Major players in the fast moving consumer goods (FMCG) industry will continue to pursue acquisitions over the medium term, rating agency Crisil said in a report today. This is due to the scope for expansion in under-penetrated product segments and geographies, and competitive pressures in the domestic market.
In 2010, India’s FMCG players made 13 major acquisitions in 2010, at an estimated cost of more than Rs 5,000 crore. Most of these acquisitions were global, and helped the acquirers expand their international businesses, particularly in markets such as Africa, Latin America, and South (including South-East) Asia.
“The overseas acquisitions by FMCG players like Dabur India and Marico in the recent past, have strengthened the acquirers’ business risk profiles by enhancing their product offerings and geographical reach. Moreover, prudent funding of acquisitions has helped the acquiring companies maintain stable financial risk profiles and credit quality,” said Nagarajan Narasimhan, director, Crisil Ratings.
The agency also said that homegrown players will continue to scout for small to medium-sized acquisitions, mostly in the highly populated developing nations, where the targets are attractively priced. The sector’s growth prospects remain healthy, supported by its immunity to economic downturns.
“The Indian subsidiaries of global FMCG majors may, however, pursue domestic targets; the size and cost of acquisition targets are unlikely to be constraining factors for these players, given their robust credit profiles and sizeable financial flexibility,” the report said.
The agency said that domestic acquisition targets appear to be priced significantly higher than those abroad, owing to the large number of takers in India, including the strong global players. For the homegrown players, outbound acquisitions are not only more attractive in terms of valuations, but also profitable, and offer a quick payback, the report said.