Godrej Consumer's South African buy puts focus back on the continent

Viveat Susan Pinto, Business Standard, 08 January 2015

Nine years after first stepping into South Africa with the acquisition of hair colour major Rapidol, the consumer arm of the Rs 13,500-crore Godrej Group announced on Tuesday that it was buying a new firm Frika Hair. A small deal (analysts peg it at around Rs 75-80 crore or two times Frika's FY14 sales of Rs 40 crore), the latest acquisition is the fourth in South Africa by the Rs 7,583-crore Godrej Consumer (GCPL).

More importantly, the deal helps GCPL consolidate its presence in hair extensions, a large market in the African continent. Most international personal care majors such as L’Oreal and Unilever have been rushing to Africa in the last few years to partake of the growth in what is described as the "dry hair" market there. This is basically the market for wigs, braids and hair extensions, which is pegged at around Rs 36,000 crore in Africa, nearly six times that of the liquid hair market. The latter is the market for hair care products such as shampoos, conditioners and lotions. It is pegged at around Rs 6,500 crore, according to industry estimates.

In 2008, GCPL had acquired hair extensions major Kinky in South Africa, marking its foray into the category. Rapidol and Kinky were subsequently merged in 2010. But, the Kinky buy, GCPL's second acquisition in South Africa, indicated the firm's voracious appetite for companies in the country as well as Africa as a whole.

In September 2011, GCPL acquired the Darling business in South Africa as part of its larger acquisition of hair-care major Darling Holdings, a pan-African player, in June 2011. This was GCPL's third acquisition in South Africa and its fourth in the African continent if the Tura buy of Nigeria in 2010 is taken into account. With Frika, the total count now (of acquisitions) is five in Africa. And like Kinky and Frika, Darling too operates in the hair extensions space with two brands - the flagship which shares its name with the company and Amigos.

While GCPL did not indicate whether Frika would be merged into its existing South African business, company MD Vivek Gambhir said that the acquisition would serve as a strong complement to its Darling range of products.

"With its quality range of premium hair extensions, Frika provides a strong complementary addition to our Darling masstige portfolio. This acquisition reflects our continued commitment to scaling up our presence in Africa," Gambhir said.

Currently, GCPL derives revenues of Rs 1,260 crore (or $200 million) from its African operation, which is 35% of its total international turnover of Rs 3,564 crore. GCPL gets 47% of its total revenues from international markets. The balance (53%) comes from the domestic market.

Plans are afoot to ramp up GCPl's international presence (as well as numbers) with more "targeted" buys. This is part of GCPL's three by three strategy, which focuses on strong regional assets in emerging markets.

In the last five years, GCPL has rapidly grown on the back of acquisitions, wrapping up eight buys between 2010 and 2012. These included Nigerian company Tura in March 2010, Indonesian major Megasari Makmur in April of that year, Sara Lee's 51% stake in the Indian joint venture Godrej Sara Lee in the second week of May in 2010, Issue at the end of the third week of May 2010, Argencos in early June, and brands Swastik and Genteel from Mumbai-based Priya Kothari group in December 2010. In June 2011, Godrej acquired the Darling Group in Africa. And in January 2012, the firm acquired Chilean company Cosmetica Nacional.