Godrej to buy majority stake in Kenya's Canon Chemicals

Godrej Consumers is in process to buy majority stake in Kenya-based company Canon Chemicals. This will be an all cash deal where Godrej will enjoy a 75 percent stake in the profit-making branch. Canon deals in personal and household care products and has been reporting strong earnings over the last three years, says Adi Godrej, Chairman, Godrej Group.
Speaking to CNBC-TV18, he says Canon Chemicals has strong market share in Kenya's market, particularly in the petroleum jelly segment, and Godrej already has 4,000 employees in the region's hair extensions business—Darling. "In fact in Kenya, our per capita sales are already higher than in India," Godrej adds.

Further, the deal will be completed in next 90-120 days and is earnings-per-share (EPS) accretive, he says, adding, "it will also enable us to leverage many other growth opportunities in Kenya".In addition, the company will increase stake in other joint ventures in Africa, which have been growing steadily, Godrej says.Below is the verbatim transcript of Adi Godrej’s interview with Latha Venkatesh, Agam Vakil and Sonia Shenoy on CNBC-TV18.Latha: If you can just take us through this Canon acquisition, your press release tells us that it is a small acquisition, when will it start making a difference to your earnings?A: We have to go through Kenyan formalities with the government. It will start being accretive immediately. It is consolidated with our account. It is a small company but it fits in very well with present Kenyan operation. It is in personal and household care and it has a great scope for growth. Kenya is a major country of operation for us for our Darling business which is in hair extensions.Sonia: How much have you paid for this acquisition?A: It is confidential information so we are not allowed to reveal it because the sellers don’t want to reveal. Latha: Is it a profit making company? A: Yes, it is profitable and it will be very accretive in our consolidation. It will also enable us to leverage many other growth opportunities in Kenya.Sonia: What are the margins that this business generally enjoys?A: It is a strong margin, I don't have the exact numbers with me right away but it is a strong business, very profitable, good growth over the last three years. Latha: Do you already sell in Kenya or is this the first entry?A: We have a large operation in Kenya. We employee about 4,000 people in Kenya. Our Darling Hair Extension business is very large operation. In fact in Kenya, our per capita sales are already higher than in India.Sonia: Just to understand Canon Chemicals, what kind of market share does it enjoy?A: It enjoys a very strong market share in most of the products it is in, especially petroleum jelly which is a very popular product in Kenya.Latha: It is only in Kenya?A: It has some exports in neighbouring countries but mainly in Kenya.Latha: When you say earnings per share (EPS) accretive how much may it add to the business?A: That is difficult to estimate. It depends, usually we are able to bring in a lot of improvements once we enter a company but what I am saying by EPS accretive, it is being acquired through borrowings so the consolidated profit will be much more than the interest cost to the company.Sonia: The Africa business currently has about revenues of USD 200 million. With these acquisitions gives us a sense of how much the revenues could grow to over the next couple of years?A: It will grow but not because of this acquisition. We made other acquisitions in Africa also and we are also acquiring other businesses, increasing our stake in some of the joint ventures we have in Africa. So, the African business will grow very considerably but not only because of this acquisition.Sonia: What could the growth rate be?A: It is difficult; we don’t provide forward looking estimates and it is very difficult to estimate at this stage.Agam: Any number you could offer us on what kind of contribution it could make to the African business, this particular acquisition?A: It is a small company so it is not going to add very much to our African business. However, it will create a lot of synergies in the near future. So, that could add a lot.Latha: From what you are saying it looks like you have already shortlisted some more acquisitions. We should be hearing from you shortly?A: It is possible but most importantly in our existing joint venture, especially Darling, which is our largest business in Africa, we are increasing our stake in different countries and we are adding some countries from our partners. (Copy edited by Raveena Singh, interview transcribed by Priyanka Deshpande)