Godrej Consumer Products (GCPL) Acquires Soft & Gentle In UK

The UK subsidiary of Godrej Consumer Products (GCPL), Keyline Brands has acquired the Soft & Gentle brand in the UK from Colgate Palmolive. The amount at which the deal has been struck is however not yet disclosed. This acquisition, according to the release, will be funded by a low-cost debt. The impact on GCPL's consolidated Balance Sheet would be that, its debt to equity ratio would increase by 0.03x. Based on the financials for the September quarter of 2012, the debt to equity ratio of the company stood at 0.48x this puts the deal value to be in the range of around Rs 90 crore.

Soft and Gentle is UK's 4th largest female deodorant brand and enjoys a strong brand recall among consumers there. It was launched in the UK in 1976 and hence is one of the oldest brands having an excellent distribution network which will provide synergies for other brands of the company (GCPL) as well.

We had recommended a buy on GCPL, when we had analysed the company (Vol No 27, Issue No 4 dated 12 February 2012). It was then trading at around Rs 410 and currently it is stands at Rs 728 per share yielding and handsome return of around 78 per cent. Our recommendation was based on the fact that the company is a market leader in most of the segments in which it operates and the stock was available at a fair valuation. Further, we had also said that GCPL will grow organically as well as inorganically through acquisitions. This acquisition seems to be a step in that direction.

GCPL is a leading FMCG player operating majorly into the Hair Care, Home Care and Personal Care segments. It has good brands like Godrej Expert Powder, Nupur Mehendi, Good Knight, Hit, Godrej No 1, and Cinthol among others in its portfolio. Of the total sales, around 57% (as on 30th Sept 2012, Rs 917 crore) come from the domestic market while the remaining 43% (Rs 681 crore) come from the international market.

Europe contributes to around 10% of the international sales and has an EBITDA margin of around 9%. With this new acquisition of Soft & Gentle, Europe would be contributing more (roughly around 25%) to the international sales numbers of GCPL. Soft & Gentle’s sales for calendar year 2011 were £21m which are approximately Rs 150 crore.

For the September quarter of 2012, on a consolidated basis top-line increased by 34% to Rs 1600 crore while the bottomline grew by 28% to Rs 168 crore. The company also paid a dividend of Rs 4.75 per share for FY2012. On the valuation front, the stock is currently available at a trailing PE multiple of 38x which we believe is fair considering the company's robust growth prospects going ahead. One could invest in the counter in a staggering manner keeping in mind a long term view to garner better returns.