Cheap valuations augur well for M&As

With valuations appearing attractive in a downbeat global market, the Godrej group plans to acquire companies in the household insecticide and hair colour businesses, Chairman Adi Godrej has said.

The acquisitions will mostly be made in developing countries, Godrej told Business Standard, declining to give more details.

BUYING TRICK

Acquisitions now have become more attractive as valuations have shrunk due to the global slowdown

RCom and Essar are among the Indian firms that are seeking to expand overseas through the inorganic route

Godrej has acquired 4 businesses in the past one year "" a 51% stake in Cauvery Palm Oil, Sara Lee's body care business, Kinky's hair colour business in South Africa

The group also bought out Godrej Global Middle East in Sharjah

"Acquisitions now have become more attractive as valuations have shrunk due to the global slowdown," he said.

Reliance Communications and Essar Industries are among other Indian companies that are seeking to expand overseas through the inorganic route as many companies across the world are being forced to sell businesses to cut losses.

Godrej has acquired four businesses in the past one year: a 51 per cent stake in Cauvery Palm Oil, Sara Lee's body care business for $13 million, Kinky's hair colour business in South Africa. The group also bought out Godrej Global Middle East in Sharjah for distributing its FMCG products in Gulf countries.

The group expects its consumer goods business to grow at least 30 per cent this year, with 10 per cent growth to be accounted by acquired companies.

The growth drivers for the group would be its properties, palm oil and process equipment businesses, including the defense sector that is expected to grow by 40 to 50 per cent every year, Godrej said.

The Mumbai-based group raised its networth, equity and reserves last year in a bid to prepare for possible acquisitions, Godrej said. The group raised about Rs 1,000 crore during the period. Godrej Industries, the flagship company of the group, raised Rs 600 crore through qualified institutional placement in November 2007.

Godrej Consumer Products, too, raised Rs 400 crore through a rights issue in March this year. The group, which earns about a third of its revenues from the fast moving consumer goods business (FMCG) and a fifth from consumer durables, expects its property business to be among one of the biggest revenue earners in the future. Godrej Properties, the developing arm of the group, is seeking regulatory permission for an IPO.

To expand the share of revenue from properties, Godrej plans to develop its sprawling premises at Vikhroli in the eastern suburbs of Mumbai, especially after lifting of urban land ceiling act, which prevented developers from using the land in the city.

The group has already shifted its Vikhroli-based soap factories to Himachal Pradesh, freeing about 3 million sq ft. The group plans to shift additional production units outside Mumbai, which will help release an additional 70 acres, newspaper reports said earlier.

The group would continue to look at possible JVs in its other businesses as well. At present, 15 per cent of the group's Rs 7,500-crore turnover is contributed through its JVs. Its biggest and oldest JV is the 14-year old Godrej Sara Lee with a turnover of Rs 800 crore. It makes household and personal grooming products.