Chasing Colours: Godrej Buys Argencos In Deal Spree

By Reghu Balakrishnan

  • 03 Jun 2010

Godrej Consumer Products Ltd (GCPL) continues its foray into global markets with a big shopping cart. It has entered into an agreement to acquire 100% stake in Argencos, a mid-sized Argentine hair care company with a strong portfolio of brands including Roby and 919.

The latest deal closely trails GCPL's  acquisition of South America based Issue Group, a leader in Argentina's hair colour market with an over 20% market share. The combined sales of the two Argentine transactions would be over $45 million. The equity value for both transactions is approximately $43 million.

With these two buyouts, Godrej's hair colour portfolio will now enjoy a volume market share greater than 25% in hair colours and almost 50% in hair styling sprays. Argencos, one of the largest player in the kit format in hair colours with an market share of 17% in the format, has a manufacturing plant located in La Rioja. The hair colour market in Argentina is estimated to be around $200 million growing at a CAGR of over 22% in the last two years.


Last month, GCPL had consolidated its domestic operations with the buyout of Sara Lee in their joint venture Godrej Sara Lee - which markets Good Knight, Hit and Jet brands - for $234 million. GCPL recently acquired Tura, a leading beauty brand in West Africa, and Megasari Group, a leading household care company in Indonesia. The acquisition of Issue Group which had revenues of $33 million in 2009 involves buying of a 100% stake in  Laboratoria Ceuna, Consell SA, Issue Uruguay and Issue Brazil. Though the deal size was not disclosed, Issue Group has been valued at 8 times EBITDA and is expected to be EPS accretive from the first year of operations.

VCCircle earlier reported that GCPL is also holding talks with private equity majors such as Carlyle, Standard Chartered Private Equity and ChrysCapital for raising around $130-$140 million as part of its overall capital-raising plans estimated at over $650 million to fund these acquisitions.

The key businesses of Godrej Consumer Products Ltd (GCPL) are spread across the personal care segments of soaps, hair colours, toiletries and liquid detergents, with most of them operating at margins of over 20%. In FY10, GCPL reported consolidated revenue of Rs 2,042 crore (up 47%) with net profit of Rs 340 crore (up 97%).


Adi Godrej, Chairman, GCPL, said: “Argencos is a perfect, complementary add-on to our earlier acquisition of Issue Group. I expect the combination of the two businesses to set us on a firm footing in achieving our plans for Latin America. The two companies provide us with a tremendous platform for establishing a strong presence in the fast growing hair colour markets in Latin America. Argentina and Brazil are leading vanguards of hair trends and innovations in hair care. We will have market leadership in many countries in South America including a presence in Brazil."

At the same time, the acquisition represents another important step towards GCPL becoming a leading emerging markets multinational and dovetails well with our global 3-by-3 strategy – presence in 3 continents – Asia, Africa and Latin America through 3 core categories – home care, personal wash and hair care. Over the last few years, we have been following a very disciplined and focused approach to identifying acquisitions that represent a strong fit with our business, both strategically and operationally, he added.

A. Mahendran, Director, FMCG Portfolio Cell, added: “The acquisitions of Issue and Argencos are important steps in establishing our footprint in Latin America. We continue to stay true to our battle-tested approach of acquiring pioneering local brands with strong leadership positions in attractive geographies that have demonstrated an excellent track record of results and are run by seasoned management teams. These companies have a rich heritage of over a quarter of a century in serving the needs of the Latin American consumer through innovative and complementary offerings. We also believe that the opportunities for capitalizing on the strengths of these businesses across our entire hair colors business are significant.”


According to a recent Angel Broking report, GCPL is expected to post a 15% CAGR in the top-line and a 14% CAGR in earnings during FY2010-12E, as the benefits of price hikes fade out, GSL’s consolidation effect forms a base and Gross Margin expansion peaks out. "With GCPL's wider portfolio, stronger performance of its international business, the likely acquisition of the remaining 51% stake in GSL from Sara Lee and a potential upside trigger from further acquisitions (likely in Latin America), we believe that the stock still offers significant triggers for sustained performance," the report said.

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