BackGodrej Consumer puts consolidation plan to work
Godrej Consumer puts consolidation plan to work
PremiumGraphic: Naveen Kumar Saini / Mint
In the last week of July, the management of Godrej Consumer Products Ltd (GCPL) said it did not intend to merge Godrej Home Products Ltd (GHPL) with the firm, in response to an analyst’s query in a post-results conference call. A few months down the line, it changed its mind and announced a merger last week. GCPL runs a domestic business of soaps, hair colour and other personal-care products, and also has a sizeable overseas business, developed through acquisitions. GHPL sells household insecticides with brands such as Good Knight and Hit, and became a 100% subsidiary of GCPL after it bought out Sara Lee Corp.’s stake in the company.
GCPL and GHPL are already integrating their operations, and GCPL expects significant cost savings, especially in the next fiscal. But GCPL’s consolidated results already reflect GHPL’s performance. Therefore, the key effect will be visible on its stand alone results, which have been hit by an under-performing soaps business.
Demand for mass market products has been hit by rising food inflation, and high inflation rates are likely to see this continue. Strong competition is another negative factor. In comparison, the household insecticide business is doing well, with sales rising by 28% year on year during the June quarter, compared with the soaps business, which declined by 9%.
The merger will see GCPL’s domestic business integrated under one company, becoming more robust. It also takes forward GCPL’s intention to consolidate its various acquisitions, done in the space of around four years. Along with the GHPL merger, it is also merging two African ventures, in the hair products business, which too should result in cost savings.
The process of consolidation will reveal whether GCPL can transform into a multinational, with a common footprint across countries, rather than merely a firm with stakes in different companies in different countries. That could make a significant difference to its performance and hence, valuation.
marktomarket@livemint.com
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