Godrej Consumer Products Limited (GCPL) continues its acquisition spree. The Rs 1,397 crore FMCG firm has snapped up Tura, a Nigerian beauty products company, which it has bought out for a reported sum of Rs 100?125 crore. While the company isn?t talking numbers, going by the company?s past track record, analysts reckon GCPL wouldn?t have paid more than 1 to 1.5 times of the target firm?s sales.
In October 2005, GCPL had acquired Keyline, in the UK, for approximately 13 million pounds at a valuation of approximately one time the company?s revenues. The Rapidol deal was struck in September 2005 at around Rs 50 crore, again at a valuation of around one time sales. However, the buyout of the Kinky group in April 2008, at around $34 million, was somewhat more expensive and valued at over three times the revenues. Last year GCPL acquired a 49% stake in Godrej Sara Lee and is looking to buy the remaining stake.
Clearly, GCPL is looking to be a big player in the African market given that Tura is the company?s third acquisition in the geography. Tura boasts a portfolio of personal care products, including soaps, moisturising lotions and skin-toning creams. And its medicated soap bar is one among the top three in its category in Nigeria.
And the Street is quite delighted with the latest move into Africa which GCPL can leverage to sell products from its existing portfolio. Brokerage HSBC is convinced that GCPL?s acquisition enhances its presence in Africa and is a strategic fit to build a strong African business. ?Tura?s distribution network and production facilities can be leveraged to introduce other GCPL products in the West African market,? the report says.
Some time back, analysts had been anxious that the company seemed to be following a fragmented approach to international growth, looking at geographies that were somewhat not contiguous. However, regardless of whether future buyouts do happen in markets that may be dispersed, they believe buying Tura is a good idea because the firm?s existing platform can be used to launch Rapidol and Kinky products in Nigeria, which has a population of around 140 million and an annual GDP growth rate of 6%. Also, the nearby markets of Ghana, Cameroon and Congo can be explored.
As Edelweiss observes, ?GCPL is focusing on its One Africa strategy?driving synergy between the four big African markets of South Africa, Nigeria, Kenya and Central Africa. It will expand the Rapidol and Kinky products into new categories and concurrently explore viable acquisition opportunity.? GCPL?s Sara Lee acquisition was well-received by analysts who perceived it to be value-accretive, given that the company is the market leader in the insecticide segment.
GCPL?s balance sheet is in fairly good shape and after the recent rights issue, the company, according to Edelweiss, has cash to the tune of Rs 400 crore, which is a war chest for acquisitions. GCPL has a 10% share of the Rs 7,000 crore soaps market and is a leader in the hair colour space with a share of over 30%.
The company?s revenues for the current year are expected to hit Rs 2,000 crore while revenues in 2010-11 are expected to grow by about 20% to Rs 2,400 crore. Operating profits are expected to increase to Rs 450 crore next year from around Rs 380 in the current year, an increase of 18%. As for the bottom line, GCPL?s net profit is estimated to grow to Rs 390 crore in 2010-11, translating into an earnings per share of around Rs 12.70 ? a growth of close to 20% over the previous year. At Rs 271,therefore, the stock trades at just over 21 times estimated 2010-11 earnings.