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Marico Industries pays Rs 30 cr to Bombay Oil for Saffola, Parachute 

Namrata Singh  
Mumbai, June 14: Marico Industries has paid Rs 30 crore to the Bombay Oil Industries (BOIL) for acquiring its brands "Parachute" and "Saffola". With this, the two key brands will technically come under Marico's fold.Confirming this, a company official said that the two brands are in the process of undergoing a change.

The packaging for the two products will now indicate that the two brands are now in possession of Marico Industries.

Not only will the assignment provide Marico with a tax shield (Marico can now claim depreciation on the brands), but the impacton earnings per share (EPS) in the current fiscal is expected to be marginally positive, analysts say. Marico Industries' EPS was in the same range as last year, ie between Rs 25 and Rs 26.

The turnover from the two brands, about Rs 350 crore, is higher than Marico's market capitalisation which is close to Rs 325 crore.

Marico is understood to have paid for the acquisition in two tranches, partly through internal accruals and partly through borrowings. The company will highlight this in its first quarter results for the period ended June 2000.

The purchase will put an end to Marico's royalty obligations to Bombay Oil Industries(the two brands were on perpetual lease to the former). Marico was paying a royalty of 0.75 per cent of the net ex-factory sale price of the two brands.

The company had announced last year that BOIL was assigning these key brands to Marico, and that the payment obligation would be discharged in the first quarter of 2000-2001.

The move is beneficial for Marico because it boosts investors' confidence in the company. Investors were earlier apprehensive because Marico did not own two of its key brands.

Under the earlier lease arrangement entered into with Bombay Oil industries, Marico was protected from any takeover threat. For instance, if a predator were to acquire Marico, it would not automatically acquire Parachute and Saffola, as these were under BOIL's ownership. In any case, the high level of promoters' stake (about 64 per cent) in Marico Industries acts as a shield against any such threat.

Marico has been able to significantly enhance Parachute and Saffola's brand equity. In the past, barring payment of royalty and lack of absolute legal ownership, the two brands were fully "available" to Marico Industries.Parachute is the market leader in the coconut oils segment with a share of over 50 per cent while Saffola is a leading brand in the refined oils segment where it has a share of about eight per cent.

The assignment of the brands to Marico would complete the company's ownership of these brands. The acquisition of these key brands is expected to add to Marico Industries' intrinsic strength, say analysts.

Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.

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