We didn't overpay for Raymond's FMCG business: GCPL vows to level off margins

GCPL's CEO Sudhir Sitapati

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

live

• bselive
• nselive

Volume

Todays L/H

More

×

Godrej Consumer Products (GCPL) will be shelling out Rs 2,825 crore to buy out Raymond's FMCG business in an all-cash deal. The FMCG business clocked an annual turnover of Rs 622 crore in FY23, so the valuation works out to 5.4x sales.

"The deal is not expensive. Raymond Consumer Care has Rs 100 crore cash and there's a tax break of Rs 400 crore. So, the net cost of acquisition works out to about Rs 2300 crore - that's 3.75x FY23 sales," GCPL Chief Executive Officer Sudhir Sitapati explained in a press briefing.

Also Read: Godrej Consumer to acquire Raymond’s consumer care business for Rs 2,825 crore

Godrej Consumer is yet to announce how the acquisition will be funded. It roughly has Rs 2,000 crore of cash on books. "We will figure it out in the next few days," said Sitapati.

The company will not only be acquiring Raymond's FMCG business but also the trademarks of Park Avenue (for the FMCG category), KS, KamaSutra and Premium, through a slump sale.

Moneycontrol had earlier today reported that Godrej Consumer Products is likely to announce the acquisition of Raymond's consumer care business.

Meanwhile, Raymond will retain its condom manufacturing facility and will continue to do contract manufacturing in Aurangabad for both domestic and international markets. It will supply condoms to GCPL.

"Raymond's FMCG brands currently have single-digit operating (EBITDA) margin. But on a gross margin level, they are similar to us. I am confident that we can bring the EBITDA margins also to our level soon," said Sitapati.

Godrej Consumer's EBITDA margins have ranged between 20-22 percent over the past three years.

Explaining the rationale behind the acquisition, Sitapati said that GCPL's main focus has always been India, where it has a high salience to soaps. “Soaps is a slow-growing category in India. Meanwhile, sexual wellness and deodorant categories are rapidly growing," he explained.

If the Kama Sutra and Park Avenue brands manage to grow at 10 percent rate, it will be a good acquisition for us, he added.

Despite the name clash with the apparel brand Park Avenue, which remains housed under Raymond, Godrej Consumer Products has no plans of renaming the Park Avenue line of shampoos and deodorants, as of now.

"The brand is well conceived. It will be a symbiotic relationship," said Sitapati.

When it comes to synergies, Godrej Consumer Products' direct distribution is 4x that of Raymond Consumer Care's. So, Raymond's products will reach farther and wider. While both companies reach the same number of chemists across the country, the overlap is less, so both stand to benefit, he said.

On April 27, the stock closed at Rs 954.80 on the NSE, lower by 2.19 percent from previous close. The stock is 3.9 percent below its 52-week high of Rs 992.