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Godrej Consumer Products expects the FMCG products acquired from Raymond Consumer Care will give it margins in the ‘mid-20s,’ while the acquisition will be neutral to its earnings per share from FY25 onwards.
The company does not plan to roll out products under the acquired brands, but will focus on pushing sales of the existing product range, since brands with a smaller range of products tend to do better than those with a wider range.
On Thursday, Godrej Consumer announced the acquisition of the FMCG business of Raymond Consumer Care for Rs 2,825 crore. This includes trademarks for deodorant Park Avenue and sexual wellness products KS and Kamasutra.
At the analyst call, the management said the Indian deodorant segment is expected to grow by 13-14 per cent annually. The acquisition was done primarily to expand in the deodorant and sexual wellness segments.
Godrej Consumer’s MD & CEO, Sudhir Sitapati, said there was significant growth potential in the underpenetrated deodorants and condoms market. He pegged thedeodorant market size at Rs 5,000 crore and the organised condom market size at Rs 1,200 crore.
Under the terms of the agreement between the two companies, Raymond Consumer Care will retain the condom manufacturing factory and will supply condoms to Godrej Consumer on contract.
Analysts feel the acquisition is a risky bet and expensive for the Godrej company as Raymond Consumer is a small company with weak EBITDA earnings.
Nuvama Institutional Equities, which has a ‘buy’ rating on Godrej Consumer said, “There could be some de-rating in the near term due to a slightly inferior business mix and cash pay-out for the deal.”
In its investor presentation, Godrej Consumer termed Raymond’s portfolio as a hidden jewel and said the acquisition was in line with its strategy to develop a few more underpenetrated categories in the FMCG sector.
Raymond Consumer Care had revenues of Rs 622 crore in FY23 and an EBITDA margin in the high single digits. The bulk of its revenues come from deodorants and about 20 per cent from sexual wellness. It is among the top five players, with a 5 per cent market share. In fact, in condoms, it is the third largest player, with a market share of 13 per cent.
There are bigger and well-entrenched players in the deodorant market in India such as ITC and HUL, and it takes a high decibel level of marketing and advertising spend to create brand recall.
Nuvama said while the products had brand recall in urban centres, the company will have to spend to strengthen its distribution in tier-2 cities and the rural areas.
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