Godrej Consumer Products has added to its African presence by acquiring hair extensions company Frika Hair Pty Ltd, based in South Africa.
This move is in keeping with Godrej Consumer’s growth strategy - one, focusing only on its three broad segments of home care, hair care, and personal wash.
Two, buying into premium brands which are within the top three in their respective markets. And three, expanding into emerging markets where growth potential is much higher.
The Godrej Consumer stock is down 1.9 per cent so far in a weak market.
Good fit
Godrej Consumer already has acquired a string of companies in the African continent – Rapidol, Kinky, Tura and the Darling group.
Frika’s product range encompasses hair extensions, wigs, synthetic weaves, braids and so on, with a premium positioning in the South African market. While Godrej Consumer has not disclosed the acquisition price, it is comfortably placed on the funding front with a low debt-equity ratio of less than 1 and strong reserves.
With annual revenues of about 73 million rand (about Rs. 40 crore), the Frika acquisition may not add significantly to Godrej Consumer’s consolidated revenues of Rs. 6,615 crore. But it can help in several ways. For one thing, it synergises well with Godrej Consumer’s haircare portfolio.
For another, Godrej can cross-sell products developed by Frika Hair into Godrej Consumer's other markets both within the African continent as well as the UK. Similarly, innovations in product development can be used in other regions too; Godrej Consumer has, for instance, used hair colouring innovations developed by its African operations into the Indian market.
Slow growth
The African region is the second largest global market for Godrej Consumer after Indonesia, accounting for about 30 per cent of global revenues. And growth in the African region has dropped in the past two quarters as economic growth in the region, especially the key South African market, slows.
From a 33 per cent growth in the March 2014 quarter over the year ago, growth came down to 12 and then 15 per cent in the June and September 2014 quarters. Also hurting is a stronger rupee against the rand; since the December 2013 quarter, the forex impact has reduced growth.