Tura’s acquisition would extend Godrej Consumer’s foothold in the fast growing African markets.
After acquiring Rapidol and Kinky, Godrej Consumer set its sight on Africa again. The Indian soap and hair colour maker has announced the acquisition of Tura, a leading personal care company in Nigeria that manufactures and distributes a range of personal care products. This acquisition is a little different to GCPL’s previous two buys which primarily dealt in the hair-care products. The acquisition would help GCPL to extend Rapidol and Kinky products to Nigeria and other West African markets as well, and take Tura to South Africa and other countries of the continent.
| SUSTAINABLE GROWTH | ||||
| in Rs crore | FY09 | FY10E | FY11E | FY12E |
| Net sales | 1,393.0 | 1,652.0 | 1,951.0 | 2,260.0 |
| OPM (%) | 14.8 | 20.1 | 20.1 | 20.1 |
| Net profit | 173.0 | 282.0 | 326.0 | 378.0 |
| EPS (Rs) | 6.7 | 11.0 | 12.7 | 14.7 |
| P/E (x) | 40.8 | 25.1 | 21.7 | 18.7 |
| E: analyst estimates | ||||
Deal valuations, advantage
Reports suggest that Tura has an annual turnover of $50 million with operating margins of around 17 per cent. Even though GCPL did not disclose the deal size, considering similar acquisitions of past and GCPL’s own, the deal is believed to be worth around 1.3-1.5 times of Tura’s sales. Thus, initial estimates suggest that Tura’s acquisition has cost GCPL about Rs 300-350 crore. With approximately Rs 350 crore of cash in its books and shareholder approval to raise up to Rs 3,000 crore for acquisitions already in place, funding the acquisition would not be difficult. Tura manufactures products such as medicated bar soaps, moisturising lotions and skin creams. While it has a distribution reach of around 70 per cent of total outlets in Nigeria, it also operates in the neighbouring countries like Ghana. Tura’s acquisition would provide GCPL scale and expanded reach besides, potential to share manufacturing and sourcing in the African continent. With a footprint in South and West Africa, GCPL can also promote its products like Renew, Godrej No.1 and Cinthol among others in Africa. Commenting on the acquisition, Adi Godrej, Chairman, GCPL says, “Tura gives a platform to build a pan-African presence in GCPL’s core categories like personal wash and hair-care.”
Conclusion
In the domestic market, GCPL had seen its market share dip in both soaps (40 basis points to 10.3 per cent) and hair care (160 basis points to 33.1 per cent) segments in December 2009 quarter. Recent initiatives like tying up with barbers (up to 50,000 across the country and growing) could help GCPL to penetrate into smaller towns and rural areas besides, enabling it to cross-sell its other products.
In soaps, lower price SKUs of Rs 6 in Cinthol, launch of sandal variants of Godrej No.1 and in hair, smaller SKUs of Expert PHD and additional shades of Renew could sustain business volumes in all its value products much better. With regards GCPL’s global portfolio, the acquisition of Tura would further consolidate its presence in the fast growing markets of Africa and West Asia which are growing at an average 40 per cent. It is estimated that global sales will grow at a relatively faster clip as compared to domestic revenues, which should see its share in consolidated revenues rise to over a third in 2010-11. Overall, GCPL’s revenues and earnings are seen growing at 15-18 per cent over the next two years. At Rs 275, the stock trades at 21 times its estimated 2010-11 earnings, and can be considered on dips.