 "Emami stuck with Kesh King's misreported inventory")
Kolkata-based fast moving consumer goods (FMCG) major Emami bought hair and scalp care brand Kesh King from SBS Biotech for Rs 1,651 crore in June this year. This marked Emami's entry in to the hair care segment.
The deal, which was one of the largest in the FMCG sector in recent times, has started hurting the company. SBS Biotech had allegedly misreported inventory figures for the Kesh King, upsetting Emami's prospects with the brand as the company is facing higher stock inventory over which it has no control. The Emami management has expressed concerns over it in the earnings call, with analysts saying that misreporting of figures has left the company with unsold stocks, which is hurting the company's sales.
"The Emami management was clear about it that the previous owners had misreported figures about the stocks; one of the directors even said this has distorted the estimates from the acquisition," said an analyst who was present in the call.
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While slower sales growth is one problem, the higher inventory stocks has also resulted in Emami losing pricing power of the product in the market, as distributors with unaudited stocks are selling the product at retail level at a price lower than that of Emami's.
"While Emami had indicated slow growth of the Kesh King in FY16, the current trend suggests that FY17 sales might be lower than FY15 reported sales of Rs 3.5 billion, indicating padding up of revenues ahead of the brand sale. We believe Kesh King will remain a drag on numbers in the medium term," Amnish Agarwal, analyst, Prabhudas Lilladher.
