FMCG acquisitions to maintain pace

Nine acquisitions in twelve months by three companies is indication enough of the kind of growth the fast moving consumer goods (FMCG) sector is looking for. These are just the listed companies that are being counted.

There were a fair number of other deals such as Godrej Beverages & Foods acquiring Nutrine from the Reddy family and Goldman Sachs investing in packaged food company Mrs Bector's Foods among others.

But 2006 clearly belonged to Tata Tea. The company had two of the biggest deals of the year in the sector. In June, the company acquired Eight O'Clock coffee in the US through its subsidiary Tata Coffee for $220 million and this was soon followed up by picking up 30 per cent stake in vitamin water company Glaceau for $677 million making it the largest deal in the sector or for that matter the largest deal inked by the Indian private sector till date.

Earlier in the year, Tata Tea had also acquired Czech tea brand Jemca, followed by a 33 per cent stake in South African Joekels in October. But analysts are still not entirely convinced about the balance sheet implications of these moves.

"For the Glaceau acquisition, Tata Tea has taken on a huge amount of debt, so any effect on the profit figures will be seen only after two years," said a Mumbai-based equity analyst. The company, in turn, has stated that it is keen on having a well diversified product portfolio.

Hiral Sheth, analyst, Equitymaster, said in this case, it was also important to consider the extended reach that the company has got through these acquisitions.

"The acquisitions are in fast growing segments and also give the company access to brands in fast moving categories such as enhanced water and herbal teas," said Sheth.

Marico Industries has, however, started seeing the effects of its early acquisitions. The company's acquisitions this year ranged from a herbal soap in Kerala to a hair oil brand (Nihar) to hair care brands in Egypt. For the quarter ended September 2006, the company posted a growth of 37 per cent, of which 16 per cent came from acquisitions (not including the Egypt acquisitions).

Nihar alone is expected to add about 10 per cent, approximately Rs 120 crore to the company's turnover.

Godrej, which acquired Rapidol in South Africa in July this year, has also started seeing some amount of incremental growth through the acquisition.

In the September quarter this year, Rapidol contributed Rs 3 crore to its overall turnover of Rs 124 crore. At the time of the acquisition, Adi Godrej, chairman, Godrej Consumer, had said that the acquisition was very accretive.

And with most companies, including multinationals such as Hindustan Lever and Procter & Gamble reportedly stating that they too are on the lookout for acquisitions in India, 2007 promises to be no different, if not bigger.