Godrej Consumer Products (GCPL) on Tuesday said that it was looking to raise up to Rs 5,000 crore via non-convertible debentures (NCDs). The move comes within days of the company announcing that it would acquire the fast-moving consumer goods business (FMCG) of Raymond Consumer Care, a subsidiary of Raymond, in an all-cash deal of Rs 2,825 crore.GCPL said that approval for the fund-raising plan would be sought at its May 10 board meeting, also the day when the company will declare its financial results for the quarter ended March 31, 2023, (Q4FY23).
The Raymond transaction, analysts said, is also expected to be closed on that day. GCPL shares ended up 1.82% on the BSE on Tuesday at Rs 922.70 apiece. Last week, the company’s shares had fallen for two consecutive days after announcement of the deal on April 27.While Sudhir Sitapati, MD & CEO, GCPL, had said the company did not overpay for brands such as Park Avenue and KamaSutra, part of Raymond’s consumer division, analysts said there would be challenges in scaling up the business in the future.To put things in perspective, GCPL has been focusing on a three-by-three strategy over the last decade. This includes an attention on hair care, personal care and household insecticides from a product portfolio perspective. From a region point of view, the focus has been on India, Indonesia and Africa.
The Raymond transaction would see GCPL foray into the sexual wellness category. The company will also re-enter the deodorant market after unsuccessful attempts in the past with Brand Cinthol.“We expect the acquisition to be earnings dilutive in the near term as GCPL will have to spend on improving the brand visibility and expanding its presence across India through its distribution. Also, more clarity on the acquired brands complementing GCPL’s existing portfolio will be a key monitorable,” Kaustubh Pawaskar, deputy vice-president, fundamental research at brokerage Sharekhan, said.While Raymond’s consumer business had a reach of 650,000 outlets, GCPL’s 6.5 million retail reach is 10 times the former and would be key in driving sales, some analysts said.
The deal, according to its contours announced on Thursday, was closed at 4.5 times the sales of Raymond’s consumer division, which is Rs 622 crore for FY23. On April 27, Sitapati clarified that the acquisition would essentially cost GCPL around Rs 2,325 crore, since Raymond Consumer Care had Rs 100 crore cash on its books and there was a tax break of `400 crore available to GCPL since the deal was a slump sale.
“The deal is not expensive. The net cost of acquisition works out to Rs 2,325 crore after factoring in a tax break and cash on the books of the company. This works out to around 3.75 times value to sales,” Sitapati had said.