Godrej scouting for acquisitions in 'developing' economies

Abhishek Law, The Hindu BusinessLine, 21 August 2016

Godrej Group is scouting for acquisitions in consumer businesses that include personal and household care segments.

Acquisitions will be explored "mainly" in the "developing" economies in Asia, Africa and South America.

According to Adi Godrej, Chairman, emphasis of inorganic growth will most likely be through outfits like Godrej Consumer Products Ltd (GCPL) - which is into personal and household care - and the unlisted Godrej Agrovet - into animal feed and agri-feed.

The group has already made acquisitions through Godrej Agrovet over the last few years.

"In inorganic growth, emphasis is on GCPL and Godrej Agrovet. Of course other businesses also have inorganic growth, but these are the two major ones," he told BusinessLine.

"Because of the global situation being a little dull, you can acquire (a) company at a little lower (price) than in the past," he maintained.

According to the group Chairman, the objective is be "10 times in 10 years". And for this both organic and inorganic growth are required.

By a "rough estimate" there could be 15 per cent organic growth and 10 per cent inorganic growth (for the group). Poor monsoons apart, "dis-inflation", he said, has led to a slowdown in organic growth.

Rural demand

"First of all our (group) businesses are not very capital-intensive. So investments are almost never restrictive," he said when asked about capex.

According to the group Chairman, rural sales account for 35 per cent of GCPL's turnover. However, ideally, the share should move up.

The total rural population of is about 60-65 per cent. "So obviously we will be happy if 65 per cent of our sales come from rural India. As of now, rural consumption is less than urban consumption," Godrej said.

Good monsoons are expected to lead to a pick up in rural consumption.

"In H2, we expect to do better, as the monsoons are good this year. We are already seeing signs of rural pick-up," he said.

Private investment

Private investment, which has seen a slow offtake so far is expected to pick up next fiscal onwards when all sectors - especially agro-based ones - do well. Increased consumption post a good monsoon and a "sensible rate" for Goods and Services Tax (GST) can boost the economy.

"From this quarter, I see signs of increased consumer offtake which will become more conspicuous in the next few quarters….consumer spend will pick up," he said.

"Once consumption takes off and GST is implemented, I expect private investment to take off," Godrej added.