Carlyle looks to acquire VLCC Healthcare

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Private equity group Carlyle is set to buy VLCC Healthcare Ltd, a three-decade-old, homegrown wellness, beauty products and personal care company, making a big play in the fast-growing and trending sector that of late has seen several young, direct-to-consumer (D2C) brands mushrooming.

The buyout group is looking to take a 60-70% controlling stake for about Rs 2,000-2,500 crore ($250-300 million) through a primary infusion as well secondary purchase of shares from the founding Luthra family, said people in the know. A formal announcement is expected in the coming weeks.

Globally, Carlyle has spent $25 billion on 135 consumer, retail and media investments.

Entrepreneur Vandana Luthra and husband Mukesh Luthra own 95% of VLCC Health Care; the remaining 5% is with employees and others. The Luthras will stay invested but Carlyle is expected to bring in a new management team to crank up the business.

Begun as a weight-loss company, it has transformed itself over the years into a beauty and personal care branded business. Beauty and skincare accounts for 70% of business. Over half the annual sales comes from face washes, serums, vitamin C cream, face packs, sunscreens, body butters, shampoos, oils, henna, ahead of the wellness and beauty service centres. The contribution of sales from ecommerce channels has doubled to 35-40% in the last three financial years. These include avenues such as Flipkart, Amazon, Nykaa and specialised outlets such as Apollo Pharmacy or Wellness Forever as well as its own website.

Having started in New Delhi, the company now has operations in 13 countries, with factories in Haridwar, Assam and Singapore. The company directly manages operations in Singapore, Thailand, Kuwait, Qatar, Kenya, Bahrain, Sri Lanka, Bangladesh and Nepal. It inked a strategic partnership with the $4 billion Thailand-based Minor Hotels group in late 2019 to set up healthcare, wellness and beauty clinics in Southeast Asia. The company’s acquisitions include Wellscience and Vanity Cube, which operate in the nutraceuticals and on-demand beauty services businesses spaces, respectively.

In FY21, VLCC Health Care reported total income of Rs 565 crore, with net profit at Rs 6.2 crore compared with a loss of Rs 15.3 crore in the previous year, according to regulatory filings. For FY23, the company is expected to make close to Rs 1,000 crore revenue and a Rs 225 crore ebitda, said people aware of the matter.

“This is a profitable business with very high brand recall and gross margins of around 60-70%. One needs to invest significantly in brand building and sales but even then the ebitda margin is at 20% plus. The Luthra family could not scale up leveraging on its brand equity and early mover advantage. Under PE ownership, that is expected to happen soon,” said a Mumbai-based consultant. “This is now a full-blown wellness and beauty company. And consumer brands always attract a valuation premium in India.”

India’s beauty and personal care market is estimated at $24.53 billion and forecast to touch $33.33 billion by 2027, growing at a CAGR of 6.32%, research company ResearchAndMarkets.com said in a report.

VLCC has been planning an IPO for some time now. It was working toward a public issue in the middle of the year and wanted to raise Rs 850-900 crore but this plan didn’t progress due to global market volatility. In 2015 too, the company had filed draft papers for a public listing and had received clearance, but then dropped the plan. Over the years, CLSA and midmarket group Everstone have been investors in the company but sold back their 15% stake to the promoters with a meagre return on investment.

Carlyle, with over $376 billion of assets under management, has been backing consumer brands around the world. Last year, it bought a controlling stake in Beautycounter, a clean beauty specialist, at a $1 billion valuation. Its consumer, retail and media portfolio includes Hunkemoller, McDonald’s China, Compana Pet Brands, A Twosome Place, Accolade Wines among others. Amit Jain, managing director and co-head at Carlyle India Advisors, had earlier backed Gujarat-based tiles company Varmora Granito.

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