GCPL expands its African presence with another acquisition

Parvatha Vardhini C, The Hindu Business Line, 04 February 2016

Godrej Consumer has acquired a majority stake in Kenya-based Canon Chemicals. Having already acquired other African companies in the last few years, the latest buy is a continuation of the company's strategy to expand into emerging markets, which have higher growth potential. With Canon Chemicals specialising on products for home and personal care segments, the acquisition also reiterates the company's focus on only three broad product lines – home care, personal care and hair care.

Canon Chemical's revenue of about Kenyan shilling 1146 million (Rs 76 crore) for the year ended June 2015 is much smaller when compared to Godrej Consumer's consolidated revenue of Rs 8276 crore for the year ended March 2015. Hence, it may not add much to the consolidated bottomline, although it is expected to be earnings accretive immediately. But it will help the company expand its offerings in Africa, especially in Kenya where it has a strong presence in the hair care space through the Darling brand of hair extensions.

Complements well

Canon makes product such as petroleum jelly and hand/ body lotions on the personal care side and air fresheners, disinfectants, detergents and dish washing paste on the household side. This buy will help Godrej Consumer expand its product offerings in Africa. Many of the earlier acquisitions in this continent such as the Darling group and Frika and the buy out of the Rapidol and Kinky brands in South Africa have all been in the hair care space. Similar to Indonesia, Africa currently contributes about 35 per cent to Godrej Consumer's international revenues, which in turn constitutes half the consolidated revenues of the company. In the quarter ended December 2015, the Africa business reported a 7 per cent growth in net sales (16 per cent on constant currency terms) over the same period last year.

Apart from creating cross-selling opportunities in Africa, the buyout may also help the India business in the personal and household care space. While the company has a big presence in household insecticides (Good Knight and Hit), it has only recently entered other household segments such as air fresheners (aer). It does not sell petroleum jelly, hand/body lotion or detergents and dishwashing soaps in India except the Ezee liquid detergent.

Although the acquisition price is not disclosed, it is expected to be an all cash deal. The company will be comfortably placed to fund it, given its strong reserves. Even otherwise, its debt to equity ratio for the year ended March 2015 is at a low 0.35.