Market affirms GCPL's M&A play for building value

Refusal to over-integrate has turned win-win for Godrej's FMCG firm

 If the Rs 8,242-crore Godrej Consumer Products (GCPL) today earns nearly half of its revenues (47 per cent) abroad from just 15 per cent in 2010, it can credit the success to its unique integration model for acquisitions.

Company Managing Director Vivek Gambhir told Deccan Herald recently that the strategy is to give enough operational room for the local leadership of the acquired company, even as GCPL integrates back-end, finance, and information technology (IT).

“We don’t over-integrate. We keep as many of the local leadership as possible who retain P&L ownership,” Gambhir said. Incidentally, Gambhir is a Harvard Business School alumnus and a former partner at consultancy Bain and Co.

These policies have led to dramatic results. Gambhir said in the past four years since the company acquired the Megasari Group in Indonesia, its revenues are consistently growing at around 26 per cent, in contrast to the previous 15 per cent growth.
Three broad segments

Indeed, GCPL’s largest overseas market is Indonesia, which contributes 40 per cent of its international sales, followed by Africa (30 per cent), and UK & Latin America (30 per cent). GCPL has acquired both businesses as well as brands in Indonesia (Megasari), South Africa (Rapidol, Kinky, Frika, the Darling Group), Argentina (Issue and Argencos Groups), Chile (Cosmetica Nacional), and the UK (Keyline brands). Everywhere, the company is broadly present in the three categories of Household Insecticides, Soaps, and Hair Colour where it operates in India as either the leader or the No.2 in each segment. Market sources say GCPL has a whopping 50 per cent share of the Household Insecticides market in India with its leading Good knight and Hit brands, 20 per cent share in Soaps where it owns the Cinthol and Godrej No.1 brands, and a quarter of the market in Hair Colour where it owns Godrej Expert and Nupur brands.

Being selective pays

The GCPL MD gave another glimpse of the company’s strategy when asked about beefing up its India portfolio with acquired brands. “We don’t blindly follow the multinational formula of replacing domestic brands with their overseas portfolio. We selectively introduce technology or IP (intellectual property) from overseas buys in  India,” he said. To illustrate, he noted how GCPL borrowed the IP for a hair colour crème from the portfolio of Argentina’s Issue.

“We brought in sachet technology from Issue but reformulated and changed the packaging to launch the first hair crème-in-a-sachet in India at a disruptive price point of Rs 30,” Gambhir said. The bet paid off and today the crème portfolio is now a third of GCPL’s Hair Care business, he said. An even more celebrated success is the Good Knight Fast Card, whose IP was borrowed from a paper-based product of Godrej Indonesia. “Each card has to be lighted up to burn itself. The repellent effect lasts for up to six hours,” Gambhir said. Sold at  just Re 1 per card, the product has raced to become a Rs 100-crore brand in just 11 months, the GCPL MD said.

The company has also set ambitious goals. Vision 2020 crafted in 2010-11 targets growing tenfold in 10 years. Since then, the company has grown at a CAGR (compound annual growth rate) of 26 per cent, Gambhir said. He also spoke about GCPL’s 3 by 3 strategy of having a presence in three emerging markets (Asia, Africa, Latin America) across three categories (Home Care, Personal Wash, Hair Care).

The market seems to have voted on its feet for the company’s game plan. In the just concluded June quarter, GCPL’s consolidated revenues grew 11 per cent to Rs 2,095 crore; India business volumes grew 13 per cent, and consolidated net profit grew 39 per cent to Rs  199 crore.

WINNING FORMULA


GCPL gives operational room for local leadership of acquired company, who retain P&L ownership

But the company integrates back-end, finance, and information technology (IT) with itself.

It selectively introduces technology or IP (intellectual property) from overseas acquisitions in  India

GCPL today earns nearly half of its revenues (47 per cent) from overseas, from just 15 per cent in 2010