Mumbai: The board of Godrej Consumer Products Ltd (GCPL), which makes soaps and other toiletries, has approved raising Rs3,000 crore to fund the firm’s potential stake buy in its Sara Lee venture and other new acquisitions. GCPL is in talks to buy a 51% stake in Godrej Sara Lee, its joint venture with Sara Lee Corp. of the US.
Chairman Adi Godrej said most of the fund-raising would be via debt, with equity as a small component. The firm’s domestic business is likely to grow at 15-20%, he said in an interview. Edited excerpts:
Are there any serious fund-raising plans in the company?
We have already procured shareholders’ and board approval for raising up to Rs3,000 crore of debt and equity to fund our various acquisitions, which includes the two acquisitions we have announced in Indonesia and Nigeria. We are looking at a couple of other acquisition opportunities. We are also looking to acquire the 51% stake that Sara Lee owns in our joint venture Godrej Sara Lee because Sara Lee (had) publicly announced they want to get out of (the) personal and household care business.
Growth strategy: GCPL chairman Adi Godrej. Abhijit Bhatlekar/Mint
So as and when the further acquisition materializes, and as and when we need the funding for the Indonesian and Nigerian acquisition, which will be very soon, we will raise further capital. In the first stage, we will raise debt because currently we have considerable cash on our books—we have no net debt but we have net cash on our books. ...And when we need to raise further capital, it will be partly debt and partly equity.
The buzz on Wednesday was that you probably will be doing some kind of an equity-related issue. No immediate equity or equity-related instrument plans?
Equity may be raised very soon. The first tranche will be debt, very soon thereafter could be equity and further debt.
Can you break it up within the Rs3,000 crore—how much could be debt and how much equity?
Most of it would be debt and a small percentage of it could be equity, because currently we have the capability on our balance sheet to take on a lot of debt. We want to keep the debt-equity ratio (at) around 1:1. So we will have to raise further equity if we need to raise the entire Rs3,000 crore. But equity will be a small part of it.
A word on the Indonesian acquisition. Can you confirm it was indeed around Rs1,200 crore and the couple of more acquisitions that you are talking about—would that also be in the same region of about Rs1,200-1,300 crore?
I cannot talk about the prices of the acquisitions because that is confidential information. I have mentioned that the Indonesian acquisition will be highly accretive for the company. In this financial year, after paying for the cost of debt, we expect an accretiveness of about Rs50 crore to our bottom line from the Indonesian acquisition.
What is the timeline you are looking at for buying Sara Lee’s stake in the joint venture?
That is being negotiated. I cannot talk about it until it is actually done.
Are you also looking at individual brands within the country? Domestic brands?
Yes, we are looking for some, but there is not much in play...but we are clearly interested in acquisition of brands in India in the personal and household care areas.
Till when will you go ahead with this inorganic strategy? And by when do you expect all of this to be consolidated?
We have stated that we would like to organically grow at about 15-20%. We think our organic growth will be in that range. This includes India and international businesses. And inorganically, we would like to add a CAGR (compound annual growth rate) of another 10%. So that’s our plan over the next five-seven years.
A few brokerage reports have said that the kind of margins you enjoyed in Q4 (the fourth quarter) could be the peak margins and going forward there could be some slippage. How confident are you of sustaining these margins?
The margins are quite sustainable because I do not think the margins were extraordinarily high in Q4. The commodity situation is quite benign and we are cutting costs continuously with various initiatives within GCPL and its associated companies. So I expect strong, more than 20%, margins to continue both in our Indian businesses—in Godrej Sara Lee—as well as in the acquired companies.