Godrej Consumer acquires South Africa based Frika Hair :: IndiaNivesh

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Godrej Consumer acquires South Africa based Frika Hair
Godrej Consumer Products Ltd (GCPL) has entered into an agreement with Frika Hair
(Pty) Ltd (FHPL) to acquire 100% stake in its hair extensions business in South Africa.
FHPL sells hair extensions including braids, synthetic weaves, human hair weaves and
wigs and hair-pieces. It enjoys a premium position in the South African market particularly
in Western Cape, Eastern Cape and Gauteng. It is the market leader in key accounts in
organised retail.
Our Take and Valuation
The transaction value of the acquisition is undisclosed. In 2014, net sales of FHPL stood
at ZAR 73 mn (i.e. ~Rs 394 mn). As per Bloomberg data, global consumer companies are
trading at EV/Sales of more than ~1.8x 2014 sales. Hence, in our opinion acquisition
amount could be above Rs 709 mn. At the end of H1FY15, GCPL has cash of Rs 5054 mn
and its debt to equity stood at 0.5x. This is a small acquisition for GCPL and it is not likely
to put any financial strain on the company.
In FY14, Africa reported net sales of Rs 10,010 mn contributing 13% to consolidated
topline of GCPL. FHPL revenue of Rs 394 mn would imply 4% additional revenue to current
base in near term. GCPL reported net sales of Rs 75826 mn in FY14 implying additional
0.5% revenue from this acquisition. Hence this acquisition is a small one considering its
current size. Africa EBITDA margin has been declining since Q3FY14 to reach 11% in Q2FY15
from 18% in Q3FY14. FHPL’s presence in niche segment implies that its margins are likely
to be superior to current Africa business of GCPL. However, due to small size of business,
the impact may be marginal. As per the management, the acquisition is EPS accretive.
According to the management, the acquisition is likely to strengthen its position in the
hair care market of Africa. We also opine that FHPL’s presence in niche segment would
strengthen the entire portfolio of GCPL. We expect that GCPL would capitalise its current
network in South Africa and other countries to sell FHPL products thereby providing higher
sales for FHPL going forward.
At CMP of Rs 952, GCPL trades at PE of 35.7x and 29.2x its FY15E and FY16E Bloomberg
Consensus estimates. Due to small size of the acquisition, it is likely to make a marginal
impact on the consolidated company in the near to medium term. We maintain HOLD
rating on the stock.