Godrej’s Global Gambit

In the business of consumer products, nothing is quite as easy as it seems. Some market segments like soap, for instance, may seem extremely saturated, but companies like Godrej Consumer Products (GCP) still keep their head above water. As a matter of fact, the flagship company of the 119-year-old Godrej empire, not only sails in the high seas, but charts out new territories for its products.

For Group chief, Adi Godrej, GCP is the company that occupies most of his time. Godrej started his career in the soaps division of the company, where brands like Cinthol and Godrej No.1, have long been entrenched in the Indian market. Key strategic acquisitions have been instrumental in driving GCP over the last many years. Some of these acquisitions even came to GCP’s rescue, when the entire economy went through the pains of demonetisation and a negative volume growth.

Acquisitions helped GCP withstand the dip in sales, post-demonetisation. Businesses in Indonesia and South Africa, for instance, cushioned the impact of the cash crunch in India. Godrej Consumer Products, consequently, reported better numbers than its rivals. The company’s overall revenue grew nine per cent to Rs 2,400 crore in the December quarter of FY 2017. The overseas business accounted for a growth of a whopping 20.6 per cent in the last quarter of the last fiscal.

Strategic acquisitions have for long, been a part of Godrej’s business plan. In fact, its Indonesian operation was acquired in 2010 when the group purchased the household-product major, PT Magasari Makmur Group. This acquisition now accounts for nearly 16 per cent of GCP’s overall sales. The Indonesian business is one of the fastest-growing businesses and plans to double its distribution footprint over the coming three to five years from 1.2 lakh at present. In fact, Indonesia is such a strategic market that GCP mentioned in a mid-year review last year that the turnover from its business in this South East Asian nation would swell to Rs 5,000 crore across five years from nearly Rs 1,000 crore at present.

GCP has been one of the best merger and acquisition (M&A) deal creators in the country, having acquired ten companies over the past six years. Last year, the company pulled off two deals in the United States and Kenya, including Strength of Nature and Canon Chemicals. Such acquisitions help GCP expand its international footprint and grow beyond its domestic market in India. It also brings in a vast array of product ideas that the group can test in other markets of strategic importance. In fact, the emerging market exposure provides a strategic hedge against slowing consumption in other areas.



This has been the mantra of the group over the last many years — to hedge its business model from market risks and add more growing areas. So, if one country is traversing a bad patch with a falling revenue, the other parts of the world come in handy to support revenue and profitability overall. With the group’s business in Latin America, West Asia, Sri Lanka, Bangladesh and the UK, GCP is one of the most diversified Indian consumer companies in the global consumption markets. Global sales, including those of India, are about Rs 6,538 crore, of which international businesses contribute nearly 45 per cent.

Godrej Consumer Products’ business in Africa is among its fastest growing international acquisitions and has clocked a growth of 48 per cent, year-on-year. Godrej Consumer Products’ African safari began with the acquisition of hair-colour company Rapidol and its brand Inecto in 2006. When this acquisition proved successful, GCP made a further foray and acquired a hair-extension business through two more acquisitions. It has since made a string of acquisitions in the African continent, taking its overall revenue base from the sub-continent to Rs 1,013 crore. With a rapidly growing young population, demand for consumption items continue to increase and GCP’s African excursion is expected to contribute significantly to growth over the coming years.

In the domestic market, the company has been carving out a niche for itself with a differentiated product segment — diversifying into hair colour, household insecticides and soaps, where it has a strong foothold. The recent demonetisation proved a spoke in its wheels, pulling down the company’s growth rates. Godrej Consumer Products tried to navigate its way through the slowdown differently. It cut back on advertising expenditure and discounts in the domestic market and lowered inventory levels in markets where costs are low.

Even so, the impact of demonetisation did hit GCP hard, and volume growth did take a knock. Revenues of the soaps division was down to Rs 354 crore, dropping six per cent in the last quarter, while household products and hair colour dipped 2.3 per cent and 1.6 per cent, respectively, to Rs 129 crore and Rs 619 crore. Analysts say the business had bounced back in January and volume growth had picked up too.

The big change in tax laws on the anvil augurs well for the company in the coming years. The rollout of the Goods and Services Tax will not only add to GCP’s bottomline but also improve efficiencies. For several FMCG companies like GCP, the GST will prove to be a game-changer as logistics will be completely overhauled, saving time in the distribution channels and improving efficiencies. Adi Godrej estimates that GCP itself would see savings in logistics costs to the tune of Rs 20 crore. Overall the company has been rationalising costs wherever possible, improving operational efficiency, which has seen an expansion in margins despite a lackluster quarter because of demonetisation. For its efforts in savings, the company has ramped up margins to 21.5 per cent, from 20.7 per cent, which in the business of fast-moving consumer goods, is considered quite a huge gain.

Strategic acquisitions will continue to form a part of the core business. Adi Godrej says that the group is still looking for acquisitions in various areas, but these acquisitions will not be done just to spice up growth rates, but to enhance the quality of the business overall. Adi Godrej for his part, is happy with his decision, and GCP has created wealth ever since it was carved out of what was once Godrej Soaps in 2001. “This business has compounded shareholder wealth at 35 per cent since then,” Godrej says.

With its many businesses and brands spread across areas and continents, while the pace of growth of shareholder wealth addition may not be the same, there’s little doubt that shareholders’ wealth will continue to expand. The vast driver in GCP’s growth levers, ie., strong brands in key product categories, is its biggest differentiator.