Godrej consumer products enters Megasari Group

Godrej Consumer Products (GCPL) on Tuesday announced that it has entered into an agreement to acquire Indonesia-based Megasari Magmur Group.

The acquisition makes strategic sense for Godrej, as it is in line with the company’s global 3-by-3 strategy, which aims at being present in three continents (Asia, Africa and Latin America) through three core categories (home care, personal wash and hair care).

Megasari is engaged in production and distribution of household insecticides, wet tissues and air fresheners. It posted revenues of $120 million in 2009, reflecting a 20% year-on-year growth.
The acquisition is likely to add about 25% to GCPL’s consolidated revenues post the deal. Operating profit margins are said to be in line with GCPL.

Megasari enjoyed a 35% market share in the $150 million-a-year household insecticides market in Indonesia in 2009. It also enjoyed leadership in the wipes category in 2009 with a market share of 80%, the market for which stands at $21 million in 2009.

The acquisition will help GCPL get a foothold in Indonesia. It would be able to align Megasari’s product offerings in the household insecticides segment with Godrej Sara Lee’s domestic product portfolio.

“With this acquisition GCPL will now be the No.2 household insecticide company in Asia (ex-Japan) region,” wrote Latika Chopra of J P Morgan in a note to clients on April 6.
GCPL expects the acquisition to be earnings accretive from the first year itself.

While GCPL did not comment on the value of the deal, analysts have estimated the transaction value at $250-300 million, at 20-22 times earnings per share.

GCPL would take debt to finance this deal. With a debt-to-equity of just 0.4, it jolly well can.

Recently, GCPL received board approval to raise up to Rs 3,000 crore through a mix of equity and debt to finance its organic growth plans. GCPL is likely to be on the prowl for more deals going forward. Last month, it acquired Nigeria-based Tura, a personal care company present in soaps and skin care.

At Rs 281.20, GCPL trades at 21.6 times its estimated earnings for 2011. Analysts like the stock in the space. Investors could consider it on declines.