JP Morgan:: Godrej Consumer -Marginal impact from acquisition

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Godrej Consumer Products Limited
Neutral
GOCP.BO, GCPL IN
Marginal impact from acquisition of niche liquid 
detergent and soap brands


• Godrej Consumer today announced  the acquisition of two domestic
brands – Genteel and Swastik. Genteel is the second largest brand in the
liquid detergents category while Swastik is a niche hair and body soap
brand. These acquisitions are relatively small and as per management
combined turnover for these brands amounts to Rs250-300mn which is
c0.8% of GCPL’s consolidated sales. Management has refrained from
providing details on profitability for these brands but given the fairly
small size of these acquisitions, we expect marginal impact (c0.5-1%) on
GCPL's earnings.

• GCPL is only acquiring the brands and not the assets as GCPL would
utilize its own manufacturing capacities and distribution channels for
soaps and liquid detergents for these brands.
• Genteel’s acquisition will strengthen GCPL's dominance in the liquid
detergent space where its  Ezee brand is already dominant with 75%
share. Genteel and Ezee would command nearly 90% combined share in
the liquid detergent space now.

• Swastik is a niche herbal brand and there are two key soap SKUs which
GCPL has acquired –  Swastik Shikakai (hair soap) and  Swastik Neem
(body soap). This brand has marginal market share (more prominent in
South India), however GCPL could  leverage its extensive national
distribution network to accelerate sales for this herbal soap brand.
• These brand acquisitions will be funded from internal cash accruals.