German detergent and glue maker Henkel has sold its 51 percent stake in Henkel India to Jyothy Laboratories Ltd , a fabric whitener and detergent maker, most known for its iconic Ujala brand. Jyothy already owned 15 percent of Henkel India (via a purchase of from Tamilnadu Petroproducts earlier this year) The new acquisition will give Jyothy nearly a 66 percent stake. Henkel India employs 400 people and had sales of 70 million euros in 2010.

Pril from Henkel, now controlled by Jyothy in India

Henkel’s international brands Fa and Pril will be licensed to Jyothy. Henkel will maintain its presence in the Indian market with the Schwarzkopf Professional hair care business. The deal generated a one-time gain of more than 30 million euros ($42 million) for Henkel.

Media reports say Jyothy has been already talking private equity players such as Actis, Apax Partners, Bain Capital, Carlyle, Temasek and GIC to raise funds to retire the $150 million debt it had taken while buying Henkel India.

What this means

First, western companies need to recognize that M&A in India is a two way street. India’s Godrej bought Sara Lee’s business in India while UK’s Reckitt Benckiser purchased Paras Pharma recently.

Second this activity is likely to keep moving forward as India’s consumer segment continues to grow frenetically.

Third, gaps and opportunities are  being created every day as both the consumer needs evolve and the provider landscape shifts. Nimble companies are likely to gain the most over the next five years.

It took 33 years for India to increase its per-capita annual income from $100 to $500, but only five years to double it from $500 to $1,000. It’s not surprising then, that Indian industry reported huge rises in sales in June: cars (34 per cent), refrigerators (32 per cent), air conditioners (50 per cent) and microwave ovens (40 per cent) as reported by Samiran Chakraborty, Head of India Research at Standard Chartered Bank, a British financial institution which recently raised capital in India.

Penetration levels of most consumer goods are still low  – there are 12 cars per 1,000 people, while only 18 per cent of the population owns a refrigerator and 56 per cent owns a TV. India has plenty of spending to do to catch up with even China, where there are 128 cars per 1,000 people and 80 per cent of the population owns a TV.

This assures a long growth curve for most consumer products and the companies that produce and market them. Many western companies who have ignore India thus far should take a close look before it’s too late.

In April 2008, Bharti Retail opened its first “EasyDay Market” retail store in founder Sunil Bharti Mittal’s mid-sized home town of Ludhiana in Punjab. Eschewing the major metro cities that have been the focus of other  Indian retail chains such as Spencers, Reliance and More.  Since then, CEO Vinod Sawhny has led the opening of two more stores, both in North India. With a focus on value retailing, the company has targetted Punjab and Haryana and may expand to neighboring northern states of Uttarakhand, Delhi and Himachal Pradesh. This avoids locations where Pantaloon’s Big Bazaar and Food Bazaar are entrenched and also builds near Mittal’s traditional strongholds. Many FMCG  (CPG) manufacurers have located their factories in states such as Uttarakhand and Himachals for tax reasons, so the supply chains for packaged products won’t be that long.

As a value retailer, it makes sense that Bharti gets about 15 percent of its sales from private labels. Sawny expects to double that percentage to 30% in an interview with the Indian newspaper DNA.

Separately Bharti has a joint venture with the world’s largest retailer Wal-mart. But Indian law requires that stores that are run by this joint venture offer products for sale only to businesses and not to consumers. They are being referred in India as CnC or Cash-and-Carry wholesale stores. The first such wholesale location opened in the border city of Amritsar.