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Godrej Consumer Products Limited
Neutral; GOCP.BO, GCPL IN
Darling Group Acquisition - Management Call Highlights
• Darling Group Holdings (DGH): Brief overview. DGH is a leading
hair extension company in Africa with 20% market share (pan-African).
It has operations and manufacturing facilities in 14 African countries. It
had posted revenues of Rs9bn ($200mn) last year and has operating
margins of c20%. Revenue CAGR has been c15% over past 5 years.
DGH has been in hair extension business for over 30 years and has two
popular brands - Darling and Amigos in US$1bn hair extension market in
Africa which has no significant MNC competition. With penetration
levels at 25% for hair extension, mgmt believes there is enough
headroom for sales to grow on the back of increased penetration,
frequency of usage and upgradation.
• Transaction to be completed in three phases. GCPL announced
purchase of 51% stake in DGH. This transaction will be completed in
three phases - 1) Phase 1(over 2-3 months): GCPL will acquire countries
which contribute 45% of Group’s revenues, 2) Phase 2 (over 12 months)
: GCPL will acquire countries which contribute upto 70% of Group’s
revenues, 3) Phase 3 (over 24 months) : acquires remaining
countries/businesses. Also GCPL may acquire remaining 49% equity
stake in DGH in a 3-5 year period through a combination of put and call
options. Importantly these transactions will be done at a pre-fixed
valuation multiple. Existing management team will continue to run the
business for next five years at least.
• Acquisition to be accretive by Rs200mn in FY12 accounting for the
first phase (51% stake in 45% of business for 7-8 months of operations)
which implies 3% accretiveness for FY12. However this accretiveness
could be higher at 6-7% for FY13 assuming it for 70% of business and
for full 12 months. Management refrained from providing exact
valuation details for this deal though payments will be made in
proportion to phase completion as stated above.
• Acquisition to be funded via low cost debt (@3-4% interest cost).
Management noted that debt/equity could go beyond 1:1 post this
acquisition and company will utilise current cash on books too for this
transaction. Post 51% stake acquisition in DGH, Africa will account for
13% of GCPL’s consolidated revenues and overseas exposure for GCPL
will increase from 35% earlier to 40% now.
• Potential synergies from integration of Kinky and DGH. GCPL
expects near term benefits from integrating Kinky and DGH operations
as both operate in hair extension category. Currently Kinky imports its
products whose manufacturing could now be handled by DGH locally
making way for margin benefits here. GCPL is also exploring possibility
of launching Household Insecticides in African markets, leveraging on
DGH and Rapidol's distribution strengths in this region.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Godrej Consumer Products Limited
Neutral; GOCP.BO, GCPL IN
Darling Group Acquisition - Management Call Highlights
• Darling Group Holdings (DGH): Brief overview. DGH is a leading
hair extension company in Africa with 20% market share (pan-African).
It has operations and manufacturing facilities in 14 African countries. It
had posted revenues of Rs9bn ($200mn) last year and has operating
margins of c20%. Revenue CAGR has been c15% over past 5 years.
DGH has been in hair extension business for over 30 years and has two
popular brands - Darling and Amigos in US$1bn hair extension market in
Africa which has no significant MNC competition. With penetration
levels at 25% for hair extension, mgmt believes there is enough
headroom for sales to grow on the back of increased penetration,
frequency of usage and upgradation.
• Transaction to be completed in three phases. GCPL announced
purchase of 51% stake in DGH. This transaction will be completed in
three phases - 1) Phase 1(over 2-3 months): GCPL will acquire countries
which contribute 45% of Group’s revenues, 2) Phase 2 (over 12 months)
: GCPL will acquire countries which contribute upto 70% of Group’s
revenues, 3) Phase 3 (over 24 months) : acquires remaining
countries/businesses. Also GCPL may acquire remaining 49% equity
stake in DGH in a 3-5 year period through a combination of put and call
options. Importantly these transactions will be done at a pre-fixed
valuation multiple. Existing management team will continue to run the
business for next five years at least.
• Acquisition to be accretive by Rs200mn in FY12 accounting for the
first phase (51% stake in 45% of business for 7-8 months of operations)
which implies 3% accretiveness for FY12. However this accretiveness
could be higher at 6-7% for FY13 assuming it for 70% of business and
for full 12 months. Management refrained from providing exact
valuation details for this deal though payments will be made in
proportion to phase completion as stated above.
• Acquisition to be funded via low cost debt (@3-4% interest cost).
Management noted that debt/equity could go beyond 1:1 post this
acquisition and company will utilise current cash on books too for this
transaction. Post 51% stake acquisition in DGH, Africa will account for
13% of GCPL’s consolidated revenues and overseas exposure for GCPL
will increase from 35% earlier to 40% now.
• Potential synergies from integration of Kinky and DGH. GCPL
expects near term benefits from integrating Kinky and DGH operations
as both operate in hair extension category. Currently Kinky imports its
products whose manufacturing could now be handled by DGH locally
making way for margin benefits here. GCPL is also exploring possibility
of launching Household Insecticides in African markets, leveraging on
DGH and Rapidol's distribution strengths in this region.
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