Asian Paints buys 51% in kitchen company Sleek for Rs 120 crore

Asian Paints had announced in March that it plans to acquire a 51% stake in privately-held Sleek International but had not disclosed the consideration. It had said it will do a due diligence exercise before finishing the deal. That seems to have gone off well, as it has said it will be investing Rs 120 crore in two instalments, by August 10, 2013.

Though the company release does not explicitly say so, it does appear that the money will be invested in the company, since the release mentions a ‘funds infusion’. The current management will stay put, with Rajesh T Ahuja continuing as the managing director and Monesh T Ahuja as the executive director. Asian Paints will nominate two non-executive directors, one of whom will also be designated as chairman of Sleek.

A direct funds infusion into the company means that Asian Paints has not invested in buying out the promoters, but is investing to expand Sleek’s operations and market presence. The structure of the deal is good because it retains the current management’s expertise in the field of building customised kitchens, a field that is very different from that of decorative paints even if the target customer base is common.

The existing management is being given the operational leeway to run the business. Since their investment in the business has not been taken out yet, their incentive will be to grow Sleek’s operations as per the business plan, and then exit the business. Or this business could continue to run as a joint venture too. A lot will depend on how Sleek shapes up and Asian Paints desire to keep it separate or take over full management control.

The good part is that it’s a 51% subsidiary and that means its financials will be consolidated along with that of Asian Paints, from the September quarter itself, though the full impact will become visible in the December quarter. That should give investors an idea about the size of the business and its profitability, as these have not been disclosed. The Asian Paints share closed with a gain of 1.8% on Thursday.

Read the press release from Asian Paints here.

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