Through the deal, the fast moving consumer goods player got access to a Rs 300 crore category and high-margin brand that has been growing at a compounded rate of 61% over the past three years.
The Kesh King fiasco continues to haunt Emami, which has suffered a drop of 52% in its standalone net profit at Rs 63.8 crore for the March quarter mainly because of amortisation of the brand.
Emami, which is now faced with the emerging threat from the Patanjali phenomenon, has just seen its consolidated quarterly profit shrink 45.2% to Rs 75.85 crore from the year-ago period primarily because of amortisation to the extent of Rs 72.7 crore of Kesh King intangibles.
While accounting principles state that intangibles like brands and trademarks should be amortised over their useful life, Emami has been writing off the ayurvedic hair and scalp care brand at an accelerated pace ever since acquiring it for Rs 1,651 crore from SBS Biotech in last June.
Through the deal, the fast moving consumer goods player got access to a Rs 300 crore category and high-margin brand that has been growing at a compounded rate of 61% over the past three years.
In the third quarter, Emami had accounted for Rs 60 crore in its books in a similar way and during FY16, the total amortisation has been to the extent of Rs 210 crore.
"In accordance with the provision of Accounting Standard 26, the management has estimated useful life of various intangible assets at 5 to 10 years except goodwill of Rs 10.5 crore which has been charged to statement of profit and loss. For the year ended March 2016, amortisation of acquired trademarks/brands includes Rs 195.17 crore respectively provided on intangible assets of Kesh King business on pro-rata basis," Emami said.
Emami had earlier disclosed to analysts in February that before the acquisition transaction, there were cases of under reporting of stock lying with the stockist by the previous management. The same was reported by dna.
To be fair, except the overstocking issues, Kesh King has been clocking handsome sales growth even after acquisition.
"The brand has been able to consolidate its position and increase market share by 370 bps to 35.4% of the ayurvedic hair and scalp care market segment in FY16," Emami said in a release on Thursday.
Emami is now relaunching the brand with fresh marketing campaign including print advertisements featuring celebrities like Shruti Haasan and Sania Mirza while a TV campaign directed by noted Bollywood director Imtiaz Ali has been released.
Brand Kesh King contributed 9% of total revenues during the quarter. Net sales grew 21% to Rs 671 crore during the fourth quarter while earnings before interest, taxes, depreciation and amortization (Ebitda) before amortisation went up 30% at Rs 182 crore.
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