Godrej Consumer: Tura, a good fit

Tura’s acquisition will further strengthen GCPL’s presence in the high-growth-potential African continent

Godrej Consumer Products’ (GCPL) inorganic growth initiatives got a further fillip last week, when the company entered into an agreement to acquire the worldwide rights of Nigeria-based Tura, a leading personal care brand. Tura will be its sixth acquisition in less than five years. Since mid-2005, GCPL has acquired Keyline brands (UK), Rapidol (South Africa), Godrej Global Mideast (GCC), Kinky Group (South Africa) and a 49 per cent stake in Godrej Sara Lee (India). While these acquisitions have helped GCPL sustain superior growth rates in the past, Tura’s acquisition is unlikely to be different and should further boost the share of GCPL’s international revenues (in total consolidated sales) from about 22 per cent in 2008-09.

For now, acquisition of Tura appears to be a strategic fit for GCPL. Tura has been a household brand for over two decades in Africa, whose products like soaps, moisturising lotions and skin-toning creams are sold widely. Notably, it has an efficient sales network with over 70 per cent distribution reach in the West African region. For GCPL, which currently has a relatively stronger presence in South Africa, Tura will further strengthen its presence in the African continent and also prove to be a solid base for introducing GCPL’s own products in West African countries. To fully capture the synergies, GCPL plans to put in place a cross-functional team from India, Rapidol, Kinky and Tura operations.

Although fruits from this acquisition may take some time to bear, the African continent provides a huge long-term growth opportunity for GCPL. While analysts say GCPL’s Rapidol and Kinky brands (which currently contribute about 10 per cent to consolidated sales) are growing at more than 40 per cent, Nigeria itself is an important personal-product market with a population of over 140 million and an economic growth rate of 6 per cent. That apart, penetration levels are also low in Africa. Thus, they expect GCPL’s African businesses to continue growing at robust rates for a long time.

Meanwhile, the company hasn’t disclosed Tura’s sales and how much it is paying for the buy. Reports, however, suggest that Tura’s annual sales hover around $50 million, with operating profit margins of over 15 per cent. Sharekhan’s analysts say, “Considering past acquisitions in the FMCG space and those done by GCPL, we expect GCPL to value the company at around 1.3-1.5 times its sales (approximate deal size of Rs 300-350 crore).” Funding the deal shouldn’t be an issue either, as GCPL had cash of about Rs 300 crore as on December 31, 2009. That apart, it also has shareholders’ approval to raise Rs 3,000 crore (for acquisitions, including the remaining 51 per cent stake in Godrej Sara Lee).

Post the acquisition news (over two trading sessions), GCPL’s stock has risen 1.5 per cent to Rs 274.95. While most analysts await finer details of the deal, they have a ‘neutral’ to ‘buy’ rating on the stock with a price target that ranges Rs 290-320.