Inorganic growth and expanding its presence in South-East Asia were Marico Ltd’s twin steps to secure future growth, as outlined in an investor presentation made earlier this year. Its acquisition of International Consumer Products Corp. (ICPC), a Vietnamese consumer products firm, helps it do both. Marico has acquired an 85% stake in ICPC, to take control of the $25 million (Rs110 crore), sales firm. More details, including the consideration, have not been disclosed.
The last equity investment by an investor in ICPC, in June 2008, was to acquire a 21% stake for $9.6 million, translating to a valuation of around $50 million. It would have fetched a much higher price now, especially as it is reported to be growing at a 20% compounded annual growth rate in the past three years. According to one news report, Marico is estimated to have paid $60 million for an 85% stake, valuing ICPC at $70 million. If true, at about three times sales, it seems to be a fair price to pay for a fast-growing consumer firm, though knowing its profit figures could alter that conclusion. Marico’s international business accounts for over 20% of consolidated sales, and is expected to net revenue of around Rs700 crore in fiscal 2011. The acquisition will add around 14% to its global business, making it a more sizeable contributor. A short-term concern has been the ongoing political situation in the Middle East and North Africa (MENA) region, which contributes around 8% to Marico’s sales, and its immediate effect on performance. The acquisition could also provide a buffer against a fall in revenue in the MENA region.
Marico has been making global acquisitions over the past many years, entering new geographies, mainly in emerging markets. Its strategy has been to enter fast-growing economies with under penetrated consumer markets.After acquiring a firm and its brands, the company then focuses on brand-building and expanding distribution.
That has worked well so far. In the December quarter, Marico’s international business volume growth was around 25%, compared with 15% for the group. In value terms, growth was around 33% in constant currency terms, with only 3% attributable to inorganic growth. It is still in the investment phase in most of its markets, said the management in a conference call after its results, but expects the business to grow at around 20% on a sustainable basis. Operating profit margins, which are around 11%, are expected to improve to the company average of around 13%. Achieving critical mass in individual markets and a higher degree of cross-selling products across geographies will be key factors. The acquisition had little effect on its share price, as input cost inflation in its main edible oil brands will be overriding concerns in the near to medium term. The company’s share price has been volatile, as the effect of rising copra prices affected its performance in the December quarter. After falling to a low of Rs112 in end-January, its share has risen by about 12% since then.