Godrej to move into strong position after Sara Lee stake buy

Godrej to move into strong position after Sara Lee stake buy

Mumbai: Personal care products maker Godrej Consumer Products Ltd (GCPL) plans to continue acquiring businesses in new categories and markets, following its Wednesday buyout of US firm Sara Lee Corp.’s 51% stake in their joint venture Godrej Sara Lee Ltd (GSLL).

“We will continue to look at inorganic growth as we consider new categories and new markets," said A. Mahendran, director, fast-moving consumer goods (FMCG) portfolio cell for the Godrej group.

Last year, GCPL had received board approval to raise Rs3,000 crore to fund expansion plans. “We are still working out on the details for funding this buy," Mahendran said. HSBC provided advisory support for the transaction.

With the purchase of GSLL, which owns household insecticide brands Good Knight and Hit, GCPL also becomes the second largest company in that segment in Asia—excluding Japan—after SC Johnson, which makes Baygon and AllOut.

Over the years, GCPL has also built a leading position in the fast-growing South African ethnic hair care market with its acquisitions of Rapidol, Kinky and Tura brands.

The company is now looking at Latin America and China, as well as categories beyond hair colour and insecticide, said Mahendran.

The buyout of Sara Lee’s stake for $234 million (Rs1,053 crore) follows the acquisition of Tura in Nigeria in early March and PT Megasari Makmur in Indonesia in mid-April.

GCPL last year bought a 49% stake in GSLL from its two group companies. For fiscal 2010, GCPL reported a profit of Rs340 crore on consolidated revenue of Rs2,042 crore. In the same period, GSLL reported a net profit of Rs137 crore, a 31% increase from the previous fiscal, on revenue of Rs965 crore, a 20% growth over the previous year.

The acquisition also propels GCPL into a leading position in the personal care products category, alongside Dabur India Ltd, the fourth largest company in the consumer goods sector, said Anand Shah, sector analyst with Angel Securities Ltd. He added that following the acquisition, GCPL’s revenue is expected to grow 21% and 15% during fiscal 2011 and 2012, respectively.

GCPL’s revenue from international operations is also expected to be 30% higher on account of the Megasari buy, against peers such as Dabur and Marico Ltd, which have close to 25% revenue from international operations, Shah said.

In a statement on its website, Illinois-based Sara Lee said it anticipated to close the transaction before the end of Sara Lee’s fiscal on 3 July.

The disinvestment of the stake is in line with Sara Lee’s plans to focus on its core food and beverages business as it exits from the household and body care segments.

“The sale of our stake in the Godrej Sara Lee joint venture, combined with the previously announced binding offers with P&G (Procter and Gamble Co.) and Unilever (Plc), underscore the significant value of our household and body care portfolio," chairman and chief executive Brenda C. Barnes said in a statement.

On Thursday, GCPL’s shares rose 13.78% to close at Rs339.05 on the Bombay Stock Exchange, while the benchmark Sensex rose 0.41% to close at 17,265.87 points.