Thursday, April 8, 2010

>Godrej Consumer Products Limited: On a global acquisition spree - ALERT

• After Africa, Godrej Consumer is now eyeing the Indonesian market. Today it announced its decision to acquire Megasari Group, a leading household care company in Indonesia. With revenues of US$120MM in 2009 (+20% y/y), Megasari holds dominant market shares in household insecticides (35%), air care (45%), wipes (80%), and breakfast cereals (15%) segments. The three leading brands (Hit insecticide, Stella air care and Mitu baby wipes) contribute 71.8% to total sales. See the table below for details on market size and growth profile for these segments. With this acquisition GCPL will now be the No.2 household insecticide company in Asia (ex-Japan) region.

• This acquisition will add approximately 25% to GCPL’s consolidated top line with operating margins likely in the mid-teen range. While no financial details have been disclosed for the transaction by the company, some media reports (ET Now) have reported that the likely purchase price for Megasari is Rs12B, which implies valuation at P/Sales of 2.2x. For the previous acquisitions, GCPL had valued Kinky at 2.8x P/Sales while the purchase of a 49% stake in Godrej Sara Lee was done at a valuation of 2.3x P/Sales. Management expects this transaction to be earnings accretive from first year itself.

• GCPL will look to fund this acquisition via a combination of cash and debt. Currently GCPL has Rs2B of net cash and debt/equity of 0.4x which allows it to comfortably leverage up the balance sheet. In Dec’09 GCPL’s board approved the proposal to raise capital up to Rs30B via a combination of debt and equity which was primarily to fund the inorganic growth plans.

• This acquisition fits well with GCPL’s strategy of pursuing a global emerging market footprint. Earlier last month, company announced its acquisition of Tura, a leading personal care company with wide presence in soaps and skin care segment in Nigeria. These acquisitions provide GCPL a strong platform to launch its portfolio of hair care and personal care products into African and Indonesian markets.

• The company is hosting a conference call tomorrow April 7, 2010 at 4.30p.m. IST to discuss the acquisition of Megasari. The conference dialin numbers are +91 22 3065 0101 and +91 22 6629 0301.

To read the full report: GODREJ PRODUCTS