The Hindu Business Line : Godrej's key to growth

Last October, in a quiet move, the GCPL (Godrej Consumer Products Ltd) management informed the stock exchange in Mumbai, from London, of its decision to buy Keyline Brands Ltd, a UK-based FMCG company. While Keyline may be a relatively unknown company in India, its brands such as Erasmic and Cuticura are well recognised in India. <15,3m>

The move to acquire Keyline Brands marks GCPL's foray into the global market with a ready clutch of brands and, at the same time, gives it access to the modern trade distribution in the UK. Taking the inorganic route to growth, GCPL has catapulted itself into the big league through its first global acquisition. Its kitty will include haircare and skincare brands such as Erasmic, Inecto, Aapri, Cuticura, Endocil, Skyhydra and Adorn.

Adi Godrej, CMD, Godrej Consumer Products

Says GCPL's CMD, Adi Godrej, "This was an opportunity we were actively seeking and, through this acquisition, our sales turnover will go up 20 per cent and profits should increase 10 per cent."

Now a subsidiary under GCPL, the consolidated accounts will reflect the increase in the topline and bottomline figures for GCPL. With GCPL broadening its horizons, the acquisition will benefit Godrej in the global market and also strengthen its domestic portfolio. It would also help in outsourcing manufacturing facilities for its brands.

Says Nikhil Vora, Senior Analyst at SSKI Securities, "The acquisition of Keyline Brands marks GCPL's entry into various geographies. It gives the company immediate access to strong brands, manufacturing facilities and logistics and also an established customer base of retailers. The deal also gives GCPL an easier route to introduce its brands in the international market.'' Besides, GCPL will also enter the skincare segment through Keyline brands such as Endocil, Inecto, Skyhydra and Aapri. But Godrej is in no hurry to bring in all Keyline brands or even take its own portfolio to the international market. "It is not that we will take all our brands there or bring all their brands here. We have to be selective," elaborates Godrej.

GCPL has decided to take its hair powder dyes and Fairglow soap to the UK, where there is a substantial Indian population. It will bring to India the Erasmic brand of shaving products, a brand familiar in India, when it belonged to Unilever.

GCPL is ensuring that there is no overlap between the brands, and a segmentation strategy is being ensured to avoid cannibalisation. So, while Erasmic is expected to enter the Indian market, GCPL will make sure that it does not overlap with Godrej's shaving range. For instance, Godrej's shaving portfolio does not include foams or shaving blades; so Erasmic could be expected to fill this gap.

Besides, GCPL will market the brands depending on their popularity across territories. For instance, Godrej intends entering the market in Pakistan; but instead of placing its Cinthol brand, it might launch Cuticura, as the brand enjoys a stronger equity in the country. "If we find Cuticura doing well in a certain format in a certain market, we will not introduce Cinthol," explains Godrej.

In fact, the rights to the Cuticura brand have been sold to different players across the world. In India, the brand belongs to Chennai-based Cholayil Pharma through its subsidiary, Dorcas Market Makers. So, while Godrej does not have the rights to the brand in India, it could launch the brand in the UAE where there exists a substantial demand for the brand, from the Malayalee population. Considering Godrej already has its associate company, Godrej Global Middle East, to distribute its brands in West Asia, the Cuticura brand could formally be launched in the UAE. Godrej says, "We could look at officially introducing the brand there to cater to the Malayalee population." While Cuticura is present as a talcum powder brand in India, its range abroad comprises deos, hand sanitisers and wipes. Says Jagdeep Kapoor, MD, Samsika Marketing, "Through this acquisition, GCPL has got a jumpstart in a booming FMCG market by enhancing its product portfolio. It will align its product portfolio and find opportunities to fill the gaps to enhance its existing portfolio."

The acquisition will also enhance its skills in marketing and management of modern trade channels, which is relevant in a changing Indian retail environment. Says Godrej, "We will learn faster and better about how best to deal with the modern trade and will have the same advantage of P&G and Unilever."

GCPL expects that its access to retail chains such as Boots, Asda, Sainsbury's and Tesco in the UK would boost its domestic brands. As Yasmin Shah, Senior Research Analyst at Anand Rathi Securities, says, "The main advantage from the acquisition for Godrej has been the inroads it has made into the markets abroad and the access to the retail chains." Meanwhile, Godrej is not stopping its acquisition spree. According to Godrej, "There is a strong probability that Keyline will acquire more brands internationally."

Keyline Brands Ltd, a UK-based FMCG company, was set up nearly 15 years ago by a couple of first generation entrepreneurs who began acquiring brands shed by big FMCG players. "All these brands were owned by large companies such as P&G, Henkel and Unilever which sold their brands as they became too small for their attention," says Godrej, who plans to appoint a new CEO for the company.

Keyline is a profit-making entity engaged in the manufacture and marketing of cosmetics and toiletries. With almost 90 per cent of its sales limited to UK and Ireland, GCPL now has the onus of taking its brands to other markets. "We will leverage our facilities for the Keyline brands as less than 10 per cent of its sales are from outside Britain and Ireland."

At the same time, GCPL does not want to let go of opportunities to acquire more Indian brands. It is interested in entering categories such as shampoos, hair oil, oral care and mass detergents, but does not want to take any hasty decision.

"We will buy the brands only if they are economic value added positive," he says.

In the recent past, the company had been looking at the Nihar brand of hair oil, which HLL put on the block.

In fact, hair oil is a segment that fits into Godrej's portfolio since it is has been marketing the Anoop brand for years. It had also decided to launch a thanda tel in the past. "We are interested in the hair oil category," he adds.

Acquisitions will be the path to growth for the Rs 560-crore GCPL. "It gives us a quick way of growing our core categories. Besides, our market cap has also risen 10 per cent post the Keyline acquisition and today there are more M&A firms approaching us,"elaboratesGodrej.

The company's penchant for risk is seen favourably by analysts tracking the company.

Says Vora of SSKI, "The size of the acquisition indicates the appetite to take risk. The prudent deployment of funds and the intention to adopt the inorganic route for incremental growth signal the management's confidence in the existing business."

Growing from a small base has helped the FMCG company clock healthy growth rates. As Godrej claims, "Today, the company is at an inflexion point. Going forward, I would be disappointed if we did not grow at 25-30 per cent."

With additional brands in its kitty, Keyline should hopefully hold the `key' to sustaining these growth levels in future.

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