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UBS Investment Research
Godrej Consumer Products
Incorporating the African acquisition
„ Event: acquisition of 51% stake in The Darling Group
Godrej Consumer Products (GCPL) announced its acquisition of a 51% stake in
The Darling Group Holdings (DGH). DGH is a market leader in the $1bn African
hair extension market. It has ~20% market share in the pan African hair extension
market, which is largely unorganised. African consumers tend to prefer hair
extensions to hair care/colour products.
„ Impact: deal increases foothold of GCPL in Africa
We believe GCPL has acquired access to the distribution network of DGH in order
to drive growth. GCPL will add the household insecticides business to its product
portfolio in Africa. A good distribution network should provide GCPL the platform
to introduce its products in the market quickly, increase the scale of operation and
achieve cost synergies, for its Kinky and insecticides businesses.
„ Action: raise earnings forecast and price target
We raise our EPS estimates for FY12 from Rs18.43 to Rs19.16 (+4%) and for
FY13 from Rs20.91 to Rs22.62 (+8%) to incorporate the accretive acquisition.
38% of GCPL revenues will be from international operations, of which 26% will
be from Africa.
„ Valuation: maintain Buy
We raise our sum-of-the-parts (SOTP) based price target from Rs460 to Rs500.
GCPL would trade at 26x 2012E PE at our price target. The stock is currently
trading at 22x 2012E earnings.
Q Godrej Consumer Products
Godrej Consumer Products (GCPL) focuses on home care, hair care and
personal wash products in Asia, Africa and Latin America. In FY10, personal
wash was its largest revenue contributor at 41%, while hair care and home care
contributed 20% each. Following the GHPL and Megasari acquisitions,
homecare contributed 9% of total revenue in Q1 FY11, while personal wash and
hair care contributed 33% and 18%, respectively. GCPL's FY10 turnover was
US$443m, of which US$365m was from domestic operations (including GHPL)
and the remaining US$79m from international operations.
Q Statement of Risk
We think the key risks to GCPL’s earnings and valuation include intensifying
competition, increasing raw material costs and slowing economic growth. With
GCPL’s expansion in international markets, we believe, the company also has
exposure to multiple country and currency risk
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Godrej Consumer Products
Incorporating the African acquisition
„ Event: acquisition of 51% stake in The Darling Group
Godrej Consumer Products (GCPL) announced its acquisition of a 51% stake in
The Darling Group Holdings (DGH). DGH is a market leader in the $1bn African
hair extension market. It has ~20% market share in the pan African hair extension
market, which is largely unorganised. African consumers tend to prefer hair
extensions to hair care/colour products.
„ Impact: deal increases foothold of GCPL in Africa
We believe GCPL has acquired access to the distribution network of DGH in order
to drive growth. GCPL will add the household insecticides business to its product
portfolio in Africa. A good distribution network should provide GCPL the platform
to introduce its products in the market quickly, increase the scale of operation and
achieve cost synergies, for its Kinky and insecticides businesses.
„ Action: raise earnings forecast and price target
We raise our EPS estimates for FY12 from Rs18.43 to Rs19.16 (+4%) and for
FY13 from Rs20.91 to Rs22.62 (+8%) to incorporate the accretive acquisition.
38% of GCPL revenues will be from international operations, of which 26% will
be from Africa.
„ Valuation: maintain Buy
We raise our sum-of-the-parts (SOTP) based price target from Rs460 to Rs500.
GCPL would trade at 26x 2012E PE at our price target. The stock is currently
trading at 22x 2012E earnings.
Q Godrej Consumer Products
Godrej Consumer Products (GCPL) focuses on home care, hair care and
personal wash products in Asia, Africa and Latin America. In FY10, personal
wash was its largest revenue contributor at 41%, while hair care and home care
contributed 20% each. Following the GHPL and Megasari acquisitions,
homecare contributed 9% of total revenue in Q1 FY11, while personal wash and
hair care contributed 33% and 18%, respectively. GCPL's FY10 turnover was
US$443m, of which US$365m was from domestic operations (including GHPL)
and the remaining US$79m from international operations.
Q Statement of Risk
We think the key risks to GCPL’s earnings and valuation include intensifying
competition, increasing raw material costs and slowing economic growth. With
GCPL’s expansion in international markets, we believe, the company also has
exposure to multiple country and currency risk
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