GCPL: On a buying spree

Godrej Consumer concludes its fifth acquisition in as many years and indicates there is more to come.

Godrej Consumer Products (GCPL) has acquired Indonesia-based PT Megasari Makmur Group for an undisclosed amount. However, according to reports, the acquisition cost is pegged between Rs 1,000 crore and 1,200 crore.

Megasari manufactures and distributes household products in Indonesia with a strong presence in insecticides, air freshener, wet tissues and baby wipes segments with revenues of $120 million in 2009. Its earnings before interest tax depreciation and amortisation (Ebitda) has grown 53 per cent CAGR (compounded annual growth rate) over the last three years and operating margins are about 20 per cent, comparable to GCPL, according to the management.

The acquisition is in line with GCPL’s strategy to expand to other emerging markets in Asia, Africa and Latin America. The focus is on three core segments — haircare, home care (including insecticides) and personal wash. The deal provides an entry point to other South East Asian countries like Malaysia.

The Indonesian household products market is estimated at $980 million with insecticides (projected by GCPL as a key segment) acccounting for about 33 per cent of the market and is the fourth-largest emerging market globally. Megasari is the second-largest player in the insecticide market with a market share of about 35 per cent.

Godrej plans to fund the acquisition through a combination of low-cost offshore debt and cash. It would be able to pay off debt using Megasari’s own cash flows. The management projects the deal to be earnings per share accretive from the first year itself. Consolidated debt-equity ratio was a comfortable 0.3x as of March 2009 and the board has already approved raising up to Rs 3,000 crore to fund acquisitions. The management indicated that it continued to consider other acquisitions and will raise equity funding through the QIP route should the debt to equity cross 1:1.The stock settled 1.3 per cent higher over its previous day’s close at Rs 281 and trades at a P/E of 22.4x to consensus analyst FY11 EPS estimates.

With contributions from Jitendra Kumar Gupta & Sunaina Vasudev