WITH substantial cash reserves, low leverage and signs of a rebound in the economy, Indian fast moving consumer goods (FMCG) companies are aggressively chasing inorganic growth, scouting for acquisition opportunities in India and abroad. For some companies such as ITC Ltd, acquisitions are integral to their strategy of diversifying into new products. On February 14, ITC acquired personal care brands Savlon and Shower to Shower from Johnson & Johnson (J&J) for around R200 crore. With this move, ITC will compete with Reckitt Benckiser’s Dettol and Hindustan Unilever Ltd’s Lifebuoy brands in India.
‘’This (the recent acquisiton) is in line with ITC’s aspiration to achieve a revenue of R100,000 crore from the new FMCG businesses by 2030. We have asset purchase agreements with J&J for purchase of Savlon and Shower To Shower trademarks and other intellectual property, respectively, primarily for use in India,” an ITC spokesperson said in an email.
This is ITC’s second significant acquisition in the last one year. It acquired a beverage brand ‘B Natural juice’, which has a turnover of R100 crore, from Balan Natural Foods in May 2014. To build its FMCG business, ITC is further scouting for acquisitions in both domestic and global markets.
Like ITC, Wipro Consumer Care & Lighting (WCCL), a part of the Azim Premji-led Wipro Enterprises, is looking for acquisitions to extend its footprint. “We are looking for acquisitions in developing regions such as Africa, Middle East, China and India. Our focus is on acquiring brands in the personal wash, toiletries and skin care segments,” says Vineet Agrawal, president of WCCL.
In the last two months, homegrown FMCG companies Godrej Consumer Products Ltd(GCPL) and Emami Ltd have acquired international assets, while the management of Tata Global Beverages (TGBL) and Dabur India Ltd say they are looking to do so as well. In January, GCPL acquired South Africa’s Frika Hair Care company and Kolkata-based Emami acquired Fravin, an Australian personal care company.
Commenting on GCPL’s inorganic growth plans, chairman Adi Godrej said his company was following a two-pronged acquisition strategy. “We are looking at new acquisitions in Asia, Africa and South America. Secondly, after our acquisition of Darling Group’s operations in South Africa, we are acquiring their operations in other African countries.”
On the other hand, Dabur is now looking at acquisitions in India, having made a big-ticket international purchase in 2011, by buying out the US-based personal care products manufacturer Namaste Group for $100 million. ‘’As part of our inorganic growth plan, we are looking at acquisitions in India to extend our offerings and operations,” said Sunil Duggal, CEO, Dabur India.
Similarly, after forging successful tie-ups with Starbucks and PepsiCo in India, TGBL, a part of the $103 billion-by revenues Tata Group, is also keeping an eye out for inorganic opportunities in India and overseas. “Strategic alliances will fall in place when we foresee a right opportunity, be it in India or outside,”says Ajoy Misra, TGBL’s CEO and MD.
What fuels this enthusiasm on the part of FMCG companies in 2015? “With hefty cash reserves, debt-free home-grown FMCG companies are keen to acquire companies after two dull years due to the economic downturn,” says an FMCG analyst with a domestic brokerage in Mumbai.
Harsh Agarwal, director of Emami says many home-grown FMCG companies in India are doing well despite the economic slowdown, and their strong financials allow them to try and expand. “At Emami, we are keen to clinch more acquisitions in India and other global markets. We have a hunger to grow faster than we have been growing,” Agarwal said. Emami will look for acquisition targets in regions like Russia, Middle East and Africa in addition to the home market, he added.