and had to eventually sell the rights to sell its televisions among other products in India to Videocon sometime back. Philips also has a large presence in the lighting business where it dominates the local market and has been growing its health devices business at a fine clip.
Philips had recently shuffled its management making Anjan Bose the new head of the consumer lifestyle wing shifting him from his previous role as head of healthcare devices unit. Bose had previously been involved in similar niche acquisitions in the local medical equipment business and Preethi deal adds to his M&A feather. The deal also marks an apt signoff for Murali Sivaraman the former CEO of Philips India who has moved on to a global role at Philips’ Domestic Appliances Business Group early this month.
Consolidation & Growing Investor Appetite
This deal could open up opportunities among other strong domestic appliance makers such as Hawkins and TTK Prestige and expectations have already got built in. TTK Prestige scrip rose 3.8% to hit a new high on Tuesday while Hawkins that had hit a 52-week high on December 31st and had risen sharply over the past one week closed 4.7% down on Tuesday, perhaps reflecting an overbought position.
Consolidation is imminent in the highly fragmented market for small appliances where entry barriers are low due to cheap Chinese imports and dominance of local unorganised market, but M&As would be a function of strong regional brands and their distribution network.
Investors are also coming in to participate in the consumer discretionary market in India. Last year Stovekraft Pvt Ltd raised a second round of institutional investment from Sequoia Capital after attracting money from SIDBI Venture Capital four years ago. The Bangalore-based small appliances company operates through Gilma and Pigeon brands. That deal was said to have valued Stovekraft over Rs 200 crore, around the same as its revenues of Rs 235 crore.