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Godrej Consumer Products eyeing acquisition to enter skincare market

LiveMint logoLiveMint 27-06-2017 Soumya Gupta

Mumbai: Godrej Consumer Products Ltd (GCPL) may buy a company in India, potentially in the skincare business, having consolidated its African joint ventures (JVs) by acquiring controlling stakes in them.

“If we were to get an acquisition, it would be in India. One of the spaces we could look at, theoretically, is in the skincare segment where we don’t have a presence right now,” GCPL managing director Vivek Gambhir said in an interview. “If you look at the face wash business, skincare companies have done better than soap (companies).”

GCPL had earlier tried to enter the liquid face wash market with the Godrej No.1 brand, but the company “tried and failed” in that attempt, Gambhir said. 

Analysts tracking the company said GCPL can deliver growth even without any acquisitions. 

“In our view, the company could accelerate growth of its existing portfolio and concentrate on cost efficiencies, to deliver robust growth even without acquisitions,” Percy Panthaki, an analyst at brokerage IIFL, wrote in a 11 May note.

Meanwhile, the company is looking to launch new variants in soaps and hair colours, its fastest-growing category, after the new goods and services tax (GST) regime is firmly in place. GST will be rolled out on 1 July.

“There are launches planned in hair colour, in household insecticides, there is a full launch calendar. But until things are fairly clear with the GST implementation, which will take all of July and most of August and September, launches will only happen until October or after,” said Gambhir.

These launches are primarily to give something new to consumers, Gambhir said. GCPL’s market share in soaps is about 12-13%, Gambhir said. In the quarter ended 31 March, sales in GCPL’s hair colour category grew 33%. 

At the same time, GCPL has consolidated its position in Africa, acquiring controlling stakes in its JVs in the continent.

“In Africa, we have full control of our joint ventures, we bought over pretty much all the JVs in terms of management and full control,” Gambhir said. GCPL’s joint ventures in Africa include the Darling Group that makes hair extensions for women, and Kenya-based Canon Chemicals. 

“Our philosophy was given the complexity of some of these geographies, we entered through a joint venture. But we have always had an upfront agreement that between period x to y, we have the full right to buy the joint venture out.” 

“This was how the deal was structured—that between period x to y, we have the full right to buy the joint venture out,” Gambhir said. “We believe in defined period marriages. We have learned this from all the joint ventures we have done in the past because eventually, objectives of two partners will diverge.”

GCPL has had joint ventures in India with confectionary firm The Hershey Co. and consumer goods firm Sara Lee . 

“In joint ventures where partners know they are exiting, they are not going to invest for the long term. They will look at their exit valuations,” Gambhir added. 

With the joint ventures under full control, GCPL will focus on the wet and dry hair businesses in Africa this year. “We got the US company (Strength of Nature or SON) whose products are now being launched in African markets,” Gambhir said. SON makes relaxers and other hair care products for African American women in the US. GCPL acquired it in April last year. 

GCPL is positioning its products in the affordable segment in African markets, much like it has in India. 

“We are not pricing all of that in because when you are catering to the mass consumer, you have to be careful not to make products unaffordable,” Gambhir said. 

“We will move to (household) insecticides only in the next year,” Gambhir said, adding that the company will begin with the Good Knight brand.

“Good Knight is available in some stores in these markets through exports, so the brand has recognition,” Gambhir said. The firm is also experimenting with new formats of the mosquito repellent machines that accommodate fluctuating electricity supply in African markets.

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